Wednesday, 16 April 2008

Food shortages: think big (updated)

Oxford economist Paul Collier, writing in the Times, argues that when it comes to Food shortages: think big. Collier asks
Why have food prices rocketed?
His answer,
[p]aradoxically, this squeeze on the poorest has come about as a result of the success of globalisation in reducing world poverty. As China develops, helped by its massive exports to our markets, millions of Chinese households have started to eat better. Better means not just more food but more meat, the new luxury. But to produce 1kg of meat takes 6kg of grain. Livestock reared for meat to be consumed in Asia are now eating the grain that would previously have been eaten by the African poor. So what is the remedy?
Here Collier answers,
[t]he best solution to the rise in food prices is not to arrest globalisation. China's long march to prosperity is something to celebrate. The remedy to high food prices is to increase supply.
He argues that the most realistic way to achieve extra output is
... to replicate the Brazilian model of large, technologically sophisticated agro-companies that supply the world market. There are still many areas of the world - including large swaths of Africa - that have good land that could be used far more productively if it were properly managed by large companies. To contain the rise in food prices we need more, globalisation not less.
But, says Collier, while large-scale commercial agriculture is productive it is also, sadly, unromantic. Yes unromantic. In Colliers' view,
[w]e laud the production style of the peasant: environmentally sustainable and human in scale. In respect of manufacturing we grew out of this fantasy years ago, but in agriculture it continues to contaminate our policies. In Europe and Japan huge public resources have been devoted to propping up small farms. The best that can be said for these policies is that we can afford them.
May be the rich west can afford them, but Africa cannot. But as Collier points out
...the World Bank and the Department for International Development have orientated their entire efforts on agricultural development to peasant-style production. Africa has less large-scale commercial agriculture than it had 60 years ago. Unfortunately, peasant farming is not well suited to innovation and investment. The result has been that African agriculture has fallen farther and farther behind.
As Zimbabwe shows, African countries can also make problems of their own. Collier goes on
[o]ur longstanding agricultural romanticism has been compounded by our newfound environmental romanticism. In the United States fear of climate change has been manipulated by shrewd interests to produce grotesquely inefficient subsidies to biofuel. Around a third of American grain production has rapidly been diverted into energy production. This demonstrates both the superb responsiveness of the markets to price signals, and the shameful power of subsidy-hunting lobby groups. However, just as livestock are eating the food that would have been consumed by poor Africans, so Americans are running their SUVs on it. One SUV tank of biofuel uses enough grain to feed an African family for a year.
This point about US biofuels is the one made in my previous message, More on food prices. Things go from bad to worse because
[g]overnments in grain-exporting countries, such as Argentina, have swung prices in favour of their consumers and against their farmers by banning or restricting exports. But such tariffs and export bans make investing in commercial-scale food production less attractive, drive up prices further still in the food-importing countries, and discourage farmers from increasing their yields, exacerbating global food shortages.
As I noted here, exports from rice-producing countries, such as India and China, have also been limited to assure adequate supplies at home. This creates a similar problem for rice importing countries as for the grain importing countries. Again, if prices in the rice producing countries don't rise because of the export controls, what incentives do farmers in these places have to expand production?

Collier ends his article by noting that,
[u]nfortunately, trade in agricultural produce has been the main economic activity to have resisted the force of globalisation. The cost of this is now being picked up by the poorest people in the world.
The economics here is simple, but the effects of bad economic policies are deadly.

Update: Johan Norberg comments on The global food crisis.

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