20 Oct 2009

Trade is Bad for Food Security of the Poor

This [unedited] guest post is by a student in my EEP100 class (background post).
Please praise/critique/comment on its economic quality and importance to you.

Christian Cox says:

Among the many aspects of food security, the stability of food supplies is one of the most crucial. It is important to food insecure countries because in the event of reduced supplies or drastic global market changes, imports could be severely reduced. We can identify this issue with the international agribusinesses. By reducing the amount of producers and increasing the output of each firm, the elasticity of supply in the market would decrease. Thus in an event of a market shock, in this case a supply decrease, the industry would respond poorly and not be able to compensate fast enough to meet the demand. Thus countries that are heavily import-dependent on food are vulnerable in markets like corn, which are dominated by agricultural corporations. This problem is exacerbated by the fact that farmers in these poor countries are displaced or bought out by the larger mono-culture plantation companies, and then become "farm laborers" working for wages and not controlling their crop.

Bottom Line: International agribusinesses are bad for rural areas in countries with food insecurity because the undermining of local farmers increases dependence on the few firms, which could lead to shortages.


Mister Kurtz said...

No trade is even worse for the poor. Elaborate and environmentally destructive schemes have been promulgated in Brazil and Saudi Arabia, using food security as an excuse. Brazil also had a disastrous experience with attempting to develop a local computer industry through protectionist schemes. The concepts of comparative advantage and division of labor apply to agriculture just as they do in other industries. Nations can secure a food supply by making sure they have bilateral trade agreements with many suppliers, and by protecting the property rights of local farmers. You vastly overestimate the powers of the giant grain companies. No single player, or group of players, has any control over international grain prices.

whoamellie said...

One of the widely discussed and debated ways of reducing poverty in Africa is reducing barriers to trade in the form of US/EU agricultural subsidies. These create artificially low prices for commodities and price out foreign competition.

About 2 years ago, much of the southeast US experienced a terrible drought. If it weren't for trade, many of the feedstocks for basic food staples would've been priced way too high for low income families to afford (even with federal subsidies). Prices were already at record levels. I cannot imagine what would've happened had we not had access to foreign suppliers.

I agree with Mr K in that no trade is even worse for the poor.

I recommend Easterly's "White Man's Burden" (and his blog - Aid Watch) and Bhagwati's "In Defense of Globalization".

Anonymous said...

Agree with the two comments above, May I also point out that trade has the potential of allowing some of the poor to move into other sectors of the economy, where the added value is greater, and therefore removing the from poverty?

China didn't reduce it's poverty rate from 64% in 1981 to 10% in 2004 (http://is.gd/4sWkj) by keeping people in unproductive jobs in agriculture: it was achieved by labour moving into better paid jobs.

KJ said...

Things to think about:

1. "Trade", "oligopoly", and "international agribusiness" are not necessarily interchangeable

2. What assumptions are being made about the extent to which smallholder farmers are connected to markets for agricultural production and consumption? To markets for wage labor (agricultural and non-agricultural)?

3. What arguments can be made for a stabilizing effect of trade on commodity prices?

MO said...

@KJ -- on point 3, this is something i've been wondering about. with the availability of more (international) substitutes, wouldn't there be less price volatility?

DS said...

I feel that developed countries such as USA and Europe need to cut out their subsidies to their agri producers and engage in REAL fair trade. Until this done, this is all just verbal speculation.

Mister Kurtz said...

Agricultural prices will never be stable, and ought not to be. It is axiomatic that the price of any true (i.e. fungible, readily deliverable) commodity will be just slightly above the cost of production. So many random things (wars, weather, currency shifts) affect the cost of the inputs farmers use that the cost of production can never be controlled or moderated by anybody. Any attempts to mute this volatility will lead to overproduction; or even worse (through schemes like quotas) destroy the productive sector's elasticity in meeting shortages, since new players can't enter the suddenly profitable game. In something as important as food, this means death and suffering for many.

The US (and even worse, the EU) subsidies are practically criminal. They also provide cover for the failed policies of incompetent and corrupt governments in poor nations.

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