1. Policies that Raise Prices to Farmers Direct Subsidies and Eliminating Urban Bias Text extracted from: The World Food Problem Leathers and Foster, 2004 http://www.lastfirst.net/images/product/R004548.jpg

2. Increasing Ag Production Important 89 undernourished countries had similar undernutrition –1979-81 Countries with high yield cereal growth 1998-2000 –Undernutrition sharply reduced Countries with low yield cereal growth 1998-2000 –Undernutrition increased http://www.oznet.ksu.edu/fieldday/kids/pictures/kidsfield600/cg_wheat_closeup.jpg

3. How to help farmers produce more? Increase prices using subsidies Increase prices by removal of taxes on farm output Grain Market, Ethiopia http://www.cimmyt.org/worldwide/CIMMYT_Regions/CIMMYT_Africa/images_region_ africa/afri96_50.jpg

4. Direct Subsidies Target-Price Deficiency Payment Programs –Government sets target price –Farmer sells crop at market price –Government makes up difference if market price is lower than target price Wheat Harvest, Sudan http://www.cimmyt.org/worldwide/CIMMYT_Regions/CIMM YT_Africa/images_region_africa/images_africa.htm

5. Problems with Subsidies Iraqi case study –Saddam Hussein’s government subsidized Iraqi farmers Seeds Fertilizer Chemicals Below-market prices –No incentive to produce quality grain Gummed up flour mills U.S. continued subsidy but –Fed Iraqi grain to animals Or burned it –Imported wheat for flour http://www.un.org/av/photo/subjects/iraq.htm

6. Distortionary Subsidies Work through price mechanism Farmer given subsidy per unit of production –More farmer produces, more subsidy received –This distorts farmer decisions Plants more Interferes with free trade –Reduces imports –Increases competition in export market World Trade Organization limits this kind of subsidy –Will be fewer in the future http://www.rightgrrl.com/cartoons/wto.jpg

7. Non-Distortionary Subsidies Do not work through price mechanism –U.S. farmers paid based on how many acres historically farmed –Increases in acreage or yield: do not increase the subsidy payment Not limited by WTO agreements  $600 million - $1.84 billion  $4.2 billion  $1.84 - $4.2 billion U.S. subsidies 1995-2004 http://www.ewg.org/farm/redraw/

8. Urban Bias Rural and Urban populations compete –for policy control Urban population wins –Better education –Lower poverty –Better organization Get super highways –Instead of water pumps to grow rice Biggest problem in development Rice Paddy Irrigation Pump http://www.globalservicefoundation.org/photo.html

9. Urban Bias Developed countries –Strong farm subsidies Developing countries –Low farm prices –Subsidize consumers Discourages farmers –Produce less Farming in Scotland http://newsimg.bbc.co.uk/media/images/39146000/jpg/_39146320_tractor203bbc.jpg

10. Implicit Subsidies to Consumers Subsidies carried out in name of lower food prices: –Noncompetitive procurement of grain from farmers –Below market food prices set by law –Foreign trade controls –Support of overvalued domestic currency –Limits on cash cropping All result in implicit subsidies to consumers All result in implicit taxes on farmers http://www.cimmyt.org/worldwide/CIMMYT_Regions/CIMMYT_Africa/images_regi on_africa/images_africa.htm

11. Fair-Price Ration Shops India, 1970s –Subsidized food at about ½ price –Farmers had to sell at below market price –Therefore farmers bore much of the cost of food subsidy http://india.eu.org/IMG/jpg/ration_card_shop_2004014.jpg Food Ration Shop, India

12. Administered pricing Case Study: Jamaica –Government set ceiling on retail price of wheat flour Imported in capitol city (Kingston) –Barely profitable for supermarkets to sell it in Kingston Available to urban consumers at good price –Not profitable in remote locations, Flour sold on black market –At considerable premium Only available to poor rural consumers at high price –much more than without government policy. Jamaica Market http://media.expedia.com/media/content/shared/images/363x233/rm/023DBD00_ss.jpg

13. Export Taxes Generates revenue for governments Lowers domestic price of agricultural products –Farmers get world price Minus cost of tax Disincentive to production Example: Cocoa in Ghana – 1980-1982 http://www.ghanaembassy.or.jp/business/cocoa250.jpg

14. Overvalued domestic currency Demand for foreign products drives currency deficit –Local currency value falls Governments fix exchange rate in country –Higher than international rate Export prices based on international rates –Farmer gets little for crop Domestic prices based on Export prices –Low prices benefit consumers –Disincentive for farmers http://static.howstuffworks.com/gif/exchange-rate-ch.jpg

15. Overvalued Domestic currency African countries reducing problem of overvalued domestic currency –Had increasing agricultural production African countries increasing level of overvalued domestic currency –Had declining agricultural production http://www.usaid.gov/locations/sub-saharan_africa/initiatives/images/IEHA-niger1_millet_dryland_farm.jpg Millet Farm, Niger

16. Limits on Cash Cropping Cash crop: for sale or export –Subsistence crop: for home use Food First: cash crops bad –Reduce local food supply Raise prices Disagrees with Food First –Farmers better off growing cash crops Earn more: food security Nutrition better Can afford fertilizer –Ex: Carnations in Columbia Earn 80x more/hectare Can afford to buy grain Employs more workers http://www.eastlondonmarkets.com/images/man%20and%20flowers.jpg Flower Market, Columbia

17. Tax alternatives Agricultural land –Use satellite imagery to determine use Agricultural income –Target large landholders Retail Consumption –Shifts burden to urban consumers http://www.trautman.net/farm/land/trautman/farm%20-%20satellite%202002-11_noted.GIF Wisconsin farm

18. Cost of Urban Bias Ag prices lowered –Disincentive for farmers Grain taxed –Poor undernourished –Grain (untaxed) used to produce meat Benefits wealthy Local industry favored –Imports discouraged by high tariffs –“Import Substitution” Economy grows slowly –Fewer jobs http://www.buyusa.gov/greatlakes/48.jpg Manila, Philippines