Try this for a novel solution to rising food prices: freer trade. In an effort to access cheaper sources of food and lower prices for consumers, a growing number of governments are lowering tariffs.
In Europe, Turkey eliminated import duties on wheat, oats and other cereals last month. In Asia, South Korea this week expanded tariff cuts on corn, flour, milling wheat and other food products. Indonesia has eliminated its 10% soybean tariff. India this month slashed duties on some, though not all, edible oils.
The relief is finding its way to consumers, as in India where edible oil prices have fallen between 2 and 5 rupees (5 cents and 12.5 cents) per kilogram, thanks to cheaper imports. South Korea's Finance Ministry estimates that its newly announced measures could cut consumer prices by 0.1%. That may not sound like much, but by lowering the baseline on which future inflation builds, the benefits will add up over time.
Rising food prices are often a result of external factors beyond policy makers' control, such as a weak greenback that inflates dollar-denominated global prices; U.S. and European biofuels policies, which encourage farmers to produce corn for fuel rather than other crops for food; and bad weather.
It's also becoming increasingly clear that price controls don't work. China tried them on pork and other staples earlier this year, and so far those prices have continued to rise. Controls are hard to enforce and relatively easy for producers to circumvent by, for example, slightly reducing the amount of food in each package sold at a certain price.
Ratcheting up domestic production isn't easy, either. Crops don't grow overnight, and some countries are also now reaping the rewards of decades of agricultural protectionism that have left their farm sectors underdeveloped and struggling to meet current demand.
Which leaves liberalization the only viable option. Many of the trade-freeing measures are being enacted on an emergency basis by ministerial fiat and are billed as temporary, in no small part to make them palatable to farm lobbies.
But economic liberalization can take on a momentum of its own. Consumers and food producers who enjoy lower prices on everyday foodstuffs won't be eager to see prices rise again. Witness Thailand, where the Commerce Ministry's proposal for a one-year moratorium of tariffs on soymeal -- used for animal feed -- is already being greeted by calls from feed producers for permanent reductions.
As positive as these developments are, we're a long way from a golden age of free agricultural trade. Permanent reductions still must be passed by legislatures. Particularly in Asia, tariff cuts don't always touch the "difficult" commodities -- those with the most deeply entrenched domestic interests. Rice is a good example.
Many countries are also matching their newfound receptiveness to imports with extra wariness of exports. Russia's import duty reductions on some foodstuffs have been paired with stiffer export duties on others, for example. Such measures play well politically in the short term, but by artificially depressing domestic prices they discourage the kind of investment in more productive agricultural technologies that could forestall future food shortages.
Consumers have been paying the price for agricultural protectionism for a long time and now high global prices are casting those costs in starker relief. Temporary tariff reductions are no silver bullet, but they're a start. With luck and some savvy pro-trade politicking, they might lead to lasting liberalization down the road.
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