Saturday, May 03, 2008

A lesson from Afghanistan

In February, we posted a story on the effects of the severe winter in Afghanistan. We used the story to illustrate the extent of the bad weather in the northern hemisphere – in the context of our more general points about global warming – and have not revisited it since.

However, if possible, the advent of the "global food crisis" has made the situation even worse, creating problems which exacerbate existing stresses in this war-torn country and which defy easy (or immediate) solution.

Remarkably, though, many of those problems are exactly the same as face more developed countries like the UK. We thus thought it might be interesting and instructive to explore some of the issues currently affecting Afghanistan, and to draw broader inferences from them.

Bringing us up-to-date, we first turn to a report from the FAO published in early April, which tells us that, "The aftermath of war, two severe droughts (from 2001-2 and 2006), and an ongoing insurgency have increased food insecurity throughout Afghanistan."

It then tells us that the "current food shortage" has been intensified by the soaring price of wheat (Afghanistan's staple food), which rose by 70 percent in the past year. So, we learn: "The brutally cold winter has therefore plunged Afghanistan into a humanitarian crisis."

This crisis has been intensified by the action of neighbouring Pakistan, which has banned the private export of wheat to Afghanistan and imposed a 35 percent duty on official wheat and wheat products exports.

This – as one might expect - has led to an outbreak of cross-border smuggling, driven by the price differential in the two countries. The price of wheat flour is equivalent to about 30 rupees (48 US cents) a kilogram in Afghanistan, compared with 20 rupees in Pakistan.

As to the forthcoming season, early indications are that the 2008 wheat crop will benefit from the heavy snowfall in January. Output may, therefore, improve on the estimated 4.6 million tons from the 2007 harvest, and well above the relatively poor harvest of 2006 (3.9 million tons).

This, however, does not make Afghanistan self-sufficient in wheat and it will still need to import an estimated half a million tons, which – at the current high prices – will create yet more stresses.

For the poorer segments of society, who spend up to 70 percent of their incomes on food, high prices put basic necessities out of their reach. Thus, the UN and Kabul government have appealed for $79 million to assist an estimated 2.5 million Afghans out of the 33 million population who have difficulty affording enough food.

The high prices, though, are also having a beneficial effect, remarked upon by the Telegraph's Con Coughlin in his blog. Profits from wheat are now such that is more cost-effective to grow this crop instead of opium poppies and, as a result, farmers are shifting their cropping patterns. Opium production, currently, is on the decline.

The problem though, is that this situation is highly unstable and is unlikely to last. In 2005, there were expectations of a bumper harvest and analysts were then concerned that local surpluses would trigger a precipitous fall in wheat prices – below break-even point. The result, it was feared, would be that, the following season, farmers would move out of wheat and into alternative crops such as opium poppy.

This is precisely the dynamic which affects more developed markets. Commodities such as wheat are notoriously sensitive to fluctuations in supply. Relatively small surpluses lead to disproportionate drops in price, the reverse happening when supplies are short – as we are seeing at the moment. When the price drops, farmers move to different crops (or cease production altogether) and when prices are high, they increase production, leading to never-ending "boom and bust".

To deal with this, governments traditionally implement price stabilisation policies, adopting either of two approaches. The first is the deficiency payment scheme, which guarantees a basic minimum price to farmers for their crops: if the market price drops below that minimum, the government makes up the difference. This was the scheme adopted by the UK, prior to its entry to the EEC.

The other approach – which forms the basis of the EU's intervention scheme – is for the government to buy up grain in times of surplus and to store it, taking it out of the market and thus applying upward pressure on prices. It then releases the product back onto the market in times of shortage.

In the event, although this latter policy was mooted for Afghanistan, it was noted that the government did not have the storage facilities to accommodate such a policy action. Neither, incidentally, did it have the sophisticated market measurement tools or the capability to administer a complex agricultural payment scheme that would be required if the other approach was adopted.

The point here – of more universal importance – is that, although free-market imperatives require minimum intervention, the peculiarities of the food commodity market, and the vital need to keep populations fed – invariably require government action to smooth out the worst excesses in price fluctuations. Without that, you end up with a situation that is facing Afghanistan, swinging from the "boom to bust" and back again, with significant adverse consequences.

That notwithstanding, there are other issues holding back agricultural production in Afghanistan, one of which is pointed up in comments to a post on Barnett Rubin's remarkable Informed comment: global affairs blog.

The problem with any rural development policy in Afghanistan, the commenter wrote, is that nobody has an accurate idea of the current land tenure arrangements. Most of the recipients, it seems, are sharecroppers. Their "contract" with their landlord specifies that the inputs had to be provided by the landlord. He continued:

Most bodies involved in the aid business are not interested in delving further as this would complicate their task. It is easier indeed to report the distribution of xx tonnes of agricultural inputs to so many "poor farmers" than to actually figure out who you are really helping. The actual agricultural production arrangements in Afghanistan can be very complex and varied from one area to another, or even within one area. So it is very tempting to just ignore them.
This was further amplified on another blog who learned that opium traffickers often loan farmers the money to plant and fertilise the opium harvest for the coming year. On the other hand, there are no programmes in place to provide loan support for farmers who want to grow alternative crops. If you're an Afghan farmer who wants to grow wheat or strawberries instead of opium poppies, you're largely on your own.

Such input points up the extraordinary complexities involved in devising assistance for developing countries, and the observation that it is "very tempting to just ignore them" is very apt. Thus do we see president Bush this week proposing to spend an additional $770 million in emergency food aid - bringing US funding to $2.6 billion for the forthcoming year – but this may be exactly the opposite of what is needed.

Food aid, more often than not, acts has a hidden farm subsidy for the donor country. Small wonder, Senator Richard Durbin of Illinois spoke favourably of the increase in spending.

But flooding an under-developed country with free food simply undermines the local agricultural economy. It drives down prices (who will pay for food when they can get it for free?) and thus deters farmers from growing crops – or pushes them into more profitable crops … like opium poppies.

To add to the already fiendish complexity, Rubin offers another posting, which points to unemployment as one driver of the insurgency – a view disputed by one of his commenters, who argues that distortions in aid payments are as problematic.

To be fair to the Americans, they are doing far more than simply donating food, evidenced by this site, which sets out some of the programmes they are undertaking. The British have similar programmes, albeit on a smaller scale.

However – cutting to the chase, so to speak – whatever the complexities of offering assistance and, in this case, attempting to reconstruct war-torn country, on one thing most sources seem to agree. Massive global price instability in commodity foodstuffs creates huge stresses and intensifies existing problems.

The lesson from that is clear. Developed countries which pursue policies – such as the promotion of biofuels – not only disadvantage their own economies. They create problems for developing countries, which are likely to suffer far more than the comfortable originators of those policies.

In short, we have to think not only for ourselves but for others – and assess the effects of our policies on those less fortunate than ourselves.


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