Countries alter food prices with tariffs

Marketplace Staff Feb 13, 2008

Countries alter food prices with tariffs

Marketplace Staff Feb 13, 2008


KAI RYSSDAL: The U.S. Trade Representative, Susan Schwab, said today she thinks negotiators are on the verge of a breakthrough on something called the “Doha Round.” Before you reach to Google to find out what that is, I’ll just tell you. It’s the latest set of global trade talks. It’s supposed to end up with there being fewer barriers to free trade around the world, but it’s been hung up for a year now on one key issue — agricultural subsidies, how much governments pay their farmers to grow, or not grow, their crops, but with world food prices skyrocketing, a funny thing’s happened on the way to Doha. Food tariffs are changing, which might change how everyone feels about those subsidies. Homi Kharas is a senior fellow with the Brookings Institution. Mr. Kharas, welcome to the program.

HOMI KHARAS: Thank you.

RYSSDAL: Mr. Kharas, food prices are rising around the world. Remind us how that’s affecting food tariffs, and what’s going on there.

KHARAS: Well, what’s happening is two things. A number of food importing countries have started to lower their import tariffs, to try to offset the impact of high international prices on their domestic consumers. And then on the other side, a number of food exporting countries are trying to make sure that more of their food stays at home and keeps prices low, so their putting on export taxes to stop their farm exporters from selling abroad, and keep them selling domestically.

RYSSDAL: Is this sort of a turning on its head of food tariffs the way we’ve known them to be?

KHARAS: Well certainly it changes the politics of food tariffs enormously, because food tariffs have been imposed, certainly by developing countries, because they’ve worried about the incomes of poor farmers, but of course with international food prices going up so high, there’s no longer such a great need for protection of these farmers, so that changes the political equation quite a lot.

RYSSDAL: Is it more power to the growers really now, because these food prices are rising?

KHARAS: Absolutely. Growers, people in rural areas, who actually have not been great beneficiaries of world trade to date, now, for the first time in maybe a generation, are seeing their prospects also starting to improve.

RYSSDAL: Let me try to make this a little bit more concrete, and give an example. The one that comes to mind is ethanol tariffs here in this country. Corn-based product that we in this country have very, very high import tariffs on. Any chance that’s going to change?

KHARAS: I don’t think so in the United States but, for example, the European Union just eliminated all tariffs on cereals, in an effort to stop food prices from rising so rapidly in Europe. India, for example, halved its tariffs on palm oil prices. Cooking oil is very important to a lot of people in India, so in lots of countries around the world, you’re seeing very significant changes in their policies.

RYSSDAL: What about in countries that are raising their tariffs? China has put very high tariffs on certain exported goods. Are food prices rising there?

KHARAS: Well, yes, and in an effort to try to stem increases in food prices in China, the Chinese government is trying to get their farmers to keep more of their goods at home and sell it into domestic markets, and of course what that does is it makes international prices rise even more, because the normal impact of higher prices, which is to get more supply into the international market, is being offset by these domestic policies, and China isn’t alone. Argentina has done exactly the same with beef exports. They’ve stopped beef exports, forcing Argentinean producers to sell beef in their domestic markets, and temporarily, that has kept beef prices in Argentina low, but in the long run, there is a danger that it could damage the beef industry.

RYSSDAL: In the long run global food prices can’t keep going up like this. They’ll eventually steady out, if not drop, and then what happens to this change in tariffs that we’re seeing?

KHARAS: Food prices have always been very volatile, and so countries have been reluctant to actually bind their tariffs, because they can’t really tell how far food prices are likely to move in one direction or the other, so they like to keep a great deal of flexibility in what they’re allowed to do under WTO rules, and that’s what’s blocking an agreement.

RYSSDAL: Homi Kharas is a senior fellow at the Brookings Institution in Washington. Mr. Kharas, thanks for your time.

KHARAS: Thank you very much.

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