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Freer trade could fill the world's rice bowl
Here is my latest New York Times column. Here is the conclusion:
Lately, it’s become fashionable to assert that, in this time of financial market turmoil, the market-oriented teachings of Milton Friedman belong more to the past than to the future. The sadder truth is that when it comes to food production — arguably the most important of all human activities — Mr. Friedman’s free-trade ideas still haven’t seen the light of day.
Here is the most interesting paragraph:
The reality is that many of today’s commodity shortages, including that for oil, occur because ever more production and trade take place in relatively inefficient and inflexible countries. We’re accustomed to the response times of Silicon Valley, but when it comes to commodities production, many of the relevant institutions abroad have only one foot in the modern age. In other words, the world’s commodities table is very far from flat.
Here is the most tragic part of the piece:
Poor rice yields are not the major problem. The United Nations Food and Agriculture Organization estimates that global rice production increased by 1 percent last year and says that it is expected to increase 1.8 percent this year. That’s not impressive, but it shouldn’t cause starvation.
The more telling figure is that over the next year, international trade in rice is expected to decline more than 3 percent, when it should be expanding. The decline is attributable mainly to recent restrictions on rice exports in rice-producing countries like India, Indonesia, Vietnam, China, Cambodia and Egypt.
Addendum: Also from today's NYT, read this supporting article, which covers grain in Argentina. And from Duke, here is a related piece on Africa.
Posted by Tyler Cowen on April 27, 2008 at 07:26 AM in Economics | Permalink
Comments
Unfortunately, governments have to balance trade with their need to give into populist demands to keep food prices low for urban populations. How'd we break out of this trap?
A look at this article on dairy shortages in Japan, seems to suggest that freer trade has quite varied impacts.
Posted by: Naadir Jeewa at Apr 27, 2008 7:50:53 AM
Naadir: Japan has an ~800% tariff on butter imports.
Posted by: Aaron Schiff at Apr 27, 2008 8:19:32 AM
The mostly likely result of free trade in food is that food would tend to flow toward the richer nations, leaving those who cannot pay for it without.
This cannot be defended politically, economically or morally.
Posted by: Stephen Downes at Apr 27, 2008 8:26:44 AM
Stephen, food already flows toward richer nations in adequate amounts. People generally do not buy significantly more food than they eat. If my grocery bill went down by 20%, I would spend the money on other things - not stack the cabinets with basmati rice.
I live in the possibly the most affluent county in the United States. If we were able to stop the importation of food into the county, a sustenance-level economy would evolve virtually overnight. IOW, "imported" food is the basis for our prosperity. I won't suggest that hedge funds would start moving into Bangladesh if the free trade of food was increased, but the morality behind forcing people in a certain area to focus their efforts on sutenance farming for survival eludes me.
Posted by: Th Dirty Mac at Apr 27, 2008 9:16:02 AM
Stephen,
Right now, rich countries have plenty of food and poor countries are suffering shortages and riots amidst sky-rocketing prices, trade restrictions, and price controls. Your position is that free trade in food would cause prices to further increase?? That does not seem at all tenable. The supply of food would increase tremendously with free trade while costs to suppliers would fall.
Posted by: Cliff at Apr 27, 2008 9:49:58 AM
Dani Rodrick weighs in.
Posted by: Norman B. at Apr 27, 2008 10:00:18 AM
I'm no agrabusiness or economic expert, but is it possible that with the increase in energy prices, an increase in localized trade and a decrease in 15,000 mile trips is actually becoming more economically viable?
I understand that the energy used for shipping is much less than trucking, but I recall hearing that at least in the US, our food distribution system has been predicated on cheap transportation costs, encouraging regional specialization in food production. Is is possible that what we really need to do is focus on ways to diversify the production of food in our countries' interior to reduce trucking cost, while increasing short range international trade at our ports, where we have relatively inexpensive shipping options?
Posted by: eric at Apr 27, 2008 10:02:56 AM
"Nonetheless, the longer-run incentives are counterproductive. .."
Yeah, but in the short-run they're all dead.
Posted by: Angelina Jolie at Apr 27, 2008 10:32:08 AM
Stephen, I get the feeling that you haven't actually done much studying of economics, if that is the only effect you can foresee of a market economy for food. I mean, the concept of high prices spurring production and thus expanding the supply and thus lowering the price is a chapter-one kind of economic concept, no offense. But it all relies on a market economy, not a planned one, to happen.
I'll pose this question: why are certain luxuries, like sugar, chocolate, color televisions, and cell phones, now affordable even by those considered to be poor, when they used to be solely for the wealthy?
Posted by: Jacob Oost at Apr 27, 2008 10:41:56 AM
Tyler,
Dani Rodrik has written a short response to your NYT piece here: http://rodrik.typepad.com/dani_rodriks_weblog/2008/04/the-free-trade.html
He claims that you are wrong to assert that free trade will lower prices. After reading what he wrote I am inclined to agree with him. Do you have a response?
Posted by: Sohaib at Apr 27, 2008 11:33:36 AM
It's not just those inefficient and inflexible countries -- we create a lot of problems with our farm subsidies.
The analysis from the left that I've heard goes like this. Poor countries need loans, and they need aid, and in order to get it from institutions like the World Bank and the IMF they have to open up to free trade in significant ways.
But rich countries in the West have stacked the rules in their favor. So we can have our crop subsidies -- that's not seen as a violation of the principles of free trade.
The result of this is that we kill off a lot of agriculture in these poor countries, and that's enormously destructive, and one of the main sources of the problems we're seeing now.
These aren't academic issues -- it creates a lot of real suffering.
Posted by: Alex at Apr 27, 2008 11:56:57 AM
Dani Rodrik reacts to Tyler's piece.
Posted by: John V at Apr 27, 2008 12:15:12 PM
Dani Rodrik has obviously not read the Tyler piece, instead he just offers his usual rhetoric of that free traders don't understand the concept of free trade, whereas Dani Rodrik does.
Posted by: Chris at Apr 27, 2008 12:42:05 PM
It's one thing to say that Dani Rodrik is wrong or that you disagree with him. To state with certainty that he obviously hasn't read the piece is petty and almost certainly false.
Posted by: Trey at Apr 27, 2008 12:49:58 PM
Angus on Dani on Tyler.
Posted by: Juan at Apr 27, 2008 12:58:06 PM
Tyler,
Thanks for this article, as well as the linked articles. They were my wish in your post requesting economics requests from readers.
As far as Dani Rodrik is concerned, basically he is like a bull that sees red when it comes to free trade. Any time somone mentions something positive about it his brain seems to shut down. Not only does he not actually respond to Tyler's post, but he seems to be solely interested in the very short run, without thinking dynamically. In the readers comments section to Dani's post, I think K. Williams has the best response so far.
I'm really curious as to how he or his disciples will respond.
Posted by: happyjuggler0 at Apr 27, 2008 1:28:20 PM
So, poor countries will get more money for their output, and that's the argument AGAINST free trade?
Well, ok, then.
Among the million adjustments the poor country would make to this "tragedy", wouldn't more people get higher paying jobs involved in increasing the output of the high priced commodity, and then use their newly found income to maybe buy a commodity that hasn't increased in price? Maybe even, gasp, an import?
I hear that Canada has lots of extra pork. Maybe the poor countries could cut down on rice consumption & import some cheap Canadian pork.
Posted by: kebko at Apr 27, 2008 2:34:53 PM
excellent points by Angus. Thanks for the link.
That was the immediate impression I got from reading Rodrik's response.
Posted by: John V at Apr 27, 2008 3:04:53 PM
It also bothers me a bit that Rodrik seems to consider food as a single, fungible good.
Posted by: Juan at Apr 27, 2008 3:58:01 PM
I recall reading Sen on this type of problem several years ago: famines in a land of plenty.
My reaction was that in many of these countries the farmer was forced to double down using this year's wealth measured in grain to plant next year. The inevitable happened - ruin, even when the overall harvest might be high. Nobody had the money to trade for the bumper harvest's because of doubling down.
Posted by: michael webster at Apr 27, 2008 5:20:14 PM
Dani's arguments is a zero-sum argument, plain and simple. It's hidden when talking about imports and exports instead of inequality, but that's his entire argument. And even if you only consider his extreme short-term argument, free trade is merely neutral. The net exporting countries lose some rice and the net importing countries gain some rice. Unless people in the net exporting countries somehow deserve the rice more, the world as a whole comes out even.
Then, in the longer term, higher demand for rice in the net exporting countries leads to more investment for more supply, giving plenty of rice for home and abroad. Last I checked, for example, the US was doing alright as a net exporter in just about every type of food.
Posted by: MW at Apr 27, 2008 6:24:26 PM
Umm, did'nt speculation and the "free market" drive up energy (electricity) prices in California, even if there was abundant supply, during the heyday of Enron. Why are food prices any more immune to such free market speculation? I agree that agricultural policies in many countries like India is deeply flawed, but controlling food prices is probably not one of them.
Posted by: kris at Apr 27, 2008 6:31:39 PM
I cannot believe that more free markets is a sufficient answer. There is a market for rice and other foods. It is free enough and probably just as free as any other market. After all there is no free market in labor. If you are born in the wrong country you are pretty much stuck.
So lets be real free marketeers and revoke all immigration laws. Lets let labor go to where its return is highest. Lets see how far that will get us.
I am willing to bet that not many free marketeers want to walk down that path. And I don't really blame them. But if that is the case then blaming an inefficient market can't be the real explanation to the current food crises.
So let's look a little deeper, please.
Posted by: lxm at Apr 27, 2008 6:39:20 PM
Ixm,
Think again. You mistake us for conservatives. Open the borders and let them in.
or perhaps you missed the excellent link cited above to Angus.
Posted by: John V at Apr 27, 2008 7:47:39 PM
As someone who has had recent experiences with price controls on foodstuff, I can't see how they're not a problem. At best, they're a band-aid covering up the real issues.
Posted by: Juan at Apr 27, 2008 8:14:10 PM
John,
I read Angus and he agrees with me and not Tyler.
Angus says, "My own criticism of Tyler's piece would rely less on Heckscher-Ohlin and more on Pritchett: In terms of helping the world's poor, freer trade is a drop in the bucket compared to allowing increased labor mobility.
If you live in a country with "corruption, non-existent roads, insecure property rights and price controls" free trade is not going to help you. Leaving will help you. The best thing the rich countries could do for a Haitian or Egyptian would be to let them come and work in the rich world."
Tyler makes no call for increased labor mobility.
One of the comments to Angus's piece says:
"Immigration would help some people but unless you're willing to allow 5.8 billion people in the US, there's got to be something else."
And most folks agree with that comment.
Posted by: lxm at Apr 27, 2008 8:28:22 PM
Another comment there states that you don't have to let 5.8 billion people in the USA. Not to mention those who would prefer to lose money and stay on a familiar culture.
Posted by: Juan at Apr 27, 2008 8:42:16 PM
Umm, did'nt speculation and the "free market" drive up energy (electricity) prices in California, even if there was abundant supply, during the heyday of Enron.
Speculation, yes, free market, no. Enron made money off the fact that the California version of "deregulation" featured a tightly controlled market; it should properly have been called re-regulation. The prices charged to consumers were (with two exceptions, IIRC: municipal utilities and utilities that had "paid off" their stranded costs) strictly held at a flat rate (5.4 cents/kWh) even as the wholesale rates charged through the state's Power Exchange skyrocketed. The wholesale prices paid to the generators were based on the price paid to the highest generator, not actual bids. That is, if you bid 4.5 cents/kWh (barely above cost) and the least efficient generator bid 15 cents/kWh, you actually got the 15 cents. Nice system if you can get it, but not a free market by any but the longest stretches of the imagination.
Sohaib, the easiest response to Rodrik is the one made on his own comments by anon: the argument Dani claims Tyler is making was never made by Tyler.
Posted by: Eric H at Apr 27, 2008 9:53:00 PM
Manipulation of the California energy market was possible because [1] the amount of on-grid storage is negligible, and [2] the influx of electrical power into California passes through a handful of high-voltage lines. If you can manipulate the capacity of those lines, you can manipulate the spot-market price of electricity in California.
Food prices are harder to manipulate because of the large number of producers. Historically, successful manipulations of commodity prices have focused far more on minerals than on food. It's easier to control the output of a few mines than a thousand farms.
Posted by: Cyrus at Apr 27, 2008 10:57:41 PM
Tyler,
I cannot quite agree with your contention that greater rice trade will lead to lower prices. Unlike other commodities, foodgrains like rice are influenced by too many exogenous and structural factors that does not make it amenable to such simplistic analysis. I have listed out eight reasons why your analysis may not be correct, in my blog here
http://gulzar05.blogspot.com/2008/04/rice-trade-and-lower-prices.html
Posted by: gulzar at Apr 27, 2008 11:14:34 PM
Eric H and Cyrus,
Thanks for the comments and clarification on the California electricity crisis. I guess
the analogy is inapplicable to food prices.
Posted by: kris at Apr 28, 2008 1:45:46 AM
Food will flow to the rich countries. Yes. Then capital flows to the poor countries, who can then buy, say a tractor.
High prices are good. It's better than low prices, low prices, low prices, BAM! Astronomical prices! Speculation drives up prices today in expectation of high prices tomorrow. High prices today entice providers who might be in business by the time tomorrow comes.
Posted by: Andrew at Apr 28, 2008 4:32:20 AM
Currently reading 'The China I Knew', in which author Pearl Buck quotes a Chinese proverb:
'When the price of rice has gone beyond the ability of the common man to pay, then Heaven decrees a change of rulers.'
Posted by: Riz at Apr 28, 2008 7:02:38 AM
but what about the environmental concerns of transporting foodstuff, such as rice? so far, it seems that this has only been a question of economics, but i am curious how this relates to the other recent article in the nytimes on the impact of foodtrade on the environment.
Posted by: sp at Apr 28, 2008 10:07:19 AM
Ixm,
I think we're misreading each other. First of all, your comment seemed to imply tat the people here reading the comments would not support such a measure. And I'm telling you that they would indeed support such a measure.
As for Tyler, I believe he would too. He and Alex are both open borders kinda people. If you search through past material here, you'll see that.
The fact that he did not raise that specific point in the NYT article does not mean he doesn't mean he doesn't support. Omission does not translate to opposition.
Angus's point on that matter is just an aside....not a critique of Tyler's position on the issue.
Posted by: John V at Apr 28, 2008 11:17:45 AM
Tyler,
I mostly agree with this posting, and have posted on dani rodrik and
economists view defending you against Rodrik's very weak argument.
However, you overstate your general argument, especially when you wave
the banner for enforcing property rights. In many places this will help,
but not everywhere. We have seen productive land reform efforts that
redistributed land, as in Taiwan (yes, there have been less successful ones
as well). The hard fact is that in many countries there is a very unequal
distribution of land based on historical injustices, with the landowners
engaging in corruption and many other undesirable practices. In such
situations, redistributing land may be a much better way to go.
I also remind that many parts of the production systems are often government
provided, including roads, larger portions of irrigation systems, warehouses,
and so forth. In such cases, mere enforcement of property rights may not help
much, with a cleaning up of government more useful. Mauritania would be an
example where corruption by wealthy land owners undercut government provision
of irrigation systems, aggravating what is currently one of the most severe
famine crises in the world.
Posted by: Barkley Rosser at Apr 28, 2008 1:20:39 PM
What we need is a free market, a market free of speculators, that is. The last couple decades bear witness to what happens when rogue capitalists work their way through various markets, exploiting loop holes and testing regulatory frameworks, all to their own benefit. I suppose we should be grateful to them for exposing the flaws in our system... On the other hand, this is the first time so many lives are at risk (if you don't count the elderly who died of heat stroke during California's "energy crisis").
Posted by: BobN at Apr 28, 2008 2:34:08 PM
Its simple reasoning.
The world bought into the scam called biofuels. Which resulted in higher demand for grains. The higher demand resulted in increase in prices of grain (a basic staple in many countries) and meat(s).
Developing countries are putting limits on rice exports not because there is a shortage. But rather to protect the only substitute they have to grains.
Over all outcome, more expensive gas, meat, bread, rice and beer!
So why dont we cut on the biofuels then? Especially that they are not that environmental. Maybe cut subsidies for ethanol in Iowa too.
MemZ
Posted by: MemZ at Apr 28, 2008 6:03:55 PM
If you can manipulate the capacity of those lines, you can manipulate the spot-market price of electricity in California.
Food prices are harder to manipulate because of the large number of producers. Historically, successful manipulations of commodity prices have focused far more on minerals than on food. It's easier to control the output of a few mines than a thousand farms.
Most agricultural products in the US pass through a couple of very large companies. I'd make the opposite point to your's: food products sold on "futures exchanges" are easier to manipulate than products not sold on exchanges.
In a normal year, we'd have 1.2 million tons of rice under production. This year we have 15,000, and there's no telling if that will make it.http://www.wired.com/science/planetearth/magazine/16-05/ff_peakwater?currentPage=all
Drought and diseases (such as the case of UG99 vs wheat production) are making rather serious effects on crop production. No amount of waving fists full of money are going to cure those problems. And for 7 of the last 8 years, we've produced less wheat in the world than we've consumed. 2008 looks like continuing the trend.
http://www.ers.usda.gov/Data/Wheat/YBtable04.asp
As for Enron, they purchased the so-called deregulation laws: hired the lobbyist who wrote it, and paid more to have it passed. And CA got the royal shaft from that.
Posted by: Tangurena at Apr 28, 2008 6:31:59 PM
The neoliberal model of large scale cash crop farming for export isn't exactly a product of the "free market."
The Enclosures have been reenacted in the Third World by latifundistas and other feudal landed oligarchs, in collusion with Western agribusiness.
The main cause of starvation, as you say, isn't underproduction. But it isn't too little "trade," either. It's mainly the lack of purchasing power. Land that was formerly was formerly used by peasant subsistence farmers to feed themselves is now used to grow cash crops for the export market, while those evicted peasants sit in shantytowns or hold begging bowls in the streets.
A free market libertarianism that takes the distribution of "factors" as given, without regard to issues of justice in acquisition, really isn't libertarian at all.
Frances Moore Lappe's a lot closer to the truth than all the talk about the "Green Revolution" and Monsanto.
The So-Called Green Revolution
Posted by: Kevin Carson at Apr 29, 2008 2:57:19 AM
The Enclosures have been reenacted in the Third World by latifundistas and other feudal landed oligarchs, in collusion with Western agribusiness.
During the late 80's a friend of mine spent time in El Salvador. This is exactly what is comments were.
Posted by: Mike Fladlien at Apr 29, 2008 12:15:24 PM
Tyler incorrectly claims:
The reality is that many of today’s commodity shortages, including that for oil, occur because ever more production and trade take place in relatively inefficient and inflexible countries.
The world is more driven by market forces than any time in many decades. The increases in production are due to declining levels of inefficiency and accumulation of capital.
The commodity shortages are due to the accumulating capital and dropping inefficiencies in the use of commodities. A large fraction of all minerals extraction is done by very capitalistic companies such as Rio Tinto and BHP Billiton. They make commodities extraction more efficient in these inefficient countries you refer to.
The problem with oil is geological, not economic. We do not have enough of it. The rapid decline of oil production in the North Sea and the United States happened in spite of free markets. Less efficient Russia can (and does) buy Western expertise from Schlumberger and other Western oil technology companies.
Rice production in many countries has been made more difficult by industrialization that has shifted land use away from agriculture and toward housing and industry.
Posted by: Randall Parker at Apr 29, 2008 11:00:42 PM
