What Food Crisis-x

Robert G. Lewis operates a family-owned farm in Crawford County, Wisconsin. He directed Senator John F. Kennedy’s “farm policy” headquarters during the 1960 election campaign, was an administrator in the Department of Agriculture with responsibility for farm price support programs, a U.S. delegate in the International Wheat Agreement Council, and chief economist of the National Farmers Union.

What Food Crisis? Global Hunger and Farmers’ Woes Robert G. Lewis Almost overnight, the media have discovered a world food crisis. “The End of Cheap Food” was the alarming headline on the cover of The Economist (December 8, 2007), and “Grains Gone Wild” topped a New York Times column by Paul Krugman (April 7, 2008). The alarm is being echoed in scores of front page news accounts. World market prices of wheat, corn, rice, and other farm products have soared, raising the Consumer Price Index in the United States by at least 4.3 percent since last year. In many poorer countries, retail food prices have risen much higher. Farmers here and abroad have heard it all before: “high food prices,” or, as often has been the contrary case, “burdensome farm surpluses.” Much of the non-farm public puts the onus on farmers and their governments’ efforts to deal with the problems, and ignores the long-term danger that both catch-phrases betray. This time, however, the crisis is real, and is less likely than ever to blow over within a season or two. Its global impact is devastating, and has already stirred food riots in poorer countries that can no longer count on their own farmers’ production, nor on American grain surpluses for emergency relief. And it is a portent of a huge, serious, and long-neglected challenge that faces governments and their leaders in the months and years ahead. The immediate challenge—and an appropriate response—was spelled out by United Nations Secretary-General Ban Ki Moon, writing in the Washington Post (March 12, 2008): © 2008 World Policy Institute

The threat of hunger and malnutrition is growing. Millions of the world’s most vulnerable people are at risk.... The effects are widely seen. Food riots have erupted from West Africa to South Asia. In countries where food has to be imported to feed hungry populations, communities are rising to protest the high cost of living. Fragile democracies are feeling the pressure of food insecurity. Many governments have issued export bans and price controls on food, distorting markets and presenting challenges to commerce. He called upon better-off nations to increase their donations to the UN’s World Food Program, adding that inevitably “it is the ‘bottom billion’ who are hit hardest— people living on one dollar a day or less.” Short-term, the crisis has multiple sources. Australia, a major grain producer and exporter, has suffered a protracted drought. Bad weather has reduced farm output in Afghanistan, Bangladesh, Burkina Faso, Cambodia, Egypt, El Salvador, Guatemala, India, Indonesia, Sierra Leone, and Syria, among others. (Global warming is a prime suspect, and a much-dreaded harbinger of even worse to come.) Diversion of corn, sugar cane, and palm oil—but not wheat—for use in biofuels is a lesser factor. World production of grains has increased at a normal pace in recent years, but has generally lagged behind demand. Exacerbating the crisis is the declining value of the American dollar, the currency in which the major 29

commodities are traded, making imported food suddenly more expensive in the currencies of the importing countries. The dollar’s fall has had the same impact on import prices of oil—dealing a double blow to all importing countries’ economies. And the soaring price of oil has inescapably worked its way up the food production chain. Yet the most durable, fundamental, and accelerating source of the crisis is the recent surge in demand for more and better food in China and India, and in other developing countries. As economies grow, millions of once-poor consumers are suddenly able to spend more on meat, which in turn spurs the demand for grain. Thus “not enough food” is the core problem, not “high prices.” The emphasis on prices by media, governments, and political authorities exposes the misunderstanding of, or indifference to, the realities of the global food economy that has dominated agricultural policy for the past half-century. Simply put, we have failed to provide the productive capability to feed everyone decently, and this is both an American and a universal problem. The Shrinking Staff of Life Wheat is the global bellwether of food and grain economics, and output in the United States, the world’s primary exporter, helps tell the story. In December 2007, the Department of Agriculture estimated that the U.S. wheat harvest had reached 2,067 million bushels, an increase of 14 percent over the year before. But the department also estimated that the carryover from old crops when the 2008 harvest begins this June would be only 280 million bushels, the smallest in 60 years, following several years of declining American and global carryover stocks. Consumers with newly realized purchasing power have eaten up the supply that the world has too long taken for granted as normal, and occasionally “surplus.” The United States carryover is reckoned to be approximately 12 percent of the total 30

wheat used during this year, the smallest percentage since the drastic draw-down of Depression-era “surpluses” during World War II and the 1946–47 food crisis that followed. And estimated global stocks are at historic low levels. This shrinking carryover is now too narrow to ensure a smooth and efficient flow in the pipeline from the farmers’ combines to retail grocery stores, which causes additional increases in manufacturers’ costs and further boosts retail prices. The major cause of this year’s decline in carryover—accounting for 88 percent — is a projected 266 million bushel increase in wheat exports over the previous year, which are projected to total 1,175 million bushels, equal to 57 percent of the year’s entire domestic production. The increase in U.S. exports reveals the major cause of today’s high food prices. People are eating more food. The world’s “reserves” have been consumed, and hungry people with newfound money are bidding for a bigger share of the supply against the better-fed—and more painfully, against the underfed. Policymakers and the economists who advise them could, and should, have seen this coming by the application of simple arithmetic. This calculation is based on well-known population statistics and the total production of all grains, which are the base for about three-fourths of the diets among better-off peoples. High-starch root crops, fruits and vegetables, wild game and wild fish furnish the smaller part of what humans consume. A significant portion of the world’s supply of grain is used for cereal foods, but the larger share is used to produce the meat, eggs, poultry, and farmed fish that people consume. The critical element in a higher quality diet is protein, and thus generally, meat. But the production of meat has a multiplier effect on the demand for grain. About 3–5 pounds of grain are required to produce a pound of poultry meat or eggs; 7–8.5 pounds is needed to yield a pound of WORLD POLICY JOURNAL • SPRING 2008

beef (from the time at which a young animal is taken off pasture). Furthermore, the grain used to produce milk and meat must be supplemented with high-protein feed derived from soybeans, cottonseeds, or other oilseeds. The arithmetic goes like this: according to the Department of Agriculture’s January 2008 estimates, world production of all grains in 2007 was 2,075 million metric tons, averaging about 1.93 pounds per day for each person on earth. But an average does not, of course, describe the reality: this figure clearly exceeds the actual consumption of more than 1 billion people, while another 1 billion eat poorer quality meals than is required for adequate nutrition. To increase grain consumption for 2 billion people by 1 pound a day (to approximately the global average) would require an increase in global output of 331 million tons—some four-fifths of the entire 2007 U.S. grain crop. For the sake of argument, let us add to the equation the average American’s consumption of 8.33 pounds per day—a rough measure of what most of the world’s people would like to consume. To increase global per person consumption of grain to the U.S. average—an outlandish idea, in light of the world’s limited agricultural resources— would require a crop of 8,964 million tons, or more than quadruple the entire world grain crop in 2007. This rudimentary arithmetic ought to persuade any reasonable person that there is not nearly enough food production for today’s global population, much less for the billion-plus additions that are expected a generation from now. Surely, this is an awesome, long-term challenge. Yet, what can be done now to shore up countries shaken by food riots and the specter of famine? The Dual Challenge: Food and People Secretary-General Ban’s urgent global call was prompted by the crisis facing the UN’s World Food Program, the agency that What Food Crisis?

annually feeds some 73 million people in 78 countries, most of whom live on the razor edge of poverty. The WFP initially reckoned that it needed $2.9 billion in contributions to meet this year’s needs. But commodity costs have risen sharply, and the agency now seeks an additional $500 million to avoid a severe cut in the rations it provides. This is in itself a huge order, and ironically raising the funds adds upward pressure on food prices, not to mention the budgets of donor nations. Even so, the target goal would fall far short, at best, from providing adequate nutrition to the world’s underfed. Creditably, Secretary-General Ban also urges support for “safety-net programs to provide social protection, in the face of urgent need, while working on long-term solutions.” He calls additionally for building drought- and flood-defense systems to enable insecure communities to cope with weather-related emergencies and the “longterm consequences of climate change.” These proposals are indeed ambitious. But the essential problem has deeper roots. Today, nearly half of humankind lives by farming. Most of these farmers live and work, and all-too-often starve and sicken, on low-productivity farms. Many work the land without even the power of ox, horse, or donkey. Most live without consistent access to safe, clean water, schools for their children, or basic health care. The UN estimates that hundreds of millions of people are victim to chronic malnutrition and sporadic epidemics. As a result, millions of their descendants have fled or have been driven from failed farms into urban slums, and are often no better off. In all efforts to ameliorate the food crisis, the most fundamental priority must be to increase the purchasing power of the underfed, so that they can pay what it costs to produce the food they need. Laborintensive projects to create job opportunities are required. Food aid, in addition to emergency and child-feeding programs, can also be linked to food-for-work projects. 31

All food aid programs should be designed to increase food consumption, but care must be taken to ensure that the food supplied does not depress prices for local farmers. In all national and global policies, the unique nature of the farm economy must be taken into account. In the United States and other advanced countries, returns to farmers for their labor, investment, and management chronically lag behind those received by other occupations. The Department of Agriculture found that gross receipts per acre received by wheat farms in 2005 and 2006 (the latest available figures) fell short of the total economic cost per acre by $74.77 and $72.78 respectively—by 36 and 34 percent. The example of U.S. wheat is a fair illustration of the economics of commercial farming. Unlike other trades or professions, wheat farmers are locked inescapably into what economists call “atomistic competition.” Farmers are powerless price takers, rarely if ever price askers. In other vocations, producers can usually administer their production decisions with an eye to what they expect the market will absorb at some margin above their costs. Manufacturers lay off workers and close factories when they judge that prices will not cover costs. Merchants reduce their sales force and trim inventories in lean years. But a farmer’s resources are less suited to other uses. Farm land usually cannot be used for anything but farming. Their capital—machinery, barns, breeding livestock—is likewise not readily transferable. Moreover, farmers’ decisions and commitments must be made far in advance of a payoff—two years in the case of raising a heifer calf for a dairy herd. With few exceptions, farms in advanced countries are still small businesses. (This is almost entirely the case in developing nations.) The farmer is thus burdened by unavoidable fixed costs, beginning with supporting his family, which is often the primary labor force. And the home is usually an inseparable part of the farm. Even when current prices fail to 32

cover costs, the farmer must stick it out to preserve his investment. In most vocations, competition drives out weak competitors, relieving the survivor of a small measure of pressure. But in farming, the basic resource—land—must always remain in production. For these reasons, farmers have lived and worked on what Dr. Willard Cochrane, a professor emeritus at the University of Minnesota, calls “an economic treadmill.” All farmers together produce all they can, and prices remain chronically low in relation to production costs—except when unusually bad weather or other fortuitous crises propel demand to unexpected levels. With this in mind, one should weigh with skepticism the high prices wheat farmers are now gleaning. In December 2007, U.S. farmers (according to the Department of Agriculture) were receiving $9.41 per bushel of wheat. But by historic standards, that is not unprecedented. Adjusted for increased production costs (including soaring gasoline prices), American farmers received an average price higher than the seemingly alarming figure of last December in roughly 33 percent of harvests over the past century.1 In 1973, for example, prices were higher by $3.81 per bushel, a 40 percent increase. Moreover, the decline in the real price of wheat and other farm commodities over recent decades has contributed to the complacency on the part of consumers and governments. According to the Department of Agriculture, the farm value of the typical “market basket” of domestically produced food actually declined from 31.9 percent in 1967 to 19.7 percent in 2004, before the slow upward trend began.2 By historic measures, adjusted for inflation, food is still cheap in the United States. These are some of the less obvious anomalies in agricultural economics that one should bear in mind when considering what ought to be done globally about today’s food crisis. WORLD POLICY JOURNAL • SPRING 2008

The Global Dimension It seems unlikely that the United States and other advanced countries will again produce “surpluses” on the massive scale of the past century. But as far ahead as one can see, increased food production here and in other advanced countries will be required globally. International cooperation, combined with enlightened national agriculture policies, is essential for a long-term effort to resolve the web of food and farmer problems. It is a task comparable in magnitude to the post-World War II formation of the United Nations and the array of international economic and humanitarian agencies that followed. Outstanding leadership during the war and postwar reconstruction heralded a promising start to developing effective institutional measures: the World Food Board, under American leadership, coordinated wartime food production and distribution by the United States, Great Britain, Canada, Australia, New Zealand, and South Africa. Food was rationed to consumers in each country and shared equitably according to need. A single fact illustrates the scope of this historic achievement: the average British diet during World War II exceeded that of the prewar years in both adequacy and nutritional quality. Again with Washington’s leadership, huge volumes of food aid were delivered to the devastated nations of Europe and Japan after the war’s end. By 1952, Japanese and European farms were recovering, and the need for imports declined. Huge surpluses began to mount in the United States and other exporting countries, but the wartime victors continued to “support” global prices for all farmers by accumulating stocks under government control. Canada’s Wheat Board accumulated and stored more than a year’s normal production of wheat, and the U.S. Commodity Credit Corporation’s stocks grew even larger. In 1956, a policy of using surplus food to feed hungry people received a powerful impetus. The policy of paying farmers to What Food Crisis?

keep farmlands out of production was superseded when Congress adopted the Food for Peace program promoted by Minnesota Senator Hubert Humphrey and Wisconsin Congressman Henry Reuss, with bipartisan support. This measure expanded food aid to include developing countries, many of them newly liberated from colonial rule. Following John F. Kennedy’s victory in 1960, Washington further expanded the use of “surplus” stocks to feed the hungry, a move that gained wide support among farmers. The new Democratic administration authorized a trial run of a Food Stamp Plan in order to subsidize grocery costs for poorer Americans. Food Stamps now underwrite the food purchases of more than 30 million U.S. citizens. Under the Kennedy administration, the Food for Peace program became a central element in America’s foreign policy—eventually helping many recipient countries to develop their economies and become commercial import customers. In 1965–66, a severe drought devastated India, and Washington responded with huge food shipments (increasing total Food for Peace shipments to as much as 19 million tons a year) that saved millions from starvation. During this period, I was an official in the Department of Agriculture (vice president of the Commodity Credit Corporation) with responsibility for farm programs. Among the missions assigned to me was to draw up a standard for the reserves of vital foodstuffs—primarily wheat and vegetable oils—needed to cope with emergency food shortages and famines, wherever they might occur. The purpose was to ensure that U.S. agricultural policies would meet these special needs as well as normal domestic and export demands. But the Vietnam War trumped this commitment to leadership in world food policy. As Orville Freeman, then Secretary of Agriculture, told me after returning from a Cabinet meeting, President Lyndon B. Johnson had announced that budget 33

resources were to be shifted from fighting poverty to prosecuting the war. Food aid shipments had nearly halved by the end of Johnson’s term, and continued to dwindle during subsequent administrations. Today, America’s food aid amounts to barely a quarter of the tonnage shipped annually in the mid-1960s—although U.S. farm production has more than doubled. On Blaming “Subsidies” The recent headlines about “high food prices” ignore the half-century-long decline in prices received by farmers. Adjusted for inflation, prices received by American farmers declined by about one-third from 1967 to 2007. Nonetheless, the political and public response has been to vilify farm subsidies as boondoggles for agribusiness and blame them for rising food costs. It is generally overlooked that U.S. farm policy has shifted drastically during this period from supporting both domestic and world prices and aggressive use of “surplus” food to promote economic development in war-ravaged and other chronically poor countires. In its place, U.S. policy has been to suppress both domestic and international prices in vain hopes that low prices would displace competitors in the export market. As this mythical hope foundered, politicians reacted to the real economic distress of farmers and farming-dependent rural communities by invoking an array of expedient and parochial measures—including payments to keep land out of production and subsidies to convert corn into biofuel. Neither political leaders, nor their critics in the media or academia, have wrestled for truly rational solutions to the complex global problems. The enduring crisis calls for a revival of the international vision and muscular American leadership in food policy. The United States remains the world’s major grain exporter, and possesses the economic power either to inspire, or to frustrate, international cooperation and action. Ameri34

ca’s first obligation is to practice what we (should) preach: to adopt measures to support prices received by farmers at levels that ensure fair returns from labor and investment, and to support, rather than undermine, measures adopted by other countries to do the same. The traditional American price support system for storable commodities is a tried and workable model. It would offer farmers short-term loans on their output at a fair standard that reflects the prevailing returns to labor and investment in comparable businesses. If farmers can not sell their commodity at the loan price plus interest, the government would accept the commodity and hold it as a reserve (for sale at a modest markup if needed), and donate quantities that exceed reasonable reserves for food aid or food-for-work projects abroad. The United States (and other cooperating countries) would thus “support” the global market, and the world’s farmers, as America and its allies did during World War II and the postwar years. Washington, secondly, should take the lead in transforming the World Trade Organization from its present emphasis on opposing governments’ intervention in their farm economies to encouraging the adoption of measures to ensure fair returns to farmers, and using any “surpluses” thus generated for reserves or food aid at home or in other needy countries. A simple standard for enforcing such a rule would be a universal prohibition of any subsidization of exports at prices below those established in their domestic markets. Finally, America and other advanced countries should encourage and support both bilateral and international programs to raise the productivity of today’s impoverished farmers in poorer countries abroad. These simple, but drastic, reforms would not likely lead to the “burdensome surpluses” that have confounded farmers and governments during the past century, WORLD POLICY JOURNAL • SPRING 2008

for they would tend to bring the market demand for food into closer balance with human need. They would stabilize both domestic and international food prices—so long as improved farming technology and economic security for farmers, particularly in poorer countries, can raise production and productivity into reasonable balance with the continuing rise in buying power for food. They would impose short-run financial burdens upon governments, but the payoff

What Food Crisis?

would be a better-fed global population, and ultimately enough to eat for everyone.

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Notes 1. The department’s calculation of the index of prices received by farmers as compared to their production costs is among the earliest and most oft-tested statistical indicators, and closely matches the “cost-of-living” index. 2. The farm value is a measure of the cost of product at the farmer, as opposed to retail value.

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