Food prices and the New York Times

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.

5 thoughts on “Food prices and the New York Times

  1. I thought yesterday’s article about how climate and market changes pushed Australia out of rice production was quite good. http://www.nytimes.com/2008/04/17/business/worldbusiness/17warm.html?em&ex=1208664000&en=bd52fc3ed0e167da&ei=5087.

    The other issue is surrounding the dollar and the Euro. I also wouldn’t measure things in the Euro because the Euro has become overvalued at this point. However it looks like Haiti for example has a floating peg to the dollar that has been at 38.35 Gourdes to the dollar for more than a year. So despite the fact that the dollar has been weakening Haitians have been paying higher prices for dollar denominated goods. There are probably many places that have similar stories. Meanwhile I imagine that the US treasury department is begging countries not to change their peg because it would cause further weakening.

  2. Your highlight on the different impact on Net Producers and Net Consumers is interesting. But in the haitian case, peasants seem as affected as slum dwellers (the initial reporting of mud patties consumtion came from the countryside) and the country import more than half is food (large amounts of subsidized US rice ). Should we subsidize haitian farmers production in this case? I know the answer might require greater knowledge of the Haitian economy but do you have any thoughts on that?

  3. 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.

    I don’t know if I share your optimism. The reasons why the governments of Mozambique, Cameroon or Guinea survived the recent crisis is because they gave in to the pressure and did raise public service salaries, the minimum wage, cancelled the price hikes in fuel, food (and plan to subsidize import if necessary).

    Sure, the urban poor are the most affected and should be targeted but they’re not the most powerful political constituency. The lower middle class (public service clercs, military, etc..) is. It’s why the response is always eventually a national subsidy. Because it’s far too dangerous to leave people who can and will riot in front of the ministries and the presidency out.

    (and I don’t know about the military being generally well-fed. It may be the case in Uganda but I wouldn’t generalize from that)

  4. Hi Chris- I most definitely agree with the observations in your post, but would like to bring a more nuanced point of view to your second point on producers in poor countries. Poor people in rural areas are not all net producers. In fact, many of the poorest of the poor in rural areas may actually be net consumers of different staples. The problem is that we don’t actually know what the numbers are and what the distribution looks like. Also, poor farmers that are net producers in these regions may not have the ability to quickly respond to prices as their ability to adjust depends many things (risk, credit, inputs, information…etc.)

    I currently work at the Program for Food Security and the Environment at Stanford and we are looking into the net consumer/net producer question using household datasets. Hopefully I’ll have more to report soon.

  5. Professor Madhukar Shukla thinks that the higher food prices may not tranlate in to real benefits for small rural farmers in India :
    “Farming is no longer a viable occupation for many -specially the medium, small and marginal farmers.

    The reasons are what happened in India post-liberalisation. The rural credit through banks, which had grown from around 4-5% in 1969 (when the banks were nationalised) to about 16-17% of the total credit by 1990. After the “banking reforms”, it has continuously fallen. A number of rural bank branches have also closed…. leaving farmers no other recourse than to take loan fromthe local moneylender or MFIs at high interests.

    Moreover, public investment in rural agriculture-related infrastructure and subsidies have gone down. While the cost of production has gone up, the government procurement rates have not kep pace with the cost and inflation. Even when a couple of years back govt allowed private sector to enter the grain market as purchaser, while the farmers got a better price, but the inflation in food commodity items nullifies that. One reason for the current wheat scarcity in India is also that a large amount of wheat which was procured by FMCGs is either lying their godowns/inventory, or is getting converted into biscuits etc…

    The point I was trying to make in my comment was that the gainers in these high prices for farm produce are not the farmers; they are either the middlemen, through whom the private sector procures, or the agri-businesses or the commodity traders.”
    This from the comments section of his post
    http://alternativeperspective.blogspot.com/2008/04/global-hunger-next-stage-of.html