September 1st, 2008, 8:07 pm
QuoteOriginally posted by: CuchulainnQuoteOriginally posted by: Traden4AlphaWe also seem to be ignoring the ethical responsibilities of others. First, a population's demand for food is predictable over very long time horizons. It's no surprise that people will want to eat next year, next decade, etc. Second, the variability of food production and food prices has been known for millennia. Third, contract-based trading of commodities (e.g. futures and forwards contracts) is not some new invention that has been sprung on an unsuspecting populace. These instruments have been used for centuries because the first and second facts are so well known. Isn't it highly unethical that governments have failed to hedge food prices on behalf of their citizens?In the 80's in EU land we had butter slopes, wine lakes and more. Seems to me a bit over the top. NZ got rid of subsidies some time ago, and is more competitive.I do agree that subsidies make a country less competitive (on average) by misallocating investment between ag and non-ag sectors and within the ag-sector (distorting acreage devoted to crop X). Yet, I wonder about the other side effect of subsidies.These days, the excess wine is converted to ethanol for cars. I'd imagine that butter could run a gas turbine powerplant if the locals don't mind the smell of butterscotch. These biofuels may be horribly non-green, but they probably do serve a purpose in buffering food production by providing some economic return for higher-than-expected output. Thus, subsidies encourage higher-than needed average production and provide inventory that buffers the system against the down-side tails of food production levels. Has the reduction in food subsidies led to a rise in food price volatility?The larger problem is that the rich countries can afford fluctuating commodity prices and the poor countries cannot. If the price of wheat doubles, people in the EU and US may grumble about another fraction of 1% of inflation, but nothing bad really happens (e.g., the death rate remains the same). Percent of income spent on food in developed countries is both low and elastic (e.g., by eating more potatoes and eating less air-freighted organic free-range heirloom beef). If the price of wheat drops by half, the farmers in the EU and US may grumble about profits, reduce acreage or switch crops, but nothing bad really happens. Such is not the case in the developing nations, where both consumers and farmers live much closer to the line between life and death.Again, I would argue that speculators generally help buffer prices. But that doesn't mean that average prices will stay low or that spot prices will stay affordable to everyone. I can't see any scenario (except massive depopulation or economic depression) that would let food and oil prices return to what they were a few years ago.