How Do You Estimate the Effects?

The editors of the Washington Post provide advice on what we should do to reduce the likelihood of global famine:

Rich nations such as the United States, Australia and much of the European Union will see food prices jump even higher, straining lower-income households that already report they are struggling with inflation. But at least the bread and cereal aisles will still have products on the shelves. In many parts of the developing world, there will be a genuine risk of starvation and famine, because low-income countries do not have enough money to pay high food prices. Fifty countries depend on Russia and Ukraine for more than 30 percent of their wheat, and many are among the poorest nations in North Africa, Asia and the Middle East.

The worst possible response to the food crisis would be for wealthy nations to halt or heavily restrict exports of key crops. It’s tempting in tough times to hold on to all available supplies, but that exacerbates hunger in developing nations. This scenario played out during the Great Recession in 2008, when dozens of countries severely curbed exports of key crops, triggering food riots from Egypt to Haiti. Egypt has already banned exports of wheat, flour and beans. Meanwhile, China has been quietly scooping up supplies on the global market.

A better approach for the United States and its allies to take is to increase financial aid to the World Food Program and similar initiatives. These organizations respond quickly to needs on the ground and are connected to many suppliers. It would also help if the United States would end or at least temporarily waive the renewable fuel standard during this food crisis, because that diverts substantial amounts of U.S. corn, sorghum and barley to produce ethanol.

Once again I’m having problems relating ends to means. The U. S. grain harvests for 2021 are already in and the 2022 harvests are in the future. Our exports will primarily be from the 2021 harvest. Last year’s wheat harvest was probably the worst in 50 years but the corn harvest was the second greatest on record. About 40% of U. S. corn is used in the production of ethanol. Will waiving the renewable fuel standard decrease the price of corn, increase it, or have no effect?

Maybe I’m reading the tealeaves wrong but it seems to me that the increase in the price of oil will do more to incentivize turning corn into fuel than removing the renewable fuel standard will do to disincentivize it.

9 comments… add one
  • PD Shaw Link

    AFAIK, the countries that place export caps on grain products are countries like Russia, Ukraine, and various developing countries with protectionist policies. I would like to know which wealthy countries imposed them because I doubt the major exporters like Canada, U.S., Australia and the EU do that. If anything, I suspect these countries are subsidizing grain production for export, and by wealthy countries, the WaPost means China should change its policies.

  • PD Shaw Link

    For some context, one can see from the attached graphs that Ukraine has only become a major exporter of wheat in the last ten years. Its farmland has long been underutilized, and last year was expected to be a record year for wheat. When it is reported that Ukraine is responsible for a high percentage of wheat exports, it should be kept in mind that is a relatively recent phenomena, and we should be asking where did last year’s record crop go? And are other wheat producers that were crowded out by Ukraine through lower prices able to re-enter the market?–mnenie

  • CuriousOnlooker Link

    The problem is the northern hemisphere growing season starts now and through the next few weeks.

    i.e. if you can’t plant (to make up for loss production in Russia/Ukraine) in that timeframe — the output in the fall will cause big problems.

    I am not an expert in farming; are farmers able to reallocate resources that quickly?

  • steve Link

    This guy says they can but not much. This is not the first time there has been a sudden run up in some grain price. The relatives who still farm are careful about this. First, not every field will work. Trying to grow in a place not fit for it and without the right equipment can be costly. Then you have to worry about others piling in. I am guessing supply line issues will also complicate things.


  • PD Shaw Link

    I’m not an expert in farming, but I’ve detasseled corn. I live in the corn belt, and there is no wheat grown around here, its all corn-soybeans rotations. If it looks like corn prices will be substantially better this year, a farmer may skip or delay a bean rotation.

    U.S. Winter wheat was planted in the late Fall to be harvested in May to July. There might be more Winter wheat than Spring Wheat in the U.S. There are places with rotations of wheat/beans/rice/corn that I assume could shift to more wheat, but I’m skeptical that many farmers that don’t currently farm some wheat would plant wheat for one might be a one year price surge.

    Crops harvested don’t necessarily immediately go into food production, they can be stored at cost. Drying will be necessary and that is a high energy cost. That’s what I’m wondering about Ukraine, do they have a lot of wheat in storage that can be shipped through Poland?

    Ukraine has also become a major corn exporter, so the war or at least the risks of disruption have moved corn futures up as well.

  • PD Shaw Link

    @steve, that’s an interesting link. If I’m following the discussion of futures correctly, the divergence between current and future price of wheat has grown so large that it’s freezing the market. I can see how that would work if the benchmark future prices are seen as a temporary blip, an overreaction to uncertainty, so buyers stop buying, which should reduce the future prices shortly. Not sure why its stopping cash sales, other than this is really only a localized phenomena. Possibly it’s that even cash sales of wheat are plugged into a system of future pricing.

  • steve Link

    I dont think most people know that farmers follow futures markets pretty closely and are often pretty sophisticated traders. Theydont just dig in the dirt.


  • Drew Link

    “I dont think most people know that farmers follow futures markets pretty closely and are often pretty sophisticated traders. They don’t just dig in the dirt.”

    Oh, my, God. Thanks for the laugh. It explains a lot.

    Speaking of clueless, or is it wholesale dishonesty, how about this clown show of letter signers………..and steve.

  • steve Link

    Meh. Even Fox wouldn’t publish the story before the election. Rudy had blown his credibility and since he wouldn’t let anyone actually look at the computer people assumed he was lying. Given his history made sense.


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