RISING food prices mean hunger for millions and also political unrest, as has already been seen in Haiti, Egypt and Ivory Coast. Yes, more expensive energy and bad weather are partly at fault, but the real question is why adjustment hasn’t been easier. A big problem is that the world doesn’t have enough trade in foodstuffs.
The damage that trade restrictions cause is probably most evident in the case of rice. Although rice is the major foodstuff for about half of the world, it is highly protected and regulated. Only about 5 to 7 percent of the world’s rice production is traded across borders; that’s unusually low for an agricultural commodity.
So when the price goes up — indeed, many varieties of rice have roughly doubled in price since 2007 — this highly segmented market means that the trade in rice doesn’t flow to the places of highest demand.
Poor rice yields are not the major problem. The United Nations Food and Agriculture Organization estimates that global rice production increased by 1 percent last year and says that it is expected to increase 1.8 percent this year. That’s not impressive, but it shouldn’t cause starvation.
The more telling figure is that over the next year, international trade in rice is expected to decline more than 3 percent, when it should be expanding. The decline is attributable mainly to recent restrictions on rice exports in rice-producing countries like India, Indonesia, Vietnam, China, Cambodia and Egypt.
albeit from a vastly higher and more prominent podium in his recent New York Times article cited above. He’s barely scratching the surface of the ways in which poor government policies perversely reduce the supply of grain. Other factors that deserve mention besides export restrictions are import restrictions of various kinds, subsidies on gasoline which encourage dependence on inefficient means of production and the price of oil, ethanol subsidies, and the Federal Reserve pumping money into the housing sector in the early 2000’s to bolster the U. S. economy thereby motivating farmers to take their land out of production and sell it so developers can build housing tracts.
Dani Rodrik disagrees with Tyler’s prescription:
Trade works by relieving the relative scarcity of goods. The key here is the term “relative.” Food importing countries are food scarce countries, and as they open up to trade, the relative price of food falls. But if you are Thailand or Argentina, where other goods are scarce relative to food, freer trade means higher relative prices of food, not lower. And all the induced efficiency benefits and short- vs. long-run effects that Cowen talks about have no bearing on this conclusion: in the end some countries have to be net importers, and others net exporters.
My own view is that due to bad government policies, generally, not just restrictions on trade food production is lower than it might be and prices are higher than they otherwise might be.