Freer Trade Could Fill the World’s Rice Bowl

**Shek** · 04-28-2008, 21:19 PM

http://www.nytimes.com/2008/04/27/bu...ess/27view.htm

Quote:

RISING food prices mean hunger for millions and also political unrest, as has already been seen in Haiti, Egypt and Ivory Coast. Yes, more expensive energy and bad weather are partly at fault, but the real question is why adjustment hasn’t been easier. A big problem is that the world doesn’t have enough trade in foodstuffs.

The damage that trade restrictions cause is probably most evident in the case of rice. Although rice is the major foodstuff for about half of the world, it is highly protected and regulated. Only about 5 to 7 percent of the world’s rice production is traded across borders; that’s unusually low for an agricultural commodity.

So when the price goes up — indeed, many varieties of rice have roughly doubled in price since 2007 — this highly segmented market means that the trade in rice doesn’t flow to the places of highest demand.

Poor rice yields are not the major problem. The United Nations Food and Agriculture Organization estimates that global rice production increased by 1 percent last year and says that it is expected to increase 1.8 percent this year. That’s not impressive, but it shouldn’t cause starvation.

The more telling figure is that over the next year, international trade in rice is expected to decline more than 3 percent, when it should be expanding. The decline is attributable mainly to recent restrictions on rice exports in rice-producing countries like India, Indonesia, Vietnam, China, Cambodia and Egypt.

At first glance, this seems understandable, because a country may not wish to send valuable foodstuffs abroad in a time of need. Nonetheless, the longer-run incentives are counterproductive.

Export restrictions send a message to farmers that their crops are least profitable precisely when they are most needed. There is little incentive to plant, harvest or store enough rice — or any other crop, for that matter — as a hedge against bad times.

This tendency to skew supply and demand is also apparent in the Philippines, where the government is tracking down and arresting rice hoarders, who, of course, are simply storing rice for the possibility of even harder times to come.

In commodity markets, it’s not uncommon for high demand to cause sharp increases in prices; on short notice, it’s often hard to match the new demand with more supply. The question is whether supply, and trade, can grow to offset market tightness.

Restrictions on the rice trade run the risk of making shortages and high prices permanent. Export restrictions treat rice trade and production as a zero- or negative-sum game where one country’s gain comes at the expense of another. That’s hardly the best way to move forward in a rapidly growing world economy.

This lack of support for trade reflects a broader and disturbing trend. An increasing percentage of the world’s production, including that for agriculture, comes from poor countries. Over all, that’s good for rich countries, which can focus on creating other goods and services, and for the poor countries, which are producing more wealth. But it can slow the speed of adjustment to changing global conditions.

For example, if demand for rice rises, Vietnamese farmers — who remain shackled by many longstanding regulations of communism — aren’t always able to respond quickly. They don’t even have complete freedom to ship and trade rice within their own country.

Poorer countries also tend to be the most protectionist. To make matters worse, about half of the global rice trade is run by politicized state trading boards.

The reality is that many of today’s commodity shortages, including that for oil, occur because ever more production and trade take place in relatively inefficient and inflexible countries. We’re accustomed to the response times of Silicon Valley, but when it comes to commodities production, many of the relevant institutions abroad have only one foot in the modern age. In other words, the world’s commodities table is very far from flat.

Many poor countries, including some in Africa, could be growing much more rice than they do now. The major culprits include corruption in the rice supply chain, poorly conceived irrigation systems, terrible or even nonexistent roads, insecure property rights, ill-considered land reforms, and price controls on rice.

The ability of a country to grow rice depends not just on its weather, but also on its institutions. Burma, now Myanmar, was once the world’s leading rice exporter, but it is now an economic basket case and many of its people go hungry.

Of course, wealthy countries are partly at fault, too. Japan, South Korea and Taiwan all protect their native rice farmers; you’ll even see rice being grown in Spain and Italy, aided by European Union subsidies and protectionism. The United States spends billions subsidizing domestic rice farmers.

In the short run, these domestic rice producers mean less demand pressure on the world market, which might seem like a good thing. But, again, the longer-term effects are pernicious.

LOW-COST rice production in countries like Thailand isn’t geared to meeting higher foreign demand, as it would be in a freer market. When more rice is needed, capacity is limited and the grains are slow in coming. And the protected rice from wealthy countries is simply too expensive to alleviate hunger in very poor countries.

Lately, it’s become fashionable to assert that, in this time of financial market turmoil, the market-oriented teachings of Milton Friedman belong more to the past than to the future. The sadder truth is that when it comes to food production — arguably the most important of all human activities — Mr. Friedman’s free-trade ideas still haven’t seen the light of day.

Tyler Cowen is a professor of economics at George Mason University.

dalem · 04-28-2008, 21:43 PM

I like rice.

-dale

**Ironduke** · 04-28-2008, 21:46 PM

I went to the grocery store a little while ago... there was no white rice in the store (not including Minute Rice). It wasn't even on sale... there must have been a run on it. All I wanted was a 5 lb. bag.

I wanted to pick up a big bag too... I've been trying to cut back on my grocery bill and even if rice is expensive it's still cheap relative to other foods. I find myself making flour, milk, and margarine drop biscuits just about everyday recently. I guess I could eat potatoes for a different starch until rice shows back up on the shelves.

Quote:

Originally Posted by dalem

I like rice.

Me too. With lots of Kikkoman soy sauce.

Now I have Kikkoman soy sauce but no white rice.

astralis · 04-28-2008, 22:39 PM

jeezus, i never understood the american habit of pouring soy sauce on rice.

it's like eating pasta and pouring mayonnaise or tartar sauce on it.

Kansas Bear · 04-28-2008, 23:25 PM

Quote:

Originally Posted by dalem

I like rice.

-dale

What if you're allergic to rice? Tofu?

bolo121 · 04-29-2008, 01:07 AM

I dont think this free trade thing would work in India's case. In india the farmer has no power to set the price. He is controlled by what the local middlemen (backed up by goondas) agree to pay him. In times of rising food sure he may be paid a bit more, but only a bit. The middlemen would send the rice further up the chain where most of it would be exported for super profits abroad.
End result is: Farmers still poor, middlemen all along the chain filthy rich, no food for the poor, govt forced to buy rice for the ration shop system at ruinous prices.

dave lukins · 04-29-2008, 07:34 AM

Quote:

Originally Posted by Kansas Bear

What if you're allergic to rice? Tofu?

Cous Cous

Cactus · 04-29-2008, 08:17 AM

Quote:

Originally Posted by bolo121

I dont think this free trade thing would work in India's case. In india the farmer has no power to set the price. He is controlled by what the local middlemen (backed up by goondas) agree to pay him. In times of rising food sure he may be paid a bit more, but only a bit. The middlemen would send the rice further up the chain where most of it would be exported for super profits abroad.
End result is: Farmers still poor, middlemen all along the chain filthy rich, no food for the poor, govt forced to buy rice for the ration shop system at ruinous prices.

You seem fascinated with all things criminal and see it everywhere! While I agree that there may be a level of criminality involved... the fundamental reason why the Indian rice farmer cannot really set his price is because he depends heavily on the state for his enterprise and vice-versa. A hundred aspects of rice-farming depend on state support and intervention: Canals, electricity/diesel for pumps, fertilizers, hired labor, "seed-" paddy... So in effect the rice farmer really becomes a state agent. Conversely his job is also critical to the survival of the state. The rice farmer cannot really go about setting the price any more than a soldier can go out on a unionized-strike.

bolo121 · 04-29-2008, 09:08 AM

Cactus, i dont 'see' criminality everywhere, it really is everywhere.
Where in India do you live or are you outside?
Govt assistance is of course there but in many cases does not reach farmer adequetly. I have personally talked to relatives of mine who are engaged in agriculture, who often bemoan their inability to get better prices because of middlemen.

rj1 · 04-29-2008, 09:32 AM

Quote:

Originally Posted by Ironduke

I went to the grocery store a little while ago... there was no white rice in the store (not including Minute Rice). It wasn't even on sale... there must have been a run on it. All I wanted was a 5 lb. bag.

I wanted to pick up a big bag too... I've been trying to cut back on my grocery bill and even if rice is expensive it's still cheap relative to other foods. I find myself making flour, milk, and margarine drop biscuits just about everyday recently. I guess I could eat potatoes for a different starch until rice shows back up on the shelves.

Me too. With lots of Kikkoman soy sauce.

Now I have Kikkoman soy sauce but no white rice.

Go to Asian Food Markets. They have 50-pound rice bags by the pallet.

Although they probably cost a bit more now and might be a little scarcer.

Quote:

LOW-COST rice production in countries like Thailand isn’t geared to meeting higher foreign demand, as it would be in a freer market. When more rice is needed, capacity is limited and the grains are slow in coming. And the protected rice from wealthy countries is simply too expensive to alleviate hunger in very poor countries.

Lately, it’s become fashionable to assert that, in this time of financial market turmoil, the market-oriented teachings of Milton Friedman belong more to the past than to the future. The sadder truth is that when it comes to food production — arguably the most important of all human activities — Mr. Friedman’s free-trade ideas still haven’t seen the light of day.

Tyler Cowen is a professor of economics at George Mason University.

You can always tell when you're reading a person that doesn't know what being threatened with a gun by a mob is like.

And that's the ultimate reason for these countries' food policies. Prof. Cowen is seriously living in a fantasy world that does not exist, countries where people don't really care about the free market, don't have a lot of money, just want to eat, and if they don't eat, they can overwhelm the rulers in a coup and start killing the government officials responsible for the shortages. Is that rational? Of course not, but it's what would still happen and some populist could use the temperament of the locals to his advantage.

Doesn't he realize that most of the places he is talking about, the rule of law is not just assumed to be always true?

gunnut · 04-29-2008, 18:47 PM

Quote:

Originally Posted by rj1

You can always tell when you're reading a person that doesn't know what being threatened with a gun by a mob is like.

And that's the ultimate reason for these countries' food policies. Prof. Cowen is seriously living in a fantasy world that does not exist, countries where people don't really care about the free market, don't have a lot of money, just want to eat, and if they don't eat, they can overwhelm the rulers in a coup and start killing the government officials responsible for the shortages. Is that rational? Of course not, but it's what would still happen and some populist could use the temperament of the locals to his advantage.

Doesn't he realize that most of the places he is talking about, the rule of law is not just assumed to be always true?

Then they still don't eat. Cope with the realities of the free market or be prepared to let nature take its course.

Free market system can support many more people than a patch work of subsidized markets.

Jay · 04-29-2008, 19:00 PM

Quote:

Originally Posted by Ironduke

I went to the grocery store a little while ago... there was no white rice in the store (not including Minute Rice). It wasn't even on sale... there must have been a run on it. All I wanted was a 5 lb. bag.

Go to any Indian grocery store, they'll have plenty of bags from 5 lbs to 50 lbs. Also Costco here in NJ sells quality rice.

Jay · 04-29-2008, 19:11 PM

Quote:

Originally Posted by bolo121

Govt assistance is of course there but in many cases does not reach farmer adequetly. I have personally talked to relatives of mine who are engaged in agriculture, who often bemoan their inability to get better prices because of middlemen.

Most of the farmers want to sell their rice to FCI/State procurement to be on the "safer" side. While it is true that the middlemen (rice mill owners) buy off the paddy cheaply and then sell finished rice for a much higher price, thats how most of the business works. Iron ore supplier cannot complaint that steel is 10 times the price of the ore. Most farmers sell it for what ever price the middlemen say, so that they have the cash at hand rather than watch and wait for market for price appreciation.

Also, there are not too many large farmers in India unlike the western countries. Its sort of political, so I dont want to go there.

Only if we control the wastage in all FCI godowns we will be able to feed much more people. Even during the worst of droughts India alway had surplus rice, its just the rotten distribution system in the case of India.

**Shek** · 04-29-2008, 22:01 PM

Quote:

Originally Posted by rj1

You can always tell when you're reading a person that doesn't know what being threatened with a gun by a mob is like.

And that's the ultimate reason for these countries' food policies. Prof. Cowen is seriously living in a fantasy world that does not exist, countries where people don't really care about the free market, don't have a lot of money, just want to eat, and if they don't eat, they can overwhelm the rulers in a coup and start killing the government officials responsible for the shortages. Is that rational? Of course not, but it's what would still happen and some populist could use the temperament of the locals to his advantage.

Doesn't he realize that most of the places he is talking about, the rule of law is not just assumed to be always true?

So governments undertake policies that may induce shortages so that they can avoid mob action when the shortages they created happen?

Freer markets have demonstrated time and time again that they can provide, although the timing of transition is critical, and this oped doesn't call for draconian timing. You can look to the beginnings of Chinese capitalism through agriculture and the nearly spontaneous abandonment of communal farming.

bolo121 · 04-30-2008, 00:20 AM

Quote:

Originally Posted by Jay

Most of the farmers want to sell their rice to FCI/State procurement to be on the "safer" side. While it is true that the middlemen (rice mill owners) buy off the paddy cheaply and then sell finished rice for a much higher price, thats how most of the business works. Iron ore supplier cannot complaint that steel is 10 times the price of the ore. Most farmers sell it for what ever price the middlemen say, so that they have the cash at hand rather than watch and wait for market for price appreciation.

Also, there are not too many large farmers in India unlike the western countries. Its sort of political, so I dont want to go there.

Only if we control the wastage in all FCI godowns we will be able to feed much more people. Even during the worst of droughts India alway had surplus rice, its just the rotten distribution system in the case of India.

Yes it would be good if the FCI could be modernised with better godowns and maybe some cold chain as well. A lot of grain gets spoiled by pests or weather. Another problem is that instead of going to the public system, grain is sold illegally to middlemen and the proceeds pocketed. Distribution system is really poor i agree.

04-28-2008, 22:39 PM	#4 (permalink)
astralis Lei Feng Protege *Foreign Service* Join Date: 08-23-05 Location: Washington, DC Posts: 2,772 Country:	jeezus, i never understood the american habit of pouring soy sauce on rice. it's like eating pasta and pouring mayonnaise or tartar sauce on it. __________________ Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present. -Marcus Aurelius, Meditations

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04-28-2008, 21:43 PM	#2 (permalink)
dalem Lord High Hullabalooster *Senior Contributor* Join Date: 11-23-04 Location: Columbia Heights, MN Posts: 7,734 Country:	I like rice. -dale

04-29-2008, 01:07 AM	#6 (permalink)
bolo121 Contributor Join Date: 12-19-07 Location: india Posts: 540 Country:	I dont think this free trade thing would work in India's case. In india the farmer has no power to set the price. He is controlled by what the local middlemen (backed up by goondas) agree to pay him. In times of rising food sure he may be paid a bit more, but only a bit. The middlemen would send the rice further up the chain where most of it would be exported for super profits abroad. End result is: Farmers still poor, middlemen all along the chain filthy rich, no food for the poor, govt forced to buy rice for the ration shop system at ruinous prices.

04-29-2008, 09:08 AM	#9 (permalink)
bolo121 Contributor Join Date: 12-19-07 Location: india Posts: 540 Country:	Cactus, i dont 'see' criminality everywhere, it really is everywhere. Where in India do you live or are you outside? Govt assistance is of course there but in many cases does not reach farmer adequetly. I have personally talked to relatives of mine who are engaged in agriculture, who often bemoan their inability to get better prices because of middlemen.

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