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'Starve your neighbor'
policy roils food trade


WASHINGTON-Many nations are turning to export restrictions to ease soaring food prices, but such interventions may aggravate turmoil on world commodity markets, a leading research center has warned.

"If one country after the other adopts a 'starve your neighbor' policy, then eventually you trade smaller shares of total world production of agricultural products, and that in turn makes the prices more volatile," said Joachim von Braun, director general of the International Food Policy Research Institute, or IFPRI.

A growing list of countries, including Egypt, India and China, has imposed bans, raised tariffs or unveiled other restrictions to limit crop, mainly grain, exports.

It's a bid to blunt the impact of a global boom in commodity and food prices, driven by tight stocks, growing biofuel production, and income growth in developing nations, a trend that takes the biggest toll on the poor.

IFPRI, an international research institute funded by governments and private foundations, cautions that such restrictions send erroneous price signals and will ultimately deter investment by eroding faith in market prices.

"So that the old saying that 'high prices are their worst own enemy' is partly, artificially undermined," Von Braun said in an interview.

Wheat, corn and soybeans have all broken records in recent months, with the value of Chicago wheat increasing 77 percent in 2007 alone. But with high prices has come an influx of billions of dollars from investment funds diversifying their portfolios into commodities - and historic volatility.

While data is yet unavailable, Von Braun has a hunch these trends have prompted a reduction in the volume of world farm output traded on world markets, which has held steady for the last 40 years despite the advent of globalization.

So far, the United States, a leading exporter of wheat, corn and soybeans, has shunned any export limits.

Von Braun said tighter trade rules on agriculture - which might come if countries can produce an agreement in the World Trade Organization's Doha round - would be positive even though they seem more painful in the short run.

"The answer is freer trade ... especially when we have scarcity," he said. In some countries, unfettered export policies must be supplemented by government transfers that will help the most vulnerable buy food.

But such a politically sensitive step may exceed what even most the ardent supports of free trade can swallow.

The challenge is not a fleeting one. IFPRI expects cereal prices could increase by 10 to 20 percent by 2015.

As the world's biggest economy, the United States has a responsibility to do everything in its power to push world trade talks to a conclusion, Von Braun said.

The Bush administration is under pressure in the round to dramatically reduce the subsidies it pays farmers.

The talks have been mired in discord, mainly over agriculture, for more than six years.

The United States should also rethink its biofuel policy, which has set up tall mandates for corn-based ethanol that have driven much of the corn boom here, Von Braun said.

"The US could be a role model on a global scale" if it chooses, he said.

 


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