THE United States Department of Agriculture confirmed on September 12th what everyone knew: that this year’s American corn (maize) harvest is bad; that three of the biggest wheat exporters, America, Russia and Australia, are suffering from simultaneous droughts; and that the world is experiencing its third food-price spike in five years.
Although the weather is the proximate cause of the price rises, governments are making matters worse. Look at America’s biofuels policy. By ensuring that a third of the country’s maize is turned into ethanol and fed to cars, it has driven up grain prices and made them more volatile by reducing stocks. At the start of this year America scrapped the subsidy for ethanol, and abolished the tariff on imports of the stuff—steps in the right direction. But a certain amount of ethanol still has to be blended with petrol by law. That keeps prices high.
Bad policies in America are encouraging bad policies elsewhere. Higher prices have spooked importing and exporting countries alike, causing them to turn away from volatile world markets and seek to insulate themselves. Between 2007 and 2011, 33 countries imposed export restrictions on food. Agriculture accounts for less than 10% of world trade, but more than two-thirds of the cost of all border distortions.
Export bans are designed to protect consumers from the effects of high prices. From the point of view of a single nation, such a policy might seem to have the desired effect: as world prices spiral upwards, domestic prices are shielded from the full impact. But when many countries do the same thing—as now—so much food disappears from global markets that prices rocket more than they would have done if governments had left well alone. One study calculated that 45% of the huge increase in rice prices in 2006-08 was attributable to trade restrictions. So export bans exaggerate the very thing they seek to defend against.
