Food Supply Up, Prices Fall

Published July 1, 1997

Bumper crops in the United States, Canada, and even Latin America have sent 1997 world agricultural price levels back to where they were in 1995. Try as they may, farmers are having a difficult time selling additional supplies of meat and dairy products in the world market.

At first glance, the world would seem to be experiencing a farm surplus. But, according to Dennis Avery, editor of Global Food Quarterly, the reason for the slump in world food prices is the continued existence of old farm trade barriers. Huge numbers of newly affluent consumers in China, India, and Indonesia, for example, are trying fervently to improve their diets. Their needs include greater access to wheat, meat, milk, eggs, fruits, and vegetables.

All of those products are produced in abundance in North America, Latin America, and Europe, but getting them to hungry consumers in emerging Asian markets is no easy task, Avery points out. For example:

  • Indonesia is deliberately destroying tropical forest for low-yield production of cattle and chickenfeed.
  • China’s government officials, not its consumers, make that country’s buying decisions. And the government is choosing not to import much, even though such policies penalize the country’s citizens with high food costs and misdirected capital investments.
  • India keeps tight restrictions on farm imports and ignores how doing so penalizes consumers and places enormous burdens on the country’s croplands and forests.

“The American farm problem isn’t Canadian durum wheat exports or Mexican feeder calves coming across our border, or a few tons of fragrant rice imports,” Avery observes. “The problem is farm trade barriers in Asia.”

Avery believes the solution lies in the World Trade Organization (WTO). Countries like China and India, he explains, cannot stay out of the WTO because their opportunities to export would be severely constrained. He points out that membership in the WTO already requires countries to dismantle non-farm trade barriers. If the WTO required dismantling farm trade barriers as well, he argues, those countries would still join–and their citizens would be better off. The governments of the emerging countries would be defended from their own farmers’ demands for protection, Avery believes, by WTO rules.

“This would be extremely valuable in protecting their urban work forces against too-high food prices,” he concludes, “and defend the governments themselves against politically popular rural investments that were unlikely to pay dividends.”

PF: Dennis Avery’s six-page article, “Has the World Really Shifted Back to ‘Farm Surplus’?” published in the Winter 1997 issue of Global Food Quarterly, is available through PolicyFax. Call 847/202-4888 and request document #0400126.