Ideas to Action:

Independent research for global prosperity

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Abstract

At the beginning of the new millennium, a key development concern was the impact of agricultural policies in high-income countries on poor farmers in the rest of the world. Over the ensuing decade, the focus swung from the role of price-suppressing farm subsidies to the role biofuel policies play in driving food prices up. While development advocates are right to criticize the trade-distorting costs and environmental risks of current biofuel policies, agricultural subsidies and trade barriers in rich countries remain in place and the distorting impact of those policies will rise again when prices decline. These traditional policies increase uncertainty and still distort what crops are grown where, so disciplines on them are still useful. American food aid practices are also stuck in the past and reforming them could mean millions more people fed on a limited budget.
 
The spread of biofuel support policies is also costly and inefficient, though in different ways. The precise impact of these policies on the level of food prices is still being debated, but there is little question that they are contributing to increased price volatility. While some upward adjustment in the level of prices was needed to encourage investment in agriculture, volatility is harmful to poor consumers and producers alike. These policies are also increasingly becoming a source of new trade disputes and the utility of the current generation of biofuels in reducing greenhouse gas emissions is questionable at best. With budgets tight and food prices high, both traditional agricultural and new biofuel support policies are increasingly under attack, and now is the time to reform them.
 
The paper highlights a few areas where policies seem particularly incoherent and concludes with recommendations for international agreements to support and lock in policy reforms in both the short and longer runs.