The Food Crisis: A Radical Rethink

By Stacie Rabinowitz

I’ve been a bit perturbed lately reading about some of the responses to the global food crisis. I’ve seen a lot of reports that governments and NGOs are donating money to buy more food, which as an economist just doesn’t make sense to me. In the short term, the food supply is almost completely inelastic. By donating more money to buy food, you will only shift the demand curve out and drive prices up (from D1 to D2 in the figure).

In order to truly bring the price of food back in line, you have to either find some way of shifting the supply to the right by increasing the quantity on the market or somehow decreasing the demand.

The international community has begun addressing the supply issue on a long-term basis by providing funding for irrigation, seeds, fertilizers, etc. But there are actually a few shorter-term solutions that could do the trick as well.

To address supply issues:

  1. Sorry, I have to mention it because everyone else is, but since everyone else is I won’t spend too long on it – stop imposing export subsidies/export bans. It is selfish, hurts your farmers, and disincentivizes farming in the long-term (decreasing supply in your own country).
  2. International aid agencies should invest more in storage facilities. In some of the places where the food crisis is hitting the hardest, up to 50% of the food stored in any given month is lost to pests, rotting, and theft. Improvements to storage facilities could be made quickly, and would give the workers hired additional income.
  3. Stop having wars. OK, I’m kidding, I know that won’t happen. But the fact is that one of the biggest contributors to global hunger is man-made strife. It displaces farmers who cannot tend to their crops, and often fields are destroyed in attempts to keep the enemy from getting to them. The international community needs to start thinking very seriously about its role in peacekeeping and peacemaking, and start to consider that protection of food supplies may be a top priority for overall global security. Think about it this way: if oil fields were being destroyed in war with the frequency that food supplies are, would anyone stand for it or would there be a massive intervention to keep prices from skyrocketing?
  4. This has also been said a lot, but governments in the developing world should start accepting genetically-modified crops. Not only do they produce higher yields, but much of the world’s food supply is GMO, and countries that do not allow it are drastically altering the supply curves for their citizens.

To address demand issues:

  1. Get the developed world to stop wasting food. I don’t know how to accomplish this from a policy perspective, but any change is good change, so awareness and marketing is Step 1. When you’re at a restaurant, tell them not to bring the bread basket or the side of rice if you’re not planning on eating it. It will improve the retailer’s margins and help improve the world food supply.
  2. Stop eating meat if you’re eating a lot, and if you’re vegetarian, maybe start to eat some more. According to a Cornell University study published last October, “Even though a moderate-fat plant-based diet with a little meat and dairy . . . uses more land than the all-vegetarian diet . . ., it feeds more people (is more efficient) because it uses more pasture land, which is widely available.” It’s well-established that it takes much more land to raise the animals needed to feed someone than to grow plants to feed that same person. But the Cornell study makes the interesting point that since the quality of land needed to product food for people is higher than the quality of land needed for pasture, a little bit of meat is actually the more efficient choice.

While no one likes high food prices and hungry people, the fact of the matter is that markets work the way they do for a reason. As food prices go up, it makes farming land vs. using it for other things more attractive, increasing supply, lowering prices, and creating a new equilibrium. Additionally, many of the farmers who export their crops are actually in some of the world’s poorest countries, and by trying to lower food prices, you hurt their ability to buy other items necessary for survival. One way to combat this would be to set up hedge contracts between the buyers and sellers so that everyone’s standard of living is consistent and livable for an extended period, but the logistical constraints of this solution are probably insurmountable.

A recent suggestion that has been made about the food crisis is that it is partly due to investment in biofuels. Yes, that has taken supply off the market. BUT, global warming could have just as dire consequences long-term as the food crisis does short-term. While I am a big believer in free markets and in general hate subsidies, unfortunately if you are going to be free market, you have to accept that sometimes short-term sacrifices must be made for the long-term good and the right response is NOT to simply increase farming subsidies so that they are higher than biofuel subsidies.

  • Fabrice,

    You have an excellent grasp of some of the issues surrounding global food supply. Coming from a farming background I have also been following this issue closely and agree with many of your points.

    Agriculture subsidies in wealthy countries, and the subsequent dumping of surplus produce in developing countries, has done much to hinder the development of efficient farming in third world countries.

    Land ownership is another issue. I just came back from a mountainbiking trip in Mongolia where we stayed with many farmers in their yurts. As they don’t own the land there is not much incentive to look after it or try to improve it so they are essentially nomadic grazers.

    I don’t worry about the ability for the world to feed itself in the future as there is a huge amount of land in Africa, America, Eastern Europe & Asia that is not been utilized fully. With the right combination of management expertize, irrigation, plant varieties and fertilizers this land could be highly productive. And with no need to cut down more forests.

  • Lets not forget that the USA needs to DRILL DRILL DRILL anywhere and everywhere there is suspected to be oil in the USA. This serves 2 functions. -1- it helps stave off what is coming …. dollar collapse -2- lower the cost of energy and therefore FOOD. Don’t like it? Tough. Get used to it. It is called “reality”.

  • I’m not going to disagree with the general thrust of your assumption, but I will latch onto something different though:
    the “creating of a new equilibrium”, the neo-classical view of economics beeing constantly moving towards a temporary equilibrium is in my opinion pretty much rubbish, if it where anywhere close to accurate, regular economicists wouldn’t get caught with their pants down being completely wrong so often as they are.

    The Austrian school of economics have a long list of criticisms agains neo-classical economics, and “strangely” enough, looking back, Austrian school economicists have long been the only ones who have consistently predicted most of the large economical events long before they happened: dotcom bust, housing bust, credit crunch, the rampant stagflation we are now starting to see, the commodities bull market that has been going for some time – the list goes on.

  • I quite disagree with you:

    • All the quasi-governmental organizations are strife with corruptions and inefficient anyway, they do a terrible job for the money. Best way to boost production is to let prices go up and let market forces make farmers produce and invest more as the prices now warrants it (yes agreed short term demand is inelastic-so it will take time).

    • I think if one studies demographic growth curves it might be concluded that the biggest threat to life would be over population. Famine and disease have always been regulatory mechanisms – that will continue and for everyone long term interest. Let’s stop the hypocrisy and political correctness while spending on superfluous things what would feed an African tribe.

    • Whether it’s for fuel or food America is so hypocritical about it: come-on let’s seriously teach nutrition in school, force schools to have good dietary foods, force the same on restaurants (part of the menu at least), rate all package food with a large visible cancer giving index (you must read Anticancer by David Servan-Shreiber, and impose simultaneously a huge tax on fuel guzzling vehicles and a tax deduction for fuel efficient cars. Problem solve in a yr!

  • Emmanuel –

    You make some good points. To address your concerns:

    1. I absolutely agree with you that food aid is useless when it is going to people who can’t afford food, as it simply raises the price and prices someone else out of the market. Market forces should be left alone. In fact, that was the major point of my post. I apologize if I was unclear.

    That being said, with the exception of the past few months, the majority of world food aid actually doesn’t go towards people who are too poor to buy food, but rather to those who temporarily have limited access (due to war, tsunami, etc.). In this case, the price of the food is really not an issue at all, and no matter how much production increased food would still be unavailable. Organizations such as the World Food Program add a lot of value here as their assumed neutrality plus longstanding relationships with both governments and guerillas allow them access others don’t have so that they can transport food (think of the most recent situation in Myanmar for instance). They also have a shocking amount of skill in “last-mile” logistics in these situations, and are very good at figuring out the most efficient way to transport the food, organize distribution, etc.

    2. Yes, I agree that overpopulation is a concern, but many species besides ours make a habit of protecting the weak in their populations. Biologically, the issue with adaptations is always that you don’t need them until you need them, and then there are certain traits that become surprisingly handy. For instance, I have a friend who does TB research who is currently investigating the possibility that certain African tribes actually have genetic mutations that make them completely resistant to most autoimmune diseases. Given that certain strains of TB are resistant to all of our current vaccines, the survival of the species could rest with these tribes in a doomsday scenario.

    3. I would love to see better communication about nutrition to the American public, but I’m much less optimistic than you on how it would be received. Everyone knows how bad cigarettes are, yet there are still a huge number of people who continue to smoke. It is very hard to convince people to forego current pleasure for later gain, especially when the effects of a marginal act are minimal (any one Big Mac is not going to hurt me, and I say to myself every day that THIS Big Mac is not going to hurt even though by having one every day I am probably headed for trouble). I’m surprised though to hear you mention tax breaks for fuel efficiency given your advocacy of free market food prices! I think that the higher gas price should be incentive enough, and seems to be doing a very good job of deterring SUV and truck sales based on the latest data from Detroit.