Do food prices cause "food riots"?

The usually outstanding Chris Blattman has posted some spotty analysis of the recent journalistic coverage of food riots in Mozambique, which he finds "shallow and alarmist." I would have commented, but many have already done so, so rather than pile on I'll just articulate my own take here. Like commenter @Jonomist, I think his punchline that we should be more careful attributing causality is probably defensible, but some of his arguments are not.

Here’s what a closer look at your economics and political science can tell you.

Expect price volatility to fall over time. Globalization and growth should reduce price spikes in future. More countries are producing crops. Climate shocks in Argentina are not that tied to climate shocks in Russia or China, and so price volatility from supply shocks should be going down. Falling transport costs also mean that more substitutes are available, further reducing price volatility. So things should be getting better over time, not worse, especially if trade allows countries to diversify their diet. Envision a future of diminishing instability.

This is a dangerously superficial argument, reminiscent of arguments that a more integrated global financial system would mitigate systemic risk - remember how that turned out? It's what a textbook analysis would say, but lacks grounding in the realities of these markets.

• Empirical data (most recently the price spikes of 2008 and now 2010) don't bear this out, at least in retrospect to date.


• Many agricultural stakeholders - including private companies both producing and buying food, as well as multi-laterals such as the FAO and the World Bank - are deeply concerned with price volatility in the future. (My own view is that we can't yet tell if average volatility will increase to a higher permanent plateau, but most players believe this is much more likely than the opposite.)


• Growth in both population and income is driving strong growth in agricultural demand that is unlikely to abate soon, and pushing the world toward the edge of its current supply capacity. Production can grow too (Ehrlich and Malthus were wrong) through increasing yields through research and bringing more land under cultivation, but the former is longer-term and the latter runs into seriously diminishing marginal returns. My personal belief is that we will be able to feed 9 billion people a more modern diet by 2050, but there will be bumps along the way, and any time demand nears supply capacity, the potential for price volatility increases significantly.


• Climate may become more unstable as climate change progresses, and climate change could also adversely affect baseline agricultural productivity, as Michael Roberts' excellent paper has shown and the market seems to believe.


• As several commenters noted, national policies play a substantial role in agricultural prices (notice how the wheat market responded to the Russian wheat export ban), and this intervention seems unlikely to diminish (especially in light of the above factors) - if anything it is likely to exacerbate any increases in underlying volatility caused by long-term demand growth and short-term supply shocks.

A few smaller nits:

Look to local policy, not global markets, for the real instability. Bread prices climbed 30% in Maputo, apparently due to Russian wildfires. But global wheat prices have only risen 5%. Why the disproportionate effect? I wish I knew, except I haven’t a single report from the ground that points out the disparity, let alone one that searches for an answer.

Yes, global wheat prices have risen 5% "during August" - and more than 50% since June, as commenter Bernhard Brummer points out. Some of the blame goes to the NYT writer for not picking a better baseline, but it's not a hard thing to double-check.

Chris: For riots, look to poor policing, not poverty.
@Jonomist: Are fires caused by insufficient fire marshaling?

Exactly.

Chris' track record is too strong for him to need to redeem himself, but he does so anyway (I'm not sure if intentionally) through his next post on the quality of his commenters (who came through rapidly here).

Malthus on food speculation

The man who refuses to send his corn to market when it is at twenty pounds a load, because he thinks that in two months time it will be at thirty, if he be right in his judgment, and succeed in his speculation, is a positive and decided benefactor to the state; because he keeps his supply in that period when the state is much more in want of it; and if he and some others did not keep it back in that manner, instead of its being thirty in two months, it would be forty or fifty.

If he be wrong in his speculation, he loses perhaps very considerably himself, and the state suffers little; because, had he brought his corn to market at twenty pounds, the price would have fallen sooner, and the event showed that there was corn enough in the country to allow of it: but the slight evil the state suffers in this case it almost wholly compensated by the glut in the market, when the corn is brought out, which makes the price fall below what it would have been otherwise.

I think Malthus is wrong that any price volatility caused by speculation is benign, but otherwise this is an admirable defense of the beneficial role that much-maligned (today and throughout history) speculation can play in food markets.

The quote comes from Cormac Ó Gráda's excellent book Famine, which I am reading and enjoying, and specifically from his outstanding chapter on the famous Bengal famine of 1943-44.

Eventual Nobel Prize winner in economics Amartya Sen made his name with his 1981 work which made the case that the famine was caused primarily by lacking "entitlements" (e.g., many were too poor to purchase food at escalated prices), rather than by what Ó Gráda terms a "Food Availability Deficit" (FAD). In other words, the famine was an issue entirely of distribution, rather than sufficiency. And moreover, Sen blames the entitlement issues (i.e. high food prices) primarily on speculation, which I hadn't previously realized.

Ó Gráda marshals quantitative and qualitative arguments to make the case that there was in fact a significant Food Availability Deficit in Bengal, despite the strenuous efforts of the governing British to mask this. Such deficits themselves cause price rises, which lead to entitlement issues, but after reading Ó Gráda I'm convinced that, as he says, "the heavy focus of the literature on hoarding is misplaced."

Agricultural yield upside and population growth

This image will come out far too small on the blog, so see the full-size original connected to this short Atlantic piece titled "The Next Breadbasket?", which gets some major messages right:

Sub-Saharan Africa, despite its long history of food insecurity, is one place where yields could increase dramatically; agricultural basics such as good seed and fertilizer would go far in a region that the green revolution bypassed. “We could increase yields in sub-Saharan Africa threefold tomorrow with off-the-shelf technology,” says Kenneth Cassman, a well-regarded agronomist who researches potential yields. The problem is the continent’s long history of corruption, poor infrastructure, and lack of market access.

Agricultural investment in Africa—and in a few other high-potential places such as Ukraine and Russia—may be the world’s best bet for keeping food plentiful and cheap. This investment could bring other benefits too; the World Bank estimates that agricultural development is twice as effective at reducing poverty as other sources of growth.

However, the article's reference to Paul Ehrlich (of The Population Bomb) goes off track. Contrary the predictions of Ehrlich (and Thomas Malthus, for that matter), population growth has been slowing as fertility rates drop off with higher wealth; most experts now predict human population will stop growing some time this century. The inexorable driver of demand growth is increasingly per capita consumption, which rises with economic development (mainly calories and meat for food, but also energy, water, etc.). What is really scary is not 9 billion people, but 9 billion people with the environmental footprint of the average American.

And the map itself is a good idea, but some of its numbers seem funny to me, which makes me doubt its rigor. I buy that Sub-Saharan Africa and Eastern Europe are low, but not that Australia is equally low. I don't think India should be higher than Latin America - India's farmers are notoriously constrained for inputs and credit - and I find it very hard to believe that the U.S., whose industrial monocultures produce the best per-acre average yields in the world, is worse than Myanmar. I like the concept of the map, but the execution seems sloppy.