Dani Rodrik on food prices

by | Oct 1, 2007 | Climate and resource scarcity, Economics and development, Global system

Hurrah – Dani Rodrik has a blog. Rodrik is a great international development thinker and a co-author – together with Nancy Birdsall and Arvind Subramanian – of my favourite development think piece of 2005, which was absolutely required reading in DFID when it came out.

Anyway, Rodrik’s just been blogging about food prices and poverty, where he observes the existence of two camps cheerfully talking past one another. On one hand, advocates of the Doha Development Round trumpted that higher food prices from agricultural liberalisation will benefit the poor. On the other hand, people worried about the effect of biofuels on food prices (like me) argue that higher food prices will be bad news for the poor. But Rodrik points out that:

The real answer of course is that it depends on whether a poor household is a net seller or buyer of food (that is, whether it grows more or less food than it consumes). This means that the rural poor generally tends to benefit from higher food prices, whereas the urban poor generally get hurt. How large the impact is depends, in turn, on the size of the food account as a share of total expenditures or income of a household. And whether the change is good or bad for a nation’s poor as a whole depends on the geography of poverty in a country.

So as an economist loves to say, it depends. But it depends in predictable ways on household and country characteristics.

A fair point. But Rodrik overlooks the gorilla in the room: climate change. As we’ve argued here before, the effect of biofuels is just one driver of rising food prices – along with other factors like weather variability, water scarcity, rising demand in China and India and so on. While biofuels is the the key driver among these for now, it’s climate change that is likely to become the real biggie over time.

And the thing about climate change, as IPCC assessment reports make clear, is that while climate change will likely lead to higher food prices, farmers in the poorest countries are likely to become worse rather than better off – since they’ll be hardest hit by the effects of climate change. William Cline, an expert at the Center for Global Development, has a new book out about this which should be required reading in donor agencies:

Developing countries, many of which have average temperatures that are already near or above crop tolerance levels, are predicted to suffer an average 10 to 25 percent decline in agricultural productivity by the 2080s, assuming a so-called “business as usual” scenario in which greenhouse gas emissions continue to increase, according to the study. Rich countries, which typically have lower average temperatures, will experience a much milder or even positive average effect, ranging from an 8 percent increase in productivity to a 6 percent decline.

Individual developing countries face even larger declines. India, for example, could see a drop of 30 to 40 percent. Some smaller countries suffer what could only be described as an agricultural productivity collapse. Sudan, already wracked by civil war fueled in part by failing rains, is projected to suffer as much as a 56 percent reduction in agricultural production potential; Senegal, a 52 percent fall.

Who loses if the City slumps?

by | Oct 1, 2007 | Global system, UK

Chris Giles in the FT has a useful corrective to a commonplace nostrum that often does the rounds: namely, that the UK has become so dependent on strong performance in the financial services sector that if the Square Mile’s economy goes belly-up, it’ll take the rest of us with it. “So wealthy are the thousands of workers in the City of London, and so skilled is the Square Mile at trumpeting its success,” he writes, “you would be forgiven for thinking it represented the beating heart on which the whole country depends.”

But it’s not so, he continues:

…the City’s pivotal role in the economy is, at best, an exaggeration. Banking and finance accounted for only 5.85 per cent of the total value of the British economy in 2004, according to the Office for National Statistics, and even if insurance, pension funds and other financial services are added in, the figure reached is only just above 8 per cent of the economy.

In fact, Giles reckons, the real losers would not be “lawyers, accountants and other people in business services”, but instead Her Majesty’s Treasury:

The well-paid folk of the City contribute heavily to the exchequer because their high salaries ensure they pay more tax than they receive in services. Financial Times research this spring estimated London was running a budget surplus of 6.2 per cent of London’s gross domestic product…

[snip]

…if the City takes a nasty hit from the global credit squeeze, the big loser is likely to be the government, which is reliant on its success both for meeting its ambitious economic growth forecasts and sustaining above inflationary rises in public expenditure.