1 make up tomorrow - wednesday – may 4 – 3.30 – 5.00 pm, fhs 110 (possibly also) - wednesday...

1

Make Up

tomorrow - Wednesday – May 4 – 3.30 – 5.00 pm, FHS 110

(possibly also) - Wednesday – May 18 – 3.30 – 5.00 pm, FHS 110

2

reminder

2nd exam: May 24 (T)

Cost of Environmental Degradation

Chapters 14, 12, 9

possibly more

3

project deadlines!

progress report - due May 10th

4

The Cost of Environmental Degradation Degradation: The case of Lebanon

5

oil spill and waste due to ‘conflict’: the case of Lebanon

“The 34-day hostilities in Lebanon started on July 12, 2006 and continued until August 14, 2006, when the ceasefire went into force. It killed close to 1,200 people, left more than 4,400 injured, displaced more than a quarter of the population, and severely damaged the country’s infrastructure (GoL 2006a).”

what is missing?

• an active verb!

6

oil spill and waste due to ‘conflict’: the case of Lebanon

“The 34-day hostilities in Lebanon started on July 12, 2006 and continued until August 14, 2006, when the ceasefire went into force. It killed close to 1,200 people, left more than 4,400 injured, displaced more than a quarter of the population, and severely damaged the country’s infrastructure (GoL 2006a).

“The bombing of a power plant in Jiyeh caused 12,000 to 15,000 tons of oil to spill into the Mediterranean Sea. The widespread fires and oil burning deteriorated air quality, especially in southern Beirut. These damages significantly affected the country’s economy, environment, and public health.”

• How would you measure those impacts? Where would you start?

7

how to start? how to measure?

research what happened. what were the impacts.

example: oil spill. what would you need to know?

what?

when?

impacts on... ?

research what?...

8

methodology used by WB consultants for oil spill

“The valuation of damages caused by the oil spill is based on the users’ forgone benefits: the difference between the expected and the actual benefits derived from activities on the coast.

“Expected benefits” --> level of environmental benefits that would have been enjoyed had the oil spill not occurred

• “Actual benefits” --> those provided after the outbreak of the hostilities

9

Valuation challenges

valuation depends on wide range of factors including: types of goods and services; space and time scale; sectors affected; poor quality of available statistics, and possible existence of irreversible and long-term effects

what does that mean?

• examples:

nonmarket losses to tourists

fisheries’ losses in the absence of accurate biological data

• 2 issues getting special attention:

time frame of oil spill impacts [report concluded ‘3-year time frame during which losses are assumed to subside gradually’

oil spill’s particular contribution to the total environmental damage caused by the war (how to single out the contribution to the overall damage)

--> importance of stating the assumptions!

10

so how was cost of degradation due to the oil spill valued?

--> forgone benefits during 2006-2008 - with a 4 per cent discount rate with 2006 as a base year

hotels and furnished apartments

beach resorts

chalets

public beaches

events

marinas’ sports activities

Palm Islands Nature Reserve: loss of recreation; damage to biodiversity; cost of impact assessment and monitoring

11

loss of recreation - Palm Islands Nature Reserve

estimated by difference between expected number of tourists and actual arrivals

80% of tourists use its facilities for boat transportations and group excursions. 500 visiting group (15 people/group)/tourist season.

expected visitors in 2006 - actual visitors in 2006 = forgone visitors in 2006.

based on a tourist season of 13 weeks, and fees for each recreational activity

expected annual income: average fee/group, average fee/individual transportation, rental chair and umbrellas

• present value of forgone income

• extend the value for 3 years

12

loss of biodiversity - Palm Islands Nature Reserve

92 oiled birds from 19 different species found;

representing 15 - 50 percent of all oil-killed birds

• (3 dead loggerhead turtles; insufficiency of data)

• estimated damage to birds based on a restoration cost model (research!) relating the cost per bird to the average abundance per unit area

x = annual mean abundance (number per square kilometer)

y = cost per bird (US$)

y = 10260 * e-0.0138*x

13

research. research. research.

homework: due Thursday 5th

research other oil spills

Exxon Valdez - Prince William Sound, Alaska (1989) – Amira/Jeanette

Chevron, Gulf of Mexico / Deepwater Horizon Oil Spill - BP (April - July 2010) – Tamara / Mireilla

Shell Oil spills in Nigeria (ongoing) – Sami / John

Prestige Oil Spill in Spain (2002) – Cherine / Nihal / Peter

Mustafa / Joelle:

Iraq Gulf War Oil Spill (1991)

Or Yellow River Oil Spill in China (2009)

‘Reproducible Private Private Resources: Agriculture’

Chapter 12 - continued

14

15

Reminder: what to do about hunger?

Garret Hardin (1974) argues for ‘lifeboat ethics’

food sharing is counterproductive since it would encourage more population growth and thus lead to more food shortages

• -> when famine is inevitable, sharing can become counterproductive

• is famine inevitable?

your thoughts?

• The three common hypotheses used to explain malnourishment / hunger

• These are: (1) a global scarcity of food; (2) a maldistribution of food among and within

nations; and (3) temporary shortages caused by natural

phenomenon.

16

17

Reminder: cereal grains

renewable resource

can be produced indefinitely if managed correctly

• (1) population growth is ongoing; slower. Thus: demand for food should increase

• (2) primary input for growing food is land; land is fixed in supply

? what else ?

is all land equal? how would you divide land?

• how thus does the market react in the presence of rising demand for a renewable resource that is produced using a fixed factor of production?

• What do we mean by scarcity and how could we perceive its existence?

• Answer: depends on the nature of the supply curve of food

18

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 12-19

• agricultural sustainability and efficiency.

• The three common hypotheses used to explain malnourishment are addressed. 1) a global scarcity of food; 2) a maldistribution of food among and within

nations; 3) temporary shortages caused by natural

phenomenon.


Global Scarcity

• There is an absolute global scarcity caused by too many people trying to gain access to too little food.

• The hypothesis of a global scarcity of food suggests that sharing is counter productive if famine is inevitable.

• Sharing resources can prevent worldwide famine.


Formulating the Global Scarcity Hypothesis

• With increasing populations, the demand for food is expected to increase. In order to determine whether scarcity is

increasing or decreasing, we must examine how the market allocates food.

• Much of the western (only?) world’s arable land is privately owned.

• Land is fixed in supply and thus this analysis must be of a market with rising demand and a fixed factor of production (land).

The Market for Food

Scarcity is represented by rising prices resulting from the increases in demand. The steeper the supply curve, the higher are the resulting prices.

Qo equilibrium with Po; passage of time: outward shifts in D curve. 5th time period: if supply curve were Sb, quantity supplied would rise to Q5b, but price would rise to P5b

so what is scarcity? not a shortage. food supplied still = food demanded. 12-22

price sensitive?

• some argue that the demand for food is not price sensitive. what does that mean? why would they make that argument?

• demand is inflexible since food is a necessary for survival

• not all food fits in that category

• 1960s: price of meat increased; soybean meal (in US)

• in the Arab world?

source...

• Abu-Ismail, Khalid, Ahmed Moustafa, and Rania Masri.

‘Development Challenges in the Arab Countries: Food Security and Agriculture.’

Volume 2. December 2009. League of Arab States and UNDP.

• “Perhaps a good starting point for this paper is to define what we mean by the term “food security”. Food security exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life (FAO,2002). Another important issue featured in our analysis of Arab food security is the notion of food sovereignty, which, as a narrower concept, is focused on the degree to which Arab countries can meet their food demands from domestic sources (self sufficiency). As argued in this report, the Arab region, which is one of the most arid regions in the world, faces enormous food security and food sovereignty challenges. In this paper we are primarily concerned with the former and particularly in the wake of rising international food and fuel prices.

• International food prices have risen dramatically since 2000, while wheat prices specifically have increased by 200 percent (World Bank, 2008). In the first quarter of 2008, rapidly rising food prices reached their highest level in real terms in 30 years (FAO, 2008f). Despite a record world harvest in 2007, international wheat prices in January 2008 were 83 percent higher than a year earlier (FAO, 2008b). As with wheat, the price of rice increased most notably since 2007 and is expected to remain high. Dairy prices and oilseeds, oils and fats prices have also risen quite significantly since 2006. As a result, the FAO global Food Price Index (FPI) has risen from 94 in 2002 to 220 in March 2008. “

• “By December 2007, 37 countries faced a food crisis and 20 nations (including Egypt) had imposed some form of food-price controls. The FAO expects food prices to stay high for the next five to ten years. The International Food Policy Research Institute also predicts that price increases, specifically for cereals (rice, wheat, maize, soybean, and oilseeds) will continue to increase for another ten years (IFPRI, 2008). This surge in food prices has not translated to increases in income for the farmers. Rather, as argued by IFPRI, those who have benefited the most have been the food retailers, with the sales from the top 10 companies increasing 29 percent from 2004 to 2006 (from $777 billion to $1,091 billion).”

impact of food prices on the poor

• Large numbers of vulnerable people who had managed to escape poverty in recent years may be unable to cope with the shock of rapidly rising food prices and may fall back into poverty

Poverty...

Economic insecurity associated with poverty can be measured from two perspectives: income poverty (where the welfare of individuals is defined in terms of their enjoyment of goods and services, represented in real per capita consumption expenditure); and human poverty (where the welfare of individuals is defined by income as well as by other valued dimensions of life, such as education, health, and political freedom).

The differences between various indexes of poverty are of interest to statisticians; but of greater importance, perhaps, is their meaning in terms of human security. Poverty, however it is measured, implies the inability to satisfy basic needs, an inability that condemns those afflicted, be they the abject poor or simply the poor, to a diminished existence rendered precarious by eroded capabilities and opportunities. Poverty, quite simply, deprives the poor of their horizons and humanity - of that which enables them to envisage any kind of future, or to do the things that distinguish human beings from other creatures; in that state, the preoccupation with staying alive overrides all other human aspirations and attainments.

supply side of food...

• rising prices stimulate a supply response: how much?

• as demand for food rises (and note: it depends which food!) - supply can be increased

either be expanding amount of land under cultivation or by increasing the yields on the land already under cultivation or combination

• most fertile land: cultivated first

• then: land farmed more intensively until it is cheaper to bring additional, less fertile land into production

• since it is less fertile, additional land is brought into production only if the prices rise enough to make farming it profitable

• supply curve for arable land (and for food) can be expected to slope upward

• [remember the Dust Bowl in the US?]

review

• If the demand for food is insensitive to price, shortages would result. Necessary commodities will be much less sensitive to price than less necessary or “luxury” food products. The availability of substitutes will determine the level of price sensitivity or elasticity of demand.

• The responsiveness of supply is also important. As prices rise, more land could be put under cultivation and/or yields can be increased on current land already being used.

• The supply curve will slope upward given that the most productive lands will be put into production first. As prices rise, the land will be farmed more intensively until, at the margin, it is cheaper to bring less fertile land into production.


• Two forms of global scarcity hypothesis are the strong form and the weak form which imply decreases in per capita food production and rises in the relative price of food over time respectively.

The strong form suggests that decreases in per capita food production will result if the supply curve is so steep that production cannot keep up with increases in demand.

The weak form suggests that the relative price of food rises over time since the supply curve is steep and food prices increase more rapidly than other prices causing per capita welfare to decline.


Testing the Hypothesis

• Food production has increased faster than population in both developed and developing countries. Per capita production has also increased.

• Evidence suggests that the supply curve for agricultural products is more steeply sloped than the supply curve for products in general for about one half of the countries studied. Thus, global scarcity is apparent in some countries. But since market prices are not efficient, we must examine other evidence.


Outlook for the Future• “Technological Progress: primarily in the form

of genetic engineering, is the main source of optimism for future productivity increases.” what does this mean? how do we measure this? how do we verify this?

• The Declining Share of Allocation of Agricultural Land Agricultural land will be converted to an

alternative use when its profitability in the nonagricultural use is higher.

Total land in farms has dropped, but irrigated acreage has been rising.


Trends in U.S. Agriculture A 20th-Century Time Capsule (1 of 2)


Trends in U.S. Agriculture A 20th-Century Time Capsule (2 of 2)


Trends in U.S. Agriculture A 20th-Century Time Capsule


Pesticide Consumption per Hectare of Agricultural Land (Kg/Ha)


• Rising Energy Cost: Agricultural production is very energy intensive.

• does it have to be? Productivity gains from technological advances are

offset by rising costs of petroleum and natural gas.

• Rising Environmental Cost: As more marginal lands are put into production, the

use of chemicals and fertilizers has intensified. Continuous cropping rather than crop rotations has

contributed to soil erosion. Increased agricultural chemical use is another

concern. Irrigation water supplies are also being exhausted.

another issue: “How Goldman Sachs Created the Food CrisisDon't blame American appetites, rising oil prices, or genetically modified crops for rising food prices. Wall Street's at fault for the spiraling cost of food.

• "Demand and supply certainly matter. But there's another reason why food across the world has become so expensive: Wall Street greed.

• It took the brilliant minds of Goldman Sachs to realize the simple truth that nothing is more valuable than our daily bread. And where there's value, there's money to be made. In 1991, Goldman bankers, led by their prescient president Gary Cohn, came up with a new kind of investment product, a derivative that tracked 24 raw materials, from precious metals and energy to coffee, cocoa, cattle, corn, hogs, soy, and wheat. They weighted the investment value of each element, blended and commingled the parts into sums, then reduced what had been a complicated collection of real things into a mathematical formula that could be expressed as a single manifestation, to be known henceforth as the Goldman Sachs Commodity Index (GSCI)."

http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis

• “For just under a decade, the GSCI remained a relatively static investment vehicle, as bankers remained more interested in risk and collateralized debt than in anything that could be literally sowed or reaped. Then, in 1999, the Commodities Futures Trading Commission deregulated futures markets. All of a sudden, bankers could take as large a position in grains as they liked, an opportunity that had, since the Great Depression, only been available to those who actually had something to do with the production of our food.

• Change was coming to the great grain exchanges of Chicago, Minneapolis, and Kansas City -- which for 150 years had helped to moderate the peaks and valleys of global food prices. Farming may seem bucolic, but it is an inherently volatile industry, subject to the vicissitudes of weather, disease, and disaster. The grain futures trading system pioneered after the American Civil War by the founders of Archer Daniels Midland, General Mills, and Pillsbury helped to establish America as a financial juggernaut to rival and eventually surpass Europe. The grain markets also insulated American farmers and millers from the inherent risks of their profession. The basic idea was the "forward contract," an agreement between sellers and buyers of wheat for a reasonable bushel price -- even before that bushel had been grown. Not only did a grain "future" help to keep the price of a loaf of bread at the bakery -- or later, the supermarket -- stable, but the market allowed farmers to hedge against lean times, and to invest in their farms and businesses. The result: Over the course of the 20th century, the real price of wheat decreased (despite a hiccup or two, particularly during the 1970s inflationary spiral), spurring the development of American agribusiness. After World War II, the United States was routinely producing a grain surplus, which became an essential element of its Cold War political, economic, and humanitarian strategies -- not to mention the fact that American grain fed millions of hungry people across the world.”

• “Futures markets traditionally included two kinds of players. On one side were the farmers, the millers, and the warehousemen, market players who have a real, physical stake in wheat. This group not only includes corn growers in Iowa or wheat farmers in Nebraska, but major multinational corporations like Pizza Hut, Kraft, Nestlé, Sara Lee, Tyson Foods, and McDonald's -- whose New York Stock Exchange shares rise and fall on their ability to bring food to peoples' car windows, doorsteps, and supermarket shelves at competitive prices. These market participants are called "bona fide" hedgers, because they actually need to buy and sell cereals.

• On the other side is the speculator. The speculator neither produces nor consumes corn or soy or wheat, and wouldn't have a place to put the 20 tons of cereal he might buy at any given moment if ever it were delivered. Speculators make money through traditional market behavior, the arbitrage of buying low and selling high. And the physical stakeholders in grain futures have as a general rule welcomed traditional speculators to their market, for their endless stream of buy and sell orders gives the market its liquidity and provides bona fide hedgers a way to manage risk by allowing them to sell and buy just as they pleased.”

• *arbitrage = (the simultaneous buying and selling of commodities in different markets to take advantage of different prices for same asset)

• “But Goldman's index perverted the symmetry of this system. The structure of the GSCI paid no heed to the centuries-old buy-sell/sell-buy patterns. This newfangled derivative product was "long only," which meant the product was constructed to buy commodities, and only buy. At the bottom of this "long-only" strategy lay an intent to transform an investment in commodities (previously the purview of specialists) into something that looked a great deal like an investment in a stock -- the kind of asset class wherein anyone could park their money and let it accrue for decades (along the lines of General Electric or Apple). Once the commodity market had been made to look more like the stock market, bankers could expect new influxes of ready cash. But the long-only strategy possessed a flaw, at least for those of us who eat. The GSCI did not include a mechanism to sell or "short" a commodity.

• This imbalance undermined the innate structure of the commodities markets, requiring bankers to buy and keep buying -- no matter what the price. Every time the due date of a long-only commodity index futures contract neared, bankers were required to "roll" their multi-billion dollar backlog of buy orders over into the next futures contract, two or three months down the line. And since the deflationary impact of shorting a position simply wasn't part of the GSCI, professional grain traders could make a killing by anticipating the market fluctuations these "rolls" would inevitably cause. "I make a living off the dumb money," commodity trader Emil van Essen told Businessweek last year. Commodity traders employed by the banks that had created the commodity index funds in the first place

rode the tides of profit.”

• “Bankers recognized a good system when they saw it, and dozens of speculative non-physical hedgers followed Goldman's lead and joined the commodities index game, including Barclays, Deutsche Bank, Pimco, JP Morgan Chase, AIG, Bear Stearns, and Lehman Brothers, to name but a few purveyors of commodity index funds. The scene had been set for food inflation that would eventually catch unawares some of the largest milling, processing, and retailing corporations in the United States, and send shockwaves throughout the world.

• The money tells the story. Since the bursting of the tech bubble in 2000, there has been a 50-fold increase in dollars invested in commodity index funds. To put the phenomenon in real terms: In 2003, the commodities futures market still totaled a sleepy $13 billion. But when the global financial crisis sent investors running scared in early 2008, and as dollars, pounds, and euros evaded investor confidence, commodities -- including food -- seemed like the last, best place for hedge, pension, and sovereign wealth funds to park their cash. "You had people who had no clue what commodities were all about suddenly buying commodities," an analyst from the United States Department of Agriculture told me. In the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was roiling the markets. Food inflation has remained steady since.”

• The money flowed, and the bankers were ready with a sparkling new casino of food derivatives. Spearheaded by oil and gas prices (the dominant commodities of the index funds) the new investment products ignited the markets of all the other indexed commodities, which led to a problem familiar to those versed in the history of tulips, dot-coms, and cheap real estate: a food bubble. Hard red spring wheat, which usually trades in the $4 to $6 dollar range per 60-pound bushel, broke all previous records as the futures contract climbed into the teens and kept on going until it topped $25. And so, from 2005 to 2008, the worldwide price of food rose 80 percent -- and has kept rising. "It's unprecedented how much investment capital we've seen in commodity markets," Kendell Keith, president of the National Grain and Feed Association, told me. "There's no question there's been speculation." In a recently published briefing note, Olivier De Schutter, the U.N. Special Rapporteur on the Right to Food, concluded that in 2008 "a significant portion of the price spike was due to the emergence of a speculative bubble."

• What was happening to the grain markets was not the result of "speculation" in the traditional sense of buying low and selling high. Today, along with the cumulative index, the Standard & Poors GSCI provides 219 distinct index "tickers," so investors can boot up their Bloomberg system and bet on everything from palladium to soybean oil, biofuels to feeder cattle. But the boom in new speculative opportunities in global grain, edible oil, and livestock markets has created a vicious cycle. The more the price of food commodities increases, the more money pours into the sector, and the higher prices rise. Indeed, from 2003 to 2008, the volume of index fund speculation increased by 1,900 percent. "What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets," hedge fund Michael Masters testified before Congress in the midst of the 2008 food crisis”

http://www.srfood.org/images/stories/pdf/otherdocuments/20102309_briefing_note_02_en_ok.pdf

http://hsgac.senate.gov/public/_files/052008Masters.pdf

• “The result of Wall Street's venture into grain and feed and livestock has been a shock to the global food production and delivery system. Not only does the world's food supply have to contend with constricted supply and increased demand for real grain, but investment bankers have engineered an artificial upward pull on the price of grain futures. The result: Imaginary wheat dominates the price of real wheat, as speculators (traditionally one-fifth of the market) now outnumber bona-fide hedgers four-to-one.

• Today, bankers and traders sit at the top of the food chain -- the carnivores of the system, devouring everyone and everything below. Near the bottom toils the farmer. For him, the rising price of grain should have been a windfall, but speculation has also created spikes in everything the farmer must buy to grow his grain -- from seed to fertilizer to diesel fuel. At the very bottom lies the consumer. The average American, who spends roughly 8 to 12 percent of her weekly paycheck on food, did not immediately feel the crunch of rising costs. But for the roughly 2-billion people across the world who spend more than 50 percent of their income on food, the effects have been staggering: 250 million people joined the ranks of the hungry in 2008, bringing the total of the world's "food insecure" to a peak of 1 billion -- a number never seen before.”

• “Volatility in the food markets has also trashed what might have been a great opportunity for global cooperation. The higher the cost of corn, soy, rice, and wheat, the more the grain producing-nations of the world should cooperate in order to ensure that panicked (and generally poorer) grain-importing nations do not spark ever more dramatic contagions of food inflation and political upheaval. Instead, nervous countries have responded instead with me-first policies, from export bans to grain hoarding to neo-mercantilist land grabs in Africa. And efforts by concerned activists or international agencies to curb grain speculation have gone nowhere. All the while, the index funds continue to prosper, the bankers pocket the profits, and the world's poor teeter on the brink of starvation.”

• Source: Foreign Policy. April 27, 2011.

monopoly?

• few, large, substantial US companies control more than 80% of the food market (from seeds to pesticides to crop production to distribution)…

UNDP/LAS report on Food Security (December 2009): There is agreement that the following factors have impacted the food price crisis, but the extent to which each of

these factors, independently, has impacted the crisis is subject to a heated international debate:

• Strengthening linkages among international markets of oil and food; Soaring oil and energy prices, impacting fertilizers and pesticides, fuel for agricultural machinery, and transportation costs;

• Increased demand due to rise in global population and, more predominately, significant income growth in some developing countries, particularly China and India, which led to an increase in meat, egg, and dairy production and hence in proportion of the world’s grain consumed by animals;

More than 30 percent of the world’s grain is now fed to animals. Farming one hectare of decent land can produce 154.4 kg of protein from grain, but one acre devoted to beef farming produces only 22.2 kg of protein.

• Droughts in grain-producing areas resulting in decrease in grain stocks and rapid decline in stock to utilization ratios (FAO, 2008)

• Competition of biofuels with food for feedstock and arable land; Expanded production of biofuels such as ethanol and biodiesel has a strong effect on prices because biofuel production draws largely on agricultural products

increased biofuel demand in 2000–07 is estimated by IFPRI to have contributed to 30 percent of the weighted average increase of cereal prices. Incorporating new developments in supply and demand as well as actual biofuel investment plans (IFPRI, 2008),

• Weak and ill conceived agricultural policies in most developing countries, based on IMF and World Bank policy formulas, over the last three decades (UNCTAD, 2008).

The market policies supported by the World Bank and the International Monetary Fund, which led to a decrease in government-subsidized agricultural inputs, price supports, state marketing boards, and extension services, have also been blamed for the rise in food prices. This unilateral liberalization of agricultural trade has also led to the destabilization of peasant producers. These policies, coupled with extensive free trade agreements, led to a shift in numerous countries from exporters to importers of food staples.

• A dramatic increase in speculative trading in agricultural commodities.

reminder

• Tomorrow is your day for the presentations Discussing technique Comparing techniques Your thoughts

• Reading for next week: chapter 9


*The Role of Agricultural Policies

• Four types of agricultural policies subsidies for specific farming inputs including

fertilizers and pesticides guaranteed prices for outputs marketing loans based on crop prices trade barriers to protect against competition from

imports.

US Farm Bill supports 3 types:

• marketing loan program: pays the farmer the difference between the loan rate for a particular crop and the loan repayment rate which varies weekly with crop prices $2 billion to $11 billion between 2002 - 2006

• counter cyclical program payments: based on historical production of the crop. payments = difference between target prices (guaranteed prices) and national average market price for eligible acreage planted with program crop $1 billion to $4 billion

• direct payments: based on historical production but land can be shifted to other uses set at $5 billion


Farm Program Payments as a Share of Production Value, 2002-2005 Crop Years


A Summing Up

• Some countries are beginning to eliminate some of the price supports and subsidies.

• Genetically modified foods are a new source of controversy.

subsidies from ‘developed countries’

• “size of farm subsidy correlated with fertilizer use in those countries”

• what does that mean?

• agricultural subsidies in US and EU: 1/3 - 1/2 of all farm income, respectively


Distribution of Food Resources

• The second of the three hypotheses used to explain widespread malnourishment.

• This hypothesis suggests that it is imperfections in food distribution, particularly in less developed (or poorer countries) that cause the malnourishment problem. Thus, the problem is one of poverty not a lack of food, suggesting different policy prescriptions.

• by the way, please do read the ‘boxes’ and ‘debates’ in the chapter


Defining the Problem

• Evidence from the United Nations suggests that the problem is one of nonuniform distribution. problem is not of global scarcity

• earlier studies suggest that high poverty levels are generally conducive to high population growth. production has not been able to keep up with

population growth

• remember: what were some of the problems facing the Arab world with regards to food?


TABLE 12.4 Food Situation in Developing Countries

Arab world

• High (and increasing) rates of undernourishment in LDCs already prevailing before the food crisis: Arab countries scored significant reductions in malnutrition since the 1970s. However, Arab LDCs continue to suffer quite disproportionately from hunger. In these countries, the number of food-deprived persons amounted to 38 per cent of the total population in 2004, almost 15 percent higher than in 1995. Furthermore, Arab countries as a whole have not witnessed any reduction in food deprivation since 1990. In fact, the undernourishment rate has increased slightly (from 12 to 13%) over the period from 1990 to 2004.

• High extreme poverty in LDCs and limited poverty reduction since the 1990s: Extreme poverty increased slightly (from 17.6 to 18.3 per cent) since the 1990s due to the rise in poverty in the Mashreq and Maghreb sub-regions. However, if one takes into account poverty rates in the other countries which were excluded from the analysis for lack of data (for example, Sudan, Somalia, Occupied Palestinian Territories, and Iraq) where extreme poverty is projected to be higher than the regional average, the latter is expected to be higher than that reported above and the trend of slight poverty reduction may be reversed due to the increase in conflict and drought conditions in most of the above mentioned countries over the past two decades. Poverty rates in LDCs are still substantially higher than in other sub-regions.

in addition to the other issues previously discussed

• High water scarcity: In 2004, water demand had exceeded the actual water resources available in the region by about 46%. Serious stress on available water resources reduces the region’s ability to use cultivable lands to their full potential. Some countries are currently cultivating less than 5% of their potential agricultural land, while others are close to full potential. The Gulf countries already depend, to a large extent, on seawater desalination (98% in Qatar and 40% in Saudi Arabia). Moreover, the 2006 UNDP Human Development Report projects that the region would still need 26 more years to reach its 2015 water targets. Currently, there are about 45 million people in the region with no access to clean water sources.


Domestic Production in Less Developed Countries

• what should LDCs do? increase domestic production or import more from abroad?

• Most developing countries lack foreign exchange with which to buy food imports.

• The law of comparative advantage says that nations are better off specializing in those products for which they have a comparative advantage—measured in the opportunity cost of another good.

• Price distortions and externalities associated with agriculture have caused most developing countries to have an excessive dependency on imports.

12-40

The Undervaluation Bias

• Why has food production barely kept up with pop growth?

• limits to further production: economic and political. [your thoughts?]

• agriculture: undervalued in low-income countries. investments are lower.

• 2 policies undervaluing agriculture: marketing boards and export taxes.

A marketing board sells food at subsidized prices. National marketing boards have been established in many developing countries in order to stabilize and hold down food prices.

• 2 methods commonly used are the wholesale importing of artificially cheap food from the United States and holding down the prices paid to farmers. Impact on local production?

Export taxes levied on all goods shipped abroad, including cash-crop food exports reduces foreign demand and results in lower prices and lower incomes for farmers.

• 1987 WB Study: in 9 developing countries, pesticide subsidies ranged from 15 to 90 percent of full retail cost, with a median of 44 percent

• agricultural mechanization also increased

• higher cost, less sustainability


Feeding the Poor

• Food stamp programs are being used by a number of countries to subsidize food purchases by the poor. boost purchasing power of those with the greatest

need and protect farmers

• Another approach to ensuring the poor get enough food is associated with the “green revolution.” New varieties of seeds, it is hoped, would expand

the supply of food and hold down prices. did it work? production increased yes

Green Revolution: production at what environmental cost

• “Farmers in the state of Punjab abandoned traditional farming methods in the 1960s and 1970s as part of the national program called the "Green Revolution," backed by advisers from the U.S. and other countries. Indian farmers started growing crops the American way — with chemicals, high-yield seeds and irrigation. Since then, India has gone from importing grain like a beggar, to often exporting it. But...

• When India'’s government launched the Green Revolution more than 40 years ago, it pressured farmers to grow only high-yield wheat, rice and cotton instead of their traditional mix of crops. The new miracle seeds could produce far bigger yields than farmers had ever seen, but they came with a catch: The thirsty crops needed much more water than natural rainfall could provide, so farmers had to dig wells and irrigate with groundwater. Farmers have pumped so much groundwater to irrigate their crops that the water table is dropping dramatically, as much as 3 feet every year.

• Drilling deep wells to find fresh water often taps brackish underground pools, and the salty water poisons the crops. (Source: NPR)

Green Revolution: production at what economic cost?

• As the farmers dig deeper to find groundwater, they have to install ever more powerful and more expensive pumps to send it gushing up to their fields.

• Sandeep says his new pump costs more than $4,000. He and most other farmers have to borrow that kind of cash, but they are already so deep in debt that conventional banks often turn them away.

So Sandeep and his neighbors have turned to "unofficial" lenders — local businessmen who charge at least double the banks' interest rate. The district agriculture director, Palwinder Singh, says farmers can end up paying a whopping 24 percent.

Green Revolution: at what cost?

• Studies show that their intensive farming methods, which government policies subsidize, are destroying the soil. The high-yield crops gobble up nutrients like nitrogen, phosphorous, iron and manganese, making the soil anemic. The farmers say they must use three times as much fertilizer as they used to, to produce the same amount of crops — yet another drain on their finances.

• India's population is growing faster than any country on Earth, and domestic food production is vital.

• But the commission's director, G.S. Kalkat, says Punjab's farmers are committing ecological and economic "suicide."If he is correct, suicide is coming through national policies that reward farmers for the very practices that destroy the environment and trap them in debt.

• Kalkat says only one thing can save Punjab: India has to launch a brand new Green Revolution. But he says this one has to be sustainable. The problem is, nobody has yet perfected a farming system that produces high yields, makes a good living for farm families, protects and enhances the environment — and still produces good, affordable food. [source: NPR]

Lessons from the Green Revolution

• http://www.foodfirst.org/media/opeds/2000/4-greenrev.html

• “...the new seeds - accompanied by chemical fertilizers, pesticides, and, for the most part, irrigation-had replaced the traditional farming practices of millions of Third World farmers. By the 1990s, almost 75 % of Asian rice areas were sown with these new varieties. The same was true for almost 1/2 of the wheat planted in Africa and more than 1/2 of that in Latin America and Asia, and about 70 % of the world's corn as well. Overall, it was estimated that 40% of all farmers in the ‘Third World’ were using Green Revolution seeds, with the greatest use found in Asia, followed by Latin America.

• the production advances of the Green Revolution are no myth. Thanks to the new seeds, tens of millions of extra tons of grain a year are being harvested. But has the Green Revolution actually proven itself a successful strategy for ending hunger? Not really.”

http://www.foodfirst.org/media/opeds/2000/4-greenrev.html

Lessons from the Green Revolution

• “Narrowly focusing on increasing production-as the Green Revolution does-cannot alleviate hunger because it fails to alter the tightly concentrated distribution of economic power, especially access to land and purchasing power. Even the World Bank concluded in a major 1986 study of world hunger that a rapid increase in food production does not necessarily result in food security-that is, less hunger. Current hunger can only be alleviated by "redistributing purchasing power and resources toward those who are undernourished," the study said. In a nutshell-if the poor don't have the money to buy food, increased production is not going to help them.”

The Green Revolution: Some Lessons

Having seen food production advance while hunger widens, we are now prepared to ask: under what conditions are greater harvests doomed to failure in eliminating hunger?

• First, where farmland is bought and sold like any other commodity and society allows the unlimited accumulation of farmland by a few, superfarms replace family farms and all of society suffers.

• Second, where the main producers of food-small farmers and farm workers-lack bargaining power relative to suppliers of farm inputs and food marketers, producers get a shrinking share of the rewards from farming.

• Third, where dominant technology destroys the very basis for future production, by degrading the soil and generating pest and weed problems, it becomes increasingly difficult and costly to sustain yields.

• Under these three conditions, mountains of additional food could not eliminate hunger, as hunger in America should never let us forget. The alternative is to create a viable and productive small farm agriculture using the principles of agroecology. That is the only model with the potential to end rural poverty, feed everyone, and protect the environment and the productivity of the land for future generations.

best example?

• “Cuba turned inward to create a more self-reliant agriculture based on higher crop prices to farmers, agroecological technology, smaller production units, and urban agriculture

• As small farmers and cooperatives responded by increasing productionwhile large-scale state farms stagnated and faced plunging yields, thegovernment initiated the newest phase of revolutionary land reform,parceling out the state farms to their former employees as smaller-scaleproduction units. Finally, the government mobilized support for a growing urban agriculture movement-small-scale organic farming on vacant lots-which, together with the other changes, transformed Cuban cities and urban diets in just a few years.

• The Cuban experience tells us that we can feed a nation's people with a small-farm model based on agroecological technology, and in so doing we can become more self-reliant in food production. A key lesson is that when farmers receive fairer prices, they produce, with or without Green Revolution seed and chemical inputs. If these expensive and noxious inputs are unnecessary, then we can dispense with them.”

• http://www.foodfirst.org/media/opeds/2000/4-greenrev.html

there is hope :-) - Agroecology

• The application of ecology to the design and management of sustainable agroecosystems.

• A whole-systems approach to agriculture and food systems development based on traditional knowledge, alternative agriculture, and local food system experiences.

• Linking ecology, culture, economics, and society to sustain agricultural production, healthy environments, and viable food and farming communities.

• http://www.agroecology.org/ Check it out :-)


Feast and Famine Cycles

• This is the third of the three hypotheses used to explain widespread malnourishment.

• This hypothesis suggests that it is the year-to-year fluctuations in food availability due to weather or cropping decisions that causes world food problems.

• The theory postulates that smoothing out these fluctuations could solve many problems.

• example: weather-induced shortage --> price goes up --> next growing season, farmers plant in advance of harvest time, planting based on expected price --> no induced shortage --> market can’t absorb so much --> price fails --> next season, produce less --> price rises

• the more inelastic the demand curve, the more likely farmers (as a group) are to gain from the shortfall (in production)

• for consumers, the more price inelastic the demand curve, the greater the loss in consumer surplus from shortfalls

• farmers would love a high average price; consumers would love a low average price

• commodity price support: lower world prices if they stimulate production in exporting country and if that country has a large share of the world market (eg - US)

• how to stabilize? main way: create stockpiles

people in need in the Arab World

• We estimate that there are approximately 21 million people who are currently receiving food relief in the region. We also estimate that an additional 6-8 million people may currently require emergency food assistance due to higher prices, droughts and conflict with an estimated cost of 770 $million. The scale of the food insecurity problem is magnified in Arab countries which lack the resources to deal with reported critical problems of food insecurity (LDCs, Iraq and the Occupied Palestinian Territories). However, there is a clear shortage of resources to Yemen, which requires emergency relief to cover at least 3 million people.

strategies for the Arab World

• Since the fundamental reason for the build up and emergence of the food crisis relates to inherent weaknesses in the market mechanism, it is wrong to expect that the market can solve it. The market has led to increasing concentrations of food production in the hands of smaller number of bigger farms in fewer countries, as the main suppliers of the ever increasing share of food production that is traded across national boundaries.

• A good part of the solution lies in adopting policies that strengthen the smaller peasant farming subsections. Policies that do not address and empower small-holder agriculture will not serve to protect working farmers or increase food security and food sovereignty. Resources also need to be allocated to agricultural and rural development, with renewed emphasis on rural development, and mitigation and adaptation to climate change.

• ...Agrarian reform, with an emphasis on land tenure and pro-farmer policies, should be implemented. Furthermore, a new regard for the environment is critical, one that recognizes that short-term solutions cannot be adopted for long-term problems. Holistic, multi-sectoral solutions are necessary and these approaches need to be consistently implemented.

steps already taken...where to go further

• Many Arab governments have already taken macroeconomic and trade measures to mitigate the impact of rising food and fuel prices. Those include measures such as reductions in fuel and food taxes and tariffs, increases in universal subsidies, expansions in transfer programs, and public-sector wage increases. These steps should go some way to lessen the impact on part of the vulnerable population. However, it is clear that much more needs to be done in order to address the increase in the general level of poverty and food insecurity associated with higher food prices in the face of relatively stagnant incomes of the poor.

• A proposed form of Arab cooperation should be the establishment of a joint Arab fund to finance short-term fixes, such as food subsidies and social safety nets, as well as medium to long term remedies, such as enhancing productive Arab investments in agriculture and food sectors. Policies need to be formulated aiming at directing public and private investments towards the agriculture sector rather than real estate, particularly in countries with great potential for agricultural development, such as Sudan, Syria, Egypt, Yemen and Morocco. The joint Arab fund should also be used to finance intra-Arab trade in agriculture and food products.

• Immediate and short-term policies:

1) Create an Arab Food Security Fund to finance the immediate scale-up in the current response to meet the basic food needs of approximately 6-8 million individuals (particularly in Yemen).

2) Prevent further deterioration in the conditions of food insecure households by expanding various social safety nets and food delivery and nutritional programs implemented by WFP and UNICEF.

3) Establish a food security monitoring system for Arab countries within the LAS in cooperation with FAO and plan and prepare now for the worst case scenario of 30-35 million people by the end of 2008.

4) Respond to the ’new food crisis’ among the urban poor by increasing and improving subsidies and social safety nets.

5) Campaign regionally to ensure that enough food is allowed to flow into the Occupied Palestinian Territories, particularly Gaza and the West Bank, to meet the populations’ basic food needs (in terms of calories, micronutrients and protein).

medium-term and long-term policies:

1. Develop multi-sectoral policies to address: a. Gender roles, by making sure women who make up an ever increasing share of agricultural producers are provided with access to land, appropriate tools, extension services, credit, etc; b. Secure access to productive land and credit; 2. Develop water policies to invest heavily in improving water availability, yield, and distribution, including:a. Prioritize water uses;b. Increase investment in drip-irrigation;c. Develop equitable access to water resources in rural and urban areas;d. Renew support for traditional water control systems, and for indigenous research and development;e. Protect and promote local plant varieties;f. Reduce conveyance losses;g. Improve efficiency of rainwater harvesting; h. Support less water-intensive crops;i. Cooperation between countries sharing same river or water stream; andj. Build on indigenous knowledge of agricultural management and incorporate newer technology, when necessary.


3. Develop economic policy interventions to be pro-poor and pro-farmer, specifically:

a. Develop and empower redistributive public support, in the form of financial transfers, to facilitate a pro-poor pattern of public goods provision;

b. Increase investment of smallholder agricultural sections, and increase credit available through rural financial systems;

c. Expand non-farm and farm-labor intensive activities within rural areas; d. Resolve land tenure inequalities by imposing progressive land taxation,

increasing the rights of peasant households by allowing peasants greater control over land, and ensuring that property rights systems do not bias against women;

e. Increase smallholders’ access to essential production inputs;f. Institutionalize regular surveys of income and expenditure, agricultural census

covering both cropping and livestock, and labor force survey so that policies can be based on regular and timely data sets;

g. Develop better extension services for poorer Arab landholding households; andh. Require commercial banks to diversify their lending and extend their operations

to rural areas.


4. Develop and support serious mitigation and adaptation policies in climate change, including:

a. Develop a climate change knowledge-based infrastructure;

b. Increase awareness on causes and potential impacts of climate change and mitigation and adaptation methods;

c. Work nationally, regionally, and internationally to curb the greenhouse gas emission positive trends;

d. Enhance disaster preparedness;

e. Strive for selectivity, innovation and leapfrogging (emerging tools, models and new ideas; and

f. Develop regional and local early warning systems to monitor disasters such as high-intensity storms and sea-water rise.

1 make up tomorrow - wednesday – may 4 – 3.30 – 5.00 pm, fhs 110 (possibly also) - wednesday...

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