The Continuing Debate on Self-sufficiency in
Rice Production In Liberia
By Harry Greaves, Jr.
Sept 5, 2000
As Geepu Tiepoh notes, I am an advocate of free trade and make no apologies for that. I do not believe that free trade is a panacea for all economic problems. Nor do I think that free trade is without its difficulties. But given the choice between free trade and protectionism, I will more often than not choose free trade. And the fact that some Western countries practice protectionism in some specific areas of their economic life, while preaching free trade generally, is not reason enough for me to deviate from my stance as an advocate of free trade. I could devote this entire article to explaining why I am an advocate of free trade as a general economic philosophy, but that was not the purpose of my previous commentary on Geepu's original article. Nor is it the purpose of this rejoinder to his response. I was commenting on the specific issue of whether or not it is wise for Liberia to pursue an agenda of self-sufficiency in rice production. But before I return to that issue, let me make one parting comment on protectionism vs free trade.
There are many great and noble economic practices in the West (to use a generalization) which we in Liberia would do well to emulate. Broad-based price supports for special interests, such as is accorded textiles and sugar in the United States, butter and wine in some European countries, and, yes, rice in Japan, are not amongst the practices which I think we would be wise to emulate. The reason these industries are protected in the West often have more to do with politics than sound macro-economic policy making. Simply put, it's done by politicians to win votes in agricultural constituencies. But the World Trade Organization is chipping away at protectionism across the globe in order to reduce the distortions in trading relations between countries which protectionism breeds, and I applaud that.
Now, to the specific issue of self-sufficiency in rice production for Liberia. I would be the first to agree that a worthwhile policy goal for the country is food security. But I don't believe that food security is synonymous with self-sufficiency in domestic production. Domestic production is merely one option for attaining food security. Another is through importation. Rice is not a scarce commodity. It is produced by many countries other than Liberia, and it is a commodity widely traded around the world. No one country exercises a monopoly over its production or distribution. Thus, if Liberia did not produce one grain of rice (and I'm not advocating that), the country's food security would still not be in jeopardy because, by world rice production standards, Liberia's demand is but a tiny speck on the ocean, and Liberia could readily meet 100 percent of its needs through importation.
Should the country import all of its rice needs? Probably not. 100 percent importation is one extreme. Self-sufficiency, i.e. 100 percent domestic production, is the other extreme. The issue is, is self-sufficiency in production a desirable policy goal? I have heard a number of Liberians express the opinion that it is, but I remain skeptical, absent a compelling case supported by research and quantitative analysis. For me, the following questions need to be answered before I sign on to the self-sufficiency-in-domestic-production bandwagon.
1. How much rice is being produced in Liberia at present? How much rice is being consumed? The answer to those two questions will tell us how much additional domestic production would be needed to fill the gap between consumption and production.
2. What resources would have to be mobilized to achieve this additional production, where would those resources come from and what would it cost?
3. By comparison, what would it cost meet the gap between consumption and production through importation?
The resource allocation issue is a very important one. If the resources needed to accomplish 100 percent self-sufficiency are significant, as I suspect we will find them to be, then the critical next question is who would provide those resources? And here there are two options: the private sector or the government. Private sector investors will only get involved if they see a reasonable prospect of earning a decent return on their investment, relative to the risks. Part of the calculus for them will of course be the price they are allowed to sell domestically produced rice for. Unless production costs have diminished significantly during the last few years, based on past experience, it is likely that we will find the cost of local production, processing and distribution to be considerably higher than the cost of importing. If that turns out to be the case, then either the government would have to subsidize the price or allow private investors to charge a market price, whatever that price may be. If the private sector is unwilling to go into commercial production on any significant scale, then the government would have to fund production directly in order to attain its policy goals. In this case, we are talking about funding price subsidies on top of funding production directly.
Whether it is providing price subsidies or funding production or both, the government would have to find the money. If the sums were considerable, which I suspect they will be in order to achieve 100 percent self-sufficiency, then the next question is where would the government get the money? The entire Liberian government budget right now is around US$70 million annually, a fraction of what it was back in the 70s when government attempted, with great difficulty, to subsidize the price of rice. So, the government might be faced with the prospect of a massive borrowing program to make a 100 percent self-sufficiency policy a reality. There is no certainty that the government would be able to find borrowers willing to advance the funds needed for this purpose.
But the larger issue is, with all the competing needs of the country - healthcare, education, sanitation, roads, etc. - would it be wise for the government to direct so much of its capacity and energies in pursuit of the Quixotic goal of 100 percent self-sufficiency in rice production, especially if the analysis shows that importation is a lot cheaper for the country than domestic production?
So, what are the alternatives between the extremes of 100 percent importation and 100 percent self-sufficiency in domestic production? The reality is that there are many people in rural Liberia who are engaged in subsistence farming, including rice production. Clearly they need help and some resources should be directed at helping them. But devoting some resources to assisting subsistence farmers to expand rice production is a far cry from deploying very significant resources to attain 100 percent self-sufficiency in rice production.
My final note is about the broader issue of agricultural policy, which is what I was alluding to by my reference in an earlier piece to comparative advantage. From an economic perspective, when one is faced with a situation where there are competing demands on scarce resources, the best solution is one where resources are directed to those uses which produce the biggest bang for your buck. In the context of this rice debate, what it means is starting out with a series of cost/benefit studies. The economic analysis I called for earlier should be undertaken to answer the question, "what it will cost for Liberia to attain 100 percent self-sufficiency in rice production?" That cost should then be compared to the applicable revenue streams in order to determine the rate of return on domestic rice production. The next step is to take those same costs and quantify the revenue streams which could be obtained from engaging in other agricultural activities, such as the production of cocoa, coffee, vegetables, etc and calculate a rate of return for each of the alternative activities. The individual rates of return should then be ranked. An activity which has a higher rate of return than another is an activity which confers a comparative advantage.
One can even do the analysis to compare rates of return for the same activity between different countries. If, for instance, the analysis shows that the rate of return on producing rice in, say, Thailand is greater than the rate of return on producing rice in Liberia, then we know that Thailand has a comparative advantage over Liberia in rice production. Does it mean Thailand has a comparative advantage over Liberia in everything else? No, simply it rice production. It may well be that such an analysis will show Liberia having a comparative advantage in another area. In that case, the optimal policy for Liberia might be to import rice and export the item in which it has a comparative advantage. The simple point I am trying to make is that Liberia can best maximize the deployment of its agricultural resources by finding out, through research and economic analysis, the activities in which it enjoys a comparative advantage and channeling its resources in those activities, rather than concluding, without research or analysis to support such a conclusion, that self-sufficiency in rice production should be the country's goal.
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