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In response to soaring food prices, there have been repeated calls across the globe for increased trade restrictions in order to protect local food supplies. India and Vietnam, for example, have banned rice exports while Liberia has banned the export of food products altogether. There is bipartisan support in the United States for an increase in farm subsidies, and the EU will likely continue its massive farm subsidy program for some time. Are these kinds of measures necessary or even useful to the stability of food supplies?
Alongside calls for government action, there has already been a swift market reaction to the crisis. The bottom line: sales of heavy machinery are burgeoning, which suggests that the market is responding to high food price levels. Part of the magnitude of the sales increases of the U.S. firms, Caterpillar and Deere, can be explained as a consequence of the declining value of the dollar, but the non-U.S. firms, AGCO and Fiat Group, are recording high sales growth as well. The highest growth in sales rates are seen in Latin America, though Asian sales are increasing rapidly as well. The market response in North America has been smaller, but this may be the result of pre-existing farm capital accumulation alongside the availability of used farming equipment not present in most developing nations rather than a lack of planned growing expansion. As a consequence of increased farm capital accumulation, an increase in global agricultural production might be in the making. But trade protections such as tariffs and export bans are more likely to limit access to strained markets by those who have surpluses than they are to improve either the availability or the price of food products in local markets. And with reduced accessibility to areas where supplies remain short, the opportunity to increase world food production will be hindered. Short-term food aid may sometimes be an appropriate reaction to sudden shortages of major food staples, but, in the long-term, the bellies of the world will be filled by increased interdependence and free entry to market rather than by restriction and isolationism.
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