Tuesday, May 6, 2008

Dealing With Food Scarcity

Readers Question: hi If a country face food scarcity what solution should the economist render thanks.

In this post we looked at the reasons behind the food crisis currently affecting the world

These are some possible solutions to a shortage of food, with a look at there relative merits.

1. Food Aid.

If a country is facing a food shortage, the obvious solution is to seek food aid from countries with food surpluses. This can help solve the pressing shortage of food and keep prices down for consumers. However increasing supply of food through aid has its fair share of problems.
  • By depressing prices the food aid may deter farmers and the agricultural sector from boosting output and productivity in the long run.
  • It is difficult to target food aid effectively.
  • Food aid can harm the incomes of farmers in developing world. If the developed world 'dump' surplus food on world markets, the prices of agricultural goods will fall. This will cause a decline in incomes for the poor farmers we are supposed to be helping.
Food aid will benefit countries who are net importers more than those who are net exporters.

2. Free Up Markets.

A market based solution to food shortages would take a different perspective. This would try to free up agricultural markets so that the market mechanism would respond to rising prices by increasing production. For example, free market reforms may involve:
  • making it easier to farmers to buy additional land.
  • abolition of food controls
  • Ending subsidies to certain agricultural groups.
However, although in theory a free market can deal with food shortages, in practice there can be several problems.
  • Monopoly power. Landlords may have monopoly power which keep tenant farmers with small inefficient plots of land.
  • Takes time to increase supply. To increase supply of food takes at least one year. By the time the market responds to the shortage it may be too late. It could even lead to the cobweb theory. This is when volatile prices escalate. This means that high prices encourage extra supply, so next year prices plummet. Therefore, supply falls drastically causing prices to rise again. Thus due to inelastic supply the market mechanism can be ineffective in dealing with shortages and surpluses.
3. Government Intervention

Subsidise Farming to develop better technology and increase productivity. This could involve
  • investment in infrastructure projects.
  • Buffer Stocks to stabilise Prices.
However, government intervention in agriculture has a poor track record. Farmers often get attached to receiving large subsidies and it becomes politically difficult to ween farmers away from subsidies (e.g. EU). The secret is for the government to help agriculture indirectly. For example.
  • Providing affordable finance / loans so that small farmers can afford to buy new equipment.
  • Improving infrastructure to make it easier to export food surpluses.
  • Land reclamation schemes / Protection of the environment. e.g. deforestation can lead to soil erosion.
There is a need to distinguish between what needs to be done in the short term and what needs to be done in the long term. In the short term, we need to ensure people have enough food to eat. But, in the long term economists need to work towards a framework where the markets and farmers themselves have sufficient incentives and capabilities to provide enough food.

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