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Marc F. Bellemare Posts

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 April 6, 2012

Beyond the Market, Part 3: A Paradox Discussed

I wrote two posts on the topic of markets last week. The posts were parts 1 and 2 of a longer post titled “Beyond the Market,” in which I highlighted some interesting facts and paradoxes about markets.

In response to those one of those paradoxes, Saleem writes:

I liked that bit:

‘It is always good, however, to keep in mind that those of us who live in industrialized countries — those of us who live in North America and in Western Europe, especially — are much less in contact with markets than some of us would like to believe.’

Would be cool to see that developed a bit more…”

So what did I mean when I said that we come in contact with the market much less than some people would have you believe?

Continue readingBeyond the Market, Part 3: A Paradox Discussed
Published April 4, 2012

The Frontier of Research in Development Economics

Three important development economics conferences are held around this time of year.

The first is PacDev 2012, which was held at UC Davis on March 17. The second is the annual conference of the Center for the Study of African Economies (CSAE), which was held at the University of Oxford from March 18 to 20. The third is the Midwest International Economic Development Conference (MIEDC), which will be held at the University of Minnesota on April 20 and 21.

If you would like to take a look at what’s being done at the frontier of research in development economics, the papers presented at PacDev can be downloaded here, and the papers presented at the CSAE conference can be downloaded here. The papers that will be presented at MIEDC can be downloaded here.

Update: More generally, the NEP-DEV list (which you can sign up to receive via email or follow via RSS), which is updated weekly, is a good way to keep abreast of new working papers in development economics, but do note that there is no selection criterion regarding what goes on the NEP-DEV list. For conferences such as PacDev, CSAE, and MIEDC, the organizers select the best papers among all papers submitted for considersation.