8 Sep 2011

Food and water for the poor -- not political lies

via MD, GG and MS, I read an interesting interview with the Chairman of Nestle in which he says:
There is no market for how that water is allocated and used. The result is waste, overuse and misuse of the water we have. If we don't do something about that, Mr. Brabeck-Letmathe fears, we will soon run ourselves dry.


"If oil becomes scarce," he notes, "the oil price goes up. But if water does, well, we still pump the same amount. It doesn't matter because it doesn't cost. It has no value." He drives this point home by connecting it back to biofuels: "We would never have had a biofuel policy—never," he contends, "if we would have given water any value." It takes, Mr. Brabeck-Letmathe says, "9,100 liters of water to produce one liter of biodiesel. You can only do that because water has no price."

He cites Spain as an example of an agricultural sector in need of adjustment. "The total [output] of the Spanish agricultural system," he says, "is less in value than the subsidies they receive between the Common Agricultural Policy, the subsidies for tax relief, the subsidies for water."  
He makes two important points (that I have made many times on this blog and in my book).

First, political interference has distorted food markets (via artificial stimulation of demand for biofuels and artificial blockages on GMOs), which is bad for farmers and the poor but good for food companies with political connections.

Second, we need better markets for water, to ensure that it goes to highest and best use instead of political cronies with little need to be efficient (let alone care for the environment, human rights, etc.)

Bottom Line: Many politicians in developed and developing countries are hastening our "progress" towards an end of abundance by interfering with market signals that can improve our use of water and extend scarce resources to those who can barely afford food and water. Unfortunately, less political interference implies less theft for cronies, so we need to tackle corruption (= political lobbying) as the root cause of much human suffering.


Joan said...

It is a political choice to subsidize food. Subsidizing food seems to have many advantages, to name a few: stability, food security and peace (locally of course). As a consequence: water, being the main resource used to produce food, needs to be subsidized as well, by not giving it a market prize f.e.

Do I see this correct?

David Zetland said...

@Joan -- I disagree on every point. Subsidized food destabilizes the relationship between supply and demand by injecting political uncertainty. Subsidies also decrease security by encouraging unsustainable production (e.g., corn ethanol) and peace (who gets the subsidy!?). Water subsidies add instability by encouraging overuse and misallocation to favored sectors.

Please reflect on these implications. If you agree with me, then tell politicians that they are also wrong (except they LIKE subsidies -- they get $0.05 on the $1.00 back as campaign contributions).

Joan said...

Thank you David for your reaction. I'm neither very convinced of whether subsidizing food (and water) is a good idea. I agree that it may lead to political uncertainty between nations, but it certainly does lead to stability for politicians within nations. As the Romans said: panem et circenses / Bread and circuses. Probably for the reason you give: somehow politicians get rewarded at the end.

Thinking about it: it seems that currently the entire Western world subsidizes its food (at least EU and US). Have there been civilizations in the past that did not?

David Zetland said...

@Joan - The phrase "bread and circus" is often used to refer to a populist policy that incompetent rulers offer instead of dealing with a problem. Many countries subsidize food - mostly to keep poor urban citizens from rioting (at a cost to poor rural farmers who make less money) and/or please rich farmers who are allowed to sell their food at higher prices (the food is then distributed more cheaply). This is true in much of the middle east.

US/EU food subsidies are a disaster in a dozen different ways and a net loss to citizens.

Bradley Stark said...

Subsidizing food and water to grow food is a political decision that relates not to economics but a country's autonomy and security. So I understand being market inefficient to ensure I have a food shed that is free from political whims of other countries.

BUT if the subsidies for food and thus water are inefficient, then it defeats the purpose. Here in the USA, we subsidize sugar so we can make ourselves diabetic, rice (a water intensive crop) in Texas where they have little water and cotton which has nothing to do with food. THAT is the problem as I see it, the what gets subsidized as opposed to the existence of a subsidy.

Joan said...

@Bradley: fully agree

David Zetland said...

Bradley -- I disagree with the concept of a subsidy for a "private good" that can easily be provided in a market. Subsidies distort production and consumption decisions. Can you, in fact, point to ANY crop subsidy in the US that works as advertised/promised? I can point to dozens that are troublesome. Note that Australia and NZ have very low/zero subsides and they are neither suffering from food insecurity nor dependence.

Stop listening to the lies from lobbyists.

Joan said...

But would a country without political interference in food/water/environment not lead to the tragedy of the commons?

Australia btw indirectly subsidizes water significantly: they rely heavily on groundwater, which is not charged. Only very recently metering has started in some areas.

David Zetland said...

@Joan -- not if property rights/communal management are allowed to work. Implicit subsidies in Australia may still exist, but they are WAY ahead of most other countries in tackling those problems. Can you suggest a (water scarce) country with better surface/ground water management?

Joan said...

Ok, I agree with you that of the water scarce regions/countries in the world, Australia is doing quite OK, maybe best. Interesting things happening overthere in terms of metering, water accounting, market-based instruments, water trading, etc.

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