Showing posts with label food security. Show all posts
Showing posts with label food security. Show all posts

Monday, January 04, 2016

Happy new year 2016

Happy new year, 2016. Let us stay positive and optimistic this year and the succeeding years. On this note, I am reposting 9 of the 16 reasons given by Daniel Hannan, a Conservative Member of the European Parliament (he blogs at www.hannan.co.uk), and I added the 10th reason, with two charts from Human Progress.
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http://www.capx.co/16-reasons-to-be-cheerful-about-2016/
16 reasons to be cheerful about 2016

By Daniel Hannan  @DanHannanMEP
1 January 2016

Iain Martin closed the old year with 15 reasons to be cheerful about 2015. Let me open the new one with 16 reasons to be cheerful about 2016.

1. The world will be richer. According to the IMF, global GDP will increase by 3.8 per cent in 2016, up from 3.3 per cent in 2015. It’s easy, when you’re sitting at a computer screen in a developed country, to say “GDP isn’t everything”. But, in most of the world, 3.8 per cent growth means vaccines and schoolbooks and clean water and bicycles and electricity.

2. The world will be cleverer. IQ is rising by around three points a decade. There are various explanations as to why: better nutrition, smaller families, a greater propensity to abstract reasoning in post-agrarian societies. Whatever its cause, the trend shows no sign of slowing. As well as getting better at using our brains, we know more. We now have a better understanding of evolution than Darwin, a better understanding of economics than Hayek – not because we are brighter than those titans, but because we are a click away from information beyond their imagining.

3. Humanity will become interconnected. In developed countries, we will benefit from the spread of social media and Uber and Airbnb. But the real breakthrough is in poorer countries, where the challenge has been getting Internet access at all. Various schemes are now underway to bring the world online, including a plan by Google to use balloons. It’s worth noting that these networks are developing because of the profit motive, not because of state aid.

4. Energy will be cheap. Some analysts expect the price of oil to continue to slide, perhaps to as little as $20 a barrel. Others forecast a slight recovery. But no one thinks it will return to the three-figure sums that we recently took for granted. Cheap energy isn’t just good news for consumers. It also means cheaper production costs, and a competitive lift to the entire economy.

5. Despots will be weaker. Which countries stand to lose most from the plummeting oil price? Russia, Iran, Saudi Arabia, Venezuela. And populist socialism will peak.

6. Poverty will fall. According to the World Bank, fewer than ten per cent of the world now live in extreme poverty, defined as $1.90 a day or less. That figure has fallen by more than two thirds since 1990, as previously closed economies joined the global market system. The total eradication of extreme poverty now looks not just feasible but likely.

7. India will become a global power. The world’s largest democracy is, for the first time, becoming an active international sponsor of democracy.

8. The world will be greener. The Paris Conference marked a shift toward achievable carbon targets embraced voluntarily by nation-states – a far more realistic policy than the previous idea of rules enforced by a global bureaucracy. But there is more to environmentalism than global warming. Indoor cooking fires, which are arguably the most noxious pollutant of all, are being dispaced. More agrarian land will be “rewilded” in 2016, as modern farming leads to greater yields from the same acreage. More species will be taken off the endangered list.

9. The world will be healthier. It looks as though we have seen the last case of polio in Africa, and the disease may be eradicated from its last hideouts in Afghanistan and Pakistan this year. Yaws and malaria may not be far behind; even measles and rubella are on their way to extinction.
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10. Food world prices will continue to stabilize, if not decline. Here are 3 charts to support this optimism.

After peaking in early 2011, Vietnam rice price has declined. One more reason why rice protectionism in the Philippines should end and allow the poor to have more access to cheaper rice from our neighbors in East Asia.

source: http://humanprogress.org/static/2602

Overall world food prices have increased in the past decade. The massive conversion of food output to biofuel is partly responsible for this. Corn and other crops were used to feed cars and trucks, not people. By 2013, prices have stabilized and mildly declined.

source: http://humanprogress.org/static/2617

We have entered a world of rising prosperity, rising food security, rising human freedom. Not abruptly but slowly and surely. Happy new year, once again.
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See also:
Fireworks and Liberty: New Year 2012, January 01, 2012 
Happy New Year, January 01, 2013 
Top 10 News in 2014, Happy New Year 2015, December 31, 2014 
Thank you, 2015, December 31, 2015 
Top 10 good news about the world, Happy new year, December 31, 2015

Friday, December 25, 2015

Agri Econ 22, Why "peak food" hypothesis is wrong

Merry Christmas.

Lots of food almost everywhere here in the Philippines, other countries, in celebration of family reunions and the holiday, Christian season.

And this is near the subject of "Peak food" or "more global hunger" and related hypothesis or conspiracy theories. And they remain as conspiracies, spreading and alarmism. Here's a good observation and chart from Dr. Spencer, January 29th, 2015,

“food production is not limited by available land…it depends upon demand. If demand rises, so does food production. Hunger, malnourishment, and starvation are not due to a lack of food. They are almost always due to governmental policies which hinder farming or hinder the prosperity needed to import food….”



A world of rising... famine, or abundance? There is more food per capita now, and more in the future. The prophets of doom and alarmism may consider findinng other more useful jobs. Also from Dr. Spencer, March 18th, 2014.

“Here in the U.S, as well as globally, grain production as well as yields (in bushels per acre) have been on an upward linear trend for at least 50 years, primarily due to improvements in varieties (e.g. with greater drought tolerance) and growing practices.”



Another chart, by regions and continents, 2000-2009.


Land productivity is agricultural gross production per hectare of agri land. Labor productivity is agricultural gross production per economically active person in agriculture.

In Asia, they are steadily rising except in Afghanistan, Bhutan and North Korea.
Data is from Table 6, Global Food Policy Report 2014-2015, by the International Food Policy Research Institute (IFPRI). 



The figures are even more impressive, much larger in some MidEast countries than those in Asia proper. Note the numbers for Israel, Egypt, Bahrain and Lebanon.

same source above.

Some reports and articles.

(1) "Journalists know that alarmism attracts readers. An article in the British newspaper the Independent titled, “Have we reached ‘peak food’? Shortages loom as global production rates slow” claimed humanity will soon face mass starvation.

Just as Paul Ehrlich’s 1968 bestseller The Population Bomb predicted that millions would die due to food shortages in the 1970s and 1980s, the article in 2015 tries to capture readers’ interest through unfounded fear. Let’s take a look at the actual state of global food production." May 26, 2015. http://fee.org/.../capitalism-defused-the-population-bomb

(2) "For the first time, the world is eating more fish from farms than from the open sea, spurring billions of dollars of takeovers as one of the largest food companies seeks to capitalize on rising demand.

Fish consumption is growing at a faster pace than beef, pork and poultry, driven by an expanding, increasingly prosperous global population that recognizes the health benefits of eating seafood. Demand is forecast by United Nations to outstrip supply in coming years. Wild fish aren’t going to fill the gap, and that leaves farming in lakes and coastal waters -- also known as aquaculture -- to make up the shortfall." http://www.bloomberg.com/.../hungry-fish-farms-lure...

(3) "The future of food is not bleak, as Liu suggests and mainstream media agrees, the future of food looks fantastic. Since the 1970s American farmers, who embrace science more than any in the world, have grown more food on less land in a way 1970s projections believed was only science-fiction.  If Europe and the developing world embraced science the way American agriculture does, not only could we grow the same food we have right now, we could let farmland equivalent to the entire region of Amazonia go back to nature and not lose a single carrot." http://www.science20.com/science_20/no_we_have_not_reached_peak_food-152734

(4) "Between 1990–92 and 2014–16, despite a global population increase of 35% (or 1.9 billion), the population suffering from chronic hunger declined by 216 million. Consequently malnutrition also declined. Since reductions in hunger and malnutrition are the first steps to better public health, age-adjusted mortality rates have declined and life expectancy has increased." -- Indur Goklany, July 6, 2015, http://wattsupwiththat.com/2015/07/06/have-fossil-fuels-diminished-the-worlds-sustainability-and-resilience/



(5) From human progress. I chose the four most populous countries in Asia -- China, India, Indonesia and Bangladesh. http://humanprogress.org/.../Bangla.../China/India/Indonesia

Yes, we have entered the period of rising productivity and prosperity. Governments and NGOs of alarmism should step back from more regulations and interventions in various innovations in food production, storage, marketing and distribution. Innovation and competition among players, big and small, plus civil society volunteerism can address problems in distribution to the most vulnerable  and  poorest sections of  the population.
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See also:
Agri Econ 21, Rice protectionism as poverty-maximizing policy, September 25, 2015

GM crops and rising population, March 10, 2011
Pilipinas Forum 4: GMOs are good, August 31, 2011
GMOs, Greenpeace and Public Health, January 15, 2014 

Sunday, October 04, 2015

TIME mag. on global warming (3)

Another collection of "be worried, be very worried" headlines by TIME magazine, from the web.


And these, dated May 27, 2014 and  October 01, 2015.



Large scale famine? Hehehe, old alarmism claim. Here are actual data and why such alarmist claims are plain alarmism. The truth is that global food production keeps rising, food prices on average are becoming more affordable, there is greater food security in the planet than before.  It is not possible to have a rising global population if there are frequent huge food riots in many countries -- something that exists only in the minds of the food conspiracy theorists.

source: Dr. Roy Spencer, “Peak Food”? No, the Average Person Has More Food to Eat, January 29th, 2015.

Meanwhile, here's a chart on CO2 emission and global temperature "linkage" and "causality". Green line is global CO2 concentration in the atmosphere, now at 400+ parts per million (ppm) and the "safe" level for the planet according to 350.org, WWF, Greenpeace, etc. is only 350 ppm or lower. Red line is the best fit line for global air temperature, average for UAH and RSS satellite data, January 2002 to September 2015. It is -0.02 C per decade.

source: http://friendsofscience.org/

As CO2 concentration rises, global temperature declines, and there is "causality" and "direct linkage"? The climate alarmists are joking.
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See also:

Tuesday, October 21, 2008

Agri Econ 4: Government Agricultural Interventions

Everybody in this planet is a food consumer. Hence, there is a big demand for food; the bigger the population, the bigger the demand. There will also be big incentives for farmers and other food producers to grow more food, both for their own household consumption and to produce a surplus for various consumers and make a profit.

If food producers and consumers are left on their own, they should be able to adjust among themselves. If food prices are high because there are too many consumers and few farmers, and there are minimal or no barriers to farming, some of the consumers will be encouraged to become food producers too, or at least become food traders -- and pretty soon, food prices can go down as food supply expands. If food prices go down so low to unprofitable levels, some farmers will shift to high-value food products where profitability remains high, while other farmers will stop producing and find other work. The resulting food supply reduction will result in upward adjustment in food prices, and the dynamics between food production and food consumption continue.

Some bright men and women, however, think that farmers and consumers are too poor or too stupid to be left on their own -- that government, both national and local, plus multilateral institutions and NGOs, should guide how farmers and consumers should behave. This interventionist thinking has become widespread that agriculture bureaucracies and interventions in many countries have become huge. Naturally, the taxes and fees needed to sustain them, plus their endless conferences and activities will be big too. High taxes plus huge army of agriculture regulators, bureaucrats and statist activists would mean higher food prices too.

Last October 16, World Food Day was celebrated. National bureaucracies like the Department of Agriculture, multilateral institutions like the UN Food and Agriculture Organization (UN FAO), and big international NGOs like Oxfam, seized the occasion to preach for ever-bigger government intervention and politicization of agriculture. Among the advocacies they promoted were the following.

More tax money, xx billion pesos more on top of existing budgets and subsidies, for Philippine agriculture for the country to avoid the recent “rice crisis” and huge food price hikes. Two, do not rely on private entrepreneurship in agriculture because the market will prod farmers to produce more pineapples and bananas for exports, even biofuels and other cash crops, instead of more rice and corn. Three, agriculture trade liberalization is wrong and must be slapped with high tariffs and non-tariff barriers; instead, food “self-sufficiency” should be pursued.

These are myths that need to be corrected. Here are some reasons why they can be considered myths.

One, every year, there is no dearth of reports and stories of wastes and inefficiencies, if not corruption and robbery, in Philippine agriculture. Among the publicized ones involved the fertilizer scam, the government’s Quedan and Rural Credit Corporation (Quedancor) involving the swine scam, and politicians’ unaccounted political accounts in the same government corporation.

Subsidizing farmers look humane, rationale and advancing social equity. However, the practice may encourage some of them to continue farming not because they like doing it and they are earning from it, but because they are getting certain subsidies which makes farming “profitable”. Such redistribution of money from consumers and taxpayers to farmers is not simple, the procedures can be bureaucratic, which will require lots of paper work. Thus, farmers who want to get the various subsidies have to devote time and resources away from farming and into submitting documents and papers in their respective governments’ agriculture ministries and agencies.

In a rice farming village in Pangasinan province, north of Manila that this writer regularly visits, the following were gathered:

* The municipal government last year or two years ago, distributed hand tractors that can also work as water pumps, plus PVC hose for irrigation, to selected farmers who are members of a local cooperative.

* Farmer beneficiaries are supposed to pay nearly PhP 7,000 (around US$148 at P47/$) per year for 10 years.

* After a year, only about 15% of the farmer-borrowers have paid.

* No sanctions were imposed on the non-paying farmers, such as taking back the tractors and giving these to other farmers who did not qualify in the earlier selection process.

The “standard” belief and practice among farmers in many municipalities and provinces in the country is that they pay only on the first three years of the 10-year payment period. No one went to prison or had his tractor or any form of support taken back by the government for negligence in payment. The dominant thinking is that if it is a government program, farmers believe it is a dole-out and they are not supposed to strictly follow the terms in the contract, like regularly paying the loan or tractor or seeds/fertilizers extended to them.

Two, it escapes the mind of many anti-market activists that farmers themselves, big or small, are private entrepreneurs driven by the dual desire to produce food for their household consumption, and to produce a surplus for profit. The Philippine population is increasing by 1.8 million people every year, net of death and migration. The rice land area has remained static at 4 to 4.2 million hectares in the last two or three decades. There is not much land to devote for rice as there is large land conversions going on -- initially from forest to non-forest use like rice and corn land, then from agriculture to residential or commercial/industrial land. And many parts of the country are mountainous that only a few ingenuous Filipino farmers can secure regular irrigation sources from somewhere.

And yet for such steady increase in the number of rice consumers while rice land has remained static, there is only one important conclusion: rice productivity is increasing over time. If this is not true, food riots and mass starvation would have happened many years ago, but it never did. Credit goes to private entrepreneurs in agriculture – farmers and traders, millers and processors, etc. – not so much the NGO activists and often unproductive agriculture bureaucracies.

Three, food imports by the Philippines from its rice-exporting Asian neighbors have covered up for any food supply deficit due to various reasons (strong typhoons, drought, pest attack, earthquakes, and so on). Since the 90s until today, Philippine imports averaged 8% to 10% of annual consumption. Besides, the country’s rice-surplus neighbors really have the natural “comparative advantage” in growing rice than the Philippines. Take Thailand and Vietnam, the world’s top two rice exporting countries, for example.

First, these two countries have wide, contiguous rice land areas of between seven to 10 million hectares, compared to the Philippines’ four million hectares scattered in various provinces and islands around the archipelago. Second, these two countries have huge rivers as main irrigation source like Mekong River, courtesy of their being a contiguous land mass. Third, these two countries have no or very little typhoons, only about 10 per year perhaps, versus the Philippines’ 20 typhoons per year on average.

Interventions like the provision of farm equipment, seeds and fertilizers, credit and marketing network, entrepreneurial spirit, are not included yet. The natural geography of those two countries alone gives them enough comparative and competitive advantage to grow rice. The Philippines’ comparative advantage is more on tourism, not agriculture.

Thus, instead of continuing agricultural trade protectionism, the various tariff and non-tariff barriers in agricultural imports, especially rice, should be slowly removed. Poor households who cannot afford to buy some local grains, vegetables, animal and fishery products in large amount for their families’ daily consumption, should be given respite by giving them access to otherwise cheaper food imports from the country’s Asian neighbors.

The market, the interaction between producers and consumers, not between bureaucrats and statist activists, can provide reliable information and signals for both producers and consumers to adjust with each other. Hence, statist interventions for more tax money for more subsidies, more tax money for dishonest and corrupt politicians and bureaucrats, and more agricultural trade restrictions and protectionism, should be slowly reduced, ultimately abolished. There is nothing wrong with a social system that allows the lazy and irresponsible to go hungry and poor, while allowing the hardworking, the entrepreneurial and responsible people to flourish and become rich.
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Related papers I wrote recently:

(1) More Food Producers, Less Food Bureaucrats

September 08, 2008

Agriculture is often an emotional subject when it should not be. Mention farming and farmers and images of poverty and economic difficulty would more often than not, come up in the minds of the public. Hence, various forms of subsidies, crop insurance, trade protectionism and other “incentives” were cooked up and implemented by many governments and generally supported by the public.

That should not be the case because everybody in this planet is a food consumer. Hence, there is a big demand for food, and there is big incentive for farmers and other food producers to grow more food, both for their own household consumption and to produce a surplus for various consumers and make a profit.

If food producers and consumers are left on their own, they should be able to adjust among themselves. If food prices are high because there are too many consumers and there are few farmers, and there are little or no barriers to farming, some of the consumers will be encouraged to become food producers too, or at least become food traders, and pretty soon, food prices can go down as food supply expands. If food prices go down so low to unprofitable levels, some farmers will shift to high-value food products where profitability remains high, while other farmers will stop producing and find other work. The resulting food supply reduction will result in upward adjustment in food prices, and the dynamics between food production and food consumption continue.

Some bright men and women, however, think that farmers and many consumers are too poor or too stupid to be left on their own, that government, both national and local, should guide them how they should behave, so that everybody will have access to good food at a good price. This interventionist thinking has become widespread so that bureaucracies in agriculture ministries or departments and related or supporting agencies have become huge and wide in many countries. Naturally, the taxes and fees needed to sustain them all, including their conferences, meetings, travel and other activities will be big too.

Bureaucracies in agriculture-related foreign aid institutions also expand as these institutions become more efficient in convincing the taxpayers in richer countries that they should continue paying high taxes because part of it is being used to subsidize farmers in poorer countries. Of course they do not mention or tone down the fact that a big portion of the foreign aid money goes to the politicians, agriculture and infrastructure bureaucracies of recipient countries first, before reaching the poor farmers, if any is left.

So with more intervention and subsidies, agriculture departments or ministries and their attached agencies naturally have huge budgets, directly or indirectly. With lots of money to administer, tinker, if not play around, the agriculture bureaucracies would normally attract robbers and opportunists among men and women. Cases of inefficiencies and wastes of tax money are widely reported in many rich countries like the EU’s Common Agriculture Policy (CAP) and the US.

Here in the Philippines, there is no lack of large-scale robbery scandals. Among the most prominent were the fertilizer scam in 2005, then the swine scam this year involving the government’s Quedan and Rural Credit Corporation (Quedancor) and politicians’ unaccounted political accounts in the same government corporation.

Subsidizing farmers look humane, rationale and advancing social equity. However, the practice may encourage some of them to continue farming not because they like doing it and they are earning from it, but because they are getting endless subsidies which makes farming “profitable”. Such redistribution of money from consumers and taxpayers to farmers is not simple, the procedures can be bureaucratic that will require lots of paper work. Thus, farmers who want to get the various subsidies have to devote time and resources away from farming and into submitting documents and papers in their respective governments’ agriculture ministries and agencies.

In a rice farming village in Pangasinan province that I regularly visit, I learned of the following. The municipal government last year distributed hand tractors that can also work as water pumps, plus PVC hose for irrigation, to selected farmers who are members of a local cooperative. Farmer beneficiaries are supposed to pay nearly PhP 7,000 (around US$152 at P46/$) per year for 10 years. After a year, only about 15 percent of the farmer-borrowers have paid. There are no sanctions done to non-paying farmers like taking back the tractors and give to other farmers who did not qualify in the earlier selection process.

The “standard” belief and practice among farmers is that they pay only on the first 3 years of the 10-years payment period. No one went to prison or his tractor or any form of support taken back by the government for negligence in payment. And the thinking persists that if it is government program, it is a dole-out and people are not supposed to strictly follow the terms in the contract, like regularly paying the loan or tractor or seeds/fertilizers extended to them.

The issue of non-productive use of agricultural extension workers employed by the provincial and city/municipal governments is another case of wastes. The extension workers are supposed to be the “bridge” between new results in agricultural R&D and modern farming practices, and the farmers on the field, especially the subsistence farmers. But the right incentive for the extension workers to do their job well is not there. Whether they perform their work or not, they are already assured of their monthly salary and allowances. They are accountable to the Mayor, or other local politicians who recommended them and/or approved their employment in the local government. So when the provincial Governor or city/municipal Mayor assigns them in any work except agricultural extension work, they do it.

Efforts by multilateral bodies and bureaucracies to expand foreign aid in agriculture in poorer countries purportedly to stabilize food prices in the future are likely to create more wastes and inefficiencies than good results. The better options are: One, leave the farmers and consumers alone to adjust and adapt to changes in food supply and demand as reflected in food prices. Two, abolish, or at least consolidate, certain agricultural programs and agencies which have been clearly burdensome to taxpayers for a long time now with no clear and consistent positive results. And three, abolish or at least consolidate, certain regulations that make life more difficult, more complicated, for people engaged in food production and distribution. Let us have less agricultural and economic bureaucrats and more agri-businessmen and women.


(2) State Intervention in Agriculture Production and Distribution

July 07, 2008

A number of observers and policy makers blame "market manipulation" and "market failure" as reasons for the current food price spikes around the world. Hence, existing government regulations, taxation, and intervention should be retained, if not expanded, in agricultural production and distribution.

Below are a some of these interventions and regulations being practiced by governments in many countries around the world. I have identified no less than 10 various government interventions in the sector, but due to space constraints, will discuss only seven of them here. A longer paper covering and discussing all those interventions that I have identified will be posted in our website, http://www.minimalgovernment.net/.

After enumerating these interventions and their purported rationale, my comments and critic of these measures follow. The "farmers" being referred in the foregoing discussions refer to both small and big/commercial farmers.

One, subsidize farmers to produce more food for "self sufficiency" . The goal here is self-explanatory.

Two, subsidize farmers to produce less food in times of bumper harvest. The goal is to stop prices from going too low that will make farming unprofitable, which might prompt some farmers to stop farming and move elsewhere.

Three, impose high agricultural tariffs to discourage importation of food that are cheaper than those locally-produced. The goal here is to protect local farmers from foreign competition, never mind the consumers who demand cheaper food.

Four, subsidize farmers to produce more crops for biofuels and away from food. The goal is to help "fight global warming".

Five, have an agricultural insurance where farmers will get subsidy when the price of their produce declines in the future. The goal is to prod farmers to continue producing certain crops even when it may look unprofitable to do so.

Six, impose "community preference" of high health and sanitation standards, animal welfare and labor standards, for imported food products; otherwise, the tariff will be very high.

And seven, impose rice "export ban" at the height of high world rice prices. The goal is to protect local prices from rising further when some of local output will be diverted for the world market.

For me, these are misguided public policies that do not result in more food for more consumers at more or differentiated price levels. Their negative consequences are as follows.

First, maintaining food "self-sufficiency" policy invites agricultural protectionism in order to shield local farmers from foreign competition, which may turn them off from continued farming, which can result to "food insufficiency" someday. Some countries produce particular agricultural commodities more efficiently than others by virtue of their geography (wide flat lands, few mountains, lots of lakes and rivers, away from usual typhoon path, and so on), soil condition, conservation practices and entrepreneurial spirit of farmers, etc. Hence, it will give justice to both local consumers to avail of such natural and social advantages in other country that allow them to produce cheaper food than what local producers can provide. A good example of what food autarky can do is North Korea.

Commodities that often experience huge price spikes are those that are least-traded. Rice that is traded internationally is only about six percent of global food production. So when certain countries experience supply shortfall for whatever reasons, the leeway for emergency supply from imports is small, resulting in huge price spikes and hence, economic difficulty for poorer consumers of those countries.

Second, encouraging farmers to produce less food when they are capable of producing more prevents local food prices from falling, which should have benefited consumers. This perverse use of taxpayers money then making the same taxpayers pay more for food that could have been made available at a lower price is insensitive public policy.

Third, as discussed above, food protectionism penalizes consumers, including many farmers themselves who experience crop damage or small harvest (due to strong typhoons, pest or insect attack, prolonged drought, civil conflict, etc.). A better option is to cut, if not abolish, those tariffs on food products, have full free trade in food and other commodities and services. Producers of food-surplus countries will benefit through higher income, while consumers of food-deficient countries will benefit through lower price.

Fourth, encouraging production of more biofuels through tax money has contributed to the recent food price spikes, even if at a minor level. If farming for biofuels production is indeed profitable, then there is no need for subsidies.

Fifth, encouraging farmers to continue producing particular commodities even if their prices have gone down (due to big local harvest due to improved productivity, due to big harvests abroad and imported cheaply, etc.) to non-profitable levels is not good. Taxpayers should be spared from shelling out more money for price differential subsidy. With current high prices of many food products, farming is becoming more profitable. But when governments maintain, if not increase, various farm insurance and price subsidy, this means those governments have no intention of allowing cheaper farm production in the future.

Sixth, those strict health, sanitation, environmental, animal welfare, and labor standards were imposed by farm lobbies and bureaucracies of rich governments, not so much by consumers. If some rich consumers want these strict regulations, they can do so by demanding labeling and purchasing only those products (local or imported). Poorer consumers who may not be too strict with those standards and just want cheaper and safe food, need not be forced to pay ore. If food products are indeed unfit for human consumption, they should be banned, not over-taxed to make it very expensive for consumers.

And seventh, export bans by some governments have worsened the difficulty of net rice importing countries through even higher rice prices. Global supply is disrupted and some farmers in rice-surplus countries are discouraged from higher production since the opportunity to earn higher at exporting rice was killed. Allow freer trade, have few or zero restrictions, in mobility and trading of commodities that experience high price increases so that producers will have more incentives to produce more.

There is no substitute to allowing the individuals – food producers, traders, processors, and consumers – determine what is good for them. More government intervention in agricultural production and distribution is creating more problems than solutions.
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See also:

Agri Econ 1: Food Prices and Government, April 13, 2008
Agri Econ 2: Rice Laissez Faire vs. Subsidies, May 06, 2008
Agri Econ 3: Dr. Samran Sombatpanit and WASWC, July 03, 2008

Sunday, April 13, 2008

Agri Econ 1: Food Prices and Government

My two articles last month and today...
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MARCH 19, 2008

Lent and food prices


Lent is among those big “retreat days” for Filipinos due to the 4-days weekend. Many of those living and working in Metro Manila and other big cities retreat “back to the provinces or far away municipalities” and enjoy less stressful life where the air is cleaner and food prices are cheaper. But not this year’s Lent, it seems.

Recently, food prices in both global and domestic markets have been rising rather steeply. In 2007 for instance, world food prices have risen by almost 40 percent. And just this year, Philippine rice imports value have increased from $474 per ton in January to $708 per ton this month, an increase of 49.4 percent in just 2 months! And mind you, these are rice imported from our neighbors in the region, mainly from Thailand and Vietnam.

The volume of rice importation has also been increasing recently too. In other years, average importation was around 1 million MT a year. In 2007, rice import was 1.8 million MT, and this year, projected imports will be 2 million MT.

A country imports rice or chicken or shoes or any other commodity to plug the gap between a low domestic supply and high domestic demand. The higher the gap between the two, the higher will be the inflationary pressure of the undersupplied commodity. Hence, the need to import the projected gap in order to stabilize the price.

So food prices are the result of the supply-demand dynamics. As demand increases, supply must increase by similar rate, at least. If the increase in supply is larger than the increase in demand, then that country will experience price decline (or “deflation”) of that commodity, or it must export the surplus supply to stabilize domestic price, say to its previous year’s level.

Domestic demand, say of rice, is affected by many factors like change in appetite and preference, change in income, but the biggest factor is population growth. The Philippines’ population on average increases by 1.8 million people a year, net of death and migration. If each person is consuming 0.2 kilos of rice a day (roughly 4 cups equivalent), then consumption in one year is around 73 kilos per person. With 1.8 million new people a year, that’s 131.4 million kilos or 131,400 MT a year increase over the previous year’s total demand.

Domestic supply, say of rice, is also affected by many factors, like total hectarage devoted to riceland, irrigation, occurrence of very strong typhoons, price of fertilizers and other inputs, adoption of more high-yielding varieties, and so on. But the biggest factor is profitability of the farmers to continue producing rice, or stop planting and convert his riceland into a cattle pasture area and become a tricycle driver or construction worker in the cities. Hence, the bigger the projected profitability of producing rice, or corn, chicken, tilapia, pork, beef, etc., the bigger will be the incentive to expand production. Which stabilizes price, and consumers will not complain of steep hike in food prices.

Very often, food producers are faced with some non-natural obstacles if not enemies, that reduce their incentives to expand food production. The natural obstacles are of course those strong typhoons or prolonged drought or pest attack, other natural calamities that can wipe out potential harvests. Non-natural obstacles are man-made. These are the thieves and robbers, lazy neighbors and friends who always ask for free food, cartelized traders and wholesalers who depress farm prices, and the government food bureaucracy.

Smart food producers and traders can find ways to control or lessen the damage caused by robbers, lazy neighbors, and cartelized wholesalers. But confronting the food bureaucrats in government is difficult. Examples are bureaucrats from the Agriculture and Trade Departments who are quick to declare “price control” of those commodities whose prices have drastically increased because supply has suddenly dropped due to natural obstacles perhaps, or demand has suddenly shot up due to special events like a big fiesta or change in taste and preference.

Another group of food bureaucrats are those from the Agrarian Reform department. Some of their guys are on the prowl watching who are the dynamic and successful food producers with medium- or large-size agricultural lands, perceived to have “weak” political connection, and come up to them and tell them that their land will soon be for distribution to their farm workers. It has been noted by many local economists and agri-business observers that the endless, no-timetable agrarian reform, is among the biggest hindrances and disincentives for agricultural investment and efficient corporate agri-business endeavors.

Of course the silent but big hindrance to more food production, even if they are not directly engaged in the disincentive business, is the thick layer of bureaucracy in the food and non-food agencies. Taxes and fees have to be high and plentiful, partly to finance the salaries and perks of hundreds of thousands of government people working in air-conditioned offices. It is said for instance, that there are some 13,000 reasons why agrarian reform should continue forever – the 13,000 employees and officials of the Department of Agrarian Reform.

So, for long-term solution to steep food price hikes, the volume of food bureaucrats will have to be reduced; and the various taxes and regulatory fees that finance their salaries and offices need to be reduced. Then more people will be encouraged to become actual food producers, traders, processors and other food entrepreneurs, and not just food bureaucrats extracting rents and blood from those who actually produce food.

The political and economic Lent will be expected from the political and food bureaucracy. Then people and average food consumers will not experience the daily Lent of high food prices.
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APRIL 13, 2008

Rice shortage due to government intervention


First of all, while many people who try to analyze the current food price hikes phenomenon call this as "rice or food crisis", I do not believe that it is already in a crisis situation. A "crisis" situation is where you have a 50-50 chance of either surviving or dying in a particular condition, say a patient in an intensive care unit (ICU). I'd go along with a few who simply call this a "rice shortage" problem that can be solved by more rice supply, both in the short- and long-term.

Most of the literatures that come out recently analyzing the problem in the Philippines and abroad blame the government for "not doing enough" -- ie, not intervening enough -- in earlier years. They mean the government did not: build more dams and irrigation canals, more warehouses and other post-harvest facilities; did not undertake more research and extension work; did not produce more subsidized fertilizers and hand tractors; did not provide more agri credit; did not reforest enough watershed areas; etc.

The list can be endless, depending on how statist the person who is talking of writing. That is, the more statist and socialist-oriented a person is, he's likely to say that government should "provide everything" for agriculture and the farmers. Of course they won't say that they also advocate that the government should also "take everything" from the people to finance those "provide and subsidize everything" projects.

I am of the opinion that government should not provide everything and take everything; not even provide many things and take away many taxes and fees. The reason why rice -- and other food crops' -- supply has not kept up with demand is precisely because of too many government intervention. People respond to incentives and shy way from disincentives. If there is not much profit from producing rice, then there will be less people who will produce rice, and there may be less land that will be devoted to planting rice.

When governments say they are increasing the budget for agriculture, the first thing that they increase is the number of personnel, consultants, and officials in their respective Ministry or Department of Agriculture, plus those in related agencies like Ministry or Department of Agrarian Reform, state agricultural colleges, etc. And those plenty of personnel will require more salaries, more bonuses, more offices, more trainings, more travels, more cars, and later on, more pension and retirement funds. Then some local governments follow suit, and expand their own local agriculture bureaucracies, financed from their local taxes and fees.

I think one of the important moves if societies are to improve their agricultural and food production capacities, is to abolish those Agriculture Ministries or Departments, and cut the taxes that the state collect from the private sector that finance those expensive bureaucracies. Since rational people would not want to be jobless for long and die hungry, many of those currently in government agricultural and related bureaucracies will likely become farmers themselves or become traders and/or processors of raw agricultural products. And this expands rice and food supply. When supply grows faster than demand, then the price will go down, and people will have lots of food at cheap and affordable prices, and there will be less hunger and malnutrition in society.

But when government Agriculture Ministries or Departments are abolished, who will build the dams and irrigation canals? The warehouses and post-harvest facilities? Who will do more rice and agri crops R&D? Who will provide cheap credit, and so on?

Good question, and the quick answer is -- the productive people themselves. For one, many of those infrastructure and facilities are currently being provided by the private sector, and they are being operated despite zero taxes financing, at least in the Philippines.

When people know that there is an agency whose job is to provide lots of subsidies to them and they won't go to prison if they cannot pay back those subsidized credit, subsidized fertilizers, seeds and hand tractors, then they will get and abuse those government services without necessarily raising their farm output. For instance selling a few bags of fertilizers and seeds to other people and use the proceeds to drink and party.

Okay, abolition of those monster Ministry or Department of Agriculture is unpalatable and unacceptable due to big political risks. Then the next move will be drastic reduction of those bureaucracies, including privatization of some of their attached agencies and bureaus. In the Philippines for instance, the privatization of the government grains trading monopoly, National Food Authority (NFA) has long been proposed and discussed. The cost to taxpayers, as well as price distortion due to its trading monopoly function -- for many years, it is the grains importation monopoly; and in some municipalities, it is the single biggest buyer of farmers' palay (unmilled rice) output.

Rice shortage that result in high rice prices will naturally create incentives for farmers of other crops to shift back to producing rice. And other investors, including micro- and small businessmen, will flock to a sector (like rice) that experience high prices and high profitability, and leave those sectors that experience low income, if not losses.

Market failure, as some statists call this, always invite and create market solutions. The "failure" or displacement is temporary, the same way that high profitability in one sector is also temporary once entry of other players and competitors is not hindered -- a contestable market situation.

It is government failure that needs to be corrected by going back to the market, and not by "more government" intervention.