Thursday, August 04, 2005

Food Prices and The Third World

Here I linked to various Brad Plumer writings in which it is argued that trade liberalization is overhyped as a benefit for the Third World, particularly in terms of reducing farm subsidies, because not only would it have only a small impact on world prices, but that that rise might well, on net, hurt poor countries because many of them are net importers of food, and so you'd see a net decrease in wealth coupled with a redistribution to rural areas (click through to find the academic studies). This would stand as a direct challenge to ideas argued for here and qualified here and here.

But this is true in a static sense, given prevailing prices. Given slightly higher prices, there would be more incentives to produce, and thus, over a not so long time, the countries might become self-feeding or net exporters; even if they don't export, you'd at least have higher domestic prices (which means that the experience of the WAEMU countries following the 1994 devaluation wouldn't apply here).

The idea is that in economies where over half the workers are in agriculture and there is no money at the moment to invest in manufacturing (and thus no reason for farmers to move to the city), you could put in place conditions for farmers to accumulate a surplus that would allow them to invest in order to increase productivity. Perhaps with sufficient investment, farming could be dynamic and exciting and be an engine for growth -- or maybe not. Given that poverty is worse in rural areas, something that redistributes money to rural areas doesn't seem so bad.

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