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
1
reminder
2nd exam: May 24 (T)

Cost of Environmental Degradation
Chapters 14, 12, 9
possibly more
2
project deadlines!
progress
report due May
10th
3
The Cost of Environmental
Degradation Degradation:
The case of Lebanon
4
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!
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).
“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.”
•
6
How would you measure those impacts? Where would you start?
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... ?

7
research what?...
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
8
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 longterm 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)

9
--> importance of stating the assumptions!
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
10
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
11
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)
12

y = cost per bird (US$)

y = 10260 * e-0.0138*x
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)
13
‘Reproducible
Private Private
Resources:
Agriculture’
Chapter 12 continued
1
4
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?
15
• The three common hypotheses used to
explain malnourishment / hunger
• These are:
16

(1) a global scarcity of food;

(2) a maldistribution of food among and within
nations; and

(3) temporary shortages caused by natural
phenomenon.
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 ?

17
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
• 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.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-19
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.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-20
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).
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-21
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
12-22
= food demanded.
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
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.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-23
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.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-24
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.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-25
Trends in U.S. Agriculture
A 20th-Century Time Capsule (1 of 2)
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-26
Trends in U.S. Agriculture
A 20th-Century Time Capsule (2 of 2)
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-27
Trends in U.S.
Agriculture
A 20th-Century Time
Capsule
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-28
Pesticide Consumption per Hectare of
Agricultural Land (Kg/Ha)
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-30
• 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.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-29
another issue: “How Goldman Sachs Created the Food Crisis
Don'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)."
•
“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”
•
“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 bonafide 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 producingnations 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

•
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).

•
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),
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.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
12-33
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
Farm Program Payments as a Share of
Production Value, 2002-2005 Crop Years
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12-34
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.
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12-35
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.
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12-36
• 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?
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12-37
TABLE 12.4 Food Situation in
Developing Countries
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12-38
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 fooddeprived 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 subregions.
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
12-39
dependency on imports.
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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.
12-40
• 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
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12-41
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.”
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 production
while large-scale state farms stagnated and faced plunging yields, the
government initiated the newest phase of revolutionary land reform,
parceling out the state farms to their former employees as smaller-scale
production 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/2000/4greenrev.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 yearto-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.
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12-42
• 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)
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 publicsector 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;
and
j.
Build on indigenous knowledge of agricultural management and
incorporate newer technology, when necessary.
medium-term and long-term policies:
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; and
h. Require commercial banks to diversify their lending and extend their operations
to rural areas.
medium-term and long-term policies:
4. Develop and support serious mitigation and adaptation
policies in climate change, including:
a.
Develop
infrastructure;
a
climate
change
knowledge-based
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.