Visiting Scholar Adam Lerrick

Leaders of the G8 nations are gathered this week in Toyako, Japan, to root out the culprits in a food crisis that has moved hundreds of millions from subsistence to starvation. They need look no further than an old group photo.

The G8 countries' interventions have distorted global agricultural markets to the paralysis point. Politicians legislate price supports to enrich farm voters. Lobbies extort tariffs to block cheap food imports and subsidies to underwrite food exports at prices that destroy competitors in poor countries. Conservationists have agitated to set aside productive land and pay farmers not to grow. And now green energy advocates push ethanol quotas and tax credits that divert food into fuel.

Don't blame speculators for the food crisis: It was already here when they arrived. Rather thank them for a wake-up call. Financial markets are driving today's prices to match expectations of tomorrow's values--the consensus of countless investors and producers is that the era of surpluses and cheap food is over. Yet even a credible promise that G8 protectionist policies will be reversed would raise output down the road and drop prices at the corner grocery counter overnight.

The new famine is not about a crisis in global supply. Markets are full of food that developing-nation consumers cannot afford to buy. Prices for rice, corn, wheat and soy beans, the staple crops for world sustenance, have doubled in a single year.

This pinches families in developed countries who allocate 15% of their income to food. In poor countries, where many spend 75% of their earnings to eat, real wages have been cut by a life-changing one-third. A decade of progress in reducing poverty is being erased.

In response, countries whose people are being hit hard are adopting policies that mortgage their economic future. From Mexico and Indonesia to Egypt and Côte d'Ivoire, governments have responded to protest and riots with backward measures that keep domestic prices down but choke off incentives to plant and harvest more. One-third of the world's population now lives under food price controls. Subsidies to keep rice and bread on the table are eating up scarce funds.

Schools will not open, roads and ports will not be built, electricity will not power expansion. Central banks are giving up growth to contain an inflation imported from abroad.

National food security is the new overriding concern. India and Vietnam, the world's second and third biggest exporters of rice, have banned foreign sales. Wheat suppliers from Australia to Argentina are restricting shipments. In China, massive new export tariffs keep fertilizer at home to lessen farming costs.

For a decade, the world's demand for food has grown faster than the supply. Throughout the developing world, hundreds of millions of people have migrated from the country where they fed themselves to the city where they must buy their food. A new middle class is eating more and eating better.

Seven pounds of grain are required to produce a single pound of meat; China, India and Brazil are eating 40% more beef than in 2000. Global food stocks have collapsed to a 50-day reserve, their lowest level in half a century. Even as the mountains of grain in government warehouses have eroded, G8 members have been holding back supply.

Poor farmers have been deprived of a livelihood. Who will plant when rich world producers--protected from imports and guaranteed a subsidized gain on exports--dump crops on world markets, pushing global prices below the real cost of production?

In the name of conservation, U.S. farmers have been bribed to keep fields fallow--36 million acres of cropland, the size of Iowa, at a taxpayer cost of $2 billion a year. In Europe, large farmers have been compelled to leave 10% of their holdings idle.

Food and fuel have been placed in competition for crops and land. A 10% content mandate for every gallon of gas, and $7 billion of subsidies, now divert one-third of the U.S. corn crop to ethanol, and have driven soybean acreage to its lowest level in more than a decade.

Even aid is tainted. The U.S. provides one-half of world food relief, but is the only major donor that gives in kind and not in cash. Thousands of tons of cereals are transported by barge along the Mississippi, navigated across two oceans on high-cost American ships and delivered by truck in Africa--where stockpiles of local grain are rotting for want of buyers. The same $2 billion worth of aid spent buying local foodstuffs would increase benefits for poor consumers dramatically and build a market for the crops of farmers.

While a myopic U.S. Congress indulges in the biggest farm bill ever, and France proposes to pay old-style farmers more to overproduce, high prices are breaking the G8 grip on food. In Ethiopia's Rift valley, farmers are pooling funds to buy $75,000 John Deere harvesters. Swedish and English entrepreneurs are assembling small land holdings in Ukraine and Russia to build world-class cereal producers. In Sudan, Abu Dhabi's sovereign fund is planting 70,000 acres with corn and wheat. Monsanto has promised new modified seeds that will double crop yields and, this time, finicky European bans will not prevail.

When the dust settles, there will be a time of plenty in developing lands--and far fewer Porsche dealerships in the U.S. farm belt.

Adam Lerrick is a visiting scholar at AEI.