Food Crisis for Thought
As much as I hate to do this, I have to tear this apart because it is wrong in more ways than just the fact that it’s in “no particular order”. I will argue this is not worldwide food shortage, but only regional shortages, and sometimes those shortages aren’t due to lack of food. I will say that the UN World Food Program agrees with me on what the real problem is, based on what is reported by the BBC. However, you’ll have to wait for the end to see that performance.
(Note, I do not claim to be an expert on agriculture. The majority of this comes from my experiences studying agricultural economics at the Virginia Governor’s School for Agriculture, having a mother who runs a food pantry and depends on the USDA and reasonable food prices for donations, and some strengthening of my preheld notions by the Culture and Environment class at Wash U. Agricultural policy was an intense hobby of mine 5 years ago, and I am by no means as knowledgeable now as I was then.)
“A silent tsunami which knows no borders is sweeping the world,” says the head of the UN World Food Program. In Haiti, protesters shouting “we’re hungry” forced the prime minister to resign. Cameroon saw 24 deaths during hunger riots. Egypt’s president has ordered the army to bake bread. Hoarding rice in the Philippines is now punishable by life imprisonment. Riots in Côte d’Ivoire have caused the government to postpone elections. The World Bank believes 33 countries are in danger of being destabilized and food inflation will push over 100 million people into poverty. And the price of your box of wheat thins rose by 15 cents. Here are some reasons why (in no particular order)…
- Population growth. More people = greater demand for food. Supply lags demand because it takes a season to grow more food, and farmers can’t necessarily just respond to the market because of this (if they grow more & demands declines, they lose. This is especially true for farmers in emerging markets).
This is Malthus/Ehrlich all over again. I’m sorry, but why do people bring up this theory over and over again? This isn’t legitimate because there is no worldwide food shortage. There are local food shortages as a result of economics. Luckily some of those economics are discussed later, but we’ll handle those as we get to them. Let’s just leave it at the fact that The Population Bomb didn’t happen in the 70’s or 80’s, so it won’t happen now.
- China and India have started to eat meat. Increasing affluence in emerging economies means more people can afford more food (including meat). It takes 700 calories worth of animal feed to produce a 100-calorie piece of beef, so the demand for grains has increased.
So, this may have an impact, but not enough to cause food shortages. Sure there are a lot of people there, but this will cause environmental problems long before it causes food shortages. I mean, think about the “Great Leap Forward” and the “Green Revolution” and all the starvation and violence those caused while still managing to result in Norman Borlaug receiving the Nobel Peace Prize because food production went up. Blaming people eating meat for food shortages in these countries is ignoring the fact that there have always been food shortages in those countries regardless of the size of the food supplies. Food supply is not the reason for regional shortages.
- Biofuels. The government subsidy of ethanol, which converts cereals (namely corn) into fuel, has spurred the demand for corn. The European Union will soon be implementing its own biofuels target, which will only aggravate this further. It takes 528 pounds of corn to fill the tank of one SUV. The same amount could feed one person for a year.
So, this is pretty damn correct in blaming ethanol, but diverges into the wrong reason. It isn’t a matter of corn going into our tanks, it’s a matter of setting a new price floor for corn above and beyond the old floor from agricultural subsidies. We’ll discuss how subsidies cause food shortages in the developing world later.
- Oil oil oil. Farming is highly energy intensive (producing fertilizer, running tractors, etc), and becomes more expensive as the price of oil increases. Transporting food from farms to consumers is extremely energy intensive and costs more as oil (and gas) prices increase.
Sweet. I will argue that this may actually help solve food shortages in the third world and is definitely not a bad thing. But, yes, it is causing your food prices at your local grocery store to increase. These increases are due to transportation costs, not the farming costs. (Remember that there’s a price floor on most agricultural commodities, this is very important.)
- The commodities market. It’s booming and people are investing. After the subprime crisis, speculators and hedge funds have switched from investing in high-risk-of-default securities to investing in commodities, or “stores of value.” This investment pushes the prices up further (more people want to invest b/c they see others making profits. When more people invest, prices increase, so more people invest, etc).
Nice, blaming the commodities market. You really do want to lose the Simon-Ehrlich wager.
- Drought. China, Indochina and Australia have all experienced droughts recently. Australia has seen an epic 3-year drought causing its total rice capacity to decline by one third. It supplies rice to countries like Cameroon, Egypt, Ethiopia, Haiti, Indonesia, Italy, Ivory Coast, Mauritania, the Philippines, Thailand, Uzbekistan and Yemen, which have seen violent protests over famine this year. Countries like Senegal and Haiti each import four-fifths of their rice.
This is ignoring the real cause, which is that these countries rely on other parts of world for their rice because economics prevent them from growing their own food. Let’s solve the root cause, not a tertiary symptom. These countries should all be able to produce their own food.
- The chardonnay effect. Because of this drought in Australia, farmers received only 1/8 of the water they usually receive from the government (Australia’s water is allocated by the government, and the water rights can be traded thereafter). Thus, many farmers are abandoning rice, which requires large amounts of water, to plant less water-intensive crops like wheat or wine grapes. Some farmers have even sold their fields or their water rights to grape growers. Grape growers are thriving because it is more profitable to grow grapes, even with the increase in the price of rice. Wine grapes produce a pretax profit of $2,400 an acre where as rice produces $240 an acre. You can read a bit more about it here. We have seen this effect with other crops: as prices of corn rose, farmers abandoned their crops (including rice & wheat) to turn to corn or cattle raising, causing a decline in supply and thus higher prices of those staples.
Yeah, again, why are developing countries relying on the first world for their rice and corn? This article says the droughts have been occurring for 6 years. Why are prices doubling now? Maybe reservoirs ran out? But really, let’s address the actual problem which is that the developing countries aren’t growing food.
- Genetically modified crops. GM crops produce 10% less food than its conventional equivalent (per a new study of genetically modified soya). 85% of the US soybean crop and 45% of our corn crop is genetically modified.
Go read that article. Then ask yourself why Monsanto and the Department of Agriculture freely admit that GM crops are “less productive” and why farmers would continue to use them. I mean, 10% is a lot. And ask yourself, if the crops weren’t designed to produce food, then what were they designed for? Oh, that’s right, pesticide. Remember when we used to lose a lot of our crops to insects? So, does GM cause our total food production to go down? That wasn’t answered. The article that doesn’t even address how much land is lost in conventional farming to pests. If you have a year where all your crops wouldn’t have had insect issues under traditional application of pesticides, sure, you’re going to produce less. But this ignores those years when your pesticide didn’t work and you lost a huge amount of your field. So, until someone shows TOTAL food production decreasing, this study is worthless.
All that said, I hate GM crops with a passion. I believe they are a huge part of the reason for the suicides in India as the population doesn’t know anything about these seeds they’re given from the developed world. Also, they cause problems as they aren’t the heirloom varieties traditionally grown in these areas (which is why noone is surprised GM foods aren’t as productive). I wish GM crops would go away, but blaming them for food shortages when it hasn’t actually been shown they produce less total food is unfair.
- Trade policies. Many countries have banned or curbed food exports to ensure domestic availability. This so called “starve-my-neighbor” policy distorts the flow of commodities across borders and exacerbates the food shortage in the world market.
Whoo, we get to something useful. Unfortunately, the bigger trade policy problem is forcing excess domestic food production on countries and driving their farmers out of business, not starving of neighbors. And we don’t call it trade, we call it “food aid”.
So, time to return to the BBC article on food shortages. What is the WFP’s response?
- Short Term: Raise money to buy food
- Medium Term: Pay farmers in the developing world to produce their own food.
- Long Term: Get rid of agricultural subsidies
So, what does this suggest? Firstly, there is no global food shortage since money can get the food to the people who need it. It has long been known that most food programs for the poor in India are utter failures because far more grain goes bad in government silos than actually gets distributed to people. This happens in almost every developing country. Money solves this by either increasing the amount of food these governments actually distribute. When India talks of “dwindling supplies”, there’s still enough food to feed everyone, just not enough money to get it to them.
Now, let’s look at the medium term plans. We’re going to pay farmers to grow food. Why do you have to pay someone to grow food? I thought the price of food was skyrocketing! Shouldn’t there be a huge incentive to grow food. And I thought the problem was droughts so people couldn’t grow food, but that must be wrong if I can just give someone money and they’ll start growing food. Maybe the economics of food in developing countries is that the price of food there is LESS than it costs to grow food. Let’s jump to the long term plan to get some insight into this.
The UN wants to get rid of agricultural subsidies (so does the WTO). Now, I’m going to explain what agricultural subsidies are since popular media of the 90’s started calling set-asides “agricultural subsidies” for a reason beyond me. Agricultural subsidies are not paying farmers not to farm land, those are set-asides. Agricultural subsidies create an artificial price floor for a crop (along with some extra money for other things). That is, the government guarantees to buy food at a price if noone else does. This is what sets the price on the majority of crops in the US and Europe. None of this food shortage crap. Note, that for biofuels, the price of corn went up, not because of demand, but because of the new (higher) price floor created by ethanol subsidies. It doesn’t take much economics to know that price floors trash the idea of supply and demand. The government pays you more for food than it could ever cost you to produce it (this is why I said fuel costs don’t affect cost of food production in the US, but only cost of transportation, the price of food at the farmer is constant regardless of cost of production). The fun part, is those set-asides mentioned previously were created because the price floors make it so farmers want to farm all their land. In the words of Wikipedia, “Set-aside as a political measure was introduced by the European Union (EU) in 1988 to (i) help reduce the large and costly surpluses produced in Europe under the guaranteed price system of the Common Agricultural Policy”.
So, we solved the problem in the US and Europe for rising food prices, it’s the fact the government pays so much money for food. People changing what crops they grow is due to the government changing how much they pay for each crop (hence higher corn price floor = people switching to corn). So, what does the government do with all the food they buy from people to keep this price floor. Well, some of it sits around and goes bad, just like in those silos in India. Some of it goes into The Emergency Food Assistance Program (Look at all the food you can get…). And a lot of it goes into foreign aid. We claim we’re sending $x to a country, then send mainly food aid in the form of food we bought claiming the price we paid for it as it’s value. It arrives in the country and is essentially handed out. Well, the part that doesn’t go bad is handed out, but there’s enough that reaches people for it to depress the value of food in these countries.
So, with our new knowledge, let’s reexamine the three stages of what the UN WFP, WTO, and I feel are needed to correct food shortages in developing countries. As a short term measure, let’s get the food that’s already there to the people who can eat it. As a medium term measure, let’s compete with the free food subsidized by the west by paying people in these countries to grow food. This allows for the redevelopment of agricultural industry in these countries and the development of ag extension services to solve the problem of people forgetting how to grow crops. So, now the third world can grow it’s own food again (they only stopped because they couldn’t make money, not because the land was bad). So let’s get rid of the reason why they stopped growing, those horrible subsidies in the US. Does this mean that people in the US will start going hungry? No. It should let our prices go down and reduce government spending. If it’s ever the 1930’s again and we really need subsidies for our agriculture to work, we can bring them back, but let’s be honest, it’s not the 1930’s any more, these things should be gone.
So, what am I saying? There aren’t 9 reasons for regional food shortages, there is one and the UN WFP and the WTO have been fighting it for years, agricultural subsidies. And higher fuel costs will hopefully allow local farmers to compete more with the free food from food aid programs because it will keep more of this food stuck at the coast and less of it from reaching their local villages. It may sound horrible to wish for food aid to be stuck at the coast, but it achieves what is needed to fix the economics of food.
