It’s the Stupid Politics

Japan doesn't need any of the rice it buys abroad, and its leaders don't want it. In fact, Japanese farmers harvested a big surplus in 2007, and the long-ruling Liberal Democratic Party attempted for decades to shield traditional growers from outside competition. The rice imports are typically warehoused for years and eventually sold to make crackers or miso, sent abroad as food aid or, increasingly, fed to chickens, pigs or cattle. Japan is a big importer for one reason: the World Trade Organization demanded that it become one. In 1993 the WTO required that Tokyo import the equivalent of 4 to 7.2 percent of its annual domestic rice consumption. The result is that last year Japan imported 770,000 tons of unwanted and unneeded rice last year, contributing in a small yet significant way to the run-up in rice prices that is helping to stir riots and unrest across the world.

The WTO cracked Japan's rice market open in the name of free trade. By protecting local growers with heavy subsidies, went the logic, Tokyo and its neighbor South Korea had forced their consumers to pay three to four times the world average for a sack of their main foodstuff—a product farmers in, say, Thailand, with its lower costs, could deliver much cheaper. Such closed-door policies denied farmers in developing countries access to the world's premier rice market, thus limiting their ability to farm themselves out of poverty. Yet when Japan's market finally opened, the big winners were farmers from another rich, heavily subsidized region: California. They've grabbed roughly half of Japan's import quota since 1995, thanks to $2 billion in subsidies paid to the state's rice farmers over that period.

The story illustrates the two biggest factors contributing to today's global food crisis. One is the grossly distorted system of global trade in agriculture. Rich countries—mainly the United States and parts of Europe—heavily subsidize farms, then dump their surpluses onto emerging markets (often after forcing them open in one-sided trade deals). The other factor is underinvestment in agriculture in the developing world, which leaders rationalize on the mistaken assumption that imported food would forever remain cheap. "They simply did not make [agricultural investments] a priority," says Lennart Bage, president of the U.N.-affiliated International Fund for Agricultural Development. "They've been lulled into a false sense of complacency."

And now they're facing a rude awakening. By all accounts, a period we might call the Era of Cheap Food, which ran from 1980 to 2003, is over—most likely for good. The new context is food scarcity, soaring grain prices, market panic and well-founded fears of widespread hunger in Africa and South Asia. The crisis is driven by the inexorable rise of a new middle class in emerging markets that is consuming more and better food, but also by stupid and reversible policy mistakes. A dizzying array of trade restrictions distorts global commerce in most agricultural commodities. Although the barriers take different forms in Asia and Europe, the United States and Latin America, their purpose everywhere has been the same: to protect local farmers and an often vanishing rural society, not to feed people.

The scale of the market distortions is enormous. One World Bank study estimates that rich-world exports subsidies and tariffs cost poor-country farmers $100 billion yearly in lost income. Mike Moore, former New Zealand prime minister and head of the World Trade Organization, urges prompt conclusion of the WTO talks, which would end agricultural export subsidies by 2013, and "give four to five times as much to Africa as all the debt relief and overseas development assistance put together." In 2006, development aid alone came to more than $100 billion, so these are huge sums.

The crisis, however, has upended the WTO debate. While many parties, particularly the United States and Europe, were arguing over which side needed to do more to free markets, the race is now on to close markets. Surplus-rice growers, including India, Vietnam, Thailand and Cambodia, have imposed new export restrictions to curb inflation at home, leaving the Philippines, Indonesia and other major importers to scramble. It's a starve-thy-neighbor policy that is sure to raise global prices and worsen the crisis.