The New York Times continues to substitute hyperbole for information in its reporting on rising food prices:
Hunger bashed in the front gate of Haiti’s presidential palace. Hunger poured onto the streets, burning tires and taking on soldiers and the police. Hunger sent the country’s prime minister packing.
Haiti’s hunger, that burn in the belly that so many here feel, has become fiercer than ever in recent days as global food prices spiral out of reach, spiking as much as 45 percent since the end of 2006 and turning Haitian staples like beans, corn and rice into closely guarded treasures.
It’s a cute opening. If it were followed by substance, analysis, and insight, it might even work. Instead we get 3,000 words of “the children are dying”. Yes, children are dying. The problem is an urgent one. But there is a more nuanced story here, and I subscribe to the Times instead of watching Fox News so I can get it.
First, we need to be a little less Amero-centric. From John Quiggin:
prices for commodities, including oil as well as most ag commodities, are typically quoted in $US. In a situation where, for obvious reasons, the value of the $US is declining against all major currencies, this can be quite misleading. Measured against the euro, the currency of the world’s largest unified economy, the increase looks a lot less steep.
Short story: let’s not mix up the U.S. currency crisis–that is, mortgage meltdowns and overspending on overseas wars–with global food prices.
Second, I am flabbergasted that almost no newspaper has mentioned there are people in poor countries who actually sell commodities.
The rural poor are often the principal concern of anti-poverty programs, and many produce the very foods that are rising in price. That means the historically poor are getting wealthier. Not a peep from them? Well, finding them requires leaving the comfy capital and makes a less compelling news leader. But they could at least bury the observation on page A19. Alas, no.
The rise in food prices is creating a transfer of wealth from net consumers to net producers. Net consumers tend to live in urban slums. Net producers tend to live in mud shacks hundreds of miles from the capital.
The rise in food prices is also probably going to cause a boom in production. Farmers are rushing to turn their cotton fields to wheat and rice production. Governments are pushing their agricultural extension services to boost productivity in grains. This is why commodity shocks tend to be spike-like: they shoot up and shoot down, sometimes causing just as much instability on the down-swing as they did on the upswing.
What do we conclude? First, national subsidy programs may not be required. Targeted interventions towards the poorest net consumers will be more effective and cheaper. (More on this from a 1988 article by Tim Besley and Ravi Kanbur.)
Second, we might want to think about how to create a soft landing. If rice and wheat prices come down quickly, we’ll see an awful lot of rioting and children dying in net production areas next, as farmers who have invested everything in grains lose their shirts.
In the meantime, will governments topple from rising prices? Maybe. Granted, most insurgencies arise in rural areas (the majority of whom, we saw, may be getting better off), and most coups are masterminded by (usually well-fed) militaries. So I expect more rioting than toppling. I hope to have some historical analysis of this pattern sooner rather than later.