Finding the Goldilocks food price...

OK, we mostly agreed very low commodity prices were bad for poor farmers in the Third World.  But now high prices aren't helping them that much either, it seems.

Of course, there are winners and losers for every major change in the global economy, and it stands to reason that some poor farmers will find a way to profit from inflation. Says Columbia University economist Sanjay Reddy, who teaches courses on world poverty and development economics, a few "may have only to walk down the road and sell their produce for a lower price than people are paying." Reddy also notes that there's a difference between landowners and the landless; clearly, the former have a somewhat better chance of eking out some profit. But for most of the rural poor, the odds of cashing in are dismal.

So is there perfect price that wouldn't impoverish either farmers or consumers? Not really, says Reddy: "Price always involves a conflict of interest." That's logical enough: The higher price is in the interest of the seller, and the lower price is in the interest of the buyer. At times, the policies poor countries have adopted to make food more affordable for consumers—such as government-enforced price depression in sub-Saharan African nations—have created "terrible conditions for agriculture," says Reddy.

Agreeing it's a tricky balance, De Schutter emphasizes the need to protect consumers while also using "the increase in prices as an opportunity to promote investments in agriculture in developing countries." To that end, he points out, it's important not to bring prices down, but to help households cope with higher prices through more programs to help the poor such as school breakfast and lunch programs, cash assistance, and cash-for-work programs. This could be sensible in the U.S. context, too: In a recent hearing on economic woes here, Rep. Barney Frank, D-Mass., observed that countries with stronger social safety nets are better able to shield their citizens from the effects of inflation, and thus can pursue a more balanced monetary policy, while in the United States, if we don't control inflation, people are left in truly dire straits. In May, Second Harvest, a national network of food pantries, reported that attendance was up 15 percent to 20 percent, with 100 percent of food pantries seeing an increase. [More]

The difficulty in finding the right price by computer simulation or economic analysis should us to encourage the use of a tried-and-true iterative device called: The Market. Decreasing subsidies (and trade barriers) would doubltess cause significant dislocations, but trying to prevent them with economic guesses simply makes those transitions larger and more painful.

Instituting a better safety net for farmers who choose to leave the business, which would permit rationalization of backward ag production systems, might make more sense that dictating unsuccessfully food and commodity prices from a government bureau.

The same principles would work well here too. If we don't free up our corn market from mandates we will fruitlessly struggle to find a price that allocates to hogs and chickens and ethanol.  Worse yet, we could be in the process right now of reaching a false equilibrium price for corn that poses a significant hazard to farmers going forward in the future. Mandates don't strike me as politically or economically sustainable for too long.

But boy - have I been wrong about those types of projections.