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Beware of Free Trade

Posted by administrator on Friday, January 7th, 2011

 

Beware of Free Trade

 By Benjamin Gisin

Financial consultant to farmers, lecturer and former banker,

 

Fifteen years ago the World Trade Organization (WTO) was organized to promote global free trade. One of the founding principles was to eliminate farm policies designed to protect a nation’s domestic farmers. The idea was that agricultural import quotas, support prices, government payments or tariffs, that protected domestic agricultural production, created an unfair playing field for foreign agricultural products.

Ironically, reducing farm subsidies is not the key to an even playing field. The real barriers to an even playing field are a lack of parity as relates to currencies, labor, and regulations. Poorer agricultural nations, with low labor rates, lack of regulation and depressed currency prices, put the U.S. farmer at a disadvantage. This is made worse by the U.S. financial mandate for a strong dollar, potentially making U.S. agricultural goods relatively more expensive than the competition.

In a rare standoff two years ago, amidst food riots in neighboring nations, China and India locked arms and told the WTO they were taking steps to protect their agricultural sectors, even if it meant re-instating pre-WTO policies for protecting their domestic sources of food.

 

When it comes to global food trade, there are two problems the old-school free-trade approach is not up to the challenge:  

 1) There is no global consensus as to a sane level of food stocks, where those stocks are to be located and who has access to them. Consequently, important food-stock reserves are considered an over supply, backwashing against farmers and reducing their numbers while risking more hunger and political destabilization in nations that find themselves short of food.

2) Speculation pushing prices up, pushes people away from the dinner table. Speculation pushing prices down, pushes farmers off their farms.

 

Free markets, thwarted by speculation, have proven themselves incapable of any self-control other than raw exploitation of an adverse situation. And it doesn’t matter if it is the hungry poor or the stressed farmer who is exploited. Amidst the 2008 food crises, the number of starving skyrocketed from 850 million to almost 1 billion overnight.

 

Since the 2008 food riots, nations including China, India, Egypt, South Korea, Japan and oil-rich middle east nations, have embarked, in varying degrees of urgency, on a path away from free markets. These nations represent over half the world’s people.

 

This free-market exodus expresses itself as direct intervention into a nation’s food stocks by government purchases and sales. In other expressions, China and India have been globetrotting to Africa and South America to control farmland in an effort to control food production and distribution under the radar of global free markets. Japan is looking to contract directly with farmers in foreign nations and own storage facilities and other agricultural infrastructure. Egypt, the world’s largest importer of wheat, is turning to its neighbor, Sudan, for agricultural partnerships that keep Egypt under the radar and protected from global free markets. South Korea recently announced that it was taking dramatic steps to insure access to wheat that is insulated from unexpected price spikes and avoiding buying grain from large multinational agribusinesses.

Global agricultural trade is being re-engineered. Food-import dependent nations are going to nations with strong agricultural resources and making direct investments in agricultural production and processing. China’s recent investment foray into Argentine soybean and meat production was furthered as China agreed to a $10 billion investment in Argentine railways, critical to the transportation of soybeans and meats that China is there for.

 

The volume of food trade, now being handled through government to government negotiations is on the rise. The world’s largest importer of rice, The Philippines, takes every chance it can to assure its supply of rice with government to government negotiations with one of the world’s largest suppliers of rice – Vietnam.

The head of the U.N Food and Agriculture Organization, Jacques Douf, recently held a press conference in Khartoum, the capital of Sudan. Douf explained: “World governments and the private sector must bolster food output to thwart speculators who are pushing up the prices of cereals and other basic foodstuffs.”

Agricultural trade groups of major commodities may want to think about: 1) creating a target list of the world’s largest food importing nations. 2) Approaching those nations with long-term contracts for production that, while they may have cost-of-production increases, essentially stay out of the free markets. 3) Encourage government to government trade that includes direct barter such as a given amount of wheat for a given amount of oil. This not only moves around free markets and speculators, but protects against inequities in currencies between the trading nations.

 

Gisin’s 20-year banking career culminated as the senior agricultural approval officer for the nation’s 7th largest ag bank. Since 1997, he has and continues to consulted farmers facing challenges in the credit markets. He lectures nationally on banking, economics and the processes of capital. He can be reached at (208) 681-2717

 


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