Doha Round could dampen record food inflation

Friday, September 5, 2008

The phrase Doha Round pertains to a contentious and long-winded set of trade negotiations over the lowering of global trade barriers in agricultural, manufacturing, services, and intellectual property. Initially talks took place in Doha, Qatar in November 2001, between the developed and developing worlds. Although negotiations are ongoing, talks have occurred every year 2001-2008, each meeting ends with a stalled trade pact, thanks to agricultural subsidies.

Free trade (lowering trade barriers such as tariffs and subsidies) changes the terms of trade, and both parties benefit. Usually, the benefit is measured as increased consumption and economic growth for both trading partners.

At risk are carefully protected domestic agricultural industries in the developed world, the US or the EU, and the developing world, India or Brazil. Domestic agricultural production is heavily subsidized, resulting in reduced global competition; agricultural products (food and commodities) could be a lot cheaper if all countries would agree to lower trade barriers.

Food inflation is off the charts in the developed and developing world. Chile and Saudi Arabia experienced sharply accelerating food inflation, peaking at 19.5% and 16.0% in the first half of 2008. Belgium, Germany, and the United States have seen a smaller surge in food inflation than Chile and Saudi Arabia, but nevertheless, food inflation is seriously elevated at 7.2%, 8.0%, and 6.0%. Clearly, each economy has its own economic factors that differentiate the inflation rates, but the trend is clear: Food prices are soaring.

The costs of lowering agricultural barriers, the loss of protected domestic production, well-outweighs the gains of lowering agricultural trade barriers, the associated reduction in food prices. If Doha was to be successfully negotiated, world agricultural prices would fall and global food consumption would rise. It is really sad that countries are not willing to see past their protectionist ways when the globe is suffering from record food inflation, especially in the developing world.

Here is what Governor Randall S. Kroszner at the Federal Reserve said this about Doha Round in his September 1 speech at the Central Bank of Argentina: “Reducing such barriers [agricultural subsidies] was one of the key subjects of the latest set of talks in the Doha round, and I am disheartened that this round of talks collapsed. Given the urgent need to expand the global food supply to meet burgeoning world demand, it is particularly unfortunate that these negotiations were unable to make progress.

Here is what the OECD (Organisation for Economic Co-Operation and Development) Secretary-General Angel GurrĂ­a said this about the recent July failure of Doha Round on September 2: “Developing and emerging economies must be enabled to improve their own economic prospects by getting better access to growing markets, and seeing subsidies reduced that distort competition with their producers. At the same time it is also important to remember the experience of many rapidly growing economies that markets open to foreign products have proven a most successful ingredient for economic growth.

Perhaps the US Congress will re-think the farm subsidy bill when it expires in five years. Not likely, though, if Obama is elected President; food for thought.

Please leave comments. Best, Rebecca Wilder


Janie September 5, 2008 at 9:31 AM  

Probably, it has no chance even with a McCain win. The farm belt Senators will see to it that their people are protected; same goes for the California and southern contingent. A small war within the larger one is between CA and Japan. There is very little give on either side. You are right. It is way too bad that governments continue with their own self-interst to the disadvantagement of their people.

Tim Manni September 5, 2008 at 4:29 PM  

I agree with Janie, whoever the US president is won't seem to matter much. This debate seems so ongoing that if a reasonable comprise could be reached it would have happened. Yet again, only as of late have prices really begun to rise starkly, and it's likely that will only continue. Like anything else, if it reaches a breaking point, then and only then will it happen.

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