From Hunger Amidst Abundance to Abundance Without Hunger

From Hunger Amidst Abundance to ~bunaance without Hunger

An overview of the policy findings of the Food and Agriculture Program of the International Institute for Applied Systems Analysis

Kirit S. Parikh Wouter Tims

EXECUTIVE REPORT 13 December 1986

INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS A-2361 LAXENBURG, AUSTRIA

Ezecut.lve R e p o r t s b r i n g t o g e t h e r t h e findings of r e s e a r c h d o n e a t IIASA a n d e l s e w h e r o a n d summarize them f o r a wide r e a d e r s h i p . This o v e r v i e w d o e s n o t n e c e s s a r i l y r e p r e s e n t t h e views of t h e s p o n s o r i n g o r g a n i z a - t i o n s or of Individual p a r t i c i p a n t s . Copies of t h i s Ezecut.lve Report c a n b e o b t a i n e d f r o m t h e P u b l i c a t i o n s Department, I n t e r n a t i o n a l I n s t i t u t e f o r Applied Systoms Analysis, S c h l o s s p l a t z 1, A-2361 L a x e n b u r g , Austria.

C o p y r i g h t 1906

S e c t i o n s of t h i s p u b l i c a t i o n may b e r e p r o d u c e d in m a g a z i n e s a n d newspa- p e r s with acknowledgment to t h e I n t e r n a t i o n a l I n s t i t u t e f o r Applied Sys- toms Analysis. P l e a s e s e n d t w o tear s h e e t s of a n y p r i n t e d r e f e r e n c e to t h i s r e p o r t to t h e P u b l i c a t i o n s Department, I n t e r n a t i o n a l I n s t i t u t e f o r Applied Systoms Analysis, S c h l o s s p l a t z 1, A-2361 L a x e n b u r g , Austria.

PREFACE

Why s t u d y t h e hunger problem? I t is one known t o most peo- ple; a remote problem brought devastatingly close when t h e media focus on t h e l a t e s t famine o r drought. T h e c a u s e s seem t o p e r s i s t , d e s p i t e e f f o r t s in r i c h e r c o u n t r i e s t o provide food a n d o t h e r aid.

(1) What c a n a s t u d y l i k e t h e Food a n d Agriculture Program (FAP) a t t h e International I n s t i t u t e f o r Applied Systems Analysis (IIASA) d o t o h e l p r e d u c e hunger?

(2) Why d o h u n g e r a n d large food s u r p l u s e s e x i s t con- c u r r e n t l y ?

(3) What p r e v e n t s t h e redistribution of s u r p l u s food t o t h e hungry?

(4) Can we identify policies t o e r a d i c a t e h u n g e r in o u r time?

Those who initiated a n d s u p p o r t e d t h e FAP w e r e motivated b y a d e s i r e t o answer t h e above questions, and t o solve t h e moral a n d economic issues r a i s e d b y them. If i t is found possible t o e r a d i c a t e hunger through s e n s i b l e manage- ment of r e s o u r c e s , t h e n t h e c a s e is c l e a r f o r immediate humani- t a r i a n action b y all c o n c e r n e d , a n d p a r t i c u l a r l y s o if i t c a n b e achieved a t reasonable c o s t .

Why was t h i s s t u d y u n d e r t a k e n a t IIASA?

(1.) Althougfi hunger as ^a problem is regiorlally confined, the growing interdependence of t h e global food system requires an in ternat ional appr-oach.

(2) Economic relations and policies a r e complex and require the development of new arialytical tools.

(3) The problem requires ^a multidisciplinar-y approach as it covers a number of different, fields, from socioeconomic to agrobiological.

A survey in 1976 showed t,t~at no other study of t h i s nature had been undertaken and that t h e r e was widespread interest in a comprehensive solutiorr t o t h e food problem. Thc:

study also suited IIASA's aspirations to contribute to the advancement of science a r ~ d mankind's abili t y t.o deal with problems of international importance.

When the project began in 1!376, the global food crisis of 1973-1974 and t h e World Food Conference of 1974 were vivid and immediate in people's memories. Today, food si~rpluses

have grown and worldwide scarcity appears a thing of the past:

but hunger persists. Despite t h e remarkable growth of thr:

international food trade, t h e promise of 3.974 has not been kept: that in ten years no hr~mar~ beirig will want for. food. All the more reason for undertaking this study.

Tn t h e past ten years it has beer] comrr~only acceptc:d ^l.hat.:

(1) Increasing food production in food-deficit countries is inadequate as a means of reducir~g hunger. Mcnsures a r e needed to promote consrlmption by deprived groups.

(2) The hunger problem is rlot one of starvation alone, but of chronic undernu trition among diverse groups that share one characteri.stic

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povert.y

Realization of these facts renders this study even more relevant. For it is based on an analytical t,ool that is capable of evaluating production and consrlmption policies, and assessing costs and benefits of alternative policies t,o count,ric:s and groups within countries.

A study such as this is not, in t h e first placc, s e t rlp t,o derive detailed prescriptive policy scenarios, but is concer.ned primarily with ti b e t t e r r~ndsrst~anding of thc effectiver~ess of

various policy instruments. The presentation follows these lines and demonstrates the consequences of alternative policies without judging their political feasibility. This is deemed appropriate, in particular, because in the actual policy debate a large role is played by fears of the consequences of policy changes and their costs, which stifle the decision-making pro- cess. By estimating these consequences as objectively as possi- ble, even for rather radical policy changes, some of these fears may, in fact, be allayed and the actual decision-making process facilitated.

Kirit Parikh Wouter Tims Food and Agriculture Program,

International Institute for Applied Sys tems Analysis, Laxenburg, Austria

ACKNOWLEDGMENTS

FAP a t IIASA has been a collaborative research effort since its inception, involving researchers from many countries and ins ti- tilt ions around the world. The program involved methodological and algorithmic research, development of the Basic Linked Sys- tem (BLS) of national agricultural policy models, exploration of national policy opt ions using individual national models, and the use of BLS to conduct policy analyses.

As for any large project that has taken many years, it is virtually impossible to give individual credit to all those a t IIASA and its network of collaborating institutions who have contributed to the development of the BLS, yet the major con- tributions should be noted. The program core consisted of the following:

Kirit Parikh, Program Leader 1980-1986 Ferenc Rabar, Program Leader 1976-1980 Gun t h e r Fischer

Klaus Froh berg Michiel Keyzer

The members of the program core have been responsible for all aspects of model development and analysis. The system was conceived and the algorithms developed mainly by Michiel Keyzer

.

Other program participants who have contributed t o development of various aspects of t h e B1,S a r e :

Michael Abkin, Csaba Csaki, Tom Christensen, Odd Gul- brandsen, Janos IIrabovszky, Gerhard Kromer., Boze~ra Lopuch, Douglas Maxwell, Donald Mitchell, Jart Morovic, Nanduri Narayana, Martha Neunteufel, Karl Ort n e r , Gerald Robertson, Mahendra Shah, IJlr-ike Sichra, Ralph Seeley, T.N. Srinivasan, Eric Wailes, David Watt, Chris Wolf, and 1,aszlo Zeold.

A large nuntber of o t h e r s were involved in t h e Program, particularly in t h e development of detailed national policy analysis modeIs of specific count,ries. Though several of t h e s e

models have been used in a number of countries, not all of them a r e c u r r e n t l y available as par-1. of t h e BLS. Naturally, t,he s t u d y has benefited from country-specif ic knowledge and evaluations made by many of thasa r e s e a r c h e r s .

We gratefully acknowledge our d e b t t o all our colleagues, named and unnamed, who have contributed t o this study. A g r e a t deal of credit goes t o them; but t h e undersigned, who wrote this summary r e p o r t , bear all t h e responsibility.

K i r i t P a r i k h W o u t e r T i m s

CONTENTS

Preface

Acknowledgments

Introduction The Main Results

Hunger and Economic Policies Persistent Hunger

Market Solutions Food Supply Increases Nonmarket Measures

Constraints on Mobility and the Case for Aid Agricultural Trade and Production Distortions Liberalization Scenarios

Conclusions The Authors About the Books

iii vii

INTRODUCTION

The Food and Agriculture Program (FAP) of t h e International Institute for Applied Sys tems Analysis (IIASA), initiated in 1976, is a large international collaborative research endeavor that has involved more than 200 person-years of effort at IIASA and its network of collaborating institutions. The main focus has been to explore policy options a t national and inter- national levels that deal with t h e problem of chronic hunger.

For this increasingly interdependent world, policies for trade and capital flows were given special emphasis. The results a r e based on analyses with the help of a global modeling system, which consists of national (policy analysis) models linked through trade and capital transfers. The systems-analytic, quantitative, general equilibrium, and empirical approaches of t h e model make it a unique tool for policy analysis and provides results that can be examined from a variety of objective cri- teria. The main findings of t h e study a r e briefly summarized first.

For a complex analysis, like the one repor.ted here, the main results cannot be summed up in a few lines. Some of the highlights are:

(I) Current national and int,ernat.ional economic: policies will not lead to significant alleviation of hunger and poverty, even if the world economy exhibits strstained growth over the coming decades. In fact, they will leave a large number of people still suffering from chronic hunger by the end of the century.

(2) There are policy alterr~atives for developing countries that reduce hunger faster, but these either retard over-all economic growth or require substantially larger external aid flows. Without such aid, progress in I-educing hunger will remain small, even if the gover.nments of poor coun- tries were to give priority to meeting food needs.

(3) More liberal agr*icultural trade policies by developetl market-econom y countries alone are of only marginal sig- nificance to the hunger pr-oblem and have mixed effects on developing countries, increasing hunger in many food- importing developing countries.

(4) More liberal agricultur.al trade policies by the developing countries themselves will reduce hilnger. marginally, but harm the economies of some of those developing countries that export agricultural products.

(5) Liberalized international movements of labor could d r a s ti- cally reduce hunger, but this is obviously not a realistic alternative in today's world. High-income countries main- tain higher wages by restricting labor movement, s o t h e poor countries have a lower wage r a t e than would prevail were labor services t o b e freely t r a d e d in t h e world. This provides an argument for aid flows t o compensate f o r re- striction of t h e free t r a d e of labor services.

(6) Additional aid from t h e developed countries to finance domestic redistributive programs in poor developing coun- t r i e s can virtually eradicate hunger by t h e e n d of this c e n t u r y . The additional aid flows will not b e a n e t loss t o t h e developed countries if, a t t h e same time, all market economies liberalize t h e i r agricultliral t r a d e . This is because liberal t r a d e in agricultural commodities gen- e r a t e s adequate economic gains f o r t h e developed coun- t r i e s t o finance t h e needed aid flows. In f a c t , t h e s e gains a r e also enough t o compensate those farmers in t h e developed countries whose incomes will decline due t o liberalization of agricultural t r a d e . Liberalization of agri- cultural t r a d e without additional aid t o poor countries does not g e n e r a t e a s much additional income f o r t h e industrial economies a s is generated with additional aid; if anything, i t increases t h e level of hunger in t h e world.

These findings a r e robust and can b e supported by detailed results of t h e study. They a r e pessimistic in t h e s e n s e t h a t t h e required policy changes, though not radical, a r e nevertheless difficult t o obtain. They a r e optimistic in t h e i r conclusion t h a t hunger c a n b e eradicated. Contrary t o t h e common view of policymakers, t h e c o s t s of t h e proposed poli- cies a r e small o r even negligible. These findings a r e described in g r e a t e r detail below and in t h e t h r e e books Toward f i e e T r a d e in A g r i c u l t u r e ; Hunger: B e y o n d t h e Reach of t h e I n v i s i b l e Hand; and Linked National Models: A Tool for I n t e r - n a t i o n a l Fblicy A n a l y s i s (see Chapter 13, t h i s report). How- e v e r , f o r expository reasons t h e y a r e not dealt with in t h e same sequence a s above.

HUNGER AND ECONOMIC POLICiES

The system of models used in this study is designed to reflect t h e major structural character of t h e world food system. Food and agricultural policies a r e mostly national policies initiated and pursued for domestic purposes. In most industrial coun- tries their objective is t o achieve some degree of parity between agricultural and nonagricultural incomes. A s t h e i r farming sectors a r e relatively small and t h e overall income lev- els high, t h e costs of farm-income policies can be charged t o domestic consumers and/or taxpayers. In developing countries balance-of-payments constraints suggest a drive t o self- sufficiency. However, their limited scope for raising tax reve- nues from a small tax base and t h e desire t o keep urban food prices low often leads to unfavorable prices for agricultural producers. This, in turn, restrains food production and increases t h e need for food imports.

The import needs of some developing countries coincide with t h e need of certain developed countries t o export sur- pluses

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surpluses that a r e a consequence of high domestic producer prices and often result in subsidized exports. These subsidized exports compete with agricultural exports from land-rich developed countries, which need t o m e e t farm-income objectives a t t h e smallest cost t o their governments. The consequence is an increasing tension between competing food- exporting developed countries. Food-importing developing countries a r e exposed t o t h e resulting prices on the

Box

1

T H E B L S O F NATIONAL AGRICULTURAL POL,ICY MODELS USED l?Y FAP AT IIASA

The national models of t h e BLS e a c h c o v e r t h e economy of a n individual c o u n t r y o r a g r o u p of c o u n t r i e s ; t h e s e models t o g e t h e r c o v e r t h e world economy. Of t h e s e models, 18 r e p r e s e n t individual nations a n d t w o r e p r e s e n t t h e EC and t h e CMEA. These 2 0 models [I] a r e s p e c i f i e d in d e t a i l a n d t r a c e i n t e r a c t i o n s in t h e b e h a v i o r of producers, consumers, a n d g o v e r n m e n t s . T o g e t h e r t h e y r e p r e s e n t a b o u t 80% of t h e world's populat.ion, a g r i c u l t u r a l production and t r a d e , a r ~ d food consumption. The remaining 20% i s cover-ed by 1 4 somowtlat sim- plified c o u n t r y - g r o u p models. These models, l i r ~ k e d t,hrougti i n t e r n a t i o n a l t r a d e a n d c a p i t a l flows, c o n s t i t u t e t h e B L S .

The system uses a n e m p i r i c a l g e n e r a l equilibreium a p p r o a c h , b a s e d on a ten-commodity c l a s s i f i c a t i o n [2], c a l i - b r a t e d a c c o r d i n g t o p a s t t r e n d s , a n d specifically designed f o r policy a n a l y s e s with multiple o b j e c t i v e s a n d simultaneous c h a n g e s in a number of policies by onc: or mor-e c:ountries. It. is t h u s a tool f o r studying t h e impact of policy c h a n g e s on t h e i n t e r n a l food s i t u a t i o r ~ of a c o u n t r y , as well as t h e i r r e p e r c u s - s i o n s in o t h e r nations. In i t s c l a s s , t h e model i s among t h e n ~ o s t a d v a n c e d c u r r e n t l y a v a i l a b l e , and i s unique in being empiriaally estimated.

Many v a r i a b l e s are endogenously calculat.ed: at t h e i n t e r - national level t h e s e a r e world m a r k e t p r i c e s , n e t t r a d e flows, a n d i n t e r n a t i o n a l t r a n s f e r s ; at t h e national level t h e s e a r c p r o d u c t i o n , human consumption, f e e d a n d i n t e r m e d i a t e consump- tion, s t o c k c h a n g e s , investment, a n d i n p u t use, as well as p r i c e s a n d o t h e r policy instruments. Population, l a b o r f o r c e , a n d t h e s a v i n g s r a t e are exogenously s p e c i f i e d .

BLS e n s u r e s a c o n s i s t e n t outcome in a number of ways, which i s i m p o r t a n t but n o t normally r e a l i z e d in o t h e r a n a l y t i c a l a p p r o a c h e s . Not only i s t h e r e c o n s i s t e n c y among physical flows of commodities, b u t a l s o consistenc:y in t h e financial a c c o u n t s o f economic a g e n t s i s e n s u r e d :

(1) Q u a n t i t i e s p r o d u c e d , demanded, a n d t r a d e d b a l a n c e at national a n d global levels.

( c o n t . )

BOX 1 ( c o n t . )

(2) F o r consumers and nations, expenditures and incomes bal- ance.

(3) Income e a r n e d i s consistent with income g e n e r a t e d by pro- duction and t r a d e .

(4) P r i c e s for p r o d u c e r s , consumers, and government t a x e s are consistent.

(5) Government expenditures balance inflows.

(6) Balance of t r a d e i s realized at national and global levels.

These consistencies and t h e global c o v e r a g e e n s u r e t h a t s e c o n d a r y effects and adjustments, which may b e quite impor- t a n t , are accounted f o r .

Yet, like- a l l models, i t is still a c r u d e approximation of r e a l i t y . Nonetheless, t h e BLS remains a tool of considerable potential, worth exploring and extending in t h e y e a r s ahead. I t c a n form t h e basis for much f u r t h e r work.

Notes

[I] _These are for Argentina, Australia, Austria, Brazil.

Canada, China, Egypt, India, Indonesia, Japan, Kenya, Mex- ico, New Zealand, Nigeria, Pakistan. Thailand, Turkey, USA, and t w o models f o r i n t e g r a t e d regions: t h e CMEA and t h e EC.

[2] These consist of nine a g r i c u l t u r a l commodities

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wheat, r i c e , coarse g r a i n s , bovine and ovine meat, d a i r y pro- ducts, o t h e r animal products, p r o t e i n feeds, o t h e r foods, and nonfood a g r i c u l t u r a l p r o d u c t s

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and one c a t e g o r y called nonagriculture.

international market, which may d i s t o r t t h e i r own economic policies, harming t h e i r agriculturists.

Do t h e chronically hungry benefit from t h e situation?

Increasingly, t h e y a r e s e e n t o b e closely linked with t h e par- ticular food a n d labor m a r k e t conditions of t h e i r c o u n t r y , a n d s u b j e c t t o t h e impact made on t h e i r societies b y changing t e c h - nologies. A large segment of t h e undernourished is engaged in t h e production of food. How t h e y a r e a f f e c t e d b y competition

among food e x p o r t e r s on t h e world market depends on t h e poli- cies of t h e i r own governments.

Governments face major dilemmas in meeting t h e food needs of t h e poor. Low prices t o benefit consumers may a c t a s a disincentive t o farmers producing food for t h e market.

Higher prices may accelerate economic growth and generate employment opportunities f o r t h e poor, but this is a long-term consequence. The immediate effect of higher prices is more hunger among t h e poor who purchase all o r p a r t of t h e i r food from t h e market. Government food subsidies help t o alleviate hunger, but leave fewer resources for investment and thus may c u t into economic growth. What should be t h e allocation of I-esources between growth-promoting investments and redis tri- butive policies? What p r i c e policies should governments then adopt and how much attention should t h e y pay t o signals from a distorted world market?

The Basic Linked System (BLS) of national policy models was constructed t o explore answers t o t h e s e types of questions (see Box 1). The effects of various policy options need t o b e t e s t e d with an empirically estimated model and t h e i r effective- ness assessed in t e r m s of t h e usual multiplicity of national objectives.

- PERSISTENT H UNGEH

Freedom from hunger is perhaps t h e most fundamental human right embodied in t h e UN Charter. All signatories t o t h e Char- ter, i.e., virtually every nation in t h e world, thus accept t h e right of all people t o sufficient food. Yet widespread hunget- still persists. Actual numbers a r e difficult t o establish, because terms like hunger, starvation, and undernourishment a r e not precisely quantified. Most attempts a t measurement suggest t h a t , although t h e number of hungry people has increased over t h e past two decades, t h e incrc?ase was less than t h e r a t e of population growth of t h e developing countl-ies.

However, t h e problem is still sizeable artd large numbers of people live with barely sufficient food

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t h e slightest economic shock car1 send them back t o chronic undernourishment.

Significant progress has been made in reducing poverty and hunger. In developing countries, life expectancy (at birth) has increased from less than 40 years t o around 55 years over t h e past t h r e e decades. The abundance of food wc~r'ldwidp: arltl t h e progress made through national and international efforts in coping with acute shortages make t h e question more pertinent : Why has more progress not been made in reducing chronic hunger?

Famines a r e t h e most spect,acular form t h a t hunger takes and, in most cases, indicate a failure of national governments.

The existence of chronic hunger indicates a failure of t h e

Box 2

HOWMANYHUNGRYAND W H E R E A R E T H E Y ?

Widely d i f f e r e n t estimates e x i s t . World Bank estimates, o n t h e b a s i s of c a l o r i e i n t a k e norms e s t a b l i s h e d jointly by t h e FA0 and WHO, s u g g e s t t h a t in 1970 a r o u n d 660 million p e r s o n s remained below 90X of t h e food norm, a n d almost half of t h e s e did n o t e v e n r e a c h 80X. By 1980, t h e number of p e r s o n s below 90% of t h e food norm h a d i n c r e a s e d to 730 million, while t h a t below 80X remained at slightly l e s s t h a n half t h a t number. The bulk of t h e h u n g r y are in S o u t h Asia a n d Sub-Saharan Africa (FYgure 1 ) .

In t h e r e f e r e n c e s c e n a r i o , with basically unchanged poli- c i e s worldwide, t h e number of hungry c o n t i n u e s to r i s e t h r o u g h 1990, t h e r e a f t e r s t a r t i n g a slow decline ( f i g u r e 2).

( a )

<

^90% of norm ( b )

<

^{80% of norm}

Middle East and Latin America

1970 1980 1970 1980

Year

f i g u r e 1. Population with c a l o r i e deficiency, 1970 and 1980 ( b a s e d o n World Bank estimates).

(cont. )

political and social system, but in a f a r less dramatic fashion.

The s t e p s needed to prevent death from famine a r e obvious;

those needed t o prevent chronic hunger a r e less so.

The FAP study shows t h a t t h e level of hunger will persist if previous economic trends a r e extended into t h e future and if t h e continuation of present policies is assumed. By t h e end of t h e century t h e number of hungry people will be t h e same as today (see Box 2). On t h e positive side, this will be a smaller proportion of t h e world population; more people will be

BOX 2

( c a n t . )

140 120-

X 100

0,

-0

- C

80 -

60 -

40

u

1 I I I

1970 1980 1990 2000

Year

f i g u r e 2. Index of number of h u n g r y in t h e r e f e r e n c e s c e n a r i o (1970 FA0 e s t i m a t e = 100).

This s c e n a r i o implies t h a t b y t h e e n d of t h i s c e n t u r y 11.X of t h e population in t h e developing c o u n t r i e s , excluding China, will remain c h r o n i c a l l y u n d e r n o u r i s h e d . Still, t h e volume of food needed to r a i s e t h e l e v e l of food i n t a k e of all p e o p l e to t h e a c c e p t e d minimum i s not l a r g e : in t e r m s of food g r a i n s , t h e d e f i c i t amounts to some 50 million t o n s or a b o u t 3% of world c e r e a l s o u t p u t . The problem of h u n g e r i s c l e a r l y n o t o n e of t h e i n a d e q u a t e a v a i l a b i l i t y of food, b u t o n e of how to i n c r e a s e t h e a b i l i t y of t h e h u n g r y to o b t a i n m o r e food.

productively employed. Flowever, increases in food prices will rcduce the purchasing power of these incomes. F'ood pric:es will rise because the scope for expansion of cultivable land is limited, and production increases car1 only c:ome f r ~ c ~ r n t h o increased use of purchased inputs that raise the cost of pro- duction.

MARKET SOL U TIONS

The various scenarios t h a t deal with a l t e r n a t i v e international measures t o change t h e mechanisms of t h e world food system c l e a r l y illustrate t h e problem. Any a t t e m p t t o o p e r a t e through national a n d world food markets fails f o r t h e simple reason t h a t , lacking purchasing power, t h e hungry a r e only marginal p a r t i c i p a n t s in t h o s e markets. Attempts t o r e a c h them through t h e markets leads t o adjustments elsewhere, a n d in t h e new equilibrium t h e poor usually remain as badly off a s before.

In s h o r t , t h e market mechanism c r e a t e s a world food sys- t e m t h a t is reslient f o r t h e r i c h , b u t i n t r a c t a b l e f o r t h e s t a r v - ing. Chronic hunger is a s t u b b o r n l y p e r s i s t e n t f e a t u r e of a market-oriented food system.

FOOD - SUPPLY INCREASES

GLOBAL FOOD SUPPLY INCREASES

Policy interventions specifically designed t o improve global food supplies d o not increase adequately t h e food consumed by t h e poor. The system adjusts t o provide food a t reasonable cost t o those who have t h e money t o buy it, but does not increase adequately t h e food consumed by t h e hungry. This finding applies t o a number of popular notions about t h e ways t o improve food intake of t h e poor, a s demonstrated by a set of scenarios t h a t increase agricultural supplies in t h e world market. These include scenarios t h a t assume:

(1)Increased production in t h e developed countries, thus let

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ting farmers in those countries t a k e c a r e of t h e hungry.

(2)Reduced waste and overconsumption (the rich have one meal less).

(3)Reduced meat consumption t o save on food grains and s o increase t h e availability of cereals f o r human consumption.

Why a r e measures t o increase global supplies not effec- t ive? Model simulations show (see Box 3) t h a t :

Box

3

THE MARKET IS RESIIJIENT

How l i t t l e i s a c h i e v e d by market-or.ient.ed p o l i c i e s in t e r m s of r e a c h i n g t h e h u n g r y i s e x p r e s s e d b y t h e n u m b e r s o b t a i n e d f r o m s c e n a r i o s t h a t c h a n g e s u p p l i e s a n d p r i c e s (l'abte 2 ) .

Table 1. S c e n a r i o s t h a t c h a n g e s u p p l i e s a n d p r i c e s . ---

-. . P e r s o n s H u n g r y

S c e n a r i o s IS90 2000

(I) R e f e r e n c e (millions of p e r s o n s ) 470 400 Per-c:ent.age c h a n g e over- r e f e r e n c e s c e n a r i o (2) H i g h e r s u p p l y o n t h e

world m a r k e t :

50 million t o n s m o r e w h e a t

o n t h e world m a r k e t - 3 - Z

50% l e s s m e a t c o n s u m p t i o n

i n t h e OECD c o u r ~ t r i e s -7 -1

(3) B e t t e r p r o d u c e r p r i c e s in d e v e l o p i n g c o u n t r i e s :

2 5 % l e s s p r o d u c t i o n in OECD

c o u n t r i e s +11 +Y

A g r i c u l t u r a l t r a d e l i b e r a l i z a t i o n :

By all m a r k e t e c o n o m i e s + I +. 1 By d e v e l o p i n g c o u n t r i e s -5 -5

By OECD c o u r i t r i e s + 3 +/I

Obviously, t h e m a r k e t mechanism is s t u b b o r n in a d j u s t i n g to t h e n e e d s of the h u n g r y . T r a d e 1iheralixat.ior1 ^{b y} Lhe 0h;CI.) c o u n t r i e s a p p e a r s e v e n to a d d to t h e n u m b e r of h u n g r y . L,iberalization b y t h e d e v e l o p i n g c o u n t r i e s r . e d u c e s t.he r ~ u m b c r , b u t t h i s e f f e c t i s o v e r c o m p e n s a t e d f o r b y t h e n e g a t i v e e f f e c t s of OE;CD l i b e r a l i z a t i o n if b o t h c o u n t r y g ~ - o u p s w e r e to u n t l c r t a k e t h e r e m o v a l of b o r d e r p r o t e c t i o n jointly.

(1) Additional food supplies on t h e world market a r e a b s o r b e d through adjustments in t h e behavior of p r o d u c e r s , con- sumers, a n d governments endowed with purchasing power;

t h e hungry d o not improve t h e i r incomes a n d consequently d o not e a t more food.

(2) Consumption reductions in t h e r i c h c o u n t r i e s lead t o adjustments in p r i c e s , t r a d e , a n d production, which t o g e t h e r nullify a n y additional food supplies t o t h e poor.

DOMESTIC FOOD SUPPLY INCREASES IN DEVELOPING COUNTRIES

If increasing t h e global s u p p l y of food is not effective, will t h e situation improve when domestic supplies in t h e developing c o u n t r i e s a r e raised?

In t h i s respect, o n e c a n c o n s i d e r p r o d u c e r p r i c e i n c r e a s e s t o f a r m e r s , t h u s providing incentives t o p r o d u c e more, a s is recommended widely. Relatively low p r i c e s paid t o f a r m e r s have b e e n singled out in many c o u n t r i e s as a major rea- son f o r u n s a t i s f a c t o r y production. Higher p r i c e s c a n b e o b t a i n e d d i r e c t l y , by offering h i g h e r government intervention p r i c e s ; t h e y c a n b e obtained i n d i r e c t l y b y measures t h a t r a i s e world market p r i c e s . Among t h e l a t t e r is t h e suggestion t h a t p r o t e c t i o n should b e removed, forcing developed c o u n t r i e s t o r e d u c e s u r p l u s e s a n d developing c o u n t r i e s t o set i n t e r n a l p r i c e s in a c c o r d a n c e with world m a r k e t p r i c e s . Beyond this, policies t o r e d u c e agricultural production in t h e developed c o u n t r i e s even f u r t h e r may b e justified f o r environmental rea- sons.

Again, in t h e s e c a s e s t h e r e s u l t s of additional incentives t o f a r m e r s in developing c o u n t r i e s a r e disappointing o r even negative ( s e e Box 3). Simulations show t h a t :

(1) Production in t h e developing c o u n t r i e s is, indeed, r a i s e d , b u t p a r t l y t o give additional e x p o r t s , whereas consumers a r e worse off d u e t o h i g h e r p r i c e s .

(2) Trade liberalization in the industrial countries only has negligible effects on t h e poor.

(3) Trade liberalization by t h e developing countries has larger beneficial effects, though they a r e still marginal.

This is not surprising, since poverty and hunger relate to limited resource endowments, which a r e not effectively changed by price policies alone. Price policies may, in fact, increase the value of the resources not in t h e hands of the poor relative to those

-

mainly labor

-

that they do have.

NONMARKET MEASURES BY DEVELOPING COUNTRIES

Why c a n n o t developing c o u n t r i e s d e a l with t h e hunger. problem themselves? Subsidized food r a t i o n s , r u r a l works programs, o r o t h e r s c h e m e s t o b e n e f i t unemployed labor. cart give t h e poor.

more income a n d b e t t e r a c c e s s t o food m a r k e t s .

I t is obvious t h a t t h e prsoblem is t h e constr.aint on r e s o u r c e s . Both f i n a n c e a n d managerial a b i l i t y a r e s c a r c e r e s o u r c e s , a n d t h e i r diversion t o progr-ams t h a t alleviatt:

p o v e r t y r e t a r d s t h e overall economic growth. Rxplor-at ions with some national models of developing c o u n t r i e s show that.

t h e trade-off b e t w e e n growth a n d r e d i s t r i b u t i o n is significant.

R e d i s t r i b u t i o n t h a t car] significantly r e d u c e h u n g e r would r e s u l t in a d r a s t i c fall in g r o w t h , a n d is unlikely t o b e politi- cally a c c e p t a b l e in t h e developing c o u n t r i e s .

NONMARKET MEASURES WITH EXTERNAL ASSISTANCE

T h e n e x t question i s w h e t h e r i n t e r v e n t i o n s t o meet t h e food n e e d s of t h e p o o r c a n b e f i n a n c e d from e x t e r n a l r e s o u r c e s . How much additional aid is r e q u i r e d ? The emphasis is on aid, not on commercial c a p i t a l flows, a s t h e l a t t e r follow o p p o r t u n i - t i e s f o r economic: a n d financial r e t u r n s , which t h e poorsest c o u n t r i e s h a r d l y a p p e a r t o o f f e r . Thus t h e question is: How

much aid should be given to finance nonmarket interventions in t h e food and labor markets for t h e benefit of t h e hungry?

The analysis provides t h e following results (see Box 4):

(1) Additional aid, equivalent to 0.5% of the

GDP

of the richer countries, given in inverse proportion to p e r capita incomes, but not specifically tied to spending on behalf of t h e poorest groups, will reduce the number of hungry by 32% in the year 2000.

(2) If additional aid is solely dedicated to investment, t h e r e is initially only a small reduction in hunger, but by t h e year 2000 the number reaches t h e same level as in (I), namely 32% fewer hungry people. This reduction in hunger per- sists even if aid is discontinued a f t e r 1 5 years.

(3) When additional aid is given, as in the first case, without being tied t o specific spending, hunger is immediately reduced but is very sensitive to the discontinuation of aid.

(4) If additional aid can be fully used for meeting t h e food needs of t h e poor, with additional aid a t half the levels in t h e other scenarios, eradication of hunger is possible before 2000 without reducing economic growth.

In summary: a combination of targeted aid and targeted food programs can eradicate hunger a t small financial cost and without reducing overall economic progress in the developing countries.

How realistic a r e these findings? From a purely economic viewpoint t h e r e is little doubt that t h e estimates indicate well t h e orders of magnitude. Raising food intake of t h e poor above some minimum is a small problem in terms of t h e quantities of food concerned and the financial costs, particularly when com- pared with global food and financial resources. One should therefore expect to need r a t h e r small additional resources when a targeted nonmarket approach is taken (see Box 5). This raises other issues of a noneconomic kind and questions as to t h e efficiency with which such programs can be implemented.

Poor Asian countries may, in this respect, be b e t t e r equipped to administer such programs than t h e poor countries of Africa.

Still, it appears that additional aid, equivalent to 0.3% of t h e

Box

4

AID S C E N A R I O S

Suppose t h a t a l l t h e r i c h c o u n t r i e s add 0.5% of t h e i r GDP t o t h e i r aid budgets - above the p r e s e n t 0.35% - and t h a t this additional aid is distributed inversely t o t h e p e r capita incomes of the r e c i p i e n t countries. Suppose, f u r t h e r , t h a t t h i s aid i s e i t h e r added entirely t o savings and investment (A-Cap s c e n a r i o , Table 2 ) or given a s balance-of-payments s u p p o r t (A- Bop s c e n a r i o , Table 2) t o which t h e marginal expenditure p r o - pensities of t h e r e c i p i e n t country apply. Hunger i s t h e n reduced significantly.

Table _2. Addition of 0.5% of GDP to aid budgets: r e s u l t s in 2000.

-

H u n g r y P e r c e n t c h a n g e o v e r p e r s o n s , r e f e r e n c e s c e n a r i o

r e f e r e n c e

C o u n t r y g r o u p s s c e n a r i o ( l o 6 ) A-Cap A-Bop

All developing countriesa 400 -32 -32

Middle income 30 0 +4

Laow-middle income 60 -13 -8

Low incomea 310 -4 0 -40

of which India 155 -54 -56

a ~ x c l u d i n g China.

Even without any r e d i s t r i b u t i v e policies in t h e developing c o u n t r i e s t h e effect on hunger i s sizeable. India shows v e r y l a r g e reductions because of i t s low p e r c a p i t a income and t h e r e f o r e relatively l a r g e s h a r e of aid r e c e i p t s .

Aid f o r development h a s not been a v e r y popular topic in p a s t y e a r s , when t h e need to contain government expenditures h a s dominated policies in developed market economies. Uneasi- ness a b o u t t h e effectiveness of aid adds to t h e r e l u c t a n c e to expand it. The s c e n a r i o p r e s e n t e d h e r e may, f o r t h e s e r e a s o n s , s e e m naive and too f a r from political realities. I t should, how- e v e r , be considered in conjunction with o t h e r policies t h a t gen- e r a t e o r free r e s o u r c e s : t r a d e liberalization c a n provide addi- tional r e s o u r c e s . FAP h a s also explored s c e n a r i o s in which a r m s expenditures are reduced.

Box

5

AID WITH REDISTRIBUTION I N INDIA

Massive r u r a l works p r o g r a m s c a n r a i s e t h e income of t h e p o o r in India t o l e v e l s sufficient f o r them t o p u r c h a s e a d e q u a t e food.

Tn t l ~ c d e t a i l e d India model, 100 kg of wheat p e r p e r s o n - y e a r i s assumed t o b e d i s t r i b u t e d t o a l l t h e p o o r f r o m 1900 onward.

Complementary costs of administration a n d i n p u t s arc included a n d t h e e x t r e m e assumption i s made t h a t t h e p r o g r a m creat,os n o p r o d u c t i v e assets.

Without e x t r a a i d , t h i s r e t a r d s growth t.o a n u n a c c e p t a b l y low level. With a i d t o maintain growth in t h e r e f e r e n c e s c e n a r i o , India remains d e p e n d e n t on substant,inl ndditior~al aid flows t o s u s t a i n t h e p r o g r a m . The most a t t r a c t i v e option i s t o start with additional a i d in t h e e a r l y y e a r s t o r a i s e economic growth t o a h i g h e r level, which t h e n p e r m i t s termination of t h e e x t r a a i d in t h e l a t e 1990s without disrupting t h e financing of t h e r u r a l works p r o g r a m s (Table 3).

Table 3. The e f f e c t of a i d on p e r c a p i t a income, c o s t of r u r a l works p r o g r a m s , a n d t r a d e d e f i c i t c h a n g e s (in 1970 U S $ X

lo9,

e x c e p t p e r c a p i t a income, which i s in 1970 U S $).

S c e n a r i o

Aid t o More a i d , Without; m a i n t a i n t e r m i n a t e d Y e a r e x t r a a i d g r o w t h b y 7 9 9 6

P e r c a p i t a income 1985 111 117' 121

2000 155 182' 195

Cost of r u r a l 1985 3.6 3.6 3.6

works p r o g r a m s 2000 3.2 3.1 3.1

Change in t r a d e 3 985 -0.1 5.4 9.6

d e f i c i t ( = a i d ) from 2000 -0.4 3.9 0

t h e r e f e r e n c e r u n

a Equal to t h e r e f e r e n c e sconarlo.

Note t h a t in t h e a i d s c e n a r i o s p r e s e n t e d e a r l i e r , India r e c e i v e s 14 billion U S d o l l a r s of additional a i d , b u t t h e lower amount (shown in t h e l a s t column of Table 3, being t a r g e t e d , g o e s much f u r t h e r in reducing h u n g e r .

developed countries' GDP and designed to reach the poor, could eradicate hunger even if one third of it does not reach the poor and instead is added to the income gr-owth of the not- so-poor.

AID-GIVERS BENEFIT

Countries receiving aid will use the foreign exchange to buy more imports, a large part of which will be obtained from the aid-giving countries. The positive effects on the growth of the developed countries a r e significant. To put these into per- spec tive:

(1) When the developed market-economy countries liberalize their trade

-

which has negligible impact on hunger

-

they register a GDP increase of 0.48% above the reference scenario in the year 2000.

(2) When all t h e market-economy countries, developed and developing, liberalize their agricultural trade and the developed countries provide an additional 0.5% of their GDP as aid to ^- the poor countries, t h e GDP of the developed market economies as a group rises by 0.75%

above the reference scenario in the year 2000.

Two things follow from these findings. Not only does the combination of free trade with additional aid enhance the growth of industrial economies, bri t it allows them to recapture more than half of the additional aid. But for the hungry the combination is less desirable, since their number is reduced by only 27% as compared with 32% in the case of additional aid only. Higher food prices through trade liberalization a r e the main reason for this effect. However, it has already been shown that the effectiveness of aid in reducing hunger is con- siderably enhanced when combined with redistributive policies in t h e developing countries. In this setting, the amounts of additional aid suggested here a r e found to be adequate to erad- icate hunger. This remains the case when trade liberalization is pursued at the same time.

-

C,'ONSTRAINTS ON MORII,ITY AND T H E C A S E FOR A ID

Compared with the migration opportunities for surplus labor in Europe in the nineteenth century and the early part of the twentieth, the international movement of labor is a marginal feature of today's world. There is no d o ~ ~ b t that this opt.ion, if it were available to the people in developing countries, would result in large migration flows today.

Nor- can it b e doubted

-

and estimates with the model sys- tem confirm

-

that these movements could lead to substantial gains in world income. The protection of labor markets by national governments is a major means of maintaining large income disparities between developed and developing coun- tries. But they have other uses as well. They preserve national cultures and identities and preclude social tensions that might result from large labor movements. It would be quite unrealistic to assume that restrictions on the movement of labor will be reduced significantly.

Neoclassical economists have traditionally argued that, in a world where labor and capital a r e the only two factors of pro- duction, free trade of commodities would equalize wages among countries without any movement of labor. TJnfortunately, how- ever, in the real world countries have locational advantages and limited access to nonrenewable resources, such as land, which contribute to production. In such a world free trade does not equalize wages; nor does free movement. of capital.

Capital services will, if they move freely, simply not go to

c o u n t r i e s with limited land r e s o u r c e s . Thus, unless o n e h a s miraculous developments in t h e field of t r a n s p o r t a t i o n , s o t h a t locational a d v a n t a g e s lose t h e i r i m p o r t a n c e , free t r a d e c a n reduce inequality in wages, b u t c a n n o t e q u a l i z e t h e m without allowing p e o p l e t o work a b r o a d a n d , possibly, r e p a t r i a t e t h e i r e a r n i n g s .

In economic t e r m s , t h e r e is a p u r p o s e s e r v e d in calculat- ing t h o s e incomes f o r e g o n e t h r o u g h maintaining f e n c e s a r o u n d l a b o r m a r k e t s ; in o t h e r words, t o e s t i m a t e t h e r e n t s of t h e f e n c e s , who is e a r n i n g t h e s e r e n t s , a n d who i s most h u r t b y t h e m . On t h i s basis, o n e c a n justify s u b s t a n t i a l compensation p a y m e n t s from r e n t e a r n e r s in developed c o u n t r i e s t o income l o s e r s in developing ones.

T h e findings s u g g e s t t h a t t h i s a r g u m e n t can. e v e n u n d e r r e s t r i c t i v e a n d c o n s e r v a t i v e assumptions, justify a i d flows t h a t a r e g r e a t e r t h a n t h e c u r r e n t o n e s a n d , e v e n , t h a n t h e h i g h e r o n e s p r o p o s e d in t h e p r e c e d i n g analysis. T h e y t h e r e f o r e s t r e n g t h e n t h e argument f o r aid t o e r a d i c a t e h u n g e r a n d even justify a i d a t a level a d e q u a t e enough t o a c h i e v e full employ- ment in developing c o u n t r i e s within o n e g e n e r a t i o n .

The preceding chapters occasionally referred to agricultural trade policies and some brief statements were made about the limited impact of market-oriented policies - including trade liberalization

-

or1 t h e hunger problem. These effects were invariably found t o be small. It would, however, be incorrect to conclude from this passing treatment that trade issues a r e not important for developing and developed countries. An improved trade climate could provide additional resources to t h e developing countries and thus reduce t h e need for aid.

These resources could in turn be used, as with aid, t o support domestic programs designed to reduce hunger. Therefore, it is important t o quantify t h e benefits from changes in trade regimes and to look a t their distribution by countries.

The question becomes even more pertinent when a survey is made of current agricultural production and trade policies, and of existing distortions and dislocations. In a number of respects, t h e trade issues a r e a mirror image of t h e hunger problem discussed in t h e preceding chapters.

Instead of one well-functioning food system, t h e r e appear t o be two loosely connected malfunctioning ones (see Box 6).

How can these systems be integrated?

It has already been noted that governments in developing countries face difficult dilemmas in deciding on appropriate price policies t o stimulate food production and maintain stable, preferably low, prices for poor consumers. Governments in developed countries face similar difficult decisions. Although

Box

6

Table 4. Two a s p e c t s of global food systems.

H u n g e r Food S u r p l u s e s

On t h e margin of t h e economic C r e a t e d by t h e economic

system system

Lack of e f f e c t i v e demand S a t u r a t i o n of food demand Lack of a p p r o p r i a t e food Little c o n t r o l of

production technology technological t r e n d s

L i b e r a l t r a d e n o t of much L i b e r a l t r a d e c a n r e d u c e

h e l p s u r p l u s e s

Dependent on world m a r k e t s Determining world m a r k e t s Inadequate r e s o u r c e s f o r Abundant r e s o u r c e s t o

government policies to p r o t e c t f a r m incomes t h u s eliminate h u n g e r causing s u r p l u s e s

E x t e r n a l a s s i s t a n c e e s s e n t i a l R e s o u r c e s p e r m i t a g g r e s s i v e e x p o r t policies

t h e majority of t h e i r consumers can afford high food prices, t h e governments a r e called upon t o give income guarantees t o farmers whose incomes a r e unstable, because of supply fluctua- tions, and relatively low when compared with those in t h e nonagricultural s e c t o r . When t h e s e guarantees a r e provided by setting minimum prices, t h e result is a tendency t o move up o r away from prevailing world market prices while improving farm incomes.

High prices a r e mainly passed on t o domestic consumers and make new investments and t h e application of new technolo- gies more a t t r a c t i v e than world prices warrant. A process is thus set in motion in which technological innovation attains a momentum of i t s own, in turn requiring price policies t h a t main- tain t h e r a t e s of r e t u r n .

Surpluses a r e disposed of with subsidies on domestic markets o r on t h e international market. Price competition then reduces t h e market s h a r e of o t h e r e x p o r t e r s , even if t h e y a r e efficient producers, unless t h e y a r e willing t o engage also in subsidy competition. This lowers t h e e x p o r t earnings, farm incomes, and public resources of developing countries

that export competing products. Retaliatory measures have led t o frictions and further distortions of world prices.

Quite a few developing countries, on t h e other hand, a r e benefiting from this situation, at least in terms of their balance of payments. For example, their food import costs a r e kept artificially low by the subsidized disposal of surplus cereals on the world market. This, however, might be a short-term gain.

Low prices a r e a disincentive to their own producers and lead, in t h e long run, to an unsustainable dependence on imports, as appears to be the case in large parts of Africa.

Also, some developing countries have found outlets for new exports that would not have arisen in a less distorted situation. High food-grain prices in the EC have attracted large trade flows of grain substitutes. An example is cassava from Thailand, which is not covered by the EC's border protec- t ion of f ood-grains and is t heref ore competitively priced. But these advantages carry considerable risk, since they a r e dependent on the whim of agricultural policy administrators in industrial countries. Also, these benefits may not offset the loss of markets and the negative effects of very low world prices. An example of the latter case is t h e sugar market, which is important to a large number of developing countries.

Against this background it is important to assess the consequences of agricultural trade liberalization, which should increase efficiency at t h e global level as countries adjust their production to be more in line with their comparative advan- tages. However, in the absence of compensating transfers some countries may lose under liberalization. An assessment of eff i- ciency gains a t the global level and the gains and losses of indi- vidual countries can provide some insight into the degree to which each country's production and trade has become dis- torted and how large the adjustment costs may be. Several scenarios a r e relevant to this analysis: What if the developed market economies remove border protection? But also: What consequences can be expected from t h e removal of border pro- tection by developing countries alone? This is an issue that can be usefully analyzed, since it belongs to the regular pack- age of adjustment policies recommended by the World Bank and the IMF. Simultaneous liberalization by all market economies is an obvious third option to be considered.

LIBERALIZATION BY DEVELOPED MARKET ECONOMIES

A move toward agricultural t r a d e liberalization by countries with developed market economies would raise, by t h e y e a r 2000, world agricultural prices t o about 9% above those of t h e r e f e r e n c e scenario. Prices of products t h a t a r e important t o developing countries' food imports would r i s e significantly and e x p o r t prices would lag, causing a significant terms-of-trade loss f o r t h e developing countries. The total world production changes only marginally, but i t is reallocated b e tween coun- t r i e s , t o g e t h e r with substantial changes in t h e p a t t e r n of t r a d e (see Box 7 ) . The GDP of t h e developing countries falls slightly, suggesting t h a t a s a group t h e y a r e c u r r e n t l y marginal benefi- ciaries of t h e prevailing protectionist policies of developed market economies.

A closer look a t t h e developing countries suggests t h a t t h i s scenario leads t o significant losses for a number of them.

Higher c e r e a l prices reduce t h e i r capacity t o import and mar- ginally increase t h e level of hunger in t h e world. Egypt, a large wheat importer, obviously loses; but s o also d o Brazil and Turkey. Argentina and Kenya gain, and Thailand gains margi- nally; t h e y a r e agricultural surplus countries and benefit from improvements in terms of t r a d e . In all, t h e r e seems little rea- son f o r developing countries a s a group t o p r e s s f o r overall agricultural t r a d e liberalization b y t h e developed market economies. Their i n t e r e s t s may be more d i r e c t l y served by focusing on specific commodities whose prices a r e d e p r e s s e d

Box

7

TRADE SHIFTS BETWEEN INDUSTRIAL CO'UNTRIES Whereas t h e USA claims t h a t EC policies remove a s h a r e of t h e global wheat market, Canada could claim t h a t U S policies d e p r i v e Canadian p r o d u c e r s of potential d a i r y e x p o r t s ( f i g u r e 3).

WHEAT DAIRY

80

60 8

-

,- V)

40 a X

- w

2 ²⁰

- 0

0 0

-20

Figure 3. Market s h a r e s in 2000. Column (1) i s t h e r e f e r e n c e s c e n a r i o and column ( 2 ) th e OECD t r a d e llberalizatlon s c e n a r i o .

U S f a r m e r s roughly maintain t h e i r incomes; in t h e EC, farm incomes are reduced by only 8% d u e to high world market p r i c e s , r e s t r u c t u r i n g of production p a t t e r n s , and somewhat l a r g e r movement of l a b o r o u t of a g r i c u l t u r e . Total GDP galns e x c e e d farm income losses.

d u e t o surplus production in t h e developed countries. Though t h e developing countries lose, agricultural t r a d e liberalization by t h e developed market economies is beneficial t o themselves

(see Box 8).