Feed the World the Economist

¶ … Feed the World The Economist in 2009 outlined the challenging situation the world's nations face with regards to food production. The human population is increasing rapidly, but food production has not kept pace. Food production is instead bumping up against the physical limitations of the planet -- access to arable land and water in particular. In some countries, these limitations have already been reached. The results in some cases have been famine; in other cases dramatic austerity measures have been taken.

Perhaps no greater an austerity measure in the name of feeding a population has been undertaken was the one child policy in China, implemented in the late 1970s to stem that nation's cycle of rapid population increases and famines. There are two main components to the current debate over how to feed the world's growing population. Free marketers cite comparative advantage to argue for increased trade in global food markets. The underlying economics has been demonstrated effective in many situations in the past.

Even in China, the population has increased by hundreds of millions since the one child policy has been instituted, but that country's drastically improved economy has given it the means to purchase surplus food on the world markets to meet the needs of its citizens. The second main component to the current debate is that self-sufficiency argument. Proponents of self-sufficiency view the free market argument as deficient, failing to account for a number of critical externalities that nations today face.

For example, the poorest nations are the ones with the fastest-growing populations. They have little to trade, and a lot of mouths to feed. In addition, as the world bumps up against its physical limits, food becomes so scarce that the supply on the world markets cannot meet demand -- it is not sufficient to merely trust that there will be enough food. Complicating the situation for both sides are a number of externalities that impact the function of global food markets.

Technological changes have resulted in increased agricultural yields, but at the expense of biodiversity. Health concerns have resulted in the banning of genetically modified foods. Almost all nations consider food security to be an issue of national security. Whether this issue is anachronistic or not is subject to debate, but the resulting array of laws and subsidies results in substantial complications in the global food market.

Ricardo and Beyond The laws and subsidies that currently govern the global trade in food products run counter to the arguments of the free marketeers. This group, supported by the World Trade Organization and other powerful global bodies, argues that the way to ensure food security for the world's people is through the improvement of global food markets. Trade restrictions are externalities that reduce the efficiency of these markets, ultimately causing an inefficient distribution of food resources around the world.

Unfettered trade would increase the supply of food and improve its distribution. The free market arguments rest upon the basic theory of comparative advantage. Trade, it is argued, depends on nations producing the goods in which they have a comparative advantage and trading with other nations for other goods. If nations are poor in agricultural land or water, they would benefit from trade in other goods instead. China represents a classic example of the benefits of improved trade.

A nation that has suffered multiple famines in the 20th century and was desperate to the point of propping up Pol Pot's regime in Cambodia in order to secure access to that country's rice harvest, China reversed its cycle of despair in food by opening up its other markets. With limited supplies of water and hundreds of millions of mouths to feed, China has not had a comparative advantage in food production for centuries.

It did have a comparative advantage in manufacturing, on account of those hundreds of millions of people. By opening its markets and switching to production of goods in which China had comparative advantage, China has maximized its production possibilities frontier. As a result, it has successfully eliminated the widespread famines that once characterized its rural areas. China is not entirely out of the woods with regards to food security, but its focus on trade as a long-term solution has worked well thus far.

While on the surface China makes a great case for freer trade and comparative advantage, there are some underlying assumptions to the free trade argument call its validity into question. The first is that all nations have something of value of trade. China was blessed with human resources, but many nations have limited resources. In Africa, nations blessed with resources have in many cases ceded those resources to foreign interests, again leaving the nation with little to trade.

While any nation can conceivably find something to trade in which it has comparative advantage, the reality is that for some countries, the value of those goods may not be sufficient to ensure food security. Another assumption of the free trade argument is that nations will always be willing to trade food for other goods. Under the current economy, this is true. Despite increasing prices, food is relatively cheap.

We produce enough food on this planet to feed all human beings alive right now, and we can afford to do so. Ricardo's arguments however do not take into account physical constraints. Nations are already bumping up against those constraints, at some point the world will too. Consider that the population of the world is increasing rapidly while the supply of available arable land is growing very slowly and will soon begin to decrease as global warming initiates a vicious climate feedback loop.

Fresh water supplies may run out even faster -- many countries already have difficulty meeting demand for water as glaciers and underwater aquifers are tapped dry. When physical constraints are reached, the planet will literally run out of the ability to feed its people. Such an extreme circumstance would have countries no longer willing to trade food, or would trade it at such a high value that many countries in need could not afford it.

The extreme case may be decades or centuries away, but it is plausible in the next hundred years and it is something that is not accounted for in the basic comparative advantage model. Strategic Resources The possibility that a nation could run out of food is what drives the self-sufficiency argument. In this world, certain resources are strategic in nature. The lack of strategic resources places a nation at severe economic, political and military disadvantage.

The Soviet victory at Stalingrad cut Nazi Germany off from much-needed oil supplies in the Caspian, bringing Germany's war machine to the ground, just as the Germans tried to deprive Britain and Leningrad of their food for the same reason. Nations today understand the strategic value of food resources. If a country is dependent on other countries to feed its people, that dependency places the nation at severe strategic disadvantage. This reality has become manifested in domestic and foreign policy.

Major Western nations espouse the virtues of free markets in almost all circumstances, but they remain highly protective of their agricultural sectors. Norway refuses to join the European Union for fear of damaging its agricultural sector. The United States has a battery of subsidies to protect its sensitive food industries. In times of crisis, every nation wants to know that it can feed its people. The people -- who in the West elect their governments -- also want self-sufficiency.

In a future where the world is producing food at its maximum potential, the ability of a nation to feed itself is as critical a strategic variable. While the market for food may on paper function like any other market under the theory of comparative advantage, in practice the food market is fundamentally different than other markets. Food and water are unique commodities because they are utterly essential to life of any quality. After food and water, all other commodities in an economy are gravy.

The self-sufficiency argument recognizes this fact, but it fails to respect certain limitations. Western economics is understood in large part on the basis of Western economies -- large and diverse lands where the production of many different goods is possible and has historically been conducted. However, the nature of modern Western nations is fundamentally different from the nature of many other nations around the world. Many of the world's nations are vestiges of colonialism, random tracts of land carved from broader, more diverse regions.

The result is that many nations lack the same level of natural endowment that classical Western economies posses. The creation of the European Union was at least in part a recognition of the fact that in certain areas of the economy, Europe stood to gain from the development of economies and diversity on a continental level rather than a national one. That level of cooperation, however, is unique to Europe.

Many of the world's hungriest nations are precisely so because they lack natural endowments -- they were carved from areas incapable of self-sufficiency by colonial powers that imported foodstuffs when needed. Native populations never had such concepts. That many nations are artificial creations incapable of food self-sufficiency undercuts the self-sufficiency argument. Nations around the world may need, at the very least, to organization into larger, more diverse blocs the way Europe has in order to have any hope of attaining food self-sufficiency.

Externalities Inefficient and illogical colonial-era boundaries are just one externality that is impacting the ability of the world to feed itself. Trade regulations are another. No matter the justification, trade barriers and tariffs reduce the efficiency of the global food trade. When nations protect certain industries with these barriers, they fail to take advantage of comparative advantages. Worse, such regulations stifle innovation. When regulations are removed, innovation allows industries to find a new equilibrium. An example of this can be found with Canadian wine production.

Prior to the U.S.-Canada Free Trade Act, the Canadian wine industry was subsidized heavily. When the free trade act removed those subsidies and barriers, the market became flooded with American wine, which because of competitive advantages was cheaper and better. This spurred a bout of innovation at Canadian vineyards, resulting in a strong domestic industry based on premium product rather than the weak domestic industry that existed previously without innovation for decades and needed government assistance merely to exist.

By removing government-mandated self-sufficiency in wine, the Canadian government ultimately ensured the long-term survival of what under protectionism was an industry on life support. Innovation is one of the most important externalities in the global food market. In the United States, agricultural yields have been improved through the development of genetically modified foods -- foods that are disease resistant, that are hardier or that grow larger than otherwise would. genetically modified foods, however, are subject to considerable controversy (Whitman, 2000). They have been banned in Europe, for example.

Europe may feel sufficiently comfortable with its agricultural base to enact such a ban, but the net effect of the ban is to create a barrier to entry, reducing the efficiency of global food markets. If such bans are spread to other parts of the world, the result could be an exacerbation of existing food supply crises.

Improved yields are essential to feeding the planet's growing population, especially given the fact that the world is running out of arable land, is facing water supply constraints and that the average caloric intake per capita is increasing as the result of widespread economic progress. These externalities cause harm to global food markets, but this is accepted because the underlying reasons for them - the banning of genetically modified foods for example -- are non-economic. This leaves open the question of how best to ensure food security for the world.

At present, there are essentially two types of arguments. The purely economic argument is for food markets free from intervention and externalities. The other set of arguments may vary in the details, but stem from the underlying philosophy that the ideal path is one in which food markets are managed, with a full slate of measures in mind. Under these philosophies, the outcomes sought in our global food market system are not simply with respect to maximizing the intersection between calories, acres and dollars.

Non-financial measures are incorporated under the theory that just because something cannot be easily quantified does not mean that it has no value. Another externality that contributes to the food supply/demand problem is the nation state. Ever since modern home sapiens came into existence, humans have followed the food. Our global trade system is based on stationary humans and moving food, contrary to the system we have followed for tens of thousands of years. Modern borders create mini-crises, localized famines that are difficult to resolve.

The people cannot easily move to more agriculturally productive areas, yet trade barriers, corruption, transportation issues and other problems of the modern nation-state result in a failure to bring food from global markets to the people. This is a failure of both the supply and demand sides. If people are allowed to move more freely to the areas of surplus food production, these two sides come together.

While massive migration is typically viewed by policy makers as a problem -- the coming of a great crisis (Eide & Kracht, 2009) -- it is in fact the historically proven solution to food supply problems. For abundant nations to fear an influx of people that they can easily feed is nothing short of xenophobia. Freeing human movement will alleviate a large portion of short-term, temporary hunger. It may not, however, alleviate long-term hunger when the physical limits of the earth are reached, but then neither will trade.

The Way Forward From a purely economic point-of-view, it is the maximization of the intersection between calories, acres and dollars that we should seek. Producing the most food energy on the most arable land for the fewest dollars should be the ultimate goal of food policy. This approach would involve the removal of all barriers and externalities. Food markets today are rendered inefficient by subsidies, trade barriers and the rejection of innovation.

While such approaches may not compromise our ability to feed ourselves today, they may in future as the population increase brings us to the limits of our planet's physical capabilities. Even the modern notion of free trade is unacceptable to meet this lofty end goal. The current global trading system even when free is often subject to a high degree of regulation, the result being that the system benefits some nations while putting others at.