It sounds screwy, but the best way to tackle rising global food prices would be to scrap agricultural subsidies. And that means all subsidies - as well as price controls and trade barriers - not just the US$3.3 billion doled out to US farmers last year for growing corn to process into ethanol for use as a supposedly green fuel in America's gas-guzzling cars. Rightly, those handouts have come in for withering criticism lately as a key driver behind rising global food prices. Encouraged by the subsidies, US farmers grew 18 per cent more corn last year than in 2006, encroaching heavily on to land formerly devoted to food and animal feed crops to do so. That encroachment helped drive a near doubling of US soya bean and wheat prices over the 12 months to April (see the first chart below). The resulting increased demand for other cereals pushed up prices around the world, with the retail price of rice in Hong Kong's shops rising 20 per cent over the last year (see the second chart). In response to the crisis, Asian governments have sought to hold down prices with a combination of export bans, price controls and sales from government reserves. Those measures can help smooth out short-term price volatility, but they are unlikely to work in the long run. Banning exports may help retain supplies for domestic consumption, but by holding down the prices farmers receive, it discourages them from investing in increased production. Government-imposed price ceilings have the same unintended impact, while reserves have to be replenished eventually, which pushes up prices. Directly subsidising farmers can prove counterproductive too, eating into other spending programmes, undermining the government's fiscal position and pushing up interest rates. A far better solution to global food price increases would be to phase out agricultural subsidies, price controls and trade barriers altogether. They distort markets by preventing efficient price discovery and by misdirecting investment, and as the price rise of the last year demonstrates, they do not even work very well at keeping food affordable. On the other hand, getting rid of subsidies and trade barriers would have an enormous impact on world food supply. Under legislation before Congress, the United States is proposing to pay out roughly US$30 billion a year to its farmers, while the European Union splashes out Euro55 billion (HK$663.2 billion). By making such huge payments and protecting their markets against foreign competition with trade barriers, rich countries undercut the poor world's farmers and discourage investment in agricultural production in Africa and Asia. Even worse, by shipping subsidised surpluses to poor countries as aid, the developed world depresses local prices, further discouraging production. If the rich world's subsidies and trade barriers were phased out, markets would be better able to direct investment in improved production to where it is most needed, helping prices to reach an equilibrium. The process would be a harsh one for developed world farmers, but there is no better time to start than now, when prices are high.