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Category: Food

Published May 8, 2012

As You Sow, So Shall You Reap: The Welfare Impacts of Contract Farming

My article on contract farming titled “As You Sow, So Shall You Reap: The Welfare Impacts of Contract Farming” is finally out in World Development. Here is the abstract:

Contract farming is widely perceived as a means of increasing welfare in developing countries. Because of smallholder self-selection in contract farming, however, it is not clear whether contract farming actually increases grower welfare. In an effort to improve upon existing estimates of the welfare impacts of contract farming, this paper uses the results of a contingent-valuation experiment to control for unobserved heterogeneity among smallholders. Using data across several regions, firms, and crops in Madagascar, results indicate that a 1-percent increase in the likelihood of participating in contract farming is associated with a 0.5-percent increase in household income, among other positive impacts.

If I had to summarize the paper’s contribution informally, I’d say the estimates it presents of the welfare impacts of contract farming have better internal and external validity than those found in previous studies.

Click here for an ungated, older version (link opens a .pdf document), but note that the results in the ungated version had not undergone peer review, so they are not as solid.

Published April 17, 2012

Commodity Exchanges, Commodity Speculation, and Food Security in Africa

The Floor of the Chicago Board of Trade

A farmer lives with two time horizons in mind. One is the months-long growing seasons his crops abide by. The other is the immediate reality of having to feed his family each day, regardless of the price of grain at harvest in three months, whether a drought will wither plants in the field, or whether perfect rains will yield a bumper crop.

Across rural Africa, such uncertainty hounds smallholder farmers—which is nearly everyone. In Ethiopia, 80 percent of the population of more than 80 million are small-scale farmers and produce 95 percent of the country’s agricultural output.

If more and better information within agricultural markets can make uncertainty recede like darkness in front of a candle, the Ethiopian Commodity Exchange is a bank of high-powered floodlights. A commodity exchange that broadcast crop prices to rural farmers not only helps them get higher prices for their produce, but also improves the food distribution system to resist shortages in times of drought.

That’s from a recent article in GOOD magazine by Tate Watkins.

The article discusses the potential for commodity exchanges to improve food security in Africa. In a nutshell, at times of impending food scarcity, commodity exchanges can help by raising food prices, which can help avert food crises and famines. This helps food consumers by improving their food security.

But commodity exchanges can help food producers by smoothing prices over time. That is, commodity exchanges can help reduce the uncertainty over the prices farmers will face come harvest time, which in turn leads farmers to making more efficient production decisions.

What about Commodity Speculation?

This is in stark contrast with the oft-touted “fact” according to which commodity speculation caused the food crisis of 2008. If you are interested in commodity speculation, see this Energy Economics article by Scott Irwin and Dwight Sanders, in which the authors argue that there is little to no causal evidence that commodity speculation led to the 2008 spike in food prices.

Tate interviewed me for the GOOD magazine article quoted above, and one of the things I said ended up making it to the article. I will always be grateful to Tate for bringing to my attention the Kansas City Star‘s style guide, which supposedly helped Ernest Hemingway develop his distinctive style. Tate has his own blog here, and you can follow him on Twitter here.

Published March 26, 2012

Food Prices and the Arab Spring, One Year Later

I’m in Washington, DC for a roundtable on climate change and conflict at the Woodrow Wilson today, so I thought I should discuss this article in last week’s issue of The Economist which discusses food prices in the Middle East and North Africa:

It is sadly appropriate that Mohamad Bouazizi, the Tunisian whose self-immolation triggered the first protest of the Arab spring, should have been a street vendor, selling food. From the start, food has played a bigger role in the upheavals than most people realise. Now, the Arab spring is making food problems worse.

They start with a peculiarity of the region: the Middle East and North Africa depend more on imported food than anywhere else. Most Arab countries buy half of what they eat from abroad and between 2007 and 2010, cereal imports to the region rose 13 percent, to 66 million tons. Because they import so much, Arab countries suck in food inflation when world prices rise. In 2007-08, they spiked, with some staple crops doubling in price. In Egypt local food prices rose 37 percent in 2008-10.

Unsurprisingly, the spike triggered a wave of bread riots. Bahrain, Yemen, Jordan, Egypt and Morocco saw demonstrations about food in 2008. They all suffered political uprisings three years later. The Arab spring was obviously about much more than food. But it played a role.

The article then goes on to discuss the foolishness of food subsidies in several countries in the Middle East and North Africa. The problem is that the removal of those subsidies is fraught with danger — people come to take those subsidies for granted, and they tend to riot at the slightest hint of the subsidies’ removal.

I also wanted to share one of the background documents which was sent to today’s roundtable participants, a USAID report titled “Climate Change, Adaptation, and Conflict” (link opens a .pdf document), as it is a very useful review of the issues one needs to consider when thinking about the climate change–conflict nexus.