The Food Crisis: A Radical Rethink

June 25, 2008

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.

Caveat:
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.

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