The Causes of Poverty (64): Rising Food Prices

It seems that harvests are bad this year and that food prices have gone up. The effect of high food prices on poverty is not straightforward. Poor people do indeed spend a large proportion of their income on food, which means that increases in prices have a direct effect on their financial situation and can even cause hunger. On the other hand, many poor people make their living in agriculture. Higher prices can mean higher incomes for them. The poor are, however, increasingly urban poor, and for them higher food prices are entirely bad news. So it’s not crazy to blame poverty on rising food prices. According to the World Bank, food prices have pushed 44 million people into poverty in 2010-11.

The question is then: what’s causing these prices to rise? The weather is partly to blame – there has been an unprecedented drought in the United States and extremely dry weather conditions in Europe – but so are governments. Government promotion of biofuels, for instance, means that raw food materials are used for petrol alternatives and hence don’t go into food production. This lowers the supply of food and causes prices to rise. Many make too much of this argument, but there is something to it. Land grabs can also become a problem when biofuels are subsidized or when rules mandate that x% of every liter of fuel sold should be biofuel. These land grabs for biofuel production result in displacement of local production for local consumption, impacting the income of both local producers and consumers: people have to buy the food that they would otherwise have grown, and they have to buy it from further away.

Some government policies designed to remedy the problem only make it worse. Governments that restrict exports of food in order to pump up supply and hence reduce prices – or in order to shield their national market against increasingly expensive imports – may end up pushing prices even higher. When farmers can’t export, their incentives to farm are affected. Result: supplies go down and prices rise even further.

What can be done? Well, inefficient or counterproductive policies should be halted. Biofuel mandates should be scrapped. And in countries with large proportions of poor people governments should offer insurance against drought or bad harvests as well as better safety nets.

More posts in this series are here.

The Causes of Poverty (37): Lack of Trade Liberalization

I’ve argued before that doing away with trade restrictions (especially in the agricultural sector) – such as subsidies (like the EU’s Common Agricultural Policy), import duties and other protectionist measures – would be a boost to the global struggle against poverty. Free and unsubsidized trade reduces poverty in at least three ways:

  • It brings down prices because of increased specialization, competition and comparative advantage. Although the removal of subsidies (only one element of trade liberalization) would initially raise prices and hence also poverty levels in importing countries, over time this would be compensated by the downward pressure created by specialization, increased competition and comparative advantage. However, these importing countries wouldn’t be the poorest ones: “three-quarters of the world’s poor live in rural areas, with the majority of them depending directly or indirectly on agriculture for their livelihoods” (source). The poorest countries would benefit from initial price rises caused by the removal of subsidies. (That doesn’t mean that everyone in the poorest countries would benefit: non-farm workers may suffer).
  • It opens up foreign markets for poor producers.
  • It eliminates distortions of competition between local producers and foreign, subsidized products, distortions which often force local producers out of business.

All this has a positive effect on the income of the poor. There’s a new paper here arguing that the net effect of trade liberalization is a reduction of the number of poor people worldwide by 3%:

the winners from trade reform would include poorer countries and the poorest individuals within countries. Nevertheless, it is also clear that even among the extreme poor, some would lose.

Of course, and again: beware of the silver-bullet fallacy. Domestic anti-poverty policies continue to be important as well.

The Environment and Human Rights (3): Water and Human Rights

We obviously need water to survive, and no human rights without survival. Inadequate water supplies also cause diseases, violating our right to health. We need water – and clean water – to drink, but also to eat. Or rather, to produce our food. And we need a lot. People drink on average just a few liters a day, but they consume thousands of liters a day if we count the water required to produce their food. And evidently we should count it. Many areas of the world face already now face water shortages. A fifth of the world’s population already lives in areas short of water. A global water crisis waits around the corner, and one likely consequence is famine, another human rights violation.

If we want to do something about the water crisis, we should be aware of the effect of food production on water shortages. Especially the production of meat requires huge amounts of water, compared to the production of grains or even rice. People in the West eat a lot a meat, and therefore contribute substantially to water shortages. As incomes in the developing world increase, people there will consume more meat. Hence, global water consumption will also increase. Combine this future increase with the fact that there are already shortages and that these shortages will get worse with global warming, desertification etc., and you get a real crisis.

What are the solutions? Or how can we prevent things from getting worse?

  • Jokingly we could ask people to become vegetarians. That would also be better for greenhouse gas emissions, by the way.
  • More realistically: food production, and especially agriculture and farming, represent 70% of global water consumption. That number could be cut down significantly with better irrigation; “more crop per drop”. There’s incredible waste going on there. 70% of irrigation water is lost in the process. One reason: farmers rarely pay their water bills at market prices, hence no incentives to cut waste. Unfortunately, pricing water at market prices would drive up food prices, pushing many consumers into poverty. And many poor farmers already can’t pay for expensive irrigation systems. More expensive water surely wouldn’t help them. Moreover, market prices may mean the privatization of water, and that’s dangerous. You might as well privatize oxygen.
  • Other solutions: cut waste in households and industries. Here, everyone can help. Also more recycling efforts are needed. Desalination, although expensive, is an option. As are better water storage facilities, especially for poor families in developing countries. All these efforts will not only reduce the risk of a major global water crisis, but will also improve crop yields, thereby reducing the price of food and hence the risk of poverty and famine.

The Causes of Poverty (18): Amartya Sen, Famines, and Democracy

Famines are easy to prevent if there is a serious effort to do so, and a democratic government, facing elections and criticisms from opposition parties and independent newspapers, cannot help but make such an effort. Not surprisingly, while India continued to have famines under British rule right up to independence … they disappeared suddenly with the establishment of a multiparty democracy and a free press. … a free press and an active political opposition constitute the best early-warning system a country threaten by famines can have. Amartya Sen

Amartya Sen argues that democracy (which is a subset of human rights) is the best way to avoid famines. Of course, a well-functioning democracy is not a sufficient condition for the absence of famines. Other mechanisms also contribute to famine prevention, so it’s not impossible to see famines in democracies.

What is a famine?

G. B. Masefield states:

On balance it seems clear that any satisfactory definition of famine must provide that the food shortage is either widespread or extreme, if not both, and that the degree of extremity is best measured by human mortality from starvation. (source)

A famine occurs when there is a sudden collapse of the level of food availability and consumption (measured in terms of calorie intake). Sen’s argument is that a focus on lack of availability isn’t enough. Actual consumption is what counts. And consumption can drop when availability doesn’t (this was the case in the Bengal famine of 1943 for instance). Famines occur not only from a lack of food, caused by drought, crop failures or floods, but also from a lack of information. Rumors of a famine, even false rumors, are often enough for people to start hoarding and panic buying, which pushes up the price of goods, and which makes it impossible for poor people to get enough food. As a result, they may starve in the midst of abundance. A war may have the same effect or make it worse. And so can ineffective food distribution mechanisms.

Inequality

An important point about famines is therefore inequality:

While Famines involve fairly widespread acute starvation, there is no reason to think that it will affect all groups in the famine-affected nation. Indeed, it is by no means clear that there has ever occurred a famine in which all groups in a country have suffered from starvation, since different groups typically do have very different commanding powers over food, and an over-all shortage brings out the contrasting powers in stark clarity. Amartya Sen (source)

Information

Free information can counter these risks. It can debunk myths and rumors about food availability. It can inform accountable governments of certain risks and force them to act in order to remedy the food distribution, to impose price controls etc.

Price controls, however, are a risky business. Higher food prices may lead to a larger volume of food production because food producers will be encouraged to produce. Hence, higher prices may increase the overall availability of food and reduce the risk of famine. However, as we have seen, availability is not enough to stop famines. Distribution and equality of availability is just as important, and higher prices may result in very unequal availability and may put poor people at risk. But then, again, these poor people may find a better paying job in food production if food prices are higher… This is all very complicated indeed.