A student in my micro course brought to my attention this op-ed in Foreign Policy by Bruno Le Maire, France’s Minister of Food, Agriculture and Fishing, about what the G-20 can do to prevent a food crisis:
“As France assumes the presidency of the G-20 this year, trouble is brewing in the commodities markets. During our country’s leadership over the next nine months, we are determined to head off crisis before it strikes the world’s poor, as high food and oil prices did just three years ago.”
I would like to note a few things. First and foremost, make no mistake: what we are currently experience is a food crisis, as food prices have never been this high since the Food and Agriculture Organization of the United Nations began recording food prices in 1990. When will politicians and policy makers finally have the courage to call it that?
Second, throughout his op-ed, Le Maire uses and abuses the notion of food price volatility:
“Whether the trend is upward or downward, the increasing volatility of commodity prices is intolerable for producers everywhere in the world because they don’t have any visibility regarding their investments. When the trend is upward, volatility is intolerable for the consumers who have to pay more for their food.”
Note that he discusses both trend — what I refer to as the food price level — and volatility. Those are two different concepts, as they represent the mean and the variance of the food price distribution.
Although he is right when he discusses how food price volatility hurts producers, Le Maire confuses things when he simultaneously talks of an upward trend and of volatility for consumers. Yes, rising food prices hurt consumers. But my own research findings indicates that volatility is actually slightly beneficial to consumers, as I have discussed before.
For what it’s worth, Le Maire proposes two policy solutions. The first is an investment in global agriculture, and the second — which befits a French cabinet minister — is an expansion of market regulation.
(HT: Dan Forti.)