A Second Hand Conjecture

Namibian supermarket selection (photo: Olivier Peyre)

One of great inequities in the modern world is that in relative terms, food in poor and starving countries often costs far more than in the wealthy developed world. That’s because industrial countries tend to be dominated by large supermarket chains, which can achieve enormous economies of scale in volume sales, and thus are able to offer dramatically cheaper food prices to consumers.

The difference between the benefits of traditional and supermarket retail food sales can be staggering even within the same country. In an unevenly developed country such as India, which is divided between urban chain supermarkets and rural traditional markets, the cost of vegetables is 33% cheaper in the city than for the rural poor dependent on small local stores.

This has larger economic implications than is generally acknowledged, as food purchases consume a far larger share of national wealth in the developing world. In poor countries such as Nepal, food spending can account for as much as 50% of consumption expenditure in middle income households, compared to 15% in the United States. Thereby a cruel kind of trap is created through high food prices, which precludes consumer spending on goods and services that command higher wages than agriculture can provide.

Thus, if you were able somehow to reduce the cost of food in the developing world, and thereby the share of consumer income it eats, you could free up large reservoirs of capital to the benefit of the broader economy’s development.

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As an update to this previous post, be sure to read this from The Economist.

Governments ought to liberalise markets, not intervene in them further. Food is riddled with state intervention at every turn, from subsidies to millers for cheap bread to bribes for farmers to leave land fallow. The upshot of such quotas, subsidies and controls is to dump all the imbalances that in another business might be smoothed out through small adjustments onto the one unregulated part of the food chain: the international market.

For decades, this produced low world prices and disincentives to poor farmers. Now, the opposite is happening. As a result of yet another government distortion—this time subsidies to biofuels in the rich world—prices have gone through the roof. Governments have further exaggerated the problem by imposing export quotas and trade restrictions, raising prices again. In the past, the main argument for liberalising farming was that it would raise food prices and boost returns to farmers. Now that prices have massively overshot, the argument stands for the opposite reason: liberalisation would reduce prices, while leaving farmers with a decent living.

The record of governments trying to manage markets is woefully poor.  Free markets assuredly are not free from their own anomalies and swings; witness our current real estate difficulties.  Nevertheless, even with all their flaws, free markets are superior to the alternatives.

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So shall ye reap.Am I the only one who finds massive government interference in agricultural markets to be insanity? And, surely our own nation’s recent love affair with ethanol is a significant contribution to world wide inflationary food costs - and starvation.

I would say we should vote for politicians that will end government sticking its snout into agriculture markets. But - would we have anyone left for whom to vote?

Sadly, the answer is unclear.

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(photo: Michael Deeble)

With heavy rains flooding Southern Africa and displacing thousands, surely saving graces must be found in parched and dying Swaziland, a country long thirsting for a drop of rain. But somewhat typically, that oppressed country’s autocrat King Mswati III, has taken the event of the rain for more than it is, and in so doing has begun another trek away from the path of reform.

The other day Mswati delivered a speech in the rain to army cadets, saying that salvation had finally come. The king believes that now is the time for his citizens to give up living off donor food from the international community and return to agricultural self-sufficiency:

“The time has come for us to come out of the dependency syndrome and start eating our own food that we have cultivated in our fields instead of depending on the donor community,”

Were it only so simple.

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