Tuesday, June 28, 2016

Food: trading away our future? - path IV

In the period 1996 to 2011 I worked a lot with various efforts to link smallholder farmers to markets, mainly organic, in developed countries. The biggest engagement was in EPOPA. By 2008, 80,000 farmers in the programme sold organic products to exporters for approximately US$ 15 million per year. All farmers received higher prices due to the organic premium, which ranges from 10-25% over the conventional price. Taking into account the size of households, 600,000 people have benefited from the programme. You can read a whole book about this successful project here. Overall EPOPA was a success. 

Today, linking farmers to markets is an overarching policy for almost all development agencies as well as governments. It also fits very well with a development model that assumes that more markets and more capitalism is the best path to development. While I do think it works quite well under certain conditions, it has, unfortunately, been oversold.

A report from Hivos, Small Producer Agency in the Globalized Market, looks deeper into if and how smallholders can benefit from globalized markets. In short the answer is that a few of them will - and they will soon not be smallholders as the recipe for success is to grow, mechanize and buy up your neighbours farms. This should be no surprise, this is how the farm sector developed in other parts of the world. The report estimates that linking farmers into modern value chains (be they organic, fair trade or normal) may benefit only about 2-10 percent of the farms - and it will be those with the greatest assets. Of the farmers forced off their farms, some will become farm labourers at the farms of the more successful, or in huge agri-business plantations, others will only get a better life if there is some place for them to go – but in many places the prospects in the cities are not too promising and the future as an economic migrant is uncertain.

A recent report from the FAO, The State of Agriculturarl Commodity Markets, does a good job in untangling the contradictory views on the impacts of agricultural trade on food security. Trade affects each of the four dimensions of food security: food availability,  food access, food utilization and stability of food suply. The effect of of trade is complex and depends on a variety factors, which makes it difficult to generalize. Among others it is influenced by the way food markets work, by the ability and willingness of producers to respond to the changing incentives that trade can bring, and by the geography of food insecurity, each of which needs to be accounted for in the formulation of trade policy interventions.

The report clarifies that theory of comparative advantage builds on assumptions that
do not hold in today’s global economy. Capital and labour is highly mobile between countries through global value chains while the agriculture sector is highly inflexible, and mobility of agricultural labour and capital is low.  Competitive advantage prioritizes short-term conditions versus long-term structural transformation and efficiency gains are prioritized over other social goals. Meanwhile, self-sufficiency is not feasible for all countries and agriculture protection measures may have extraterritorial impacts that can harm food security of others.

Perhaps surprisingly to some, the majority of hungry people live in rural areas; many of them are farmers, others are landless laborers. According to the FAO, 50% of those suffering from hunger and mal­nutrition are small-scale peasants, 20% are landless, 10% are pastoralists or fishermen and 20% live in city slums. Clearly these groups are affected differently by the increasing globalization of food. Low food prices may initially look like a good proposition for the poor as it makes food more affordable. Falling prices, however, can lead to a worse situation for the rural poor, who make up the majority of those hun­gry. Most of them are dependent on farm incomes, either as small­holders or as landless individuals seeking employment by farmers. A surplus of food, with falling prices, creates a bigger prob­lem as it drives small farmers off the market so that they cannot buy the things they need for produc­tion or for their families. 

There are many side effects of the integration of farming in global markets, and those side effects may have far reaching implications. For instance, modern markets and global competition force farmers to adopt uniform high-yielding types of plant or animal. But when food produc­ers abandon diversity, valuable traditional varieties and breeds may die out, along with their specialized traits. For the poorest farmers, the diversity of life can be their best protection against starvation.

There is no silver bullet that in itself can guarantee food security. It seems clear to me that food security, poverty and equality are intrinsi­cally linked, and that the root cause of food insecurity is found in an unjust society and unequal access to resources. As such, the main path to food security involves correcting those injustices. 

This is the fourth post on the trade theme.

Sunday, June 19, 2016

Food: trading away our future - Part III

Because of productivity gains in developed countries, agriculture prices dropped by some 60% in the period 1960-2000. As the productivity of the poorest farmers remained much the same, it is obvious that they have lost out. Their value of production, regardless if they eat it themselves or sell it, has gone down considerably, making them poorer both in relative and absolute terms.

In two previous posts I discussed the impact of the rapid growth of international trade in food and agriculture commodities. This globalization of food commodities has led to, or enabled, an increasing disconnection between human populations and the land and water resources that support them through crop and livestock production. The increase in trade has big environmental repercussions as well as a big social and cultural impact. Trade is not only a response to market demand, it creates demand and therefore recreates the need for it; trade becomes its own justification.

In this post I will discuss the impact on producers from the global competition.

According to economic theory, poor countries should compete in trades that require a high labor input and have low capital require­ments. Histori­cally, agriculture has been such a sector. But today’s agriculture, in the rich countries at least, is characterized by a low labor input and very high capital input. Mechanization has crushed the comparative advantage of poor countries and poor producers. Poor farmers can only be competitive in crops which have not yet been successfully mechanized, such as coffee, tea, flowers, avocadoes and green beans. At the beginning of the 1960s developing countries had a trade surplus in agricultural produce of around US$7 billion, but by the beginning of the new millennium that balance had shifted to a deficit of around US$20 billion and, if we exclude Brazil this figure is much higher, at US$27 billion.[i] [ii] It is not only the money flow that has drastically changed direction, but also the flows of calories. In the late 1960s developed and developing countries were more or less producing their own calorific needs, but in 2009, many more develop­ing countries had become net importers of food. Sub-Saharan Africa went from a four­teen percent surplus of calories to a thirteen percent deficit.[iii]

In 2012, I visited two very different farmers; Bob Stewart in Illinois and Susan Mkandawire in Zambia. Bob farms in the Corn Belt, south of Chicago and Susan farms not far from the international airport in Zambia. They are both maize growers, and as farmers they shared worries over the weather, prices, access to labor and many other things. They were also very different, or at least they operate under very different conditions. Bob’s yields of maize are regularly more than 10,000 kg per hectare while Susan, in a good year, gets around 2,000 kg per hectare, i.e. Bob harvests more than five times as much per area unit. That is remarkable. But what is much more remarkable is how much land they farm; Bob’s farm is 3,200 hectares while Susan manages less than half a hectare.  

Bob grows maize in Pana, Illinois
Bob works the farm with a brother and three full time employees, their father and Bob’s wife are also involved in the operation. In peak season they have four more helpers; each person thus manages more than 400 hectares, i.e. they spend less than five hours of work to manage the total land area that Susan farms with her husband, Fred. Because they are very poor, Fred takes on other jobs outside the farm when he finds them; at the time of my visit he was occasionally working as a watchman. Apart from the maize they also grow vege­tables which are sold in the market in Zambia’s capital Lusaka. But let’s focus on the maize. Together they spend some 266 hours per year tending their 0.4 hectares of maize. They hire a team of oxen to do the land preparation; which saves them 120 hours on land prepara­tion by hand, still the dominant method in Sub-Saharan Africa. 
Susan grows maize in Zambia

Through the ease of transportation and storage (mainly driven by the fossil fuel economy), there is more or less a global market for grains, pulses and oil crops, with similar prices all over the world, tariffs or other government interventions being the only other factor of importance. These prices are determined by the producers who can combine large areas with mechanization, i.e. those than can use a lot of resources and a lot of external energy. The dramatic increase in labor productivity we have seen in the farm sector is linked to the increased use of external energy sources, be it for pumping water, driving tractors and combine harvesters or making chemical fertilizers. It is almost self-evident that Susan in Zambia has not a chance in hell of competing with Bob in Illinois. This example begs the question of whether global food markets really work to our advantage. Poor people and poor countries are supposed to get a comparative advan­tage from low labor costs. But this mechanism is totally broken when the cost for labor is depressed far below sustenance levels, not to speak about reproduction, that is raising a family. Because of productivity gains in developed countries, agriculture prices dropped by some 60% in the period 1960-2000. As the productivity of the poorest farmers remained much the same, it is obvious that they have lost out. Their value of production, regardless if they eat it themselves or sell it, has gone down considerably, making them poorer both in relative and absolute terms.

(this post is almost entirely drawn from my book Global Eating Disorder)

[i]                   Regmi, A. and M. Gehlhar (editors) 2005 ‘New Directions in Global Food Markets’, USDA Agriculture Information Bulletin Number 794.
[ii]                   FAO 2007 The State of Food and Agriculture 2007 Food and Agriculture Organization of the United Nations.
[iii]                  FAO 2012 Statistical Yearbook 2012. FAO Statistics Division Metalink: P2.HUN.FAO.TFS.SSCAL, p. 165
[iv]                  National Cotton Council of America 2013 US and World Cotton Outlook September 2013 NCCA.