Sunday, November 21, 2010

Up is good , right?...

I've spent enough time with the livestock and dairy sector to realize that soaring grain markets are not good for every part of agriculture (although to be fair the protein sector understands this as the way things work, but protests the unfair market manipulation by mandates, etc.)

But what about poor farmers around the globe? Do high commodity prices hurt more than help by raising food costs?
They conclude: “Adverse agricultural price shocks can have negative effects on poor urban households through labor market transmission, which can offset the gains they might realize as net consumers of agricultural products.”
Conversely, they find that when rice prices go up the overall impact is progressive. The demand for unskilled labor in agriculture goes up, which raises incomes, and raises wages not just in agriculture but generally across unskilled labor markets. The rural poor are the clear winners, earning higher prices for their crops and higher wages (or incomes) from their labor, even if they are net buyers of food. Some of the urban poor end up worse off, but some of their fellow net food buyers end up better off in spite of higher food prices. They are earning more for their labor.
Carnegie recognizes that this will play out differently from country to country, but the report’s conclusions for India are unequivocal: high prices for agricultural commodities are progressive and certainly preferable to low agricultural prices which hurt the poor the most.
George Dyer showed the same thing in some of his modeling related to higher corn prices in Mexico. Dyer modeled higher corn prices, looking only at rural areas, to examine the effects on net sellers and net buyers in rural Mexico. He found that the main source of income gains in rural Mexico came not from crop sales but from higher wage income. The negative effect of high prices on net food buyers was cushioned in the case of subsistence farmers, by higher wage income and some increase in their own production. (See my summary and reference, p 27.)
The models most commonly used (e.g., GTAP) often fail to capture these distinctions because they impose fixed constraints on employment. Carnegie, in its various Doha studies, showed just how important that can be. In the case of agriculture, it turns out to be critical, precisely because the rural and urban poor both depend on wage income, agricultural employment is significant and is strongly impacted by prices, and agricultural labor markets have an impact on urban labor markets.
What is perhaps most telling about the price increases of recent years is the negative impact of their extreme volatility. Both high and low prices have winners and losers, but volatility hurts everyone except the traders and speculators. Stable and remunerative prices should be the goal. That is what will attract investment into agriculture and bring long-term benefits beyond the short-run effects. [More]
Maybe I'm actually a humanitarian now.  Yeah - that's it.  I don't want high prices just for me.  I want them for poor farmers.

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