Opening up of economy or trade liberalization can help to reduce food prices. In the words of the World Bank President, Robert B. Zoellick, “A fairer and more open trading system would encourage the developing country farmers to expand production”.
It is high time that subsidies, that have distorted agricultural prices, should be put to a halt. The doors of trade must be opened and food imports should be encouraged so as to ease out the financial anxiety of the country.
Trade restrictions that exist within a country have also caused the soaring food prices. Due to lack of commodity movement across the states, expenditure driven growth has contributed more to inflation.
Uruguay Round To Boost Trade In Agricultural Commodities
In the Uruguay Round, trade in agricultural commodities was agreed upon in the General Agreement on Tariff and Trade. The countries, which are part of this contract, signed in the Agreement on Agriculture (AoA) to decide on the limits of trade liberalization. The countries finally came to the concept of managed trade rather than free trade to operate amongst them.
According to the group of Net Food Importing Developing Countries, there are negative consequences of such partial negotiations. It is expected that the world food price will shoot up due to this. There will also be a fall in the food aid to the food exporting countries.
To counteract such effects the Special Ministerial Decision was formed in Marrakesh. This was aimed t compensating the developing countries if they suffered any losses owing to rise in food prices or fall in food aid. According to an estimate made by FAO the food bill of the low-income food deficit countries will soar up by $10bn. 14% responsibility of this rise lie with the trade agreements that took place in the Uruguay Round.
Trade Policies Taken To Lower Food Prices
Different countries have adopted different measures of trade in order to deal with the escalating food prices.
Saudi Arabia has resorted to import tax cuts on wheat from 25% to zero. Tariff is also decreased for dairy products, vegetable oil and poultry.
India slashed its tariffs on maize and edible oils. Export f of rice was also stopped leaving out the high value basmati. Hence we see that there is shift in policy of the government to protect its farmers from a ruse in import tariffs to consumers who are bearing the burden of high food prices.
According to the Indian trade Minister Kamal Nath, food shortage is the most pressing problem of today. This is clearly reflected from the position of India that had attained elf sufficiency in food grains in the 1970s. For the last 2-3years India has to fill the demand supply mismatch in food through imports. There are high exporting countries like Ukraine, which are also imposing export restrictions on its food products.
The world price of rice has increased three times. Similar is he case with soybeans, which has stimulated protests in countries like Indonesia.