Twofish's Blog

June 7, 2008

How Biofuels Could Starve the Poor… Not….

Filed under: china, finance, politics — twofish @ 10:43 am

http://www.foreignaffairs.org/20070501faessay86305/c-ford-runge-benjamin-senauer/how-biofuels-could-starve-the-poor.html

http://blogs.cfr.org/setser/2008/06/05/really/

Personally I think that the Runge and Senauer paper is non-sense. It ignores the fact that most people in developing countries are food producers (i.e. peasant farmers) and not food consumers, and so that rising food prices are a *good thing* since they will be able to sell their crops at a higher price.

High food prices do hurt the urban poor, but since the urban poor are the first to riot, developing world governments tend to keep them busy and well fed.

One might want to read “The Road to Hell: The Ravaging Effects of Foreign Aid International Charity”. The book argues that food exports to the developing world are generally a bad thing, since they leave the developing world dependent on agri-business and also put lots of farmers out of work. One should note that the policy agenda of the developing world at the WTO has been to get developed countries to *reduce* subsidizes for agricultural production.

This has some impact on Chinese decision making. One thing that I’ve noticed is that the Chinese government doesn’t seem to be making food inflation a huge priority and that is largely because by letting food prices rise and fixing prices of oil and fertilizer, you have wealth going into rural areas which is the number one priority of the Chinese government.

One other thing this points out is how complex economic decisions really are.  One thing that I’ve noticed is this generalization in which you point out how biofuels are hurting some poor people and from these situations one assumes that biofuels and high food prices hurt all poor people, which they don’t.  If you are a poor urban dweller, then yes high food prices will hurt you.  If you are a poor farmer, then high food prices will help you.

One thing I do before I write something is to do a quick google to do a fact check, and the nice thing about doing this is that I usually learn something new in the process.  For example, the reason I wrote some of this was because I was reading in Bloomberg magazine about the riots in Haiti over higher food prices, and how this proves that biofuel subsidies are destroying to poor of the world.  So to justify my statement that most poor people in the world are farmers, I did a quick google check, and what I found was quite interesting.  Most poor people in the world are farmers, but I was struck at how different the economies of the world were from each other.  For example, most people in China, India, Mali, and Mozambique are farmers, but most people in Peru, Algeria, and most significantly Haiti, aren’t.

Here is a map that I found….

http://www.fao.org/es/ESS/chartroom/gfap.asp

One thing that this does tell you is how extraordinarily different the economies of different places are, and how generalizations about things will or won’t work have to be made very carefully.

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3 Comments »

  1. Just being a farmer might not be enough though, because with the sky high food price, food will be exported to the rich countries rather than being consumed domestically. China might be a special case here, because of its equal land distribution, the high food price is more or less being passed down to average farmers.
    I haven’t done any research on this, but if a country has a relatively concentrated land distribution (majority of the agriculture workers don’t own their land) then I can see how a high food price can hurt even ordinary farmers.

    Even if it only hurts the urban poor, with roughly 40% organization rate in developing countries, this is still a huge number.

    One thing I find interesting is that developing countries have been complaining about the western agriculture subsidies for years, now finally they are getting it (sort of), guess who is hurting?

    Comment by stq — June 8, 2008 @ 6:50 am

  2. stq: Just being a farmer might not be enough though, because with the sky high food price, food will be exported to the rich countries rather than being consumed domestically.

    I thought that was a good thing, and what the poor nations of the world were trying to achieve. If you are a farmer, you can presumably keep some of your own crop so that you won’t starve after you’ve made money selling grain to Europe.

    stq: I haven’t done any research on this, but if a country has a relatively concentrated land distribution (majority of the agriculture workers don’t own their land) then I can see how a high food price can hurt even ordinary farmers.

    On the other hand if farmers don’t have title over their own land, they are also going to be hurt if food prices are low. I think what happens depends very much on the land tenure system.

    I think the main point that I was making is that it seems that the effect of high food prices is extremely country dependent, and in the case of China and India, it would seem to me that high food prices actually benefit the poorest people. This may be different in other countries, but the trouble is that arguing against biofuels because they would hurt the poor in general, doesn’t seem to be a strong argument.

    stq: One thing I find interesting is that developing countries have been complaining about the western agriculture subsidies for years, now finally they are getting it (sort of), guess who is hurting?

    I’m not so sure. The reason I blogged about this in the first place was that the people who are complaining most loudly about biofuels hurting the poor aren’t from developing nations, and they aren’t the people that were complaining about grain subsidies a few years back.

    Part of the reason I’m skeptical of arguments that biofuels are hurting the worlds poor in general (although there are certainly specific cases where it hurts) is looking over the rather nasty effects that cheap grain exports have had in the developing world over the last few decades, and knowledge about how the first step in Chinese economic reform in the late 1970’s was to increase the cost of food so that farmers would get more money.

    It could be that the people who are arguing that biofuels will hurt they poor are right, but if they are right then a lot of the arguments that formed economic policy over the last ten years are wrong. In any case, there needs to be a bit more debate and discussion to see what is going on. In the case of China, it seems pretty obvious to me that high food prices are a good thing for most people. I don’t know what the situation is in Mexico or Peru or Mozambique.

    One reason this is an interesting topic is that a lot of my thinking is influenced by Alvin Toffler’s the Third Wave in which he talks about an economy going from agriculture to industry to services. Looking over the statistics, I was quite surprised that there are very poor countries (like Haiti) in which very few people are employed in agriculture. This doesn’t fit with Toffler’s view of development, and looking over the data, it seems a lot more complex than biofuels will starve the poor.

    Something that also occurs to me is that economic policy is rarely mono-causal. So a developing country can respond to high food prices in ways that are very good for its population, or very bad for its population.

    Comment by twofish — June 8, 2008 @ 8:03 am

  3. “I think what happens depends very much on the land tenure system.”
    Yeah, I mean if farmers don’t own their land, then they are basically labors being hired to farm the land, their labor cost/income is largely determined by the local labor supply/demand. Higher food price doesn’t necessarily benefit them since they don’t have control of the final product, food. This makes them not that much different from the urban poor.

    Comment by stq — June 8, 2008 @ 9:56 am


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