Food Crisis: reasons and solutions

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Food Crisis reasons and solutions

• By team ITLT United

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Agenda

• Short Overview
• Microeconomics revisited
• Ethanol
• Overview
• Subsidies
• Tariffs
• Future perspective problems and solutions

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Short Overview

• Food prices have raised dramatically
• Why?

Role of technology, productivity
Mystery
Source Food and Agriculture Organization of the
United Nations (www.fao.org)
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Microeconomics revisited

• Before year 2004
• ?Supply(technology) gt ?Demand
• After
• ?Supply lt ?Demand

S
P(food)
D
Q(food)
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Microeconomics Revisited

• Raising demand
• Developing countries (population, preferences)
• Shift in tastes (vegetables inferior goods?)
• Raising supply?
• Progress in technology continues, yet DMR
• Changes in use of land (food vs. biodiesel)

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Ethanol overview

• C2H6O produced by fermenting sugars from food
  crops (canes, wheat, sunflower seeds)
• major use - as biofuels
• reduces air pollution (cleaner emissions)
• contributes to mitigate global warming
• Brazil as a largest exporter

Source The Economist
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• 75 of its ethanol output is still sold at
  home
• Why??

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Ethanol subsidies in USA Europe

• USA - a fixed rate of 45 cents/gallon of ethanol
  (316 million over the life of a
  typical ethanol plant)
• EU - approximately 1/gallon
• The ethanol subsidy is worse than you can
  imagine
• - Robert Bryce
• Flawed production towards inefficient use of
  land
• Local producers ? , yet foreign producers ?
  (Powell Schmitz, 2005)
• Local consumers of ethanol ?
• LR effect of raising food prices ? (Joseph E.
  Stiglitz, 2006)
• Govt worse off as (T-G) deteriorates and DWL
  created (overproduction)
• ? Pareto inefficient (Pandey, 2005, Arya,
  2010)

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Ethanol tariffs a case of sugar cane

• Brazil's sugar cane-based industry is more
  efficient than the U.S. and EU corn-based
  industry
• Brazil appreciated supplier (climate, land,
  know-how)
• harvests 600 billion tons/year using 2.5 of
  arable land
• began using ethanol in vehicles in the 1920s
• So, tariffs of 25 by value (USA) and 50 by
  value (EU)
• Yet, trade barriers make this good unavailable in
  USA Europe
• Lobbies are better off,
• Consumers are worse off

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Future perspective problems/solutions

• Distorted land use
• Increasing food prices and higher volatility
• Environmental problems
• Increasing inequality
• (society ? big farmers)
• Inefficient income transfers
• Possible repetition of the food crisis

FREE TRADE
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Thank you for your attention. Questions?