How cheap rice damaged the Haitian economy.

I have blogged on this topic before but came across a recent news item on PBS – see report at the end of this post. As the US implements tariffs around the world, how do they impact a developing economy like Haiti? In 1986 the IMF granted huge loans to Haiti with the condition that they cut tariffs on imported goods. The graph shows the reduction in the tariff which increases domestic demand from Q2 – Q4 and reduced domestic supply from Q1 – Q3. Therefore domestic farmers have less protection from cheaper imports and have a difficult job trying to sell their produce on the local market.

At the same time subsidies (see graph) to American farmers allowed them to export produce at very cheap prices. The graph shows the subsidy which makes costs of production cheaper and therefore an increase in supply which drops their price.

In 1981 the United States followed a policy that rich countries that produce a lot of food should sell it to poor countries and relieve them of the burden of producing their own food, so that they can develop their secondary industry. The then President Bill Clinton lower tariffs on imports to Haiti from 35% to just 3% as part of a plan to help the country industrialise. Efforts to change the tariff policy failed, and cheap American rice continues to flow into the country to this day. Clinton later apologised for this policy and admitted that it may have worked for American farmers but it badly affected the Haitian farmer.

Haiti would like to rely totally on production within its own economy but it needs more capital and training in its primary sector to achieve this. Therefore there is still a dependance on foreign aid programmes as Haitians will not have enough food to eat – 78% of Haitians live on less than a dollar a day and buy imported rice knowing that it is not the best rice for them to eat. Below is the report from PBS.