Food Crisis Forces New Look at Farming

from the Wall Street Journal

Poor Nations, and Their Donors, Now Rethink Emphasis on Free Trade

By JOEL MILLMAN and ROGER THUROW

PONT-SONDÉ, Haiti -- Leonid Eustache coaxes a small rice crop out of his tiny plot here, but he could use some help from his government. He can't afford fertilizer. His only tool is a hoe. And half of his crop rots because nearby drainage canals are filled with water hyacinth.

"The water stays, and it rots the roots of my plants," the 62-year-old farmer said on a recent day, standing barefoot in a pool of stagnant water. "They should do something about that."

For the first time in a long while, someone just might. Haiti is one of many developing nations where a global food crisis is causing both donors and recipients of anti-poverty aid to rethink doctrines about the role of agriculture -- and whether poor nations should grow their own food or rely on the world's trading system.

For decades, poor nations were discouraged from investing too much in agriculture, which was seen as a problem rather than a solution to fighting poverty. Many free-market economists came to believe that the reason billions of people are poor is because they are shackled to subsistence farming. The economists' solution: find something else for them in manufacturing, tourism or services so that they can make money to buy food instead of growing it.

Poor countries were discouraged from growing much of their own staples, such as rice and wheat, that are usually grown more cheaply in rich countries. Instead, they were told to focus on export crops that might fetch a higher price.

Now, with grain stocks depleted, China and India gobbling food as never before and food prices soaring, many poor countries are turning their back on the old ideas and installing government programs designed to support local farmers. These include cash subsidies to poor consumers, increased efforts to improve local seed varieties, and government-sponsored handouts of fertilizer and seeds.

The food crisis has also contributed to a major rethink among the advice givers. Institutions such as the World Bank and International Monetary Fund are once again treating investment in poor farmers as a promising development strategy. Last week in Rome, World Bank President Robert Zoellick told an emergency United Nations summit on the food crisis that boosting developing country agriculture productivity and reducing hunger were top priorities for the bank.

A growing number of World Bank economists are now convinced most poor nations need a healthy farm sector as the basis of a robust economy. The manufacturing booms that swept Asia only happened after the region's farm sectors developed. And new research shows that investing in agriculture lifts more people out of poverty much faster than long thought. The 2007 study "Down to Earth" by World Bank economists Luc Christiaensen and Lionel Demery found economic growth of the agriculture sector is at least twice as effective at reducing poverty as any other sector.

That's a welcome change for some policy makers. "In all my years that we asked for help, the answer was: No. Agriculture is not a tool for development," says Philippe Mathieu, a former Haiti agriculture minister who now heads the Haiti office of Oxfam Quebec, a Canadian charity. "Today, it is."

After the rising price of rice caused deadly food riots this spring, Haiti announced it will subsidize fertilizer for local rice growers to reverse sagging local production. The governments of El Salvador and Ethiopia are helping distribute hybrid seeds to farmers to boost corn yields, while across Africa governments are striving to spend at least 10% of their budgets on agriculture -- a big shift.

Malawi has a $60 million subsidy program that's paying off in higher output of grains. After hunger spread across Malawi in 2005, with nearly five million people surviving on international food aid, the government was determined to try something different. Corn yields soared in the first two years of the subsidy, aided by good weather, producing surpluses for export and even donations to the World Food Program.

"We didn't want our children on TV begging for food," said Goodall Gondwe, Malawi's finance minister. "We decided to make increasing food production our first priority."

Seeing Malawi's success, the World Bank offered to help expand the program. Neighboring countries are looking to follow suit.

Food Security

For many nations, food security has become a matter of national security. Last month, Costa Rica published an ambitious National Food Plan designed to aid subsistence farmers. It calls for ramping up rice, corn and bean harvests to make Costa Rica nearly self-sufficient in staples by 2010.

In May, Mexican President Felipe Calderón announced sweeping reforms to aid small farmers, starting with a decision to abolish import taxes on nitrogen fertilizer and chemicals needed to manufacture fertilizers. He also pledged emergency funds to bring modern irrigation to 53,000 additional acres of farmland, about three times the area Mexico previously had budgeted for this year.

Many development economists applaud greater investment in agriculture. Still, they worry the current food crisis could lead countries to make policy decisions that may make the overall situation worse. Some nations, like India and Vietnam, have slapped export restrictions on products like rice to ensure domestic supplies -- moves that exacerbate the crisis elsewhere by distorting prices. And raising tariffs, for instance, to protect local markets would only raise prices further for consumers.

"Countries should, in general, rely on trade for food security," said Arvind Subramanian, of the Peterson Institute, a Washington, D.C., think tank that focuses on international economic policy. "The problem is when there are conditions like today. Things get bad, countries impose export restrictions and comparative advantage is not allowed to work. So, the effect of food shocks is amplified."

Since the early 1980s, the World Bank and IMF preached that higher yields from rich countries' farmers would keep food cheap, eliminating the need for poor countries to spend their meager dollars on boosting agricultural productivity. This held true for years. Most poor countries could usually import staples more cheaply than grow their own, and could focus resources elsewhere.

That advice failed to take into account the possibility that food grown by wealthy farmers might not stay cheap forever. Even though agricultural productivity is still climbing, rising demand for food in Asia, greater use of grains for cattle, and the diversion of crops for biofuels have all helped increase prices quickly.

Now that countries want to revive their agriculture sectors, it's not going to be easy, given the neglect of the past few decades.

Consider what has happened in Africa. In the 1980s, governments were prodded by the World Bank to get spending under control. Many set about whacking agriculture programs. Irrigation projects dried up. Schools that trained scientists and agronomists fell into disrepair. At an agriculture school in Mozambique, students who are supposed to study mechanized farming rely on broken-down tractors and combines that sit like museum pieces on the school's lawn. In Ghana, some agents for the government's agricultural extension service, who are supposed to spread the latest scientific advice to farmers, often must hitch rides or walk to make their rounds.

As governments in Africa got out of the business of seed, fertilizer and grain marketing, an unprepared private sector failed to fill the gap. In Ethiopia, for instance, the government liberalized grain markets in 1990, lifting restrictions on private trade after 15 years of virtual state monopoly. But private entrepreneurs, with too little access to financing, couldn't provide enough fertilizer and seed to farmers. Nor did they have the means to store and move vast volumes of grain.

Worsening matters, total agriculture development aid to poor nations plummeted from $8 billion in 1984 to $3.4 billion in 2004, based on 2004 dollars. Over roughly the same period, agriculture's share of development assistance shrank from 17% to 3%, according to the U.N.'s Food and Agriculture Organization.

Only recently has the World Bank acknowledged the damage caused by its advice. In a report released in October, the Bank's Independent Evaluation Group cited the decline in agriculture spending and a scattershot approach to funding, concluding that the Washington institution had neglected African farmers. It noted the Bank devoted just 9% of its total lending in sub-Saharan Africa from 1991 to 2006 to agriculture, even though the vast majority of the poor depended on agriculture for their livelihoods.

Mr. Zoellick, speaking to African heads of state at a breakfast a few months ago, promised the bank would reverse course.

Haiti is another cautionary tale of how development advice has left a country facing an uncertain future in the food crisis.

For decades, Haiti was largely self-sufficient in rice thanks to the Artibonite River valley, known as Haiti's "rice bowl." By the mid 1980s, the Artibonite's patchwork of green rice fields produced more than 100,000 metric tons of rice, meeting most of the nation's demand.

In subsequent years, Haiti repeatedly slashed tariffs on imported rice, often at the behest of the U.S. and the World Bank. Rice farmers in the U.S. could produce rice more cheaply, even after shipping. In a poor nation like Haiti, the move proved popular as rice prices fell.

Urged to redirect spending from local farming to areas like assembling underwear for export, Haiti's successive governments rarely spent as much as 3% of the country's annual economic output on food production, says the former agriculture minister, Mr. Mathieu.

As a result, U.S. rice, which Haitians call "Miami" rice, slowly displaced local rice. In the Artibonite, large-scale farming was nearly wiped out by a combination of imports and a land reform. By 2003, the Artibonite was producing less than 80,000 metric tons of rice. Haiti is now the world's biggest per-capita importer of rice -- it imported about 400,000 metric tons last year -- and the number four market for U.S. rice growers, buying $112 million worth of rice last year, according to the USA Rice Federation.

"In the case of Haiti, the lowering of tariffs without support for farmers to transition into more-profitable crops was a negative blow to the agriculture sector," said Diego Arias, a rice specialist who worked in Haiti for the Inter-American Development Bank and is now with the World Bank.

Outside advisers, he says, often failed to see that, to a Haitian farmer, rice is preferred as a low-risk crop -- easy to store, and easy to eat in times of low prices. Tomatoes, which experts urged Haitians to cultivate, "could have offered a better return," Mr. Arias concedes. "But tomatoes also are more risky. In Haiti, they spoil on the way to market, the roads are so bad."

Standing recently in his rice paddy, Mr. Eustache explained what the lack of government support means for a subsistence farmer like him. He calculated he'd need three 100-pound sacks of fertilizer, costing about $150, to nearly double his harvest to 25 50-pound sacks of rice. But he can't afford that, and rising fertilizer prices are putting it further out of reach.

"It's been much too expensive to buy fertilizer," he says, adding that, with fertilizer, he might even get two harvests out of his land.

What else would help Mr. Eustache? Clearing drainage canals choked with water hyacinth, for one thing. The responsibility for that falls to a government agency, the Organization for the Development of the Artibonite Valley. Long neglected, the OVDA has basically become a make-work agency, with 90% of its $1.6 million budget earmarked for salaries of its 420 employees, according to Josaphat Vilna, the agency's director.

Few of the agency's employees bother to do much work for their pay, says Mr. Vilna. "You can't fire a state worker" for any cause, he says. "So, you also can't force them to do any work, like cleaning irrigation canals."

Outside Mr. Vilna's office sits a steam-shovel -- donated by Taiwan -- that could restore the irrigation canals. But the agency doesn't have enough funds to buy diesel fuel to operate it.