For those that do not know what a Structural Adjustment Policy (SAP) is, it is the conditions by which a country must abide when it obtains credit from the World Bank. SAPs are nearly as old as the Breton Woods institutions themselves, but gained prominence as a policy tool as many countries experienced economic crises in the late seventies. Though this seems reasonable (a creditor would want to make sure that his borrower doesn't spend care-free), in reality some of these demands are quite unreasonable for an institution that claims to be fighting poverty, in the World Bank's case.
In addition to accepting fiscal austerity, which itself can be harsh especially considering most Western governments run on deficits, many countries are also forced to privatize state-owned firms. But more integral to the food crisis, they are also made to open up their markets to richer countries, and encouraged (read: coerced) to discard traditional agriculture in favor of cash crops for export to the west.
Strucutral Adjustment is especially harsh when you consider that many poor countries only have asked the World Bank and IMF for loans after previous corrupt dictatorships bankrupted their countries. As a means of recouping losses incurred through irresponsible lending to these dictators (especially in the crisis of the late 70s early 80s), banks turned to the IMF, who then loaned these countries money so they could repay their creditors (such as Scotia Bank, Citibank) and thus global finance was given a get-out-of-jail-free card.
So how have these policies directly contributed to people going hungry today? The fallacy of economic orthodoxy with regards to free trade. It states that when tariffs are removed, countries that sacrifice the least production of one good to produce more of another (comparative advantage) will do so, and prices will consequently drop. This assumption, based on supply increasing more than demand due to competitive markets, is sheer fantasy, even in agricultural markets (see Cargill, Tyson, ADM). If markets are uncompetitive, taxes can fall with no negative effect on price whatsoever. Who will force firms to lower their prices (and their profits) if there are no competitors?
To illustrate this point consider the following. Country A and Country B sign a free-trade agreement, but B is significantly smaller and poorer than A. Consumers in both countries eat corn, but B produces much more. Previously there were tariffs on corn. If B's corn markets are open to A's richer consumers, the effect on price will be positive, thus diminishing real incomes in B. The beneficiaries will be corn farmers in B, whose land will invariably be bought by corporate interests, thus negating any real long term progress to those who yearn for it most.
This would appear to be the case in Central America, where corn and rice, key components in the diet of many, have increased in price due to richer consumers around the world pushing up the price (biofuels also dont help the cause of the campesino). Some even argue that Cargill is using its market power to rise the price of corn even higher than it should be if it were determined by market forces alone.
Another illustration of free trade's failure is the case of oil. Has religious pursuit of free trade made oil cheaper? Not by a country mile. Though unique in its naturally limited supply, it is comparable to grain markets. Only so much land is arable, and small landholders, though by some accounts more productively efficient, are easily bought out by corporate farmers. As stated before, farming is actually not as competitive as high school economics text book writers would have you believe. Free trade agreements might lead to lower prices in the short run, but as smaller farmers struggle to cope with lower revenue and are run out of business, prices will increase. And why would a profit maximizing agricultural firm choose to lower its price in the absence of additional competition, particularly when consumers are typically unresponsive to price changes in basic food commodities?
Furthermore, Western countries make a mockery of free trade when you account for the export subsidies that agribusinesses receive. We make trade liberalization a necessary condition for normalized relations with poorer countries, yet we dump our agricultural surplus on their markets, only to the benefit of overproducing Western corporate farms.
As if the encouragement of unfair trade wasn't enough, the World Bank and IMF also encourage the growth of cash crops for export through market-distorting incentives. Not only do these mainly benefit elite and corporate farmers, who have the capital handy in order to make the switch and learn how to grow the cash crops, but they also succeed in reducing the supply of crops grown for domestic consumption and staples that may be exported.
By 1999, 50% of World Bank loans were tied to structural adjustment. There is reason to believe that because the World Bank/IMF placed more emphasis on SAPs (and they were accepted by debtor governments), food supply in poorer countries has decreased as a result, thus contributing to the rise in price. Tanzania, for example, saw land designated for cash crops increase by 17% after accepting the terms of Structural Adjustment in the late 80's. Most of these crops had a detrimental impact on the soil, as they were highly erosive. Thus structural adjustment directly led to unfavorable conditions for Tanzania's farmers and consumers.
Structural Adjustment Programs come under criticism for many reasons. They mainly come under criticism for their violation of national sovereignty and unjust provisions. The World Bank and IMF should admit their mistakes and work to neutralize some negative effects of SAPs on the global masses, though SAPs are not the sole cause for the food crisis. Previously, economists must've felt that the price of wheat, corn and rice could do with an increase, but a rapidly changing world is voting with its stomach and its appetite for a solution is growing.
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