Agricultural policies
Abstract
Every decade or two, food becomes newsworthy globally. Mostly this is because of an international price spike, either upwards (hurting consumers, as in 1973 and 2008) or downwards (hurting farmers in open economies, as in 1986). And most such price spikes in global food markets are a consequence of major national policy shifts, since local (often weather-induced) supply shocks in a multi-country trading world tend to offset each other. In 1986, for example, it was the food export subsidy war between western Europe and North America that drove real international food prices down to their lowest level since 1930 (Figure 7.1). The price hikes of 1973 and 2008, by contrast, were partly a consequence of a unilateral policy decision by a single large player: in 1973, the Soviet Union departed from its policy of self-reliance and entered the international grain market in a significant way to offset a domestic shortfall, and in 2007–2008 the United States and European Union decided to subsidise biofuel production and set mandates and targets for its use domestically. In both 1973 and 2008, other governments imposed export restrictions to insulate their consumers somewhat against the price rise, which pushed international prices even higher and drove more exporting countries to follow suit. Policy thus contributes to market volatility. This in turn is bad for growth, since volatility around the long-term trend in terms of trade slows economic growth (Williamson 2008).