Freer trade could fill the world’s rice bowl

by on April 27, 2008 at 7:26 am in Economics | Permalink

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.

1 Naadir Jeewa April 27, 2008 at 7:50 am

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.

2 Stephen Downes April 27, 2008 at 8:26 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.

3 Cliff April 27, 2008 at 9:49 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.

4 eric April 27, 2008 at 10:02 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?

5 Jacob Oost April 27, 2008 at 10:41 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?

6 Alex April 27, 2008 at 11:56 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.

7 Chris April 27, 2008 at 12:42 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.

8 Juan April 27, 2008 at 12:58 pm

Angus on Dani on Tyler.

9 kebko April 27, 2008 at 2:34 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.

10 Juan April 27, 2008 at 3:58 pm

It also bothers me a bit that Rodrik seems to consider food as a single, fungible good.

11 MW April 27, 2008 at 6:24 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.

12 lxm April 27, 2008 at 6:39 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.

13 Juan April 27, 2008 at 8:14 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.

14 Juan April 27, 2008 at 8:42 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.

15 Cyrus April 27, 2008 at 10:57 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.

16 kris April 28, 2008 at 1:45 am

Eric H and Cyrus,
Thanks for the comments and clarification on the California electricity crisis. I guess
the analogy is inapplicable to food prices.

17 Riz April 28, 2008 at 7:02 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.’

18 John V April 28, 2008 at 11:17 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.

19 BobN April 28, 2008 at 2:34 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”).

20 Tangurena April 28, 2008 at 6:31 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.

21 Mike Fladlien April 29, 2008 at 12:15 pm

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.

22 r4 ds giochi March 5, 2010 at 11:55 pm

Instead, some Asian countries are engaging in price controls and are forbidding their rice producers from exporting. Go figure!

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