HOW CAN WE FEED 9 BILLION PEOPLE?

In the late 20th and early 21st centuries, dangerous signs of a food crisis began to manifest themselves in the world.  The governments of all countries are forced to pay special attention to the development of their agricultural sectors.  The Earth's growing population and the high rate of urbanization (it has been forecast that more people will live in urban areas than in rural areas in 2020) increase the global demand for food.

This issue is discussed at forums attended by top-level officials.  The latest reports of the United Nations Food and Agriculture Organization (FAO) indicate that one sixth of the total population of the planet are starving or undernourished - 1.2 billon people.  This is historically unprecedented!  Despite success in the fight against chronic starvation in the 1980s, the number of people affected by famine has been growing slowly but steadily since the 1990s.  The greatest rise was registered from 1995-1997 and 2004-2006.  The worst affected regions are the Asia and Pacific region, sub-Saharan Africa, Latin America and the countries of the Caribbean.

Experts warn that rising prices and acute shortages of food may give rise to major international conflicts in the next few years.  Famine is as dangerous as terrorism because, together with poverty, it poses a threat to international security.  It can even threaten China, which depends on foreign markets in which the prices of rice, grain and other foods have increased.  Because of rising international food prices, there have been large-scale disorders in Haiti, Egypt, Cameroon and Indonesia.  In the mean time, even before the hike in prices, one child under 10 years old died every five seconds somewhere in the world.

At the same time, the number of people who are overweight exceeds the number of those starving and has already reached 1 billion.  US researchers from the University of North Carolina reached this conclusion.  In the West, families spend 10-20% of their budget on food, whereas those in the poorest regions of the world spend 60-90%.  In Britain, about 20 million tons of food are thrown away every year, which is 50% of the country's total annual food production.  Of this, about 16 million tons are from households, hotels, stores, restaurants and food production facilities.  The remaining 4 million tons are scrapped before they even make it to the factories and stores from farms.  So, the British waste over $40 billion a year due to negligence.  Statistics indicate that such wastefulness is characteristic of most of the world's developed countries.  According to different estimates, Japan, for example, wastes from 30 to 40% of the food produced annually.  Americans, according to Arizona State University, throw about a half the food they purchase (worth $43 billion annually) into the garbage can.

Experts note that an effective policy for the agriculture sector and for food consumption could save humanity from famine.  For example, the World Food Programme's statistics testify that the United States alone could feed all the starving people on the African continent.  France could feed the people of the Democratic Republic of Congo, and Italy could save Ethiopia from starvation.

International organizations note specifically that the problem of food security must be addressed for the long term:  "By 2050, the population of the planet will reach 9.2 billion, and we have to be ready to feed everyone."

Food security is a condition of a state's economy in which the independence of food supply is assured, along with the population's access to vital food products.  Considerations include:  the level and dynamic of consumption of the main food products; the degree of reliance on domestic food supplies; food imports (critical level - no more than 20%).  Economists believe that about 80% of food should be supplied domestically.  The United States and France achieve almost 100%, Germany - 93% and Italy - 78%.

In some countries food security is guaranteed, in others the population is starving.  This is why intensive development of the agriculture sector and the adoption of practices used in developed agricultural sectors are pressing issues.

Many years of experience of the countries with highly productive agricultural sectors show that, without government regulation and support, agricultural companies are not efficient.

The experience of developed countries proves that, for agriculture to develop normally, long-term forecasts and programmes are necessary.  Only long-term forecasting makes it possible to invest wisely in the main sectors of agriculture.  Forecasts of the consumption, production and prices of various products are used.

The costs of fertilizer, hardware and fodder supplies also have considerable impacts on prices and volumes of production.

Forecasts of food production are closely linked to forecasts of average personal income.  And the so-called Engel's law has to be taken into account here: this states that, for a given set of tastes and preferences, as income rises the proportion of income spent on food falls, even if actual expenditure on food rises.

State regulation of the agricultural sector of the economy, via comprehensive support of manufacturers, is a priority for agrarian policy in most developed countries.

Let us discuss more concretely the practice of support for the agricultural sector in a number of countries.

The United States

The attitude toward agriculture in the USA is best described by the phrase uttered by President Franklin Roosevelt:  "If the farmer dies today, we shall all die tomorrow."  In this light, government regulation of agriculture in the United States actively stimulates a process of modernization and ensures favourable taxation, revenues and capital accumulation for the sector.  An important components of state regulation is its financial and credit support for the agrarian sector of the economy.  Funding is supplied by allocations from the national budget, which are spent solely on target programmes.  There are two major programmes at federal level:  stabilization of revenues and Research Support.

Among the main programmes is that for the stabilization of farmers' revenues.  Currently, much money is devoted to this programme - from 30 to 50% of all budget allocations to agriculture.  The programme includes components for crop insurance and agricultural credit.  Crop insurance is allocated by the Federal Crop Insurance Corporation of the US Department of Agriculture, which insures farmers' crops against natural disaster.  There are more than 10 multi-sector targeted programmes at federal level:  land conservation and land retirement programmes, food aid to the impoverished strata of society, marketing and inspection and so on.

In recent years, the National Price Support Programme has become the highest-priority initiative.  A third of the farms in the United States participate in this programme, and 70% of the funds distributed under the programme go to farmers who produce more than $100,000 worth of food products annually.

Yet another group of subsidies in the system of direct subsidization of farmers' revenues compensates for damage from natural disasters.  Farmers who produce grain and raw cotton receive them on condition that they take part in programmes of reduction of areas of arable land.  The programme of crop insurance is connected with this group of subsidies.

Considerable amounts are allocated from the national budget to fund the food aid programme.  Its goals are: first, to create ways of realising "non-liquid" food products; second, to broaden the domestic sales market without reducing market prices and third, to improve the level of food supply to the low-wage stratum of the population, while maintaining market prices.  This programme is a means of broadening demand.

At the current stage of development of agriculture in the United States, there is a need for interest bearing capital, that is to say, for agriculture credit, including loans at preferential rates.

Within the framework of government support for agriculture in the United States, there are two types of prices:

-Target (guaranteed) prices which are set for the most important agricultural products.  Targeted prices are calculated to guarantee revenues for reinvestment into extended production at farms with average and low levels of spending.  Farm products are sold at market prices which can be higher than, lower than, or equal to targeted prices.  But, by the end of the year (sometimes during the year too, if advance payments are made), the target price constitutes economic reality for the farmer, that is to say, it is the final selling price - also called the guaranteed price.

-Loan prices (loan rates).  The farmer sells to the Commodity Credit Corporation (CCC) his entire produce at the loan price, in case market prices fall below the loan price.  In accordance with the agriculture law of 1985, US farmers are entitled to sell their produce in the free market, realize it under contracts, and store it at their own farms to wait for a higher market price or bail it with the CCC.  In the latter case, the deposited produce can be redeemed by the farmer within 9 months.  If this does not happen, the produce becomes CCC property and the farmer receives monetary compensation at the loan price after deduction of storage expenses.  The loan price is the lower limit of guaranteed prices for agricultural products.  If, within 9 months, international prices fall below loan prices, the farmer can buy back his produce at the market price.  Thereby, the farmer makes a net profit on the difference between the loan price and the international price.

The United States' budget expenditure on agriculture also depends on the economic situation: for example, during years of crisis, spending increases dramatically and during more stable periods, government subsidization falls noticeably.

Two directions are most important in the structure of federal budget spending on agriculture: 

1)Income stabilization programmes (they account for about 60% of budget appropriations for agriculture);

2)Agricultural research and services programmes.

It must be said that the largest share of aid (about 70% of budget allocations) is received by relatively large farms with highly efficient production cycles and budget allocations effectively reach one third of US farms.

The US Department of Agriculture also helps US farms to sell their products, supporting sales cooperatives, keeping the market for agricultural produce competitive and providing exhaustive information on standards and prices in international markets.

Incidentally, agricultural production in the United States is more effective than in many EU countries.

Germany

In 1955, talks between the German Farmers' Union and the government resulted in the adoption of the law on agriculture.  It sets down the fundamental principles of agrarian policy at national level and defines specific political methods of implementation.  The law read that protectionist measures were to be taken in the agricultural sector.  Using proven instruments of economic regulation, such as its trade, credit and pricing policy, it was decided to equalize the relatively disadvantaged position of agriculture with other sectors of the economy.

According to the law, the minister of agriculture must publish annual official reports on the situation in the sector during the preceding year.  The law serves as the basis for spending federal funds to achieve the objectives set down in it.

Farmers who spend more than half their working time in agriculture can count on government support if more than half their total revenues come from agriculture, and whose revenues from agricultural work account for at least 25% of the total.  In Germany, preferential government credit is issued at an annual interest rate of 1% for a term of 28 years.  Particularly soft-term loans are available for young farmers.

The programme of agriculture loans for all land in Germany has the objective of supporting investment into rationalization and improvement of conditions.  On new land, additional investments encourage the purchase of hardware no older than 5 years and so on.  Manufacturers of agricultural products can receive preferential-rate loans of up to 143,000 German Marks per worker or farm.  In areas with unfavourable weather conditions, the government repays 5% of the loan, in traditional areas - 3%.

The total amount of interest which the government undertakes to repay is paid in a single payment.  The farm's own share of investment must be at least 10%.

Poland

Liberalization of the economy started in Poland in 1989.  The subsidization of imported food products was ended, resulting immediately in dramatic hikes in food prices and causing inflation.  In turn, this forced the Polish Government to take measures to restore market balance and check increases in food prices.

Guaranteed prices and export-import mechanisms for the main agricultural products - grain, dairy products, pork and beef - play a special role.  These measures meet the requirements of the joint agrarian policy of the EU.  The Agricultural Market Agency (AMA), which operates under the Food and Agriculture Industry Ministry, buys and sells food products, issues and replenishes government food reserves, guarantees agricultural credit and subsidies for the construction of wholesale food markets.

The Polish Government fixes minimum prices for baking grain and rye.  If market prices go below the minimum, the AMA intervenes with acquisitions.  In addition, the agency buys grain for government reserves.  The selling of intervention reserves can take place both in the domestic market and outside in accordance with the current rules of international trade.  A special organization for the sugar market has been in operation in Poland since 1996.  Similar measures are taken for dairy products.  The AMA can influence the dairy market by buying butter from dairy farms at intervention prices and they, for their part, pay milk farmers the fixed minimum price.

Intervention in the pork market, which is the most popular meat in Poland, is intended to stabilize prices, and as for beef, the government limits itself to acquisitions for national reserves.  For all other agriculture products, the government's role boils down to the regulation of exports and imports.

Finland

There are three types of prices for agricultural products in effect in Finland:  target, subsidized and additional prices.  Every year, the Agriculture and Forestry Ministry sets target prices and approves them, in coordination with the Central Organization of Agricultural Product Manufacturers.  During the year these prices can be adjusted for inflation.  The rationale behind target prices is a pricing model which was developed by calculating the cost of production of the most important agricultural products at farms in the south of the country, where environmental conditions are most suitable for farming.  Subsidies are provided for areas with worse conditions.  Subsidized prices are set using the same procedures as for guaranteed prices, but they apply to agricultural products which are intended for export.  At the same time, if farmers manufacture export products at costs exceeding subsidized prices, their losses are not recompensed.  Furthermore, if production quotas for export manufacturing are exceeded, the excess is not paid for at subsidized prices. Agricultural products which are manufactured in excess of the fixed government quota are sold at additional prices, which vary depending on the situation in the domestic market in the particular region of the country (these are usually lower than target prices).

So, generalizing the experience of the development of the agricultural sector in a number of countries, the following conclusions can be drawn.  Effective methods of organising government regulation of agricultural manufacturing include: supporting the prices of many types of agricultural products; allocating subsidies per hectare of arable land or per cow; preferential lending to farmers; preferential taxation of agricultural enterprises; funding government research; subsidising the development of infrastructure in rural areas; developing and adopting a legal framework as the most important and effective direction of government influence in the agrarian sector.

The main role in the government regulation of agriculture in foreign countries is played by measures to support prices.  Among the instruments of state regulation of prices are the purchasing or selling of long-shelf-life produce for the purposes of commodity intervention and maintenance of desired prices.

Straightforward payments include a broad range of payments:  compensation payments; subsidies per unit of land or per unit of livestock; insurance and recovery payments; payments in the form of subsidies for the purchase of resources for production, export and so on.  In general, in countries with developed market economies, subsidies per unit of land and per unit of livestock account for two-thirds of total direct payments.  The size and structure of payments vary from country to country because of environmental and economic conditions.

The size of direct subsidies is greatest in countries with poor conditions for production (Norway, Iceland, Finland, Switzerland and mountainous areas of France).  The purpose of these subsidies is to compensate for negative land rentals, which increase the cost of production in, for example, mountainous and northern areas.  The number and total area of farms which fall into the less profitable category increases all the time, and now their total is almost half the entire area of farmland in EU countries.  In Finland, all farms receive per-hectare subsidies and, to the north of the 62nd parallel, increased prices and special uplifts are in effect.  There are similar preferential uplifts in the north of Norway too.  In Austria, Switzerland and in mountainous areas of France, the per-hectare or per-livestock-head system of subsidies has been in use for a long time.

Farms' financial resources are supported by founding agricultural cooperative banks; the development of rural credit cooperation whose main purpose is not profit but service; the extending of the mortgage system and the introduction of preferential taxation for agriculture.

In countries with developed market economies, the government's role in the formation of the productive infrastructure of the agro-industrial complex is very prominent: the government carries out land reclamation projects, development of road transport infrastructure, land recultivation measures, the construction of cattle farms and poultry farms, storage facilities for agriculture products, shelters, workshops, production facilities, veterinary laboratories, garages, technical maintenance stations and many other projects.

Among the measures of government support for the agriculture sector widely used in foreign countries are direct and indirect government subsidies.

In conclusion, it should be noted that in the USA and Western countries, government regulation of the agriculture industry has become an inseparable part of economic reality.  It is government regulation which has made possible a stable market for agriculture products and the required level of food security and income for their citizens.