Earlier this week, one-man blogging machine Amardeep put up a post on the Food Price Kerfluffle asking Why Do Americans Get to Eat More than Indians?
While I agree with Amardeep that there are a couple funny / snarky jabs in the piece, I’ve got pretty much the polar opposite opinion on the situation. So, I figured it would be worth writing up and tossing up my usual, contrarian view in part because it touches on so many of the meta-issues I’ve been writing about here for the past few years.
For example, the first paragraph in his piece highlights the classic Consequentialist vs. Intentionalist divide –
On May 2, George W. Bush explained that the current spike in food prices worldwide is primarily a consequence of rising demand from China and India: “when you start getting wealth, you start demanding better nutrition and better food, and so demand is high, and that causes the price to go up.” The quote was widely seen in the English-language Indian media as “blaming” Chindia for the problem, and was met with outrage.
Bush’s assessment for why food prices are higher is econ centered and consequentialist — more demand, relatively static short run supply = higher prices as an emergent property of a world where millions are making independent decisions. The process is detached, impersonal, and decentralized and perhaps most importantly, true regardless of who this basket of newly richer folks are.
The Indian Media’s (& politician’s) response, however, was dramatically intentionalist. By pointing out this relatively straightforward economic model, Bush was somehow turning the issue into a Morality Play and personally “blaming” the racial other. Same facts, different frame, different narrative. So how does this sort out?
The underlying mental model that drives one narrative vs. the other comes into plain sight in one of the first quotes Amardeep selects from the IHT piece –
The food problem has “clearly” been created by Americans, who are eating 50 percent more calories than the average person in India, said Pradeep “In the bad old days, people in China and India supplied the world with a large shock absorber, a large mass of poor people who tightened their belts when prices rose.” – Ajay ShahMehta, the secretary general of CUTS Center for International Trade, Economics and Environment, a private economic research organization based in India with offices in Kenya, Zambia, Vietnam and Britain.
There are at least a couple classic economic errors here. First, and most importantly, we don’t live in a Soviet economic world where a fixed basket of resources are unilaterally allocated by The Man (a fallacy Steven Pinker / Arnold Kling identify as “Authority Ranking“). There isn’t some secretive, ruling cabal that sinisterly wants Indians to starve while privileged Americans are granted 50% more calories. Food products are bought / sold on a global market where individual Americans choose to pay for 50% more calories which individual producers choose to supply.
[yes, there are issues here with things like tariffs, subsidies, etc. distorting the market... but the broad point that we're more Capitalist than Soviet when it comes to food still holds; for ex., subsidies are highly distortive and merit vigorous opposition but their net effect is often to *increase* supply beyond the market clearing price]
Second, in situations where long run supply and demand have been relatively linearly growing, small changes at the margin can have large impacts on the price. The American caloric binge has been going on for a long time, so it’s clearly something more short term that’s driving these changes at the margin. Martin Wolf has an excellent FT article with a graphic that tries to tease out what’s causing marginal changes and yep, the combination of “Developing Economies” as well as “China” really drive a big % of the change particularly from 2004 onwards –
And in 2007 / 2008? That ethanol mandate is particularly huge –
The latest World Economic Outlook from the International Monetary Fund comments that “although biofuels still account for only 1Â½ per cent of the global liquid fuels supply, they accounted for almost half of the increase in consumption of major food crops in 2006-07, mostly because of corn-based ethanol produced in the US”.
Several folks have also pointed at this excellent analysis by Ajay Shah on his blog; I particularly liked this blurb that really gets to the heart of where China / India may have qualititatively changed the equation –
In the bad old days, people in China and India supplied the world with a large shock absorber, a large mass of poor people who tightened their belts when prices rose. This gave higher global demand elasticity and reduced price volatility. From the late 1970s, economic reforms in China and India have given greater affluence and thus diminished this shock absorber.
The third classic econ mistake in the IHT blurb is assuming that supply is constant. As Ajay Shah notes, we’re already seeing changes in supplier behavior driven by the market –
high wheat prices can even make Afghan poppy farmers switch to growing wheat! Vast tracts of land in Russia and India have low yields: High prices will give incentives to entrepreneurs to find ways to use this land better. Over the coming two years, a large supply response could come about. Something big might already be afoot: an 8.2% rise in world wheat output is projected for 2008-09, and surely some of it has to do with the incentives put out by high prices.
So where do I look for solutions to the Food Price Kerfluffle? Rather than making overweight Americans collectively forego liposuction to address food prices, I’m naturally inclined to find additional market oriented solutions. Martin Wolf’s original article also notes several areas of interest –
This, then, brings us to the big question: what is to be done? The answers fall into three broad categories: humanitarian; trade and other policy interventions; and longer-term productivity and production…
…Increases in aid to the vulnerable, either as food or as cash, are vital.
…A host of countries are imposing export taxes instead, thereby fragmenting the world market still more, reducing incentives for increased output and penalising poor net-importing countries. Meanwhile, rich countries are encouraging, or even forcing, their farmers to grow fuel instead of food.
And, Paul Collier’s comment to Wolf’s article has, in particular, gotten a lot of airtime & blogosphere linkage. Why? because he directly addresses one of the key reasons Americans have so many more calories to choose from and one of the attitudes holding back that solution in other countries –
The most realistic way to raise global supply is to replicate the Brazilian model of large, technologically sophisticated agro-companies supplying for the world market. To give one remarkable example, the time between harvesting one crop and planting the next, in effect the downtime for land, has been reduced an astounding thirty minutes. There are still many areas of the world that have good land which could be used far more productively if it was properly managed by large companies. For example, almost 90% of Mozambique’s land, an enormous area, is idle.
Unfortunately, large-scale commercial agriculture is unromantic. We laud the production style of the peasant: environmentally sustainable and human in scale. In respect of manufacturing and services we grew out of this fantasy years ago, but in agriculture it continues to contaminate our policies. In Europe and Japan huge public resources have been devoted to propping up small farms. The best that can be said for these policies is that we can afford them. In Africa, which cannot afford them, development agencies have oriented their entire efforts on agricultural development to peasant style production. As a result, Africa has less large-scale commercial agriculture than it had fifty years ago.
Now granted, none of this is as emotionally satisfying as blaming fat, carnivorous Americans and their unpopular, gaffe-prone leader…. And for many of these chattering classes, global agrobiz is but one rung away from the deepest circle of hell occupied by Big Oil. Still, while Collier’s solutions give us much less room for Moral Grandstanding they are more likely to fill stomachs.