Out of Control

If there was any silver lining to the global food price crisis, it was that countries around the world started tearing down long-standing trade barriers such as tariffs and quotas against food imports. But that silver lining proved short-lived as another threat to free trade emerged: export bans and export taxes on domestic food.

To return soaring food prices to earth and placate irate consumers (read: voters): India announced a temporary ban on some varieties of rice; China slapped export taxes on rice; Pakistan imposed a 35 percent duty on wheat; and Russia quadrupled wheat-export taxes to 40 percent.

But the problem with such measures is that the relief they provide will be temporary – and the pain they cause more enduring. Why? Farmers who can’t command the market price for their produce will have little incentive to invest in yield-enhancing technologies, making it much harder for food production to catch up with demand. Farmers will certainly lose out -- but so will consumers.

The only country that seems to understand this is South Africa which has refused to jump on the export-ban bandwagon. “We don’t believe banning exports will help us in the long run,” noted Lulu Xingwana, the South African agricultural minister.

Bonus:
Check out Noble laureate and Chicago econ prof Gary Becker's brilliant analysis of the Malthusian fallacies underlying the discussion of this issue here.