Lit in Review: Ghanaian Agriculture

Egyir, Adu-Nyako, and Okafor examine how the "Made in USA" poultry label affects consumer choice in Ghana. Among the statistics they offer, domestic production accounts for 10% of the poultry market. In 2010, the local price was just under $4/lb while imports cost under $1.10/lb Costs could be brought down with better management and vaccine delivery. Two decades ago, fish provided 60% of the animal protein they consumed, but poultry has been growing in importance. Most of the chickens (60%) are bought directly from the farm, with supermarkets only serving the high income group. The poultry packing industry is in its extreme infancy.

500 consumers were surveyed about their attitudes on how likely they were to purchase domestic chicken, versus Tyson (US), Brazilian, European, or Asian chicken. 56% were likely to buy Made in the USA, and 72% to buy Ghanaian. Asian chicken did not score very highly. More than 80% recognized COOL chicken. (That's Country of Origin Labeling, not the fellow on the right.)

Here is Kris Klokkenga's description of the differences between trying to farm in Illinois and in Ghana:

Kenya: Food Price Controls and Biofuels

The Kenyan Parliament has passed a price control bill, currently awaiting Pres. Kibaki's signature. I'm not informed of all the details, but it sounds heavily directed at maize and wheat prices. Analysts at the Kenya Institute for Public Policy Research and Analysis argue that price controls in the 1990s did more harm than good and these are likely to go the same way: "it may benefit the poor who have been priced out of food in the short term but is unsustainable in the long term." Among the reasons for concern are reductions in FDI and agricultural job loss, farmers switching to cash crops which would reduce food supply, and increased maize hoarding by farmers.

The last several maize harvests have not been good, leading to a 130% price increase in 2009 while world maize prices declined following the food price crisis. Despite this, overall inflation has fallen from almost 20% to 5%.

Proponents of the bill contend that it is an attempt to regulate maize and wheat millers, who "are a cartel that makes supernormal profits..." Analysts and retailers ask whether price controls are the way to deal with the cartel. There are anti-trust laws that can be used; increased international trade can provide additional sources of competition; it could hurt the newly forming COMESA (Common Market for Eastern and Southern Africa); and is "treating the symptoms and not curing the underlying disease." Agricultural research and investments to diversify agriculture and consumption patterns into a more diverse diet -- remember, meat, milk, fruits, and vegetables also compete with maize -- could lower prices both directly and indirectly without risking increased unemployment and hunger.

Meanwhile, there are arguments for and against setting aside 50,000 ha. of woodland forest for growing jatropha trees to produce biofuels. Opponents contend that the benefits jatropha trees have been vastly oversold and their costs underestimated: "a number of companies in East Africa have abandoned Jatropha cultivation citing its non-profitability with no single large-scale commercial growing of Jatropha succeeding in East Africa." The crop is blamed with eroding rather than preserving marginal lands, "causing poverty in many parts of the world," its oils are poisonous to humans and livestock, and would endanger some native species.

"The crop actually requires more water per litre of bio-fuel produced than most other bio-fuel plants. They even claimed that one plant can yield 4-6 kgs of oil per year yet recent studies by Kenya Forestry Research Institute (KEFRI) have shown it can only give away 0.6kg."

One proponent firm, Sun Biofuels, argues that it has had success and hasn't displaced food crops, having bought land used for growing tobacco. "If biofuels weren't a viable option, the Kenyan government wouldn't have added a provision for it in its revision of its feed-in tariff."

WIDER Panel: Africa and the Triple Crisis

Elizabeth Asiedu - FDI to the Rescue?
Fantu Cheru
Augustin Fosu
Steve Kayizzi-Mugerwa

Triple Crisis Panel 1

I'm at the UNU-WIDER 25th Anniversary Conference, The Triple Crisis: Finance, Food, and Climate Change. This introductory panel sets the stage with an expert on each element of the triple crisis. Most of this was sent out on my Twitter account (derrillwat), which I normally use only sporadically.

Amar Bhattacharya (Forum on Debt and Development):
Before the crises: 96 countries were growing more than 5%, over 30 more than 3%
Developing countries have escaped recession faster on average than developed countries.
For the first time, Africa did not see decreasing GDP with global recession
Africa’s long-term growth prospects look better than Latin America
Estimates of cost to reduce climate change: 1) $9b 2) 20-80 billion 3) over 100 billion. Estimates grow as time goes by within this decade. (Translation 1: we have no clue; Translation 2: We're all going to die!)
New donors in Africa twice as important for infrastructure finance than traditional donors
World Bank cheered for extra $3 billion. Compared to private credit flows ($200-$500 billion), it's still 0

Shenggen Fan (IFPRI):
MDG on cutting hunger is not on track, but is still achievable
but only if we drop 69 million hungry people per year
Ethiopia, Chad, and Dem Rep of Congo the most alarming countries for hunger
Finance affects food security largely through capital flows
Climate change affects food security largely through changes in production
IFPRI has a new map of effects of #climatechange on #maize yield worldwide. Mostly bad in Africa, good in some of Asia & Latin America
1 - Improve smallholder productivity and access to markets (esp. inputs, extension services)
In 6/7 African and Asian countries, investments in Agriculture had highest returns. [See also Cases 9-1 and 9-2 for our upcoming food policy book]
2 - Scale up safety nets: conditional cash transfers, maternal and child nutrition, public works, insurance for the poor
3 - Keep trade open and reduce market volatility (national and regional food stocks)
4 - climate change adaptation and mitigation investment (ag research, irrigation)
5 - new partners (BRIC), more use of private sector and private charities

Jomo KS: UN Assistant Secretary-General for Economic Development
Markets alone won't solve climate change. Not that it has no role - the role is complementary rather than fundamental. This is a difference between UN and World Bank views.
Public investment to crowd in private investment on sustainable technology
Need a lot more emphasis on adaptation, particularly in developing countries.
References Clinton's mea culpa on Haiti trade as evidence that trade led to food crisis. Look for my upcoming case study debunking this.
cheap credit led to over-investment. With the current recession, this causes underutilized capacity, making the private sector reluctant to invest. Hence, we need cross-subsidized public investments to crowd the private sector in.

Lit in review: Effects of Activism

Harrison and Scorse, "Multinationals and Anti-Sweatshop Activism," AER (2010), Vol. 100, No. 1, 247-273, ungated.

Pro-market-eers claim that people can "vote with their dollars" to express their disapproval of corporate actions and encourage proper actions. How effective is consumer activism in actually changing corporate governance? Harrison and Scorse study the anti-sweatshop movement in the US aimed at Nike, Adidas, and Reebok during the 1990s in Indonesia. Two things happened: the Indonesian government, under some pressure from the US government, raised the minimum wage in real terms; and shops in the textile, footwear, and apparel industry also raised their average wages.

Identification is not based on actual firm ownership or contracts, but the probability of a workshop being targeted is estimated based on census, corporate information, and region. They find that activists were successful in increasing wages in targeted firms: the wage increase was 10-20 percent larger than in foreign-owned firms in other industries and 30 percent larger than other firms in their industry. The increase largely came from greater compliance with minimum wage laws. The employment effects were small - smaller firms left the industry while larger firms did not noticeably change the size of their workforce - but profits decreased significantly.

Among factors they say were decisive is an open political atmosphere and the teamwork between US and Indonesian NGOs. Activism increased both the probability that firms would be detected paying below minimum wage and the penalty for firms that were caught. This was more important for large firms, like the multinationals, for whom bad press meant more. The one downside is that some firms have moved to other countries with lower wages, so the net effect is complicated (negative for people in Indonesia who would have been employed, positive for people in other countries who are now employed, negative for people in other countries now employed under bad conditions). Some criticisms.

China: A Tale of Two Provinces

[Reposted from my family blog] The inimitable Scott Sumner was preparing for a trip to China a couple months ago. In discussing just how big and diverse it is and how we rarely recognize that fact (because we focus on countries instead of on people, as a forthcoming article of mine discusses), he turns to a fascinating retelling of the Chinese miracle that has happened since 1978.

In the standard version, the Chinese government, led by the heroic Deng Xioaping [left], gave farmers some limited property rights and began letting price mechanisms decide some food production choices. The agrarian economy transformed and hundreds of millions of starving people could now be fed. This brought support for further reforms as the coastal (non-ag) areas received the blessings of the market system and grew much faster than the relatively neglected inland regions. Today the primary concern of developmentalists seems to be much more on the inequality between coastal/inland and urban/rural rather than on absolute living standards.

To VERY briefly summarize Prof. Sumner (a less brief version quoting his post is below), Jiangsu Province was the 3rd richest agrarian province in 1978 and Zhejiang 7th. They are marked in red on the map. Both are next door to Shanghai, China's New York City, both were relatively open to trade, and after 1978 were required to grant foreigners the same levels of property protection for foreigners. Domestic protection levels varied, however, with Zhejiang being more market-friendly to natives.

Today Zhejiang is not only the richest province (Jiangsu still 3rd despite Jiangsu getting more foreign direct investment (FDI)), but the average income of the people there is roughly equivalent to its production while Jiangsu's inhabitants own only a third of their production (the rest goes back to foreigners). Zhejiang also scores very highly in terms of human development (health and education). So the inequality problem may be too little free market rather than the oft-supposed too much (alternatively, too little equality under the law). The rest of the post is worth a read if you have a while, or here is my less shortened summary of his post below:
------Quoting from Sumner------
To give you a sense of how complicated China is, ... [Prof. Huang of MIT] observed that both [provinces] had similar histories of being relatively prosperous and open to trade. ... In the 1980s, however, the provincial leaders in Zhejiang province were much more encouraging of private business. Although we think of the economic reforms starting in 1978, a huge ocean liner turns very slowly. The government of China does not just wave a magic wand and order changes, rather change often bubbles up from the bottom. So the leaders of Zhejiang province, and even more so the early entrepreneurial pioneers in business, were risking their lives. Just imagine if China had decided to abandon the economic reforms and go back to the Cultural Revolution.

BTW, a brief digression that libertarian readers might find inspiring. The rural reforms began in late 1978 in a single village in Anhui province [some members of which are pictured right]. Each family in the commune was assigned their own plot of land. This decision was incredibly risky, so everyone took a blood oath to secrecy. Gradually other villages started to copy them. When the government saw that the reforms were successful, they eventually gave them their blessing. But it was not the sort of top-down change that is often portrayed in the West. It was the Chinese people that took the lead, and the leaders followed. In an earlier post I called this agricultural reform the single best thing that has ever happened in world history. [I'd put it top 10 non-religious.]

Yasheng Huang points out that the 1980s have been widely misunderstood. The industrial revolution occurred mainly in the countryside, where free enterprise was encouraged. ... These reforms actually led to a reduction in income inequality in the 1980s, not the increase many Westerners assume occurred. Why? Because the growth was fastest in rural areas that had been much poorer than the cities. Of course since 1990 the cities have grown faster, and income inequality has indeed worsened. Huang argues that that is because government policy favored the cities after 1990.

Back to Zhejiang [pictured right. Jiangsu is pictured left]. After the party leaders adopted a business-friendly policy, economic development in Zhejiang province took off. Since 1978 Zhejiang has gone from 7th to 1st in per capita provincial GDP, while Jiangsu, which has also grown fast, stayed at 3rd. But the most interesting part of Huang’s argument concerned foreign investment. Which province do you think attracted the most foreign investment? Surprisingly it was Jiangsu, the slower growing province. The reason was that after the economic reforms began the central government provided secure property rights for foreign investors in all of China’s provinces. In contrast, property rights for local business was much more iffy. ... [Huang then uses a clever comparative advantage argument that this really isn't surprising at all: If both provinces are equally accommodating to foreigners, but one does a better job attracting domestic talent, the domestics will tend to work in one province and the foreigners in the other.]

... We found that the difference between Jiangsu and Zhejiang was even more dramatic if you looked at personal income, rather than GDP per capita. In relatively market-oriented cities in Zhejiang province, such as Wenzhou [right], the firms are mostly owned by locals, and GDP per person is only slightly higher than the personal income per person. In contrast, in a Jiangsu city like Suzhou, much of the industry is foreign-owned and GDP per person is roughly 3 times higher than personal income per person. The people in Suzhou produce a lot of output, but much of the income flows out of the country to the owners of the foreign enterprises. So even in two seemingly similar coastal provinces, there are vast differences in the economic structure. ...

Professor Huang argues that many of the Chinese problems that are blamed on free market reforms are actually caused by a lack of free markets. ... In my view the social indicators in China would look better, not worse, if market reforms had occurred at a faster pace. And once again I think Zhejiang province is the best example. Not only did their incomes grow much faster than in neighboring Jiangsu, despite all the foreign investment flowing into Jiangsu, but their Human Development Index score is now highest among all non-urban Chinese provinces. If market reforms were really the cause of China’s social problems, you wouldn’t expect the social indicators in Zhejiang to be so good. ... [Zhejiang Normal University pictured right, another Jiangsu shot on the left]

I often think about the little village in poor Anhui that started it all. Wouldn’t the secret pact of Mr. Hongchang and the other 12 families of Xiaogang village make an inspiring Hollywood story? Don’t hold your breath, there’s still more films to be made glorifying Che Guevara. Of course Che would have preferred China’s pre-reform agricultural policy. The one that led to mass famine. The one that the brave peasants of Anhui rebelled against.