Volcanic ash and high-value exports

This was one of my first thoughts when I heard of the flight disruptions in Europe, and now both Tyler Cowen and Owen Barder have picked up on it - the impact on high-value agricultural exports from East Africa to Europe (especially horticulture and floriculture). Owen provides the local perspective:

This evening here in Addis Ababa I bumped into the owner of one of the big flower-exporting businesses. He was looking pensive. Unseasonal rain had damaged part of his crop, and now he is unable to get his roses into European markets. A whole container had had to be destroyed because there was nowhere for them to go. On the back of an envelope, he calculated that the blockage of rose exports is costing Ethiopia about €200k a day. This may not sound very much but it is a big chunk of the export earnings of a poor nation.

On the other hand, seems like local European producers should have been making arguments around supply chain security rather than food miles.

Scary to think that this volcano's last eruption lasted two years. If anything like that happens again, the effect on the world economy via both agricultural production and logistical disruption could be profound.


Update: FP Passport weighs in with some numerical estimates:

- In Kenya, flower growers have lost and estimated $12 million so far, or about $2 million a day. 6.5 tonnes of roses were dumped yesterday, for example. The loss is particularly devestating with Mother's Day coming up -- a big day for flower markets across the European continent.

- In Ethiopia, horticulture exports have lost an estimated $1.75 million Euros so far.

Expensive apples

Greg Mankiw passes along an interesting agricultural anecdote (which doubles as an economics parable):

Economics textbooks, including Chapter 14 of my favorite one, explain how firms shut down production when the price of output falls below average variable cost. Here is an example:

NY apple growers leaving more fruit on trees

New York's apple orchards are being carpeted with red as unpicked apples drop to the ground.

With the best of the crop off to market, growers say this year it's cheaper to leave leftovers on the trees than to pick and sell them for juice....

One reason is an abundant crop, not only in New York but in neighboring Pennsylvania and nearby Michigan, which has produced more second-tier fruit than juice and applesauce makers need and driven down market prices.

When labor and transportation costs are factored in, selling anything but the cream of the crop for the supermarket can become a losing proposition.

"In some cases it's not worth the bother of picking them off the tree," said Peter Gregg, spokesman for the New York Apple Association.

The difference in prices is the biggest one-year swing some have ever seen. Last year, growers hurt by severe hailstorms were getting an above-average 12-18 cents per pound for processing apples, those sold for sauce and slices. The price is about 5-8 cents this year.

So not only are New York apples bad for the earth's climate, the economics don't always work even without internalizing the negative environmental externalities!

"Food miles" are stupid

This is not news, but I hadn't really appreciated it until digging into the impressive success story of Kenyan horticulture recently. Feeling threatened by Kenya's initial success, UK's organic trade organization proposed stigmatizing - or even outright banning - products flown in from far-off countries on the basis of greenhouse gas emissions.

This ignores, unfortunately, the emissions from many other phases of food production, e.g. heating greenhouses to grow tomatoes in the winter in northern Europe. Here are a few choice quotes from a good Guardian article on "How the myth of food miles hurts the planet":

But the idea that 'only local is good' has come under attack. For a start, food grown in areas where there is high use of fertilisers and tractors is likely to be anything but carbon-friendly, it is pointed out. At the same time the argument against food miles - which show how far a product has been shipped and therefore how much carbon has been emitted in its transport - has been savaged by experts. 'The concept of food miles is unhelpful and stupid. It doesn't inform about anything except the distance travelled,' Dr Adrian Williams, of the National Resources Management Centre at Cranfield University, told The Observer last week.

'Half the people who boycott air-freighted beans think they are doing some good for the environment. Then they go on a budget airline holiday to Prague the next weekend,' adds Bill Vorley, head of sustainable markets for the International Institute for Environment and Development. 'They are just making gestures.'