Does the End of Cheap Food mean the End of Poverty?

February 1, 2008

There’s an article from the Economist titled “The End of Cheap Food” which has been floating around my office for a while now. Earlier this week, the article made the front page of Digg. This news isn’t suprising – the article follows up months of gossip regarding the rising costs of food in general. I still remember last summer when Nabisco and Hershey both forecasted rising costs for chocolate.

The price hikes we’re seeing (and will continue to see) boil down to a change in demands. China and India are becoming richer – and with it comes a taste for the finer things in life. Larger portions of meat and grains for a lot of people are increasing demands for food. Additionally, the US is demanding more and more ethanol-based fuel to help with its energy demands. The Economist reported that a third of the corn grown in the US last year went to bio-fuel production.

With food prices rising, it sure is a great time to be a farmer – as long as you’re in the US or Europe that is. Farmers living in these regions are reaping the benefits of higher-than-ever food costs, while still profiting from large government subsidies.

US and European subsidies and tariffs have crippled agricultural economies throughout the world. Subsidies distort the world price of food to the point that many of the world’s farming nations can’t afford to sell their products on the global market. In many cases, it has become cheaper for agricultural nations to import food rather than grow their own. Ultimately, this makes entire nations completely vulnerable to market changes. Even a slight change in global prices can mean the difference between food and famine.

The article insists that if ever there were a time for the US and Europe to eliminate their farm subsidies that now is the time. While they may be correct, this outcome is unlikely to happen. US and European farmers are riding a wave of profits that hasn’t been seen in a long, long time. Farmers and lobbyists have fought long and hard to get these subsidies into place. In the US, a politician voicing any opposition to farm subsidies will likely be unemployed by the next election cycle. It is unrealistic to believe that these farmers/political constituents will readily give up subsidies that kept their industry afloat for so long.

Fortunately, not all hope is lost for developing nations. The US’s increased biofuel demand will doubtlessly lead to a global price increase on corn and wheat while simultaneously persuading US farmers to sell their product domestically. Developing nations who grow corn and wheat may begin to see opportunities to sell their products in international markets that were formally occupied by US farmers.

Countries should also look to the future to find market advantages. As more farmers begin planting corn and wheat, the supply of other crops will began to dry up. A developing country that fills in the gaps left by US farmers will find themselves at a huge advantage over the next 2 to 3 years. Besides making a lot of money, these governments could use their market power to put pressure against US and European tariffs.

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2 Responses to “Does the End of Cheap Food mean the End of Poverty?”

  1. Den said

    Somehow, it just seems wrong that the basic necessities of life are allowed to be subject to the fickle markets of supply and demand. There should be a limit to the amount of profit a company can enjoy, particularly when it comes to food, health care, housing. What a disturbing article.

  2. Nicholas said

    No one wants to be the Scrooge who causes others to go hungry. But being able to make the connection between protecting profits and causing harm in others is often difficult.

    Part of the problem is that the US and Europe are caught in a stand-off. The US can’t lower their subsidies until Europe does the same – and vice versa.

    Unfortunately, poor developing nations are the little guy caught in the middle. Since it doesn’t look like price-altering subsidies are going away anytime soon, another solution needs to be explored.

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