Thursday, July 24, 2008

High food prices

I didn't notice until this morning that a Reuters report a couple weeks ago quoted me on the food price dilemma:
Ultimately, economists point out that demand for food is simply rising as the world's population grows along with its appetite for higher quality food.

"Higher food prices are here to stay. I don't know if that means that the current high rate of inflation will continue, I just wouldn't expect a substantial retrenchment," said Parke Wilde, an agricultural economist at Tufts University.

"It's a clear signal to people that resources are scarce."
Of course, my guess about future trends is just a guess. The more interesting question is whether an economist's understanding of what prices are makes any sense to anybody else. When I see food prices go up, I think not just of the hardship they cause -- though I do think of that, too -- but also of the signal the prices send about choosing foods that use fewer resources and hence cost less. I also think of the farmers around the world, including some of the poorest people in the world, who benefit from high prices. The tough question, on which comments are welcome, is: "Are high food prices unambiguously bad?"

3 comments:

Ellen Parry Tyler said...

Do farmers around the world (including, as you point out, some of the poorest people in the world) really benefit from high food prices? I would like to think they do, but I suspect otherwise. Maybe I am being pessimistic, but I find it hard to believe that food processors, distributors and retailers are not serving themselves the largest pieces of the pie. Especially interesting is a situation I have seen here in the States where farmers produce for sale one or a few crops yet still purchase many foodstuffs from retailers and therefore remain vulnerable to even nominal price fluctuations.
Joachim von Braun, in a report by the International Food Policy research Institute titled: THE WORLD FOOD SITUATION New Driving Forces and Required Actions, suggests that changes in the corporate food system have led to disproportionate profits for food retailers. This, however, is not necessarily a bad thing for the world’s poor
While we in the US think of Kroger and Safeway when we think of food retailers, in many developing countries retail sales are largely independent grocers, aka more of the world’s poor. So, increased global food prices may help alleviate poverty for some in the developing world. Here in the US though most of that profit is going straight to Albertsons or Wal-Mart.
You spoke about “the signal the prices send about choosing foods that use fewer resources and hence cost less.” I wonder if raising food prices in the US will benefit local farmers since increased prices at the grocery store reduces the gap between prices there and at the local farmer’s market. I have noticed here in Denver that while the costs of cereal, cheese and produce have risen in the grocery chains, prices at the farmer’s markets appear unchanged. Hummm…

Parke Wilde said...

Nice comment. Interesting to think about the tradeoffs Ellen raises.

A relevant detail: farm prices in general (not necessarily farmers' markets) have risen faster than food prices more broadly. The hardship for farmers is with their rising input prices. Farmers are probably satisfied with the prices of their products this year.

Elizabeth said...

Great question. I took a crack at it at: http://www.halfchangedworld.com/2008/07/are-high-food-p.html