Financial Times (London, England)
August 12, 2004 Thursday
USA Edition 2


LENGTH: 273 words

HEADLINE: Higher food prices will indeed hit poor


From Prof Arvind Panagariya.

Sir, William R. Cline's reaction (Letters, August 9) to my exposure of the fallacy that the removal of the rich country subsidies and protection in agriculture is desirable because it will do most good to the least developed countries (LDCs) is to deny the fallacy by assertion.

Mr Cline concedes that two-thirds of the LDC poor reside in the countries that are net food importers. The majority of these countries will surely be hurt by higher food prices. I see nothing in his "model" that shows anything otherwise except by untested assumptions.

A bigger, and largely unnoticed, problem he does not address is that even the LDC exporters stand to lose from the liberalisation. They currently enjoy duty- and quota-free access to the European Union internal price, which will decline once the liberalisation takes place.

This point is graphically illustrated by the fact that the recent World Trade Organisation ruling against the EU sugar subsidies, which I welcome because it moves the global trading system towards a less distorted regime, was seen by the ACP (Africa, Caribbean and Pacific) countries that include all African LDCs as detrimental to their interests. And they had a good reason for it: many are currently able to sell sugar in the EU market at three times the world price. The complainants in this case were the richer developing and developed countries - Australia, Brazil and Thailand - unsupported by any LDCs.

Arvind Panagariya, Professor of Economics and Bhagwati Professor of Indian Political Economy, Columbia University, School of International and Public Affairs, New York, NY 10027, US