CHAPTER SEVEN THE WORLDWIDE FOOD SITUATION NOW: SHORTAGE CRISES, GLUT CRISES, AND GOVERNMENT CHAPTER SEVEN: TABLE OF CONTENTS Government Intervention Cycling Between Glut and Shortage Food Stockpiles What Next? The U.S. Drought of 1976-1977 The Situation in Some Other Countries China The former U.S.S.R. Bangladesh Africa and the Cocoa Producing Countries What Would be the Best Foreign Aid for Agriculture? Conclusions Chapter 6 took the long and broad view of food production - decades and centuries, for all of humanity - and found continuous improvement with no end in sight. But what about the short-run food alarms that we read about from time to time, often pertaining to particular countries or areas? What creates these real or apparent problems if the long-run trend shows continuous improvement? In this chapter, we'll look first at the biggest problem agriculture faces - not natural disaster, but politics. Then, after discussing worldwide ups and downs in the food supply, and the special case of stockpiles, we'll examine the United States "crisis" of the early 1970s, and finally consider some other important countries. Government Intervention Which regime of political economy increases food supplies fastest? The first edition said that "almost all economists agree that a system of individual land-owning farmers operating in a politically-stable free market, without price controls, leads to larger food production than does any other mode of organization," but I added, "Little about this can be known for certain." By 1993 enough evidence has accumulated to state: we now can be perfectly certain that the earlier assessment is entirely correct. Any country that gives to farmers a free market in food and labor, secure property rights in the land, and a political system that ensures these freedoms in the future will soon be flush with food, with an ever-diminishing proportion of its workforce required to produce the food. In the United States, for example, less than 3% of the population now works in agriculture, down from (50%?) a century ago. (See Figure 7-1) Figure 7-1: Agricultural Labor Force in the U.S. Government intervention, however, is a very old story. In every era officials have sought to cleverly manipulate agriculture for one purpose or another, always under the guise of helping the public, but these intellectually-arrogant schemes - illustrations of what Hayek calls the "fatal conceit" that rulers can increase production by central planning - always harm the public, and usually most harm the poor. For example, the Roman Emperor Julian imposed price ceilings on grain for the sake of the poor, which resulted in the rich getting even richer by buying up the available supplies on the cheap, and the poor having less food than before. Communal farming - another very old idea - was tried in America in Plymouth Colony. This was the aftermath: All this while [during the communal raising of corn] no supply was heard of, neither knew they when they might expect any. So they began to think how they might raise as much corn as they could and obtain a better crop than they had done, that they might not still thus languish in misery. At length, after much debate of things, the governor (with the advice of the chief among them) gave way that they should set corn, every man for his own particular, and in that regard trust to themselves; in all other things to go on in the general way as before. And so [was] assigned to every family a parcel of land, according to the proportion of their number, for that end, only for present use (but made no division for inheritance), and ranged all boys and youth under some family. This had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the governor or any other could use, and saved him a great deal of trouble and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn, which before would allege weakness and inability, whom to have compelled would have been thought great tyranny and oppression. The experience that was had in this common course and condition, tried sundry years and that among godly and sober men, may well evince the vanity of that conceit of Plato's and other ancients applauded by some of later times -- that the taking away of property and bringing in community into a commonwealth would make them happy and flourishing, as if they were wiser than God...Let none object this is men's corruption, and nothing to the course itself. I answer, seeing all men have this corruption in them, God in His wisdom saw another course fitter for them. Another early American example was tobacco production in colonial Virginia. When tobacco prices went up, immigration increased; more families arrived to establish new farms and grow more tobacco, which pushed output up and prices down for a while. So as early as 1629-1630 a control scheme arose. The authorities restricted to 2000 the number of tobacco plants that each family could cultivate. The outcome was not quite as planned, however. Because they could not plant as much as they wanted, families spent their extra effort in growing bigger plants. This led them to break new ground near streams. But these plots were further away from their homes, and therefore at increased risk of Indian attack. This required that one third of the workers had to stand guard, a high extra cost which reduced profit. And tensions with nearby Indians were raised. Furthermore, prices fell anyway. The combination of lower prices and higher costs meant that the planters were losing money by 1639. So the authorities tried crop destruction schemes, which caused new problems. And so it has gone throughout human history. CYCLING BETWEEN GLUT AND SHORTAGE Chapter 1 argued that price (and the cost of production, which is close to price over the long haul) is the most relevant index of scarcity for natural resources. By that test, the sharp rise in food prices in 1972-73 indicated an increasing food scarcity. Figure 7-2 shows how the situation looked then to doomster Lester Brown. This sudden increase in price was indeed interpreted as a bad sign by a great many consumers, who saw it as a harbinger of a great crisis to come. FIGURE 7-2a. How Short-Run Data Can Mislead, World Rice Prices, 1960-73 [On graph: Caution: Misleading Graph] FIGURE 7-2b. How Short-Run Data Can Mislead, World Wheat Prices, 1960-73 [On graph: Caution: Misleading Graph] For better understanding of the causes and meaning of the sharp rise in food prices in the early 1970s, however, look at the longer historical perspective in figure 5-2a. The 1970s price jump was just another fluctuation. The intellectual practice of focusing on a very short period which runs against the long-term trend - but which fits with one's preconceptions - has been the most frequent cause of error in understanding the relationship of natural resources to population growth and human progress. The real price of wheat - the market price adjusted for inflation - clearly has fallen over the long haul. This price decline surprises many people, especially in light of the great increase in demand over the decades and centuries due both to world population increases and to world income increases. Yet the rise in food output was so great as to cause grain to become cheaper despite the large increases in demand. The even more amazing figure 5-2b shows how the price of wheat has fallen by an even more important measure - relative to wages in the U.S. (Supply, measured by total output and by productivity per worker and per acre, increased so fast because of agricultural knowledge gained from research and development induced by the increased demand, together with the increased ability of farmers to get their produce to market on improved transportation systems. These sentences are a lightning-fast summary of chapter 5 and of the forces that take many books to document in satisfactory detail.) Despite the long-run trend, fluctuations in food prices are inevitable. And though short-run price changes carry little or no information about future long-run trends, it is useful to analyze, at least briefly, some short-run price movements, because they scare so many people. The sharp price rise in the early 1970s was caused by a chance combination of increased Russian grain purchases to feed livestock, U.S. policies to reduce "surpluses" and get the government out of agriculture, a few bad world harvests, and some big-business finagling in the U.S. Though those high food prices alarmed the public, agricultural economists (with notable exceptions such as Lester Brown) continued to be optimistic. Even the UN World Food Conference called in 1974 to talk about the "crisis" produced rather unalarming forecasts. But there was no way to reduce public concern. When I passed on to my classes the prediction that these high prices would soon lead to increased supply, students asked, "How can you be sure?" Of course neither I nor anyone else could be certain. But we could rely on all of agricultural history and economic theory for optimistic predictions. The evidence of history and economic theory proved correct, of course. Farmers in the U.S. and elsewhere responded to the opportunity with record-breaking crops. FOOD STOCKPILES When after 1974 I showed people newspaper reports of a fall in grain prices - a clear indicator of increasing supplies - people said "Yes, but aren't food stockpiles dangerously low?" Indeed, food stocks were then lower than they had been for some time. Figure 7-3 shows the history of food stockpiles in the past few decades. It also includes the misleading truncated graph that Lester Brown published at a time when the recent data seemed frightening. But in fact stocks were not dangerously low. Rather, granaries - that is, U.S. and Canadian government-held stocks, which had originally been organized "as a means of holding unwanted surpluses off the market and thus sustaining farm prices" - had come to be considered too large by those governments; that is the main reason why stocks had come down. Figures 7-3a and 7-3b [-x Hudson TRS] Large grain stocks - "excess" in the eyes of farm policy-makers - had accumulated in the 1950s and early 1960s, threatening to knock grain prices down sharply. Therefore, between 1957 and 1962, government policies cut back sharply the grain acreage in the U.S., and stocks fell as a result. Then new free-market policies took effect in the U.S. and India, and stocks inexorably began to rise again - a bittersweet harvest for U.S. farmers. Again the U.S. secretary of agriculture became "pessimistic" because of the record harvests and the "surplus" of wheat. Prices were so low that farmers were reluctant to sell, and newspaper stories reported that "huge grain crops trigger [a] need for bins as on-farm storage spreads in Midwest". Manufacturers of storage bins said, "sales are booming [and] demand for metal bins is up 40% to 50%." Like investment scams - where the same old rackets reappear to cheat people generation after generation - the grain stockpile scam is back again. In 1988, Newsweek headlined "The Threat of a Global Grain Drain", citing Lester Brown's warning that "grain reserves needed to feed the world will fall from 101 days to 54 days by the beginning of 1989. In late 1989, the Washington Post headline was "World's Grain Reserves Called Dangerously Low", citing Brown and using a 60 day number - "a threshold of danger." In 1991, MIT's Technology Review carried an article warning that "In 1989, for the third year in a row, the world consumed more food than it produced...In 1986, the reserves [were] enough to feed the world for 101 days...[now] world food reserves would last only 30 days." Look for yourself at figure 7-3. The comparison in the last quotation above is to the all-time high, a time when reserves were undoubtedly too high by any measure, the results of government subsidies. By any historical standards, the 1987-1989 reserves were not low. Furthermore, the stocks of food that are necessary to supply a given margin of safety against famine become smaller as transportation improves. In the past, every isolated family and village had to maintain its own stock against a shortfall in the harvest. But now food can be moved quickly from areas of plenty to areas of shortfall. The ship, then the train, and then the truck (and even the airplane for emergencies) drastically reduced the total stocks that need be maintained. (Bruce Gardner in correspondence, July 23, 1993, suggests that market improvements in hedging and forward contracting have also been important in enabling on-farm stocks to be reduced, as have crop insurance and disaster payments.) Reduction in inventories is a sign of efficiency, just as small supply inventories in Japanese factories are a sign of industrial efficiency. (It's called the "just-in- time" supply system.) If the world errs with respect to stockpiles of food, the error is almost surely by governments holding stocks that are too large. WHAT NEXT? What will happen next? The most likely danger is not a "shortage" due to inability of farmers to produce. Rather, the likely danger is from government-imposed incentives not to produce - such as subsidies to keep land out of production - and then rising prices as production falls, prompting price controls (which further discourage production). Such policies have been enacted in the U.S. in one form or another since the 1930s, and one can expect similar policies to be suggested again and again. Such moves to reduce production might well set the stage for another round of the sort of crisis that the world experienced in the early 1970s, because the U.S. exercises a crucial role in making up unexpected shortfalls in places where storage facilities are not available to carry over much food from one year to the next. The result might be a greater tragedy than last time, not because of physical limits to food production, but because of economic and political policies. Indeed, American agriculture has become increasingly involved with the government. One sign of this in the past few decades is the increased numbers of articles about government programs in farm journals, relative to the number on how to farm better. To receive benefits under these programs, farmers must obey regulations. For example, to be eligible for crop insurance, farmers must file soil conservation programs, marketing plans, field surveys, and crop rotation reports with the local Soil Conservation Office; if SCS does not approve the program (a matter which may involve personal politics), SCS can demand another plan, or have the benefits cut off. A typical 1991 story: "[A] Nebraska farmer was prohibited from pasturing a 15-acre stalk field on highly erodable land. Local ASCS officials explained that the 350 steers using the field as a winter exercise yard were causing excessive erosion by destroying too much crop residue." Plain and simple, the federal government is telling farmers how to manage their farms - or else. And the "or else" means getting (say) $1.80 per bushel for your corn instead of the subsidized $3.00. Superficially it might seem that farmers benefit from the overall government program because of the subsidies. But close analysis shows that most of the subsidies finally come to rest in the hands, not of the cultivators, but of the owners of the land - banks and absentee owners heavily represented - in the form of proceeds from land sales at prices made high by the value the subsidies confer. Another set of beneficiaries of government programs are the government officials. There is about one Department of Agriculture employee for each full-time farmer. These workers are compensated sufficiently well, and there are enough other expenditures, that "The department's annual budget was $51 billion last year [1988] - more than the total net income of American farmers." These officials, whose reason for being and whose natural inclination is to tell farmers what to do - in unholy alliance with environmentalists who want farmers to farm in the ways that environmentalists think is good for the world (and which supposes that farmers are too stupid to take care of their own land) - eventually tie the hands of the farmers, and make them welfare dependents of the government. Not only do the cultivators themselves benefit little from the subsidy programs, but American agriculture itself suffers by being made less competitive on world markets and hence losing sales to farmers abroad, as has happened in the soybean market. And the land set-aside program, which reduces total output, opens the door to a shortfall in supply - a "crisis - in a year when the weather is bad. Around and around the scam goes. The devices that the nexus of government and farmer organizations invent to manipulate production and prices are never- ending. Fruit below a certain size is prohibited from sale, as a way of keeping out fruit from other countries as well as restricting domestic sales. Because of bountiful harvests in California in 1992, the minimum legal sizes were raised for such fruits as peaches, nectarines, and plums, resulting in tens or hundreds of millions of pounds of fruit dumped and left to rot; the Department of Agriculture estimates 16 to 40 million tons are dumped each year. In the long run these policies are bad for everyone, even for the farmers. This topic is discussed well and at great length by many writers. I'll spare you further depressing details. THE U.S. DROUGHT OF 1976-1977 The drought of 1976-77 is an interesting case study in modern food supply, the sort of episode that tends to recur. Throughout 1976 and 1977 there were news stories of droughts in various parts of the United States and also worldwide. In fact, dry years are nothing new. "Drought conditions similar to the one of 1977 faced Illinois farmers in 1956. Subsurface moisture was nil, wells were going dry, the weather forecast was gloomy" - in February 1977 just as in 1956. Yet harvests were at or near record levels both in 1977 and in 1956. How could this be? One reason that harvests were large despite the droughts is people's increased capacity to overcome adverse natural conditions. To illustrate, one of the most publicized droughts was in southern California. To thousands of Okies who fled the Midwestern dust bowl in the 1930s, California's San Joaquin Valley was the land of plenty. Aided by irrigation systems they laid down, the valley produced everything from grapes to almonds. But now the nation's most productive stretch of farmland lies parched by its second year of drought, and its farmers, many of them dust-bowl immigrants or their children, are in danger of losing their land again. The southern California drought did not end. Yet by August of that year the newspaper headlines said, "California Crop Yields Are Surprisingly Good Despite Long Drought." The explanation was that "California farmers, the nation's most productive, have been so successful at finding more water, and making wiser use of what they have, that California crop production is surprisingly strong despite the drought. Statewide cotton and grape crops are expected to set records, and many fruit, nut, and vegetable crops are up from last year...". The California farmers drilled new wells and substituted water-conserving sprinkler systems or trickle irrigation for flood irrigation. Clearly it was not just luck that brought the public safely past the 1976-77 drought, but rather hard-won knowledge and skills, which were themselves products of countless earlier natural crises and of population-induced demand. Another reason why such droughts have had so little ill effect is that they simply are not as severe as they are usually reported to be. A drought in one country or state is dramatic and makes news; the excellent growing conditions in the next state or country seldom get reported. "So huge is American farm geography [even more is this true of world farm geography] that it can absorb pockets of severe loss and still produce bountiful harvests". Furthermore, people often assert that there is a drought when there has not yet been rain and people are worrying about it. This was the case in Illinois in 1977. But later, "Above-average rainfall during August wiped out previous moisture deficits.... Despite a year-long drought followed by downpours that delayed harvest, Illinois farmers in 1977 grew a record 327 million bushels of soybeans and led the nation in production of both beans and corn". And in California there was so much rain by the end of the "drought" year that "beleaguered state officials in Sacramento set up emergency relief - and quickly changed the name of the Drought Information Center to the Flood Control Center". Modern technological capacities in league with modern transportation capacities, harnessed to farmers' ingenuity when offered a chance to make money, have vastly reduced the likelihood of a major disturbance in our food supplies. In the short run as in the long run, worldwide drought, like worldwide famine, is a receding rather than an approaching danger. THE SITUATION IN SOME OTHER COUNTRIES Sometimes a global picture obscures important parts of the world where the situation is quite different. Therefore, let's briefly consider a few countries of special interest. India Paul Ehrlich wrote in The Population Bomb: "I have yet to meet anyone familiar with the situation who thinks India will be self- sufficient in food by 1971, if ever." He went on to quote Louis H. Bean, who said, "My examination of the trend on India's grain production over the past eighteen years leads me to the conclusion that the present 1967-1968 production is at a maximum level". Yet, "net food grain availability" in kilograms per capita per year has been rising since at least 1950-51. By September 1977 there was an "Indian grain reserve buildup of about 22 million tons, and U.S. grain exports to India ... [had] waned". India thus faced the problem of soaring stocks "that overflowed warehouses and caused mounting storage costs" so that the excess grain would not be ruined by rain or eaten by predators. In fact, many experts - people that Ehrlich apparently had not met - have always said that India has a vast potential to increase food production. And nutrition and food production - not just total production, which was enough to confound the Ehrlich-Bean statement cited above, but also production per person - continued to improve through the 1980s, despite some difficult weather conditions (UNFAO Production Yearbook). The cause of India's improved food situation is straightforward. It is not an agronomic miracle but an expectable economic event: Price controls on food were lifted in the mid-1970s, and price supports were substituted for the controls. Indian farmers had a greater incentive to produce more, so they did. For example, Hari Mohan Bawa, a marginal farmer of [a] village 100 miles north of New Delhi, is richer by $300 this year. "I can marry off my daughter now," he said as he counted the money paid by the Food Corporation of India, a government agency that bought all his rice crop. "Maybe I will pay off part of my debts, or I will buy a new pair of bullocks." Beginning last year the Food Corporation offered a minimum support price that guaranteed profits. Banks and Government agencies came forward with loans to buy fertilizer and seeds. Mr. Bawa installed a tube-well that freed him of dependence on the monsoon rains. Is increased economic incentive to Indian farmers too simple an explanation? Simple, but not too simple. And not simple enough for India's government to have removed price controls much earlier. Indian farmers increased production mostly by working longer hours and also by planting more crops a year, on more land, and by improving the land they have. You may wonder how Indian farmers, who are popularly thought to live in a country with an extraordinarily high population density, can find more land to cultivate. Contrary to popular belief, India (and Pakistan) are not densely populated compared with, say, Japan, Taiwan, and China. (Figure 29-4 shows the data.) And India's rice yield per acre is low compared to those countries. Ultimately, land shortage will never be a problem, as we saw in Chapter 6. China Older people remember 1940's movies of Chinese starving in the streets, and emaciated rickshaw men. Now the visitor sees food everywhere in Chinese cities - tasty abundance in cheap restaurants, lots of men and women pedaling bicycles, hauling wagons full of meats and vegetables on their way to sell in the market, lush outdoor (covered) vegetable markets, and streetcorner vendors of finger food. What happened? Is the abundance now due to Communist collective efficiency? Just the opposite. China is history's greatest proof of the economic principles set forth in this chapter. When I wrote the first edition, China's agriculture was in horrible shape. There had been little or no improvement in nutrition since the 1950s. And around 1960 occurred the worst famine in human history, when perhaps 30 million human beings died - the world's record (for what that's worth). The death rate rose incredibly, from 10 per thousand in 1957 to 25 per thousand in 1960, then returning again to 10 or below within two years. The death rate in the countryside jumped from 14.6 in 1959 to 25.6 per thousand people in 1960, and every economic indicator showed a disastrous downturn. For example, the value of total industrial output fell from 163.7 billion rmb (no sensible dollar equivalent is possible) in 1960 to 92 billion in 1962. The cause of the famine, plain and simple, was China's policy of collective agriculture. The farmers had small incentive to work hard; rather, they had large incentive to work as little as possible in order to save their strength in the absence of sufficient calories to nourish themselves. Nor were there management incentives that would encourage sound choices of crops and of cultivation and marketing methods. China's agriculture limped along until the late 1970s, as can be seen in the data on productivity in Figure 5-4. Then the largest social movement in history took place, in an unprecedentedly short time. China's agriculture became mainly private between 1978 and 1981. The result may be seen in the productivity increase since then in Figure 5-4. And the effect on consumption may be seen in the data on caloric availability. Now when you visit the countryside (if you can manage to evade the bureaucrats who want to keep you from getting out of the cities and their control), you see flourishing and beautifully kept (though tiny) farms. You are struck by the new houses. "[H]ousing space per capita for peasants for 1957 and 1978 indicate a decline from 11.3 square meters ...to 10.2 square meters." Then "The amount of living space per capita almost exactly doubled" from 1978 to 1987. More generally, "Between 1978 and 1987...real consumption levels of farm people roughly doubled". The contrast to the situation in cities, where the government still controls most of the economy, is obvious in the urban buses, for example, which are jampacked because the government won't allow private transportation enterprise such as now is allowed in rural areas. The same sort of turnaround in the food situation could happen in Africa, which is less densely populated than China. Too many governments in Africa have adopted the Chinese collective ideas, and/or the old Stalinist taxation of agriculture. (Western countries' subsidies to their own farmers make matters worse: Western exports of food undercut the incentive of African farmers to increase their output.) Perhaps the most amazing and ironic development was an offer in 1990 by the Chinese government to send food aid to the Soviet Union. For centuries people thought that China's agricultural problem was lack of land. And the Soviet Union is as land-rich as a country can be. Yet here was China sending surplus food to a hungry Soviet Union, which practiced collective agriculture. The former U.S.S.R. The food future of the then-USSR is the one implicit prediction in the first volume of this book that went wrong. I did not recognize that the Soviet system was as resistant to change as it is, and that the system as a whole would fall apart as it did. (I found out, when visiting a collective farm in 1987, the strength of the resistance against shifting to market agriculture. The director of the collective was exceedingly hostile when I cited the Chinese experience to him.) I counted on improvements in technology to produce some increases in production despite all the obstacles of central planning and collective farming. In fact, the U.S.S.R.'s food production deteriorated. (Indeed, until the breakup of the U.S.S.R. one could not get a decent meal in the Soviet Union, even as a rich tourist.) This proves once again - with devastating weight of evidence - that the only barrier to plenty of food for all is an unsound political-economic system. Bangladesh When Bangladesh became independent after the devastating war in 1971, U.S. Secretary of State Henry Kissinger called it "an international basket case." Over the next few years the food supply was sometimes so bad that some writers advocated "letting Bangladesh go down the drain," whatever that arrogant phrase might mean. Other persons organized emergency relief operations. A 1972 newspaper advertisement from the New York Times is shown in figure 7-4. Fig 7-4 (old 4-3) As early as December 1976, however, there was reason for optimism, largely because of an improved food supply from "two record annual harvests in a row. Storehouses [were] full, and food imports [had] been reduced." And since then Bangladesh has made progress in nutrition as well as in life expectancy, contrary to popular impression. Life expectancy in Bangladesh rose from 37.3 years at birth in 1960 to 47.4 years in 1980. to 55 years in 1984. Compare this actual long-term result with the pessimistic predictions in Lester Brown's 1978 The Twenty Ninth Day, where he heads a section "The Tragic Rise in Death Rates", and puts into a table data that show increasing mortality in one area of Bangladesh from 1973-74 to 1974-75, and in three areas of India from 1971 to 1972. On the basis of just those two one-year reversals in the long-run trend, Brown builds a prediction of decreasing life expectancy. It is hard to imagine less prudent scientific procedures and less well-founded forecasts, and yet the outcome does not discredit Brown and his co-workers, who are surely the most-quoted "experts" on food supply in the United States. Another important long-run trend for Bangladesh is the decline in the proportion of the labor force in agriculture, from 87.0 percent in 1960 to 74.0 percent in 1980 to 68.5 percent in 1990. These are truly amazing gains in such a short period. What about Bangladesh's future? "The land itself is a natural greenhouse, half of the cultivated 22 million acres is suitable for double cropping, and some could raise three crops a year". But yields per acre are low. One reason is that "growing more than one crop required irrigation during the dry winter season, and only 1.2 million acres are irrigated". Why is so little land irrigated, and why are yields so low? "Most farmers seem reluctant to grow much more rice than they themselves need.... They cite the high price of gasoline needed to run the [irrigating] pumps and the low price paid for their rice. The low price of rice is mostly due to the recent bumper harvests and the government's success in stopping massive smuggling of rice to India". That reporter's analysis makes sense economically. It's the same old story: Government interference with markets reduces the incentive for farmers to increase their crops, so production is constrained. If and when Bangladesh's farmers are unshackled and enabled to take advantage of market opportunities, agriculture will take off just as it has in China. Bangladesh and Holland are both very low to the sea, though Bangladesh has a much better climate for agriculture. If the Dutch were in Bangladesh for a quarter of a century and applied their skills in farming and in keeping the sea at bay, or if Bangladeshis had the same institutions and educational level as the Dutch, Bangladesh would soon be rich, as Holland is. AFRICA AND THE COCOA PRODUCING COUNTRIES Data from the cocoa producing countries help us understand the situation in Africa. During the past few decades, most countries have had heavy government control over agriculture - especially in the form of marketing boards, which set prices that farmers get for their crops far below market prices, while holding prices for fertilizer artificially high and enforcing collectivised agriculture. In Togo and the Ivory Coast, free market countries as of 1982, "prices [of cocoa were] two or three times as high as government procurement prices in [controlled] Ghana." It was economically rational for Ghanaian farmers to smuggle their cocoa over the border if they lived near the border, or else quit raising cocoa. Figure 7-5 shows the course of cocoa production in three African countries plus Brazil. The two non-socialist countries clearly have done much better than the two socialist countries. This explains why the bulk of Africa's agriculture has done so poorly. Figure 7-5 WHAT WOULD BE THE BEST FOREIGN AID FOR AGRICULTURE? We in the West flatter ourselves by making compassionate sounds about wanting to help the poor countries, especially their agriculture. But every bit of assistance we give with one hand - shipments of food and technical assistance - we more than offset with the other hand which destroys their farmers' incentives by giving subsidies to our own farmers. These domestic policies in North America and Europe raise food production artificially and hence reduce world prices. They induce "mountains of butter" and "lakes of olive oil," and then dumping of the surpluses in poor countries at market-destroying prices. Hence poor-country farmers have less incentive to produce more food more efficiently. Our subsidies to our own farmers go hand-in-hand with the policies of African governments which steal from their farmers by forcing them to accept below-market prices. Together these pincers wreak enormous damage on poor-country agriculture. If we truly wish to help poor countries, we should a) cut our domestic subsidies, and b) negotiate for elimination of the "market boards" and other devices that control prices in poor countries as the quid pro quo for our aid. Those policies could lead to the sort of extraordinary jumps in production, and elimination of poor nutrition, that were seen in India in the 1970s and China in the 1980s. CONCLUSIONS Here we go again, it seems. There is a glut of food. Farmers - especially in the U.S. - are, as always, pushing for increased subsidies to reduce food production, and the U.S. government expanded those subsidies in the 1980s. Are we just at the top of another self-induced cycle, with a food crisis - real or imagined - at the bottom, just a few years away? If it happens, the main villain won't be population growth or physical limits, but rather the blundering of human institutions. Under which political-economic conditions will food supplies increase fastest? In the first edition I stated that "Little about this can be known for certain," although "almost all economists agree that a system of individual land-owning farmers operating in a politically-stable free market, without price controls, leads to larger food production than does any other mode of organization". By 1992 enough evidence has accumulated that we now can be perfectly certain that this judgment is entirely correct. Some lessons cannot be learned permanently, it seems. For 4000 years, governments have tried to increase food supply to the poor by imposing price controls, which instead have reduced the flow of food. And for hundreds of years, "social engineers" have dreamed of increasing food production by "rationalizing" it through central planning and collective farming, taking advantage of supposed economies of scale, with the results seen in the U.S.S.R. and Africa in the 1980s. How long will it be before the most recent examples of China and the Soviet Union and Africa are forgotten, just as that of Plymouth Colony was, and clever intellectuals again gain the power to control agriculture in some countries, perhaps leading to disaster on a scale greater than ever before? page # \ultres \tchar07 December 23, 1993