Harvests, Fuel, and the Benign Market

Keywords: Steve Paikin; John Ralston Saul; Ted Turner; Don McKay; Kory Tenetcke; global agro-food market; corn; ethanol; Doha Round; protectionism; Third World farmers

I keep running into discussions about the abundance of the global food supply, though no one has been able to state just how satisfied one can be with the sufficiency of the world’s granaries. The answer matters in practical ways. I wish I could find both firm numbers and appropriate targets, so I could tell how closely farmers are meeting humankind’s prospective problems. I’ll mention two ongoing debates that turn on the question.

The first involves the acceptability of using corn and other food grains for the production of ethanol fuel. This issue arose, for example, during a panel discussion a few days ago on Steve Paikin’s The Agenda

The second involves the impact of the global agro-food economy on the livelihood of Third World farmers. This question arose both in a lecture delivered at the University of Toronto Mississauga by John Ralston Saul (see photo), and in a plea issued by Ted Turner to the economic summiteers in Davos, Switzerland.

Actually, there was not as much dispute as I had expected about the abundance of the world’s food supply in Paikin’s panel on ethanol. When I hear most disputes about ethanol, almost the first allegation is usually this: With the world’s population growing, it is not at all sure that we’ll be able to feed everyone with the amount of grain being produced even today; what is going to happen when increasing amounts of it gets made into fuel instead of food? To my surprise, this objection was barely mentioned on The Agenda. For one thing, it turns out that there are two different types of corn; ethanol production does not use the kind that people eat. Moreover, an Ontario farmer named Don McKay allayed my concern further by noting that by-products of ethanol production are still used for livestock. And another pro-ethanol panelist, Kory Tenetcke, added: “If you don’t count the co-products coming out, then you’ll get a misleading impression of [corn’s] net energy. This will come into play for the implication on food markets as well.”

So, the competition for food seems not to arise — yet, at least — when there is a question of planting corn for human consumption. In the longer term, on the other hand, if farmers stop planting for the supermarket because corn ethanol is more profitable, the discussion will certainly arise again, and may be more acrimonious because of the realistic urgency.

Some of the panelists already foresaw that problem. For example, Kory Tenetcke suggested.

“The worst thing to do if we want to help the poor around the world is to continue a policy that artificially reduces agricultural commodity prices. Our current subsidies do now – drive down the prices so that third world farmers have trouble having a business. Look where people are starving in the world. The worst place is sub-Saharan Africa – where you are capable of growing three crops per year. ...

“The question is, is there a link between third world hunger and commodity prices? I would say no – quite the opposite. Where people are starving, local farmers have been driven out of business by the ... agricultural subsidy program...”

Tenetcke’s argument seems to reflect the following reasoning: Grain farmers have been increasingly productive, so that there is always a surplus, which could be shipped overseas and either given or sold to reduce hunger in Third World countries. This indeed, is what lies behind the historical pattern of food export subsidies. However, instead of reducing hunger, it has the opposite effect. It lowers the market price for Third World grain and thereby reduces the farmers’ income there. We would be more responsible by using this surplus grain for non-food purposes that do not lower, but rather raise, its market price.

It is unclear how widespread this theory may be, but I think it is probably the prevailing opinion among agricultural economists. But is it consistent with the argument advanced by John Ralston Saul last week?

The theme of Saul’s talk is that globalization is dead, for the free market is actually being replaced by mercantilism — a managed, regulated world-wide economic system. In particular, he addresses the potential impact of the Doha Round on Third World agriculture. In fact, the Doha Round seems not to be happening, though its failure is not yet absolutely certain. Saul said,

“The right says Doha will destroy the agricultural industry of the West by taking away subsidies. The left and people in the developing economies say Doha will be great because it will help the Third World farmers get to world market because they won’t have to compete with Western protectionist subsidies.”

For his own part, Saul asserts that the left’s position is mistaken: Doha would actually harm Third World farmers. Why? Free trade made sense during the nineteenth century, when there was scarcity. But today, there is the opposite situation — a surplus of food — and in that condition, the producers lose. Money goes to the people who control the market. Any form of unleashed competition will simply drive the prices further down, so the Doha Round is absolutely the wrong thing to do.

All I know is that Ted Turner remains a great believer in free trade, for several months ago he appeared before the world’s money-controllers at Davos and begged them in the name of humanity to save the Doha Round. His argument was based on a version of the one Kory Tenetcke summarized above, but with a new wrinkle, showing them how to make it palatable politically.

Turner says that the blessings of ethanol production are about to make life newly prosperous for American and other corn producers, who normally have made it impossible for US politicians even to consider reducing the protective tariffs that now exclude African farm commodities. If, on the other hand, the American producers start making a lot of money, they will become more flexible and hence let go of their protectionist benefits — i.e. allow the U.S. politicians to ratify Doha. Hence accepting ethanol is the best (albeit indirect) way to fight hunger around the world.

I won’t venture to guess whether Doha will benefit or harm Third World Farmers, but I do have two additional facts to put into the dispute about the political effects of ethanol production in the United States. It seems that a couple of weeks ago, a bill came up for renewal covering foreign aid. Whereas in the past, legislation had specified that any US funds given to Third World countries must be spent (largely or entirely, I’m not sure which) in the United States, things have changed. Because farmers are feeling especially prosperous now, owing to their additional income from sales to ethanol manufacturers, no objections were raised to the highly reasonable alternative. Funding to the Third World can now be spent for goods produced within the Third World itself.

Obviously, this is a beneficial move. When this was mentioned to Bill Clinton, he said that the idea had never cross his mind while he was President. Presumably John Ralston Saul expects the money to wind up in the pockets of financiers, not farmers. That would be a sad outcome, since the new development itself looks unmistakably progressive. It also seems to confirm Ted Turner’s theory.

Yet it remains possible that there are such narrow margins of supply in the world’s agrarian storehouses that it still makes no sense to divert food to other purposes. Although per capita food production regularly increased enough to keep pace with the growing world population (contrary to Malthus’s predictions), the productivity increases have slowed in the past few years. Theoretically, a major global crop failure or other crisis could put a significant population into a risky situation for the first time in many years. This could be the case even though, as Saul suggested, the global market prices reflect a situation of overall surplus.