Interview with an expert on agricultural economy and policy

What’s the situation nowadays?

Well, prices have come down significantly, they are probably about fifty percent of what they were at the height of the price crises. And you are right, we are not talking much about it, which is a bad sign. A bad sign because we still have more than eight hundred and fifty million people food insecure, going hungry every day, and we still have two and a half billion people whose livelihood depends on agriculture, that they don‚t have enough income to really improve their standard of living. So in that sense it is good news for consumers, but I feel that for all overall it is not so good because one of the good things of the crises was that it put at the top of the agenda the agricultural issue, the food issue and the hunger issue. So, they are so critical that we need to be reminding ourselves that we cannot forget them.

So you have said saying that the situation concerning the crises is normal or better?

It is better.

Compared to the last year crises. But still there are so many people who are suffering from hunger. How come?

Well, because to a large extent, the reason why more than eight hundred and fifty million people go hungry is not because the price of food is too expensive. It is because they do not have access to the food whatever the price it is. And sometimes they don‘t have access because of social conflicts or civil wars. Sometimes they don‚t have access because truly the availability of the food in the region doesn‘t exist. So to a large extent we have never had a global effort to try to eliminate hunger. What we have tried is or what we have engaged in is a global effort to try to deal with hunger but not with the root causes. And I think that one of the things that this crises has brought into the picture is that there have been triggers of the crises but there are also underlying causes. So some of the triggers have been dealt with but the causes have not been addressed. So as long as we don‚t make a concerted effort to address the causes at the international level engaging FAO, the World Bank, WTO, IMF and all the international institutions, I don‘t think we can really be satisfied with the situation, even if the prices were low.

You are right, there were like hundreds of initiatives which were aimed at trying to deal with this problem. Where do you see the crucial point why they didn‚t succeed so far?

I think that the crucial point is that we haven‘t really made commitment in trying to address the real relationship between agricultural production, rural economies and food security. We have been trying to deal indirectly with some of the instruments that may help. And in the last fifteen years we all have been concentrated in trade. That trade realization would be the vehicle to alliviate or to move the countries out of poverty or to create a more dynamic agricultural sector. And because we have focused on trade, what we have done is, we have caused that most of the new investment in developing countries have been trade-oriented. And by trade-oriented in some cases means to increase ability to produce rice or corn or cotton, but in the majority cases it has been the ability of those countries to produce fruits and vegetables whose market is not the local market but the high income market of the European Union, the US or Japan. So we have basically created two agricultures. If before the emphasis on trade we have a lack of integration in agricultural sectors in most countries, this emphasis on trade has deepened those divisions between those farmers that really have engaged in increased productivity and increased level of sophistication to create a product that will be acceptable for the first world and with farmers whose subject is to provide food for the local population.

Do I understand it well that the global market and trade with food led to the fact that each country of developing world somehow focused on one thing in which they had some advantage and actually only produce for the global market and then buying food for themselves on the global market as well?

Even if they tried to diversify - for example in the case of Peru: Peru exported a lot of asparagus. Ten or fifteen years ago in Peru we didn‘t have a significant production of asparagus. Now we are the number one export in the world. Ok? Now if you look at the asparagus production, it is very modern, but only affects a very tiny percentage of the farm population. So that has been one case. In the other case we also have specialized. Or at least try to look for export opportunities in flowers and some fruits. All of them are very specific and specialized markets. But where the big agriculture comes, which is basically in cereals, in oil seeds, livestock, in those areas which are most of the time oriented towards the local market, we haven‘t done investments. So the overemphasis on trade has lead the agricultural sectors to basically overemphasise the investments in export-driven products and kind of forget about the need to generate a more dynamic agricultural sector in terms of producing for the local market, where most farmers anyway are engaged, especially the farmers with less resources.

So I am listening to you and I got an idea whose fault it is. Isn‘t it just up to the government in each state to settle its own agricultural policy, I mean in Peru?

Yes, no question about that. There is enough blame to pass around. Ok? On the one hand, one can blame the international institutions in trying to overemphasise, sell, advertise, use propaganda to oversell the abilities of trade. On the other hand, what you have is the local government decisions: one of buying that model and second not questioning whether that model was suitable or not for the country. The conventional wisdom is: if we export, we are going to grow, if we export, we are a modern country. So what I would call the political and economic elites bought that story. They bought it and they benefit from it. But there is still a lot to say in how much of the benefits of buying that model, that story have gone to the base of the population. And the other issue there is that a lot of the investment and foreign aid, because the global or the widespread idea that trade was the solution, was also directed towards cause or activities that had the potential to generate exports. So I think that everything kind of falls into a snowball and make things bigger. But yes there is responsibility from local governments, I mean domestic policymakers that they don‚t really listen or explore what the domestic needs were and blame in the sense that international institutions like FAO, especially FAO, were not strong enough to provide a wider set of alternatives, a wider analysis for local government to follow. And I think if there is any blame on FAO - it is that one: that they were not strong enough. But on the other hand, we have to understand that if FAO is a member-driven organization. So if the member countries, especially the ones that provide budget, are the ones who say what needs to be done, you cannot blame the organization as such. So it is a complex issue in the sense of who is to blame but I think it is critical to understand that that is what was sold on TV. And the message is very simple: free markets are fair markets, are transparent. So if something is transparent and is free, it has to be good. And I think that was a very strong selling point.

Why do you think that the market is.. Do you have any more arguments why a free market is not applicable in the case of global food, concerning the food security for everybody?

Well, the thing here is that where the free market puts a premium is on the fact which is the best supplier to satisfy a global need. And in this case the most profitable global need is the high-end products: fruits, vegetables that the US, the European Union and Japan buy. So if they are the drivers of the market, ok, then the free market is going to send a signal to the producers in developing countries and say: if you want to make money, this is what you want to do: you have to produce mangoes, you have to produce bananas, you have to produce asparagus and you have to sell them in Amsterdam, in New York, in Tokyo. So in fact, what it is saying is: don‘t worry about the global population. We will find a way of taking care of it. Worry about making money on this. And what happens is, what this crises really makes us aware of is that many countries didn‚t have the ability to respond to the crisis because a lot of borrowing institutions that were oriented to support global production were already dismantled. There were no extension services or education services for farmers, there was no support for local farmers in terms of providing them with fertilizers or credit. So when they felt the need to increase domestic production, they realized: wait a minute, we don‘t have the tools. Now, we don‚t know how many of those countries, or those elites have learnt their lesson. It may be that a lot of countries have learnt the lesson, and what we can point out is that in the news a couple of weeks ago is that we have officials from Thailand and Vietnam talking about developing their own stock reserves of rice to specifically try to avoid this situation. So you can deduct from that that it seems like the Vietnamese and the Thai have learnt a little bit about this eighteen- month or twenty-four month lesson. The question is how widespread is this kind of reflection in most of the developing and the developed world.

Can we consider at all food as a product to be traded on the global market? I mean it is not a car.

I think that government policy has to take into account that food is a unique commodity or a unique good. As you said it, it doesn‘t matter if we don‚t have cars in the stores for a month or two months. Well, we can walk, we drive a bike, we ride a tram or metro, whatever. But to go without food for that long is just not acceptable. So that means that there has to be a specific government policy directed towards ensuring food security of the population and it does not imply that every country has to sign a letter that says "we ensure that its going to happen" because countries have different levels of ability to fulfil that commitment. Not everyone has the fiscal budgets to do it but at least the commitment with a policy oriented towards that goal. Now the problem is not the trade itself, the problem is when you make trade your first priority. So when food security or the availability of food or affordable food to the population should be the first priority, government for a long time made trade the first priority and that is a problem. Because at the end I think that in any case we are going to see that we are going to engage in a controlled trade because not everyone can produce what they need, not everyone can produce the set of products that they would like to consume. So trade is going to happen. The problem is when you make the local, the domestic policy a function of trade policy. That is when the problem comes.

I will come back again to the last year crises because of the rise of the prices of commodities, especially, one couldn‘t get the feeling that agriculture becomes a very lucrative business and that somehow people in agriculture have nothing to complain about. Is it really like that that the farmer itself profits from rise or volatility of the prices on the international markets?

That is a very good and complicated issue. What we have experienced is the volatility induced by global effects. So that have affected global markets and we have to look at how that has been transmitted to local farmers. And we can find all kinds of situations. One situation in which probably you have the most of the price increase was taken advantage by the intermediaries or the market in chain. Why? Because when you have a situation in which you only have a very limited ability to sell to only one or two intermediaries you have no choice but to fall on their request or the orders of those intermediaries. So those intermediaries have the ability to cut you as much as they can from the increasing world prices. Then you have more, let‘s put it, transparent, or competitive marketing systems that actually provide farmers with more alternatives to sell the product. In that case the farmers have a better access to the higher price but the condition to benefit for the higher price is for farmers to have the product. Meaning they were farmers that before the increasing prices they already sold their product. So if you sold your product it didn‚t matter if prices increased because you already sold it. There were other farmers, especially the larger farmers, that can afford to sell the product through the marketing gear and probably they found themselves in a situation in which they said: wow, we set aside this much to be sold during the year and now we find ourselves with these very high prices. And there were other farmers that were just in harvesting when the high prices came. So I think that you are going to have all kinds of impacts from the ones that didn‘t benefit much to the ones who benefit a lot. At the same time that we have the increase in farm prices or agricultural commodity prices, because that happened also when the price of oil was increasing, we have an increase, a tremendous increase in the price of fertilizers and other chemical products. So again, it depends on when you bought your fertilizers, if you have access to them, how much you profit. So I will say in general the rule will be that probably most farmers benefit to some extent from the higher prices. Some of them a lot, some of them a little and some of them no. The question is, if we see these as a one-time event, that is irrelevant but the bigger issue is: do we want to see these as a long-term event. Not the price increase necessarily but the ability of farmers to have access to a larger share of the food bill. And I think that is the biggest challenge.

How to secure that?

Well, in most cases the key element is the marketing system. We always complain: oh, the farmer is here, the consumer is here and all the money is accrued by the intermediary. Well, there are many reasons why the intermediary gets all the money. And one of those reasons may be that there is so little infrastructure that it is very expensive to truly move the product from the farmer to the market. So one way to help that is to increase and improve the infrastructure of distribution. And that means roads, that means storage places or distribution or collection places and it also means that there has to be a more transparent marketing system. In the sense that we have to support not one, two or three, we need to support five businesses or individuals who are doing the marketing to provide farmers with alternatives. We also have to provide farmers with the right information. We also can provide farmers with credit. Credit that allows them to put their product as a collateral so they can sell it through the year rather than have to sell all their product during harvest time. So there are investments that can be done in improving the efficiency of the marketing systems so farmers have access to a larger share of their food bill.

Again, back to the last year crises. One of the factors which was blamed for the increase was the activity of speculators which were taking money from their shares and putting money into commodity markets. Do you think it should be banned to speculate with food?

I will not be as drastic as to say - "banned“. Because the futures or speculative markets also play a role in trying to help farmers and food buyers like countries or other companies to use that as a way to reduce their price risk, ok? But that is one thing to be a tool for risk management. It is a totally different tool when we have futures market that it was driven by financial investments. And the reason why it was driven by financial investments is that in the US for a long time it was limited how much any individual investor can take a possession in a particular grain, ok? And all of a sudden, the Security Exchange Commission which regulates this kind of future markets has started to relax these rules. So obviously, if investors see an opportunity of making money in rising agricultural commodity prices that is where they are going to put their money. So we went to the extreme in which these speculative markets basically drove as much volume in terms of contracts as we were using for biofuels. So we not only increase the demand once, we increased the demand twice basically in a very short amount of time.

For the biofuels..

For the biofuels but especially for the financial speculation.

You have mentioned already that Thailand with Vietnam are already preparing some kind of cooperation with rice stocks as a result or consequence of the last year crises. My question is - was there any measure taken and implied by the developed countries concerning the crises?

I think that there is an opportunity here to at least seriously consider the need for international food reserves. Most of the food grains except rice are exported by developed countries. So to a large extent, it is in the hands of developed countries to consider their participation in such a food reserve. And this food reserve can have two objectives: one objective could be to try to prevent any future and reasonable price spikes? Ok? If prices go too high, that reserve can be released to the market at least partially to drive their prices down. But that reserve can also be used as a humanitarian reserve, meaning to address specific cases of humanitarian need. A rice for conflicts, for specific droughts, or any other conflicts. And the idea here is, we have the ability to do it, the only thing is lacking is the political will to implement it.

Because it would have to be a government that would buy this grain from farmers, right?

It would have to be some government either to buy indirectly or providing funds to buy it. So basically, it would be a government buying it from the farmers and putting it into the international reserves that are not under the control anymore. Let‘s say that it is going to be under the control of an independent international organization. Let’s try not to call names. So what the US, the EU, Brazil will have to do is to trust these independent organizations that they are going to use these stocks wisely. And there is always the potential for suspicions, but at the same time there is always the potential to say: Let’s try it, let’s try it, improve it and if we cannot live with it, kill it. But I think what last years experience have shown us is that we will, most of our countries put a lot of emphasis in having an energy strategic reserve. Oil reserve - that is very important. But very few put the same kind of emphasis on generating a food reserve. Ok, if there is a lack of energy supply we cannot move our cars, we cannot do many things, but still can live. With the other one, without food, we cannot live. So just let’s see which one is more important.

Well I suppose that the hunger is faced merely by the poor south. Right? That is true. I think that we try or that the international community has been trying to face this problem for fifty years already without any success. I think personally, and I would like to know your opinion, that agriculture in these countries is a crucial business which makes the motor of their economy going because without people being fed you cant do anything else. So what recepy would you recommend to these international organizations?

Right, we have had declining agricultural prices for about 25 years now. That means that the prospect, the outlook on the income of 2.5 billion people has been decreasing, ok? So that is one of the first elements that we have to engage in. How do we create conditions so that the activity of those 2.5 billion people can provide a higher return. That is one thing. Secondly, there is some hunger, I don‚t know the rates right now, but there are in the presentation of Mr. Olivier de Schader that is caused by either civil wars or civil disturbances. And one can say that there is a responsibility there of the political system but probably if one creates the conditions for the agricultural sector to develop that will also result in a more stable political situation that will reduce, not eliminate necessarily, but will reduce the potential for a political conflict and therefore for hunger. So the first one is, and as you said, take the fact that even today, that we are talking about the internet, when we are talking about solar energy, when we are talking about greenhouse gases and climate change, there are still 2.5 billion people whose basic livelihood depends on the production of food whatever means they have available. And it could be half an hectare, a fourth of a hectare, it could be with a donkey, it could be with an ox, but those people are the basis of our society. And as long as we don‘t seriously address their needs for increase in efficiency and in production we are not going to be able to address the whole issue. One thing that we have seen in the last 24 months is that the reason why we have riots it was not necessarily because farmers were protesting, it was because the urban population, especially the poor urban population, was reacting either to the high prices or to the lack of availability of the product. So there is an alliance that needs to be build, there is an alliance of interest between the wider agricultural community and the urban poor. Apparently one can say, well but there is a contradiction one wants high prices and the other one low prices, but it is not because at the end what both want is affordable food and the income. And the question is where, in what areas of the marketing chain can we invest to allow both things to happen. And that means again reducing the gap between the consumer price and the farmer price, allowing farmers to get a larger share and allowing the efficiency of the marketing system to reduce the price to the final consumer.

Yeah, we may make a conclusion that concerning the problems in the developing world that the most effective solution would be to establish self-sufficient local markets producing for the domestic consumption, am I right?

Yeah.

How to help these countries to make this viable?

Ok, first of all just a clarification. It is always good to have some sort of, some level of international competition. Meaning we don‚t want tariffs to go to zero but we don‘t want tariffs to go to infinity, either. Because having a little bit of competition helps domestic producers to be more efficient. But how to achieve that? To achieve that, the first thing we have to change is the language and the story that is sold and told through international organizations and through international cooperation. We have to change it from trade-oriented towards, you know what, the priority here is food security. And when we say priority, does it mean exclusivity? The priority is food security here and we are going to support efforts in food security. And what we are going to have is the World Bank, the IMF and the US and the EU, when they are approached by countries on trying to get support through loans or donations, is not to look how much exports you are going to be generating, but to look what is going to be the impact in the level of food security for your population and yes, how it is going to pay me back? But the most important is what is the impact on the food security of the population. The other could be what is the footprint on the environment, on the strategy that you are going to follow. And I believe that once that becomes the global story, the global advertisement, global propaganda, everything else is going to fall in place because it is going to be the dominant thinking in agriculture. And that one we need to change. What we need to change is the dominant thinking in agriculture. Today it is bad to think that agriculture has to be efficient and it needs to generate exports. That is the only thing that is good.