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"Improving conditions for the world’s populations: a challenge that can be met through the regulation of the agricultural markets"
agronomist and economist
By 2050, the world’s population will have grown by three billion. How will it be possible to provide enough food to cater for this increase? This problem first came to light in the 1960s, and now the Green Revolution and proactive public policies have enabled us to take a positive step.
Today we are facing an even greater challenge: we are going to have to reconcile the necessary increases in productivity with environmental considerations and issues of equality between the world’s countries.
Michel Griffon has just published a book entitled “Feed the Planet”. He paints a picture of the world’s future food crisis, and he puts forward the principles of sustainable development in the agriculture of the future. On the one hand, he answers our questions about the outlook for Brazil, the newly emerged agro-alimentary power, and on the other hand he broaches the topical question of those issues dictating the regulation of agricultural exchange.
Michel Griffon, agronomist and economist, is president of the Institute of economic and social development, and is the scientific consultant for the French fund for the world’s environment. Michel Griffon is actively contributing to WOAGRI’s objectives, namely to the instauration of world regulation for agricultural matters.
Why might Brazil eventually experience a decline in its role as agricultural exporter?
Brazil is certainly enjoying the benefits that come from its competitive standing, and will continue to do so over the coming decades.
This competitive edge is due to several natural advantages:
- the country’s surface area is immense;
- the favourable southern temperate climate and the tropical zone.
It also benefits from certain acquired advantages, such as:
- A considerable investment in river transport (both planned and underway) for the exportation of corn and soybean (and cotton) with very low transportation costs; there is even a project to extend rail transport to the west in order to access Colombian ports and open a direct window onto the Pacific.
- An investment in research, both in agronomy – to reduce the cost of working the soil, fertilisation, and crop protection – and in biotechnology. This research has had an immediate impact: “agro-ecology” is spreading rapidly, without the handicap of all the objections encountered in Europe. And the result has been rapid and large-scale economic benefits.
- Easily accessible capital for large- and medium-size operations, and industrial capital investments in the agricultural sector.
- very large scale agricultural operations benefiting from scale effects in costs
In addition, the labour costs for agricultural work are very low.
All this is giving Brazil a very strong competitive edge with respect to animal foodstuffs (corn and soybean), in cotton production, and in the production of rain-fed rice crops (rice hybrids), potentially in wheat production, although this is ecologically more limited, and in meat production.
However, in the long term (over 3 to 4 decades), this advantageous position may be weakened due to several reasons:
- Some theories of climatic change suggest that Brazil may suffer from a gradual reduction in rainfall and a decrease in potential production capacities (Max Planck I).
- This change is likely to be further aggravated by a process of desertification, resulting from deforestation, and the introduction of crop growing to areas that were previously rich in water. The eastern Amazon has already experienced droughts and massive fires.
- Transport investment will remain high, compared to that of the “traditional exporting countries”.
- Ukrainian and Russian competition will have a greater impact
- Mechanisation costs will rise, as will be the case throughout the world (energy prices), and for large-scale crop growing this will become a major disadvantage.
- The cost of employing agricultural workers cannot remain as low as it currently is.
So, it appears that Brazil may be vulnerable in terms of its ecological sustainability. One might question the climatic forecast models. But, even if the desertification process were not as extreme as that predicted by the models, deforestation itself might suffice to bring about many negative climatic changes. These two points need to be closely monitored
Of course, we are talking about very long-term patterns. Brazilian society will probably find a way to deal with these problems. Research investment is an important indication of a country’s capacity to adapt to future situations.
Your analysis on Brazil’s long-term future leads one to question the “scale and decadence” of agricultural economies that are insensitive to political, economic, and social choices. In the light of this, WOAGRI is asking that principles of governance for world agriculture based on the regulation of world markets be defined and established. Your study seems to be leading you in this direction. What do you think are the arguments that support this regulation, at a time when the WTO is pushing for the liberalisation of the agricultural markets, as though it were the only salvation for mankind?
A. Arguments that are universally applicable
1- Firstly, there is a historical reason. The agricultural markets have always been characterized by the a relationship of asymmetric forces between the producers on the one hand, whose offer is divided into very small parts, and for whom there is a lack of information about market conditions, and on the other, buying power that is often an oligopoly or a local monopoly with capital and information. This is what leads to low agricultural prices. Added to this, agricultural enterprise is systematically undervalued in societies, and it is often seen as acceptable to underpay this sector.
2- And agricultural production always operates in the following way: the producer gives an advance – an investment – of between 30 to 130 working days, and also covers the expenses to bring out the product. As soon as there is a slight surplus offer, the producer ends up in a situation of inferiority in terms of price fixing, because his expenses put him in the position of seller. Even if the offer is slightly insufficient, he has to sell quickly. Regarding fruit and vegetables, the producers are often paid after the consumer has bought the goods and the element of perishability introduces vulnerability into the exchange process.
This has been true for a long time in western societies, and still applies to most of the developing countries. Without a definite public policy in these countries, there will be no parity of revenue.
3- Agricultural prices suffer from constant instability. This is a result of the changeability of demand and the variability of the offer. And there are speculative mechanisms that are related to the asymmetry of market forces (see above). These price fluctuations lead to the erosion of agricultural revenues, because of the successive “ratchet effects”. The devaluations are in general not favourable to farmers because the rises in the prices of incoming products are always greater than the rises in agricultural prices, once again for the very same reasons of asymmetry in market forces.
These causes are universally relevant. They are more or less important, depending on the place and era. But they are ever present.
B. Economic arguments
1- International commercial competition: the general principle over the last two centuries is that of fair trade, i.e. by simplifying, of the absence of dumping and other measures of the distortion or prevention of exchange. The principle arguments here are economical. The fundamental law is that of comparative advantages.
To that has been added over the last two decades the principle thought as necessary for the general opening up of the markets, the globalisation of the economy. There are, therefore, factors of natural and economic competitiveness and the behaviour of the actors of the entire production system.
The arguments concern the distorted character of export subsidies and refunds, and on the quantitative restrictions to trading.
But the protection – both tariff and non-tariff – is justified through the principle of security that no country will accept to sacrifice for the motive that globalisation would bring general additional economic benefits.
Food security is a key part of “natural securities”. Any country, if it deems it necessary, may protect its core production. The international pressure in this area is the consequence of preoccupations with national security. The countries most concerned are the developing countries; it must be noted that it is above all the World Bank, which has pushed them to remove protection from their food economy, much more than the system of negotiations within the framework of the WTO. But the industrialised countries may also consider it necessary to guarantee a major part of their self-supply.
2- The arguments also concern sanitary measures for imports imposed by certain governments. There again, as soon as there is enough scientific evidence to claim that a product can be harmful to one’s health, governments have a legitimate right to close their borders to it. We need to be sure whether there is abuse or not. In this matter, the WTO panels cannot substitute for the independent opinions of the scientists outside of all considerations of national interest. As there is no independent international scientific body, and knowing that it is rare to reach a consensus on questions that are often very complex, a status quo is likely in the forms of regulation.
Thus, if we accept that there are certain countries that find it necessary to guarantee a safeguard protection for food security and sanitary security, and if we accept that direct export aid will have to disappear, there remains a wide scope for competition and the implementation of a market economy on the world stage.
3- But this situation is causing a lot of problems. The rapid spreading of competition in the agricultural sector may result in violent economic opposition. In fact, the market consists of very different economic spaces with very contrasted competitive advantages in terms of:
- labour costs;
- available natural resources (space, fertility, water…);
- technology and technological capacities;
- indirect help for production.
The differences in labour costs will certainly lead in the long term to raising the wages for the poorest populations (an argument for large-scale labour redistribution), but the aggressiveness of the competition may also destroy employment in the productive spaces that the new competitiveness designates as being in a position of competitive disadvantage. Even if we accept the inevitability of this process, it is far too rapid. The populations and societies concerned need time to adjust and to adapt.
C. Arguments with implications for the future of mankind
1- The problem takes on an even greater moral aspect when competition leads to great pressure being exerted on the labour costs of the poor countries, because the employees do not benefit from trade union rights, or child labour is practised. The argument that puts forward “the great redistribution of work” does not cancel out the moral arguments (the exploitation of the poor) and the economic ones (distortion of labour costs). To create parity, it would be necessary to have equal employment laws in the various countries, and to ensure that labour costs correspond (over a certain period) to spending power.
2- Competition between production areas with different natural resources is inevitable. But the danger lies in the fact that in some spaces the natural resources are reduced or consumed at a higher rate than their capacity for renewal; the depletion of the water tables and of the earth, and the phenomenon of deforestation are resulting in an irreversible deterioration in the environment and in desertification. Here we are talking about a veritable “speculative bubble” for natural resources which is threatening, when it bursts, the food security of the local populations and maybe the world food situation (cf. Brazil above). The deterioration of the environment and its distorting effect on world trade needs to be measured in a way that exposes the phenomenon.
3- Finally, it will have to be recognised one day that all farming produces not only a great number of food (and non-food) products, but also a great number of “ecological services” (water regulation and quality, carbon sequestration, conservation of biodiversity, and the regulation of invasive spaces …) which all help to preserve the correct functioning of the terrestrial biosphere. Sacrificing these ecological functions to frenzied speculative agricultural production would have dangerous planetary consequences. It is vital, therefore, to ensure that this sector is regulated.
In conclusion, the international opening of the markets is a perfectly viable goal. It is a natural mechanism, which has been operating for quite some time and has its own economic reasoning.
But it is essential that regulations be established to avoid:
- the financial dumping that results from direct help for exports;
- the social dumping created by competition between the least well-off workers in the rich countries with the poorest workers in the developing countries;
- avoid the ecological dumping that occurs when regions temporarily benefit from their abundant natural resources, that then diminish and are eventually irreversibly destroyed,
- avoid dumping on transport costs, the countries with energy resources helping with their exports.
In this framework, competition would function more fairly, but the objective is not to liberalise exchange and to globalise the agro-alimentary economy. The objective is to increase the welfare of the world’s populations – in particular the poor ones - and not to globalise the economy. A regulated globalisation is certainly one of the ways forward, but this is in no way the same as the benefits that the appropriate national and regional public policies could offer. And even if it is thought that globalisation is indispensable in the agricultural sector, nothing indicates that we have to rush to implement it. The speed of implementation needs to be determined by the adaptability of the populations concerned. If this is not considered, we will create violent economic and social mechanisms that are costly in terms of adaptation.
But it is not enough to be willing to regulate. A good deal of work remains to be done to specify exactly how to adapt the regulations to suit the various geographic considerations, and to decide on the social actors who would promote this programme.
2 July 2006