Policies aimed at lowering the price of food by increasing the food supply
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Transcript of Policies aimed at lowering the price of food by increasing the food supply
Policies aimed at lowering the price of food
by increasing the food supply
Text extracted from
The World Food Problem
Leathers & Foster, 2004
http://www.lastfirst.net/images/product/R004548.jpg
How to increase food supply
• An outward shift in the food supply curve– Reduces the equilibrium price
• Farmers would need to– Produce more at the same price, or
– Produce the same amount at a lower price
• What would motivate farmers to increase food supply?– Reduction in cost of production
How to reduce the cost of production
• Reduce input prices • Encourage investment• New technologies
– increase productivity
Soy harvest, Brazil
http://www.brazil.studyintl.com/programs/ag/images_ag/soy_harvest.jpg
Subsidized inputs
• Irrigation– Dam building
• Abundant, inexpensive water
• Benefits poor and wealthy farmers
http://www.unesco.org/water/wwap/case_studies/ruhuna_basins/index.shtml
Sri Lanka Irrigation
Subsidized inputs
• Fertilizer– Benefits of subsidies
• Encourages learning by doing
• Helps overcome– risk aversion– credit restraints
• Helps poor farmers• Offsets tax and pricing
policies – that hurt farmers
• Maintains soil fertility
http://www.thaitradesource.com/directories/fertilizer/fer2.jpg
Fertilizer, Thailand
Subsidized inputs
• Fertilizer– Problems with subsidies
• Knowledge of fertilizer use is widespread now
• Subsidies help large farmers more
• Best way to help small farmers is by eliminating urban bias
• Reduces incentive to use natural organic fertilizers
– That hold water better
http://sweetchillisauce.com/Letters/Manurepic.html
Subsidized inputs
• Fertilizer in Africa– Subsidies removed
• 1970s and 1980s
– Fertilizer use dropped• Less profitable to use
– Free Market has not responded to removal of subsidy
• Risk aversion by farmers• Seasonal demand• High transport costs• Undeveloped financial services• Farmers lack cash
– Some role of government neededhttp://www.new-agri.co.uk/image/046/dev01.jpg
Subsidized inputs
• Pesticide Subsidies– Encourage farmers to use
more• Environmentally destructive
– Undermine efforts to promote IPM
• Integrated Pest Management– Biological control
– Minimal chemical use
http://www.ipminstitute.org/images/ipm_year.gif
Mechanization• Farm machinery subsidies
– Tax breaks– Tariff protection– Subsidized credit– Inflated official exchange rates
• Can import machinery cheaply
• Problems with subsidies– Benefits primarily to large farmers
• Out-compete small farmers• Buy out small farms• Greater inequity
– Yields not necessarily increased– Employment reduction– If profitable, free market will works
• Poor farmers can rent machineryhttp://www.technoserve.org/involve-donate.html
Tractor, Kenya
Credit Subsidies
• Is assumed that small farmers have trouble getting loans– No collateral– High risk
• Government subsidies:– Direct Government loans
• at low interest rate
– Require banks to lend • at low interest rates
State Bank of India
http://www.hindu.com/thehindu/mp/2005/07/11/stories/2005071100210500.htm
Credit Subsidies
• Problems– Benefits rural wealthy
• Discriminates against poor
– High cost leads to• Deficit financing• inflation
– Discourages savings
– Better uses of money?• Agricultural research• Better rural roads• Improved educationhttp://www.rdiland.org/OURWORK/OurWork_Accomplishments.html
Alternatives to subsidized credit
• Increase local savings institutions– Must be convenient, secure– Good interest rate
• Promotes saving• Availability of money lowers lending
interest rates• Benefits poor
• Microcredit– Small loans to poor families, women– Administered locally
• Know reputation of borrower personally• Understand likelihood of business success• Status in community falls if loan not
repaidhttp://www.globalenvision.org/_image/microcreditmicro.jpg
Microcredit recipients, India
Microcredit
• Case study, Philippines– Farmer borrowed $52
• To buy two piglets
– Planned to feed piglets table scraps
• Low cost
– Had reputation for honesty, hard work
– Repaid $2.30/week• 26 weeks• Total of $60
– Sold fattened pigs for $200
http://community.webshots.com/photo/3884771/1003884830010768271iWotCapauD
Improving Roads
• Raises prices farmers receive– Reduces cost of
• Cost of transport• Cost of inputs• Price fluctuations
– Increases• Production• Exports, imports• Wages• Farm labor employment• Agricultural specialization
– Fruits and vegetables can be marketed further away
http://he.wikipedia.org/wiki/%D7%99%D7%A8%D7%A7%D7%95%D7%AA
Improving Roads
• Case study: Bangladesh– Villages with good
infrastructure• Hard-surface Roads
– Used 92% more fertilizer
– Used 4% more labor/hectare
– Paid Ag workers 12% more per day
– Compared to villages with poor infrastructure
http://www.dfid.gov.uk/images/countries/asia/bangladesh_bicycle.jpg
Bangladesh Road
Improving Rural Infrastructure
• Rural electrification– Electrical farm machines– Irrigation pumps– Telephones
• Marketing systems– Transmits supply, demand needs– Improves choice through
competition
• Radio, newspapers– Market price news
• Terminal markets– Buyers, sellers in one place– Improves production, nutrition
Central Market, Mexico City
Price Stabilization
• When prices are unstable– Farmers less likely to invest in production
• Risk averse
• Governments stabilize prices– Buy commodity at set price
• Encourages Black Markets
– Buffer Supplies• Buy when prices cheap• Store for sale when supplies drop
– Buffer Funds• Raise commodity taxes when prices high
– Encourage Futures Markets• Farmers pick price at beginning of season
http://www.tradingsimulation.com/resources/articles/mot.jpg
Subsidizing Agricultural Research
• Important areas for Ag technology research:– Yield response to fertilizers and
pesticides– Drought tolerance– Disease and pest resistance– Food quality– Food handling and storage– Labor for production and food
processing– Compatibility with social,
cultural and economic norms
http://maizeandgenetics.tamu.edu/drought.htm
Return on Research
• Case study: hybrid corn– For every $1 invested in hybrid
corn in the U.S.• Until 1955
– Was $0.35 return per year • Since 1955
• Due to reduced price
• Case study: Cassava mealybug– Research cost $27 million
– Benefits exceeded $4 billion
http://www.fofweb.com/Subscription/Science/Environ_Issues/EN0728.jpg
Why don’t farmers invest in research?
• Operation too small– To sponsor research
– To benefit from research
• Majority of ag tech benefit goes to consumers– Farmers lose revenue when
new tech is introduced
– Farm prices fall faster than production can increase
http://www.donau-uni.ac.at/imperia/md/images/donau_uni_allgemein/presse/bilder2005/labor_w_236x157.jpg
Why doesn’t industry invest more in Ag research?
• Require patents to make research profitable– Machinery can be patented– Most biological innovations
cannot be patented• Animal breeding• Animal nutrition• Plant breeding• Plant pathology• Entomology• Agronomy• Soil science
– This research must be Government sponsored
Walt Fehr, ISU Soy breeder
http://www.plantbreeding.iastate.edu/news.html
CGIAR
• Consultative Group on International Agriculture– International Rice
Research Institute (IRRI)– International Maize and
Wheat Improvement Center (CIMMYT)
– 13 other International research centers
• Helps fill research gap in small countries
Challenge of ag research in Africa
• 90 percent of ag is mixed cropping– More than one crop in a field
• Intercropping– 2 crops at same time
• Relay Cropping– Not all crops planted at same time
• Sequential cropping– Second crop planted after first harvested
• Challenge: – improve productivity – While maintaining sustainability
• Agroforestry– Alternate trees and crops
• Conserves water, soil, organic matter
http://www.afrol.com/images/agriculture/kenya_trees.gif
Agroforestry, Kenya
Extension
• Government subsidizes– Education and advice to
farmers
• Case Study: Iowa– weed killer 2,4-D
– Took only 11 years• From time first farmers
heard about it
• To when most were using it (1955)
http://www.extension.iastate.edu/Connection/2002AR/farmbill.html
ISU extension
Sustainable Farming
• Role for government to promote – environmentally
appropriate practices
– Extension to teach farmers
• Will prevent future declines in productivityhttp://www.sendacow.org.uk/printed.asp?active_page_id=113