Turn Starving Farmers into Commodity Traders?

Teach starving farmers to grow crops, and they can feed themselves and their countrymen forever. Also, according to the World Food Program's Purchase for Progress (P4P) initiative, they can benefit from "better farming methods, and to helping them store their crops in warehouses, plant higher-yield seeds, and transport their produce to customers." [Walt, , Time Magazine.]

Doesn't that sound brilliant? Intuitive. Obviously a sound solution. Rather than the UN's World Food Program giving food to starving regions, invest in local farming, grow the local economy. So economically and ecologically ... logical! What's not to like?

The danger, and possibly the devil, is in the details - particularly that innocuous sounding bit about "store their crops in warehouses." Well, you'd think (I know I did.), of course farmers have to be able to store their crops! If those better farming methods produce the surpluses expected, the crops must be stored to await processing. It's all good. As it turns out, though, not so much.

Unintended Consequences

Here's what lies beneath the storing of crops in warehouses according to the conversation reporter Frederick Kaufman had with Josette Sheeran, executive director of the World Food Program, reported in Harper's Magazine: "P4P was designed to mimic sophisticated global markets. Along with its purchase guarantees, P4P included plans to support countrywide commodity exchanges, which the WFP hoped would develop along the lines of the Chicago Board of Trade. (In Ethiopia and Uganda, exchanges have already opened.) In the new paradigm, the smallest farmer can benefit from the biggest market. In some cases, P4P would not purchase a farmer's grain immediately but instead would encourage him to [italics are mine - TKD] warehouse his product and receive a receipt. More mysterious than rice or millet, this slip of paper presented a number of intriguing possibilities. First of all, the receipt allowed the farmer to register with his countrywide exchange, a place in the capital city where all the grain from all the country's farmers could be bought and sold. Henceforth, the rural farmer could follow fluctuating prices with the technology of his mobile phone. The once indigent peasant could become a commodity trader and peg his sale to any time of the year. In this way, he could forecast, model, and leverage more financing. No matter that commodity speculation and grain hoarding had helped trigger the world food crisis. No matter that the recent Agribusiness Accountability Initiative declared that massive and unregulated commodity market speculation 'has pushed the prices of wheat, maize, rice and other basic foods out of the reach of hundreds of millions of people around the world.'Of course, the WFP would take no responsibility for market peaks, valleys, doldrums, and crashes. The happy news was that the solution to world hunger would no longer have to be about the food. It could be about the money. And I imagined the sowers and reapers of Africa, Asia, and South America transformed into a massive cartel of grain dealers-leveraging, diversifying, and cornering markets, driving the price of rice and beans as high as the market could bear. The peasant-turned- trader could wait as long as he liked to go to market and, while he waited, place bets on which way the market would move. He could hoard in the great tradition of grain dealers, hedge in the great tradition of bankers, and eventually pull in enough profit to render obsolete every guarantee and support of the World Food Program, quit farming, and go into insurance and banking for himself."

Time for Critical Thinking

Hold on, hold on. Kaufman's prognosis is admittedly something he imagined. It could happen, but really, would it? The P4P program is being funded in part by the Bill and Melinda Gates Foundation, the Howard G. Buffet Foundation and the government of Belgium. These are all organizations staffed by very smart people, people with good intentions and expertise in economic cause-and-effect projections. Surely they would have thought of this worst-case scenario before Mr. Kaufman of Harper's did, and have safeguards in mind.

I bet Mr. Kaufman hoped that, too. He prepared a question for Bill Gates after the press conference announcing P4P: "Why, despite our spending more money than had ever been spent to solve the problem of world hunger, and why, despite everybody's best efforts to reconceptualize the problem-why were more and more people going hungry? Perhaps Gates would consider the paradox that our efforts might be exacerbating the problem, that all we were doing was wrong." And Mr. Kaufman got to ask his question.

Here's what followed: "An uncomfortable silence settled on the room, and for the first time that morning Bill Gates stopped smiling. Instead of answering my question he asked one in return, the only indication of his annoyance the fact that he had forgotten to turn on his microphone. 'What do you mean by "market conditions"?' he asked. ... The history of the world was the history of hungry people, I explained. Money, politics, war-none had ever been enough to stop starvation. And so on and so forth. ... "You should track what the food output has been," he said, and this time he remembered to turn on his microphone. "The amount of food being produced in the world today is much greater than millennia ago." His face had grown florid as he gazed down from his perch beside the African presidents. "Incredible progress has been made," he recited. "You get operating markets, they can feed the world very well. This money is being spent because it improves the human condition." And now his smile returned. "If you look at historical figures and do not see a positive trend, you might not choose to be involved," he said, "but I do see a positive trend." Gates shook his head and turned off his microphone, and Bettina Lüescher announced that the news conference had come to an end."

Now, I don't know about you, but when Bill Gates gives a "happy talk" answer to a serious question, rather than beginning with, "We've thought about that, and here's what we have planned to prevent any disasters ...," I worry.

It would be good if some of the smart folks who support P4P read Kaufman's article in Harper's. In it, he also recounts his conversation with Harvard economics and philosophy Professor Amartya Sen, author of 26 books and 375 articles, and recipient of the 1998 Nobel Prize in Economics. Sen had lived through the 1943 Bengal famine as a child and as a researcher "had crunched the hunger numbers as no one else had done before, not just for Bengal in 1943 and Ireland in the 1840s but also for Ukraine in the 1930s, China in the 1950s and 1960s, Ethiopia in the 1970s, Bangladesh in 1974, Somalia and Sudan several times over. In 1982 he published a book called Poverty and Famines: An Essay on Entitlement and Deprivation that transformed the field. Other books followed, including Inequality Reexamined and Rationality and Freedom."

Sen observed that, as Kaufman summarizes it, "In the midst of a severe hunger crisis, agricultural subsidies do not make much of a difference. And in the face of famine, a reliance on market economies is as ineffective as a reliance on loaves and fishes or manna from Heaven. Even so, said Sen, famines are not terribly difficult to avoid. Prevention requires the speedy implementation of emergency income creation and employment programs, in combination with the broader social infrastructure of representative democracy and a free press, which happens to be the best early-warning system. Famine happens when rulers are alienated from those they rule, he explained, and a functioning democracy is a simple way to remove such alienation. Famine happens when there is no free press, because rulers tend to feel embarrassed when photographs of starving children appear on the front page. New formulations of the hunger problem were not necessary. Sen had discovered the solution and he had gone over it many times, in abstruse tables for Econometrica, in articles for the Handbook of Mathematical Economics, and in features for Granta. He had explained the solution in his hundreds of essays and dozens of books in thousands of seminars and public addresses, yet his endlessly rehearsed points had not been enough. The world remained irrational, and people starved."

Oh! So that's it. Governments who are responsible to an electorate are the solution to the hunger problem, not turning farmers into commodity traders. Of course, the real solution takes more than money and training of farmers; it takes persuasion of the power-wielders in governments to pay attention to the well-being of the people - not so easy in countries without elections, given how difficult it is even in those that are democratic.

So I do hope that the well-meaning, smart, wealthy individuals and institutions supporting P4P do read Mr. Kaufman's article. And then call on Professor Sen. And then find a better solution.

Resources:

Kaufman, Frederick."Let Them Eat Cash,"Harper's Magazine, June, 2009, pp.51-59.

Walt, Vivienne. "Can Bill Gates Help Africa Feed Itself?"Time Magazine. September 25, 20008