The Food Crisis: Stuffed and Starved

A great book to read about the ‘food crisis’ is Stuffed and Starved by Raj Patel.

Free Trade in Food Is `On the Ropes' Amid Shortages, Price Rise: “Free-trade policies long advanced by World Bank President Robert Zoellick and U.S. President George W. Bush are losing favor as countries in Africa, Asia and Latin America find they can't buy enough food to feed their people.

Global food prices have spiked 60 percent since the beginning of 2007, sparking riots in more than 30 countries that depend on imported food, including Cameroon and Egypt. The surge in prices threatens to push the number of malnourished people in the world from 860 million to almost 1 billion, according to the World Food Programme in Rome.

Leaders of developing nations including the Philippines, Gambia and El Salvador now say the only way to nourish their people is to grow more food themselves rather than rely on cheap imports. The backlash may sink global trade talks, reduce the almost $1 trillion in annual food trade and lead to the return of high agricultural tariffs and subsidies around the world.”

I recently brought up free trade in Here We Go Again: Free Trade Era Dieing. It looks like free trade in food is now being targeted.

Firstly, trade in agricultural products has always been the least ‘free’. Tariffs and subsidies are still rampant the world over. For example, in Japan nearly all imports of cheap foreign rice from countries like China and America are blocked. The government then pays the farmers at least four times the market value for rice and then sells it into the market at a loss. So to rage about free food trade policies being responsible for shortages and price spikes is just absurd.

Second, a free market will match supply and demand up at any given moment in time. Granted, the market clearing price might be anything but pleasant, but to say that “…countries in Africa, Asia and Latin America find they can't buy enough food to feed their people” is ignorant. What is really meant in that complaint is that these countries can’t purchase enough food at LOW prices. They can’t or don’t want to pay the market clearing price. Since they are poor or developing countries it is entirely possible that they do not have the economic resources to pay for expensive food imports. That is an entirely different and separate matter.

Third, to say that “the idea of trade liberalization was that you could count on global markets, but they're not proving reliable” is also ignorant. The global markets are completely reliable. The supply is there. The real issue is at what price. That statement also implies that somehow tariffs and subsidies would prove reliable. That is something only the economically illiterate could believe. Tariffs reduce or prevent imports. Subsidies reduce or prevent exports. These policies completely discourage trade and do not address the problems of nations that must import food.

Finally, the most important point here is that the free market price is a valuable signal. Price is THE MOTHER OF ALL SIGNALS. For the first time, in what I can only guess to be several generations, farmers are actually able to earn a respectable living. These prices make it possible for farmers to plant more and invest more in productivity enhancing technologies and equipment. That is exactly what they will do. The profit motive will encourage them to do so.

These higher agricultural prices will result in other VERY important benefits. These are called economic externalities. For example, now that there is money to be made in agriculture, farm land will increase, or has increased, in value. The free market has made it less likely that productive farmland will be converted into residential real estate as the opportunity cost of doing so has now increased. The long run benefit of being able to make a normal economic profit (This is an important term, not likely to mean what you think it means. Follow the link, look it up) in agriculture means that non-agricultural development will emphasize non-productive or marginally productive agricultural lands. This is an important shift for all of humanity away from buliding our greatest cities on the most fertile of farmland.

I would actually argue that prices have been ARTIFICIALLY low. By my definitions and understanding of economics, if producers can’t make a normal economic profit, then the market price is too low. Since that would normally dissuade these producers from producing (by exiting the business for example), prices would rise as supply is withdrawn. That this did not happen for generations is the result of massive global tariff and subsidy policies.

As explained by Raj Patel in Stuffed and Starved, there are very real problems in the food supply and distribution chain that are the real culprits. It is because of these problem that market prices are being unduly influenced. Clear these bottle necks out and the entire landscape would change for the better...