Agricultural and Applied Economics—Without Apology
“While prices of many agricultural commodities have soared, farmers received just 7.49 cents for a pound of onions in April, down from 29.9 cents a year ago, in part due to a big harvest. Futures trading in onions — unlike other farm goods — is banned, which prevents the pungent bulb from being used as an investment vehicle.”
The syllogism apparently goes:
Last week, the New York Times reported that farm subsidies seem to be one of the only budget items both sides of the aisle seem to agree on when it comes to spending cuts:
From WRAL news:
“Speaking to a room full of ambassadors to the Rome-based United Nations food agencies, Clinton warned that some countries had adopted ‘unwise’ policies such as export bans during the 2007-2008 food crises ‘that only made matters worse’ by driving up prices, encouraging hoarding and panic buying and discouraging farmers from producing more. (…)
‘Rising food prices can have a positive effect if they send a signal to farmers to grow and sell more. But that can only happen if there is transparency in markets and stocks, so signals about prices and food supply are accurately received,’ Clinton said.
She called for countries to adopt better policies this time around and said the United States was working with developing and industrialized nations ‘to encourage everyone to respond to rising food prices not with failed policies of the past but with a sounder approach.'”
Secretary Clinton is right. Developing countries should resist the temptation to close themselves off to international trade by restricting food exports. Such measures only serve to exacerbate the problem of raising food prices. This in turn increases the number of people suffering from hunger.
What can be done to curb rising food prices? First off, investments in agricultural research and biotechnology have the potential to bring considerable productivity gains in agriculture. Second, the US government should allow developing countries to truly tap into their comparative advantage instead of undercutting them by subsidizing American farmers.
(HT: Camille Jackson.)