Monday, February 28, 2011

Who likes high food prices?

While explaining his views to a commenter, Sumner said, “By the way, the media never reports on the fact that the poorest people in the third world are mostly farmers. How do you think they feel about the high food prices?”

Here is some of the back and forth we had on the subject:

1 – Net-sellers of food like the new higher prices, but more than 75% and in some cases more than 90% of the farmers in many countries purchase more food than they sell. Most of them were hit hard during the last food crisis.
2 – Food prices is an aggregate. What matters are individual food prices because “farmers” don’t produce food baskets, but individual commodities. Last time around it was staple foods that saw most of the movement, this time it’s meat and sugar that are moving fastest. They have different impacts on the poorest.
Put those fun facts together and it gets really complicated. Yes, the media can’t handle that. Here is what I wrote about QE2 and food prices a couple weeks ago. Another post on the new peak in food prices from last month.
Sumner: Doesn’t that mean city dwellers sell more food than they buy? That seems very odd. Where do farmers get the income to buy food, if not from selling food? BTW, I’d include commodities such as cotton, which are also soaring in price.

Large farmers can sell a great deal to feed both the urban and rural. Don’t forget also the large farmers from the US who are so graciously subsidized so they can sell or have food aid sent to the poorer populations.
I quote from a CGIAR draft publication from 2008 [which I just happened to be reading that day]:

“Rural households in East/South Africa spend a higher proportion of their income (45-75%) on food compared with urban households (34-58%) …. Households that are buyers of staple grains are generally poorer and have smaller farm sizes and asset holdings than the median rural households. … Only about 5-15% of the rural population buys and sells the main staple commodity in the same year. They comprise both relatively large farms that sell grain and buy back small quantities of processed meal, as well as relatively poor households that make distress sales of grain after harvest only to buy back larger quantities later in the season.”
As to where they get the money, most of these people have multiple sources of income. It’s asset diversification to deal with shocks. That fact also keeps their investment in any one income source low, which similarly keeps average incomes low. While a rational response to prevent negative income shocks, it slows growth significantly. Then, because I need cash Now to pay debts and loans, I have to sell what little I have produced at the harvest time when everyone else is selling and prices are low only to buy more food (usually other kinds of food) later in the season when prices are higher. Again, I can sell more maize than I buy, but buy more food than I sell.
Sumner: You may be right, but is this typical of the third world, or just that part of Africa? In China the agricultural system is dominated by small farmers, unless things have radically changed in recent years. I would think that China is more typical of the developing world, but am not certain.
China has small farmers who are primarily net-sellers. The important factor is not small vs. large, but productivity and what good is being sold. (Although, a “small” holder in Africa has less than 2 hectares and a “small” holder in Brazil has 10, so your mileage may vary.) Most Asian economies, particularly the big ones, made significant investments in the 60s-80s that increased productivity in a major way.
But the “poorest people in the world” are not primarily the Chinese farmers. 3/4 of the people earning less than $0.50/day come from Sub-Saharan Africa (121mil), one sixth as many are in South Asia (19.7) and less than half of THAT is East Asia (8.8).
If you want to go up to less than $2/day poverty, there are still more poor people in SSA than China (556 mil to 474), even after the most recent revision increased our estimate of Chinese poverty.
(Sources: Ahmed et al, 2007; Chen and Ravallion, 2008 — discussed in my textbook on global food policy, due out October)

No comments:

Post a Comment