Placing the food-price crisis in the context of global economic trends

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Placing the food-price crisis in the context of
global economic trends

• Horst Siebert
• Bologna-Kiel

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Economic Trends vs.

• Unexpected Events

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Trends

• Follow a pattern, an economic law
• For instance, the law of increasing scarcity
• Can, in principle, be forecasted
• Take a long development

4
Unexpected events

• Come as a surprise
• Tsunami
• Shift of preferences
• Financial crises, bank runs, currency crises
• Sudden cross-border migration
• September 11,Terrorism
• Unexpected consequences of geo-political shifts

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Trends

• Population growth
• Aging
• Emerging markets, economic aspects
• Energy scarcity, normal mechanism markets
• Global warming
• Shift in the lead currency?

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Given situation in the World Economy
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Regional structure of the worlds gross domestic
product, 2006
Source World Development Report 2008.
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Regional structure of world trade, 2005
Source World Development Indicators 2007.
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(No Transcript)
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Demand effect of China ,2005 of world imports

• 46 percent for iron ore
• 36 percent for cotton wool, 23 percent for copper
  ore
• 21 percent for pulp and paper
• 20 percent for rubber
• 12 percent for plastic
• 6.2 percent for crude oil. By way of comparison
  Chinas share of world production stands at about
  5 percent. (2005 data). In 1993 China did not
  need did not need to import crude oil.

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Reasons for High Foods Prices

• Population growth drives up the demand for food
  and food prices
• Short-run supply factors, reduced supply?
• Real income increase in China and India raises
  the price of food
• Rising engergy prices makes food production more
  costly
• Incentives for agro-fuel production drive up the
  price for foods
• EU- and US-Subsidies for agriculture have impeded
  developing countries to built up their
  agriculture

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Remedies

• We should eliminate distortions from agro-fuel
  and ag. subsidies
• The increase in the demand for foodstuffs is here
  to stay
• Higher food prices can only be prevented if
  agricultural productivity rises faster than
  demand
• Technological innovation crucial

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This is a feast for inventionists

• Remember the negative experience of price control
  in central planning

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Interventionism

• Ban the import of agro-fuels ?
• Introduce national zoning for agricultural land
  (only grains?, also vegetables, milk, animals? )
• Establish such zoning for the EU ?
• Hayekian problem the government does not have
  the information
• Define land use conditions globally?
• Ban food exports?
• All these measures will not stimulate innovation
• Rely on market forces

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Political short-term intervention cannot do it

• Politics must take into account the long-run
  implications of policy instruments, for instance
  distortions through agro- fuels
• Aim for a long-run solution. Short- run policy-
  instruments should not go against the long-run.
• National political approaches should not cause
  externalities to others (very tricky statement)
• BUT WE NEED AND WANT COMPETITION
• We need a consensus on some common rules as in
  the WTO

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Unexpected events ?

• Financial crises, bank runs, currency crises
• Sudden cross-border migration, 4oo AD German
  tribes
• Terrorism
• Political consequences of geo-political shifts

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How do rules respond to geo-political shifts in
the balance of power

• In the past, shifts usually have lead to wars
• Example Rise of Germany since 1871 gtgt Two World
  Wars
• Rise of Japan
• Rise of China, same story?
• We need rule systems and mediation for the shift
  in power