First, I do agree that trade barriers like US farm subsidies have slowed growth in developing economies and are thus a part of the reason why the current spike in prices is a crisis in some countries, rather than a nuisance like it is in the US. However, this is a very general effect (making everything more expensive for people in those countries), and I'm skeptical that the lost income in those countries (in % terms) matches the lower food prices caused by subsidies. I'm also skeptical about the claim that agriculture in poor countries is less responsive to increases in short-run demand. I touched on this in my previous post with my guess that economies of scale are likely not important for poor farmers. Farming in developing countries is much more labor-intensive than farming in developed countries. I would need to see data before making any conclusion, but my guess would be that firing and hiring workers as a response to an increase in demand would be easier than buying and selling capital (tractors, combines, etc.) for the same reason. Similarly, I can't imagine the fixed costs of starting a farm on land which is going unused in a poor country can be exclusively high if the land has no good use other than farming. The image of large amounts of farmland lying fallow in poor countries because prices were too low a few months ago doesn't seem realistic to me. Again, this would be a small, indirect effect of US subsidies, one which would likely more than counterbalanced by the more direct effect of lower prices. There are much more proximate causes of the current price spike, such as (as you correctly point out) higher incomes in China and India, drought in Australia, and export taxes in countries like Argentina (which essentially have the opposite effect of subsidies).
i'll freely admit that i don't know much about farming, but from what i understand, farmers in rich countries benefit from subsidies for the development of higher quality fertilizer and other farming inputs. this, combined with the loss of comparative advantage of farmers in poor countries due to price subsidies, does make it harder to start up farms and take advantage of the spike in demand because they are competing with goods made superior by subsidies. maybe im overestimating the difficulty of reentry but i think its a significant source of friction between supply and demand. i'll also clarify that i don't think the crisis is a shortage of world food supply, of which there apparently is an abundance. rather, it is the inability of poor countries to obtain that food, an inability exacerbated in part by subsidies which have decreased farming in poor countries and increased demand and price of crop yields for use in non-food capacities (biofuels). while other barriers obviously contribute, some even moreso than subsidies, i posit that without farm subsidies, and without discounting whatever good they may do, poor countries would be farming more, rich countries would farm less, and poor countries would not have as much trouble getting food.
Here, I think you are confusing two different things. What you seemed to be making a somewhat valid point about earlier was the idea that poorer countries who were replacing domestic farm production with cheaper imports from the US would have trouble increasing their production again to match increases in demand. This would be because their farmers had gone out of business because of the lower prices caused by US subsidies, and would be unable to raise enough money to start farming again. That is only an issue if imports and domestic production under the cost of those imports are no longer sufficient to meet demand in a country, and the prices rise to a level where its farms are competitive again. If the farmers' problem is rather that "they are competing with goods made superior (I assume you mean "cheaper"?) by subsidies", then it's just a problem for the farmers, not something that causes higher prices. Here, again, I'm not sure what you mean. Certainly, US farm subsidies, by increasing the availability of cheap food, lower the incomes of farmers in other countries. Since those farms are counted in the GDP of those countries, the total income of the country is lower as a result of the subsidies. However it's a stretch to say that, in the market for food, this effect outweighs the much more direct effect that subsidies have: lower food prices. That is not to say that US farm subsidies are not very bad overall for other countries, particularly developing countries which would otherwise enjoy a very strong comparative advantage in agriculture. I merely mean to reiterate that on the whole, US farm subsidies very likely are responsible for lower, not higher food prices. Look at it this way: If the US restricted its agricultural exports, would you expect that to increase world supply, whether in the short run or the long run? That is the logical extension of your argument about subsidies. I think here you got two out of three. Without subsidies: The US would export less food, as it would be unable to compete as effectively with world prices. Consumers in poor countries, without the the option of purchasing as much artificially cheap imported food, would make two changes: (1) They would buy more food from domestic farms, at higher prices than they used to pay. (2) They would buy less food, as they now would have to pay a higher price. Because of point (1) above, farmers in poor countries would produce more food. However, this food would be more costly than the subsidized food that had previously been imported from the US. That's why it wasn't being produced when the subsidized food was available.
i'm not disagreeing that prices are lower because of US subsidies . i AM disagreeing with the notion that US subsidies increase the availability of cheap food. i think you're focusing on subsidies' immediate effect on price while i'm trying to explain what i think is the broader, lasting effect on supply. it is the artificiality of low food prices that has ultimately damaged the availability of food. lets start with one assumption: i think we both agree that without the current boom in demand, there would likely be no food crisis, as food will largely remain affordable for most countries. however, there is a huge boom in demand, and there is a food crisis. here is how subsidies exacerbate the problem: 1. before the boom in demand, subsidies depressed market prices for food. foreign farmers close down but, and i'll take your word for it, savings on food offset loss of farming income. 2. subsidies to farmers in rich countries help develop superior farming inputs for increased efficiency. this efficiency is achieved only because of subsidies and distorts true comparative advantage while erecting a barrier to entry by poor farmers who can't afford these inputs. 3. we now have artificially cheap food, meaning countries that would be farming aren't. this is fine as long as demand does not make food unaffordable. 4. demand explodes for various reasons. subsidies distort price signaling, dampening the responsiveness of subsidized-farmers to increased demand. further, because of the aforementioned barrier to reentry, the gap between current production and new demand is not being filled by the farmers that shut down as a result of the subsidies. supply is unable to keep pace with demand. even though technically there is plenty of food to supply the nations, the price is too high for poor countries. now we're in a situation where we HAVE to subsidize farming even more to bail out poor countries which should have been subsisting on their own. prices would be higher without the subsidies, but poor countries would have been better equipped to deal with the explosion in demand, most notably by not having to rely on imports which are now too costly to afford. its debatable how easily they should be able to replace foods they used to import with domestic production, but i think we can both agree there is at least some friction there preventing them from meeting their needs quickly enough (otherwise we wouldn't have a food crisis). ultimately, i think its facile to conclude that since subsidies lower world prices, food is now more available than it would be without subsidies. while that's true at the onset, in the long-run, the distorting effect of subsidies has led to a misallocation of resources (wrong countries producing the wrong things), the salient outcome being that now that food is in high demand, the countries with a true comparative advantage (as in not subsidy-created advantage) which should and need to benefit the most from that demand are unable to meet it.
I've skimmed this thread but I heard that the rice rationing at Costco has to do with that while rice prices are high Costco can't just raise their prices to keep their profit margins up since they don't make money off of sales of goods but sales of memberships. They figure its better to limit the amount that people can buy and keep prices low than allow people to buy how much they want and raise prices.
Don't mention that around here. Farmers, even with high crop prices, get irate as soon as someone talks about cutting subsidies.
my business partner just received part of a corn farm pursuant to the probate of a will. he grew up in iowa. they split it up among his family members. astonomical money. corn is hard on the land...and demand is super high. the price needs no support. i agree with you that selling cut subsidies to farmers is not an easy task.
These two statements are contradictory. Low prices are the same as "the availability of cheap food". No, I understand what you're trying to say. You're arguing that subsidies do lower prices in the short term, but that they cause those farmers in other countries who cannot sell at the lower price to exit the market. Then, if there is a spike in demand (or a supply shock like the crop failures in Australia), these farmers cannot easily re-enter the market. In your view, this effect outweighs the effect subsidies have on supply. I think you're likely overestimating the difficulty those farmers have in reentering the market, as well as the extent to which farmers will farm less rather than just accept the lower price. In the absence of empirical data, we may just have to agree to disagree. However, I do also feel that you aren't quite understanding some aspects of markets. I don't think that's what I said. At any rate, it's not what I meant. The savings by consumers could well be less than the income lost by farmers. However, it's somewhat less likely (though not impossible) that the portion of the income lost by farmers that they would have spent on food outweighs the money the entire country saves because of low prices caused by subsidies. In other words, I'm skeptical that the ratio of average income for the whole country to food prices would decline because of lower world food prices. Fine, but keep in mind that the increase in supply caused by subsidies is very real, even if it's not truly based in factor endowments. The "aforementioned barrier" was nothing other than the fact that prices were too low for those farmers, that there wasn't enough demand to require their production. If demand increases, prices will rise and the "barrier" will be removed. There is some friction to increasing production (I doubt it's much in this case), but the crisis is simply the fact that food prices are too high for some people's liking. That doesn't mean there's something artificial that's causing the problems, it just means demand has grown faster than supply. Again, aside from the disagreements we seem to have about markets, I think we're disagreeing on how difficult it likely is for farms in poor countries to increase production. I hope this isn't directed at me. I think farm subsidies are very likely unnecessary, overly expensive, and damaging to developing economies. I just don't think they are a likely cause of rising world food prices.
http://www.reuters.com/article/inDe...dType=RSS&feedName=inDepthNews&rpc=22&sp=true So I am at Sam's,...stocking up on dry goods for SHTF, and now they are low and behold rationing rice purchases...! Here in the good ole USA...Man,.. Well here is an article about the potatoe and how this vegetable should be propagated to help the world food supply issue right now...Actually, pretty interesting...
