T H E P O L I T I CA L E CO N O M Y O F AG R I C U LT U R A L A N D FOO D P O L I C I E S JOHAN SWINNEN Palgrave Studies in Agricultural Economics and Food Policy Series Editor Christopher Barrett Cornell University Ithaca, NY, USA Agricultural and food policy lies at the heart of many pressing societal issues today and economic analysis occupies a privileged place in contem- porary policy debates. The global food price crises of 2008 and 2010 underscored the mounting challenge of meeting rapidly increasing food demand in the face of increasingly scarce land and water resources. The twin scourges of poverty and hunger quickly resurfaced as high-level pol- icy concerns, partly because of food price riots and mounting insurgencies fomented by contestation over rural resources. Meanwhile, agriculture’s heavy footprint on natural resources motivates heated environmental debates about climate change, water and land use, biodiversity conserva- tion and chemical pollution. Agricultural technological change, especially associated with the introduction of genetically modified organisms, also introduces unprecedented questions surrounding intellectual property rights and consumer preferences regarding credence (i.e., unobservable by consumers) characteristics. Similar new agricultural commodity consumer behavior issues have emerged around issues such as local foods, organic agriculture and fair trade, even motivating broader social movements. Public health issues related to obesity, food safety, and zoonotic diseases such as avian or swine flu also have roots deep in agricultural and food policy. And agriculture has become inextricably linked to energy policy through biofuels production. Meanwhile, the agricultural and food econ- omy is changing rapidly throughout the world, marked by continued con- solidation at both farm production and retail distribution levels, elongating value chains, expanding international trade, and growing reliance on immigrant labor and information and communications technologies. In summary, a vast range of topics of widespread popular and scholarly inter- est revolve around agricultural and food policy and economics. The exten- sive list of prospective authors, titles and topics offers a partial, illustrative listing. Thus a series of topical volumes, featuring cutting-edge economic analysis by leading scholars has considerable prospect for both attracting attention and garnering sales. This series will feature leading global experts writing accessible summaries of the best current economics and related research on topics of widespread interest to both scholarly and lay audiences. More information about this series at http://www.palgrave.com/gp/series/14651 Johan Swinnen The Political Economy of Agricultural and Food Policies Johan Swinnen LICOS Centre for Institutions and Economic Performance University of Leuven Leuven, Belgium Palgrave Studies in Agricultural Economics and Food Policy ISBN 978-1-137-50101-1 ISBN 978-1-137-50102-8 (eBook) https://doi.org/10.1057/978-1-137-50102-8 Library of Congress Control Number: 2018938172 © The Editor(s) (if applicable) and The Author(s) 2018 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover image © Granger Historical Picture Archive / Alamy Stock Photo Cover design by Tom Howey Printed on acid-free paper This Palgrave Macmillan imprint is published by the registered company Nature America, Inc. part of Springer Nature. The registered company address is: 1 New York Plaza, New York, NY 10004, U.S.A. F oreword Agricultural and food policy is intensely political everywhere in the world. As a result, agriculture and the post-harvest food value chain are among the most distorted sectors in the global economy. This is perhaps most obvious in high-income countries, where rice policy in Japan, the European Union’s Common Agricultural Policy, and various farm programs in the USA attract massive subsidies grossly out of proportion to their share of national output. It is not mere coincidence that the American presidential electoral process begins in Iowa, the quintessential agricultural state, compelling serious can- didates to genuflect before farm interests as they commence their campaign for leadership of the world’s largest economy. And this dynamic extends into middle- and low-income countries as well. China, now the world’s second largest economy, has rapidly transitioned from significant net taxation of agriculture just a generation ago to massive subsidization of the sector today. In low-income countries too, food price and agricultural land tenure policy are among the most sensitive matters under government control. A solid understanding of the processes and interests that guide agricul- tural and food policy is therefore essential to any serious student of agricul- tural economics and food policy. First principles from welfare economics provide essential building blocks for understanding not just aggregate wel- fare effects but, even more importantly, who wins and who loses from which policies, and thus what coalitions might form in favor of or against particular policies, as well as how those coalitions might evolve with the emergence of new technologies (such as genetically modified foods) and markets (e.g. for biofuels). But a firm analytical grasp of these material interests’ principles must also be blended with a nuanced understanding of v vi FOREWORD key institutions and of how ideology and information—including that increasingly provided through mass and social media—drive political econ- omy in ways commonly overlooked in the simplest economic models of policy choice. Professor Jo Swinnen is perhaps uniquely positioned to blend these vari- ous insights to deliver a compelling compact treatise on the political econ- omy of agricultural and food policy. Over the past 20-some years, he has generated a steady stream of seminal articles that have established him as one of the world’s most sophisticated and knowledgeable scholars in this domain. In this engaging volume Professor Swinnen draws together vari- ous threads from his own and others’ writings into an impressive tapestry that proves a compact, elegant, and accessible introduction to the subject. He starts by laying out the conceptual underpinnings of modern political economy in admirably clear, non-technical terms. He then goes on to describe what a sprawling empirical literature on the political economy of food and agricultural policies tells us about the key determinants of differ- ent policy regimes. He unpacks the complex stories of agricultural policy evolution in the transition economies of Asia and Europe, the coalition of interests that lead to the structure of the Farm Bills enacted in the USA every five or so years, and how the march of economic development natu- rally shifts the pressures governments face around food and agricultural policy. As he skillfully explains, some policies have the potential to create significant aggregate welfare gains, as is the case with publically funded agricultural research and extension, and yet struggle to find adequate polit- ical support. The challenge is how to design mechanisms that credibly commit governments to compensate those who might be adversely affected by policies that would unquestionably improve aggregate welfare. The sig- nificant transactions costs involved in the policy-m aking process also exert a major influence over policy design and the political economy of policy choice, in ways that superficial observers commonly miss but Swinnen explains lucidly. We stand at an unusual moment in time when the political economy of food and agriculture is shifting at a pace never before seen. Over the past generation we have witnessed the dramatic liberalization of previously state-controlled agricultural sectors across much of Europe, Asia, and Africa. Middle-income countries such as Brazil, China, and India have become global leaders in agricultural research, turning them into aggres- sive commercial competitors in the global marketplace, in part due to strategic interventions by their governments. The global institutions FOREWOR D vii designed to manage global markets, most notably the World Trade Organization (WTO), have proved increasingly irrelevant as global value chains employing private standards increasingly drive exchange, and as non-tariff barriers addressing environmental, labor, and food safety con- cerns play an ever larger role in trade policy. Moreover, global food prices have trended upward since hitting their inflation-adjusted all-time low in December 1999, with price spikes in the late 2000s and early 2010s sud- denly turning trade policy issues upside down. Where the WTO and its predecessor arrangements were organized around combatting import restrictions and dumping of exports, suddenly export restrictions became the policy tool of greatest concern in global dialogues. Remarkably, distor- tions in the global agricultural economy have nonetheless been falling over this time. At a time of rapid and dramatic change, a firm grasp of the politi- cal economy of agricultural and food policy is more essential than ever. The powerful insights Professor Swinnen offers in this volume are too numerous to capture adequately in a foreword. In clear prose it lays out the central issues in accessible terms and compactly summarizes a deep and complex literature with remarkable precision and rigor. Suffice to say, seri- ous students of the political economy of agricultural and food policies need to read this volume. It is a great pleasure to include Jo Swinnen’s outstanding book in the Palgrave Studies in Agricultural Economics and Food Policy series. It will prove an essential reference to anyone striving to understand the origins and evolution of agricultural and food policy in modern society. Cornell University Christopher Barrett Ithaca, NY, USA P reFace The background picture on the cover is an illustration of the Women’s March on Versailles in October 1789. Food security was uncertain and food shortages common in those years in France, except in the palaces of Versailles near Paris where the King and his entourage resided. The wom- en’s march started with riots of poor women in Paris faced with high prices and scarcity of bread. Their protests and demands for food policy reforms quickly turned into a broader call for political reforms. Supported by those who were seeking liberal political reforms, the women and their allies ran- sacked the city armory for weapons and marched to the King’s palace of Versailles. The confrontation resulted in significant policy changes and proved to be a defining moment of the French Revolution which not only removed the French King from power but eventually inspired revolutions and political institutions across the world. The story illustrates the interaction between food, economics, and poli- tics. Food security is influenced by economic policies which are in turn determined by political systems and decision-making. Yet, inversely, politi- cal decisions and even political institutions are or can be influenced by the production and consumption of food. The interaction between these eco- nomic and political forces and institutions is at the heart of political econ- omy and the focus of this book. My research in political economy started as a PhD student in Cornell University when professor Harry de Gorter encouraged me to use the data which the World Bank had just assembled on agricultural price distortions to empirically test some of the existing political economy theories for a paper in a course. Before starting running regressions he suggested to read ix x PREFACE Anthony Downs’ An Economic Theory of Democracy, Mancur Olson’s The Logic of Collective Action, and classic articles by Gary Becker and so on, and not to be easily satisfied with existing theories or explanations. The term paper turned into a full PhD and, in a way, “the rest was history”, as they say. By the time I finished my PhD, the Berlin Wall had fallen, and a whole new research area was opening up, both geographically and conceptually with a new focus on institutions. It became quickly clear that there was no way to study the economic changes properly without (explicitly) integrat- ing politics and institutions in theoretical models and empirical analyses. Over the past 25 years, the political economy of institutional change and policy reform have been major research areas for myself and my insti- tute, the LICOS Centre for Institutions and Economic Performance at the University of Leuven. In between I learned about practical applica- tions of political economy “from the inside” as I worked in various capaci- ties as advisor to governments and to international institutions. I spent time several years working at the European Commission and at the World Bank. In all of these cases I learned about how politics is constraining economic decision-making, and therefore essential to take into account when designing policy advice, but also that the interaction is often both ways and that reforms “can happen” if well timed and well integrated in the political economy environment. A few years ago, Chris Barrett approached me, as the editor of this book series, to write a book on political economy for his series. Chris deserves credit or blame (depending on whether you like what’s in front of you) for having convinced me to undertake writing this book while all indicators said I had no time given all my other commitments. In his usual friendly yet determined style, he succeeded in keeping me sufficiently on track to get it ultimately finished and published. He also reviewed an earlier version of the manuscript and gave excellent comments that improved the book. This book draws on contributions of many people and many collabora- tions with colleagues and students from which I learned so much. There are too many to mention all of them, but I should mention a few (apolo- gies to those who I did not mention). Harry de Gorter’s drive to come up with better explanations, to think outside the box, and to relate complex models to intuitive explanations was crucial in my early development as a researcher. Our trips to Berkeley, where I learned from Gordon Rausser, David Zilberman, Alain de Janvry, and others, were major steps for me,