Rodrik, the Two Handed Economist on the Dual Effect of Food Prices on the Poor
Beating a not-so-dead horse on food prices
A “loyal reader” writes
Martin Wolf of the FT has written a whole article arguing that: ‘… higher food prices have powerful distributional effects: they hurt the poorest the most’ without even a mention of the basic economics in your September post on food prices: ‘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).’
Now, I had actually read the Wolf piece and thought it quite reasonable. Its bottom line is that the rapid rise in food prices is creating a severe problem for some of the world’s poor and does require urgent, and coordinated response. But I don’t understand, and that is my correspondent’s point, why Martin needs to make the blanket statement that the rise in food prices “hurt the poorest the most.” The fact is that millions of very poor growers of rice and other food products are much better off as a result. The poor that are affected the worst are the urban poor, not the rural poor.
I am puzzled more generally by how the commentary on the world food crisis misses this basic point. It’s all about how the price rise is an unmitigated disaster for the world’s poor, with nary a comment on the fact that some of the beneficiaries are also among the world’s poorest. (Some of you will say that all the price increase is absorbed by margins, with little of it showing at the farm gate–but I doubt that is true.) The panic on the part of governments is understandable. They are much more sensitive to the urban poor, who can create greater havoc than the rural poor. But what about the rest of us?
I’m confident Wolf knows this stuff; so, I’m not sure why he doesn’t give a more accurate description. The divergent impact of economic conditions on the rural and urban poor is a long studied subject that often gets overlooked in popular discourse. It is so much easier to want to help the poor and claim that food is a human right, etc. This diversion does not to say these are wrong claims, just that some policies that help one group of poor people can hurt another group. Policies that have a more clearly positive benefit all around are more likely to be preferred by economists. Thus, the typical economist will not want to change trade policies vis-a-vis agriculture due to the divergent effect they have. Rather, direct subsidies to the hungry are likely to be preferred.
