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Policies aimed at lowering the price of food by increasing the food supply

Policies aimed at lowering the price of food by increasing the food supply. Text extracted from The World Food Problem Leathers & Foster, 2004. http://www.lastfirst.net/images/product/R004548.jpg. How to increase food supply. An outward shift in the food supply curve

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Policies aimed at lowering the price of food by increasing the food supply

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  1. Policies aimed at lowering the price of foodby increasing the food supply Text extracted from The World Food Problem Leathers & Foster, 2004 http://www.lastfirst.net/images/product/R004548.jpg

  2. How to increase food supply • An outward shift in the food supply curve • Reduces the equilibrium price • Farmers would need to • Produce more at the same price, or • Produce the same amount at a lower price • What would motivate farmers to increase food supply? • Reduction in cost of production

  3. How to reduce the cost of production • Reduce input prices • Encourage investment • New technologies • increase productivity Soy harvest, Brazil http://www.brazil.studyintl.com/programs/ag/images_ag/soy_harvest.jpg

  4. Subsidized inputs • Irrigation • Dam building • Abundant, inexpensive water • Benefits poor and wealthy farmers http://www.unesco.org/water/wwap/case_studies/ruhuna_basins/index.shtml Sri Lanka Irrigation

  5. Subsidized inputs • Fertilizer • Benefits of subsidies • Encourages learning by doing • Helps overcome • risk aversion • credit restraints • Helps poor farmers • Offsets tax and pricing policies • that hurt farmers • Maintains soil fertility http://www.thaitradesource.com/directories/fertilizer/fer2.jpg Fertilizer, Thailand

  6. Subsidized inputs • Fertilizer • Problems with subsidies • Knowledge of fertilizer use is widespread now • Subsidies help large farmers more • Best way to help small farmers is by eliminating urban bias • Reduces incentive to use natural organic fertilizers • That hold water better http://sweetchillisauce.com/Letters/Manurepic.html

  7. Subsidized inputs • Fertilizer in Africa • Subsidies removed • 1970s and 1980s • Fertilizer use dropped • Less profitable to use • Free Market has not responded to removal of subsidy • Risk aversion by farmers • Seasonal demand • High transport costs • Undeveloped financial services • Farmers lack cash • Some role of government needed http://www.new-agri.co.uk/image/046/dev01.jpg

  8. Subsidized inputs • Pesticide Subsidies • Encourage farmers to use more • Environmentally destructive • Undermine efforts to promote IPM • Integrated Pest Management • Biological control • Minimal chemical use http://www.ipminstitute.org/images/ipm_year.gif

  9. Mechanization • Farm machinery subsidies • Tax breaks • Tariff protection • Subsidized credit • Inflated official exchange rates • Can import machinery cheaply • Problems with subsidies • Benefits primarily to large farmers • Out-compete small farmers • Buy out small farms • Greater inequity • Yields not necessarily increased • Employment reduction • If profitable, free market will works • Poor farmers can rent machinery http://www.technoserve.org/involve-donate.html Tractor, Kenya

  10. Credit Subsidies • Is assumed that small farmers have trouble getting loans • No collateral • High risk • Government subsidies: • Direct Government loans • at low interest rate • Require banks to lend • at low interest rates http://www.hindu.com/thehindu/mp/2005/07/11/stories/2005071100210500.htm State Bank of India

  11. Credit Subsidies • Problems • Benefits rural wealthy • Discriminates against poor • High cost leads to • Deficit financing • inflation • Discourages savings • Better uses of money? • Agricultural research • Better rural roads • Improved education http://www.rdiland.org/OURWORK/OurWork_Accomplishments.html

  12. Alternatives to subsidized credit • Increase local savings institutions • Must be convenient, secure • Good interest rate • Promotes saving • Availability of money lowers lending interest rates • Benefits poor • Microcredit • Small loans to poor families, women • Administered locally • Know reputation of borrower personally • Understand likelihood of business success • Status in community falls if loan not repaid http://www.globalenvision.org/_image/microcreditmicro.jpg Microcredit recipients, India

  13. Microcredit • Case study, Philippines • Farmer borrowed $52 • To buy two piglets • Planned to feed piglets table scraps • Low cost • Had reputation for honesty, hard work • Repaid $2.30/week • 26 weeks • Total of $60 • Sold fattened pigs for $200 http://community.webshots.com/photo/3884771/1003884830010768271iWotCapauD

  14. Improving Roads • Raises prices farmers receive • Reduces cost of • Cost of transport • Cost of inputs • Price fluctuations • Increases • Production • Exports, imports • Wages • Farm labor employment • Agricultural specialization • Fruits and vegetables can be marketed further away http://he.wikipedia.org/wiki/%D7%99%D7%A8%D7%A7%D7%95%D7%AA

  15. Improving Roads • Case study: Bangladesh • Villages with good infrastructure • Hard-surfaceRoads • Used 92% more fertilizer • Used 4% more labor/hectare • Paid Ag workers 12% more per day • Compared to villages with poor infrastructure http://www.dfid.gov.uk/images/countries/asia/bangladesh_bicycle.jpg Bangladesh Road

  16. Improving Rural Infrastructure • Rural electrification • Electrical farm machines • Irrigation pumps • Telephones • Marketing systems • Transmits supply, demand needs • Improves choice through competition • Radio, newspapers • Market price news • Terminal markets • Buyers, sellers in one place • Improves production, nutrition Central Market, Mexico City

  17. Price Stabilization • When prices are unstable • Farmers less likely to invest in production • Risk averse • Governments stabilize prices • Buy commodity at set price • Encourages Black Markets • Buffer Supplies • Buy when prices cheap • Store for sale when supplies drop • Buffer Funds • Raise commodity taxes when prices high • Encourage Futures Markets • Farmers pick price at beginning of season http://www.tradingsimulation.com/resources/articles/mot.jpg

  18. Subsidizing Agricultural Research • Important areas for Ag technology research: • Yield response to fertilizers and pesticides • Drought tolerance • Disease and pest resistance • Food quality • Food handling and storage • Labor for production and food processing • Compatibility with social, cultural and economic norms http://maizeandgenetics.tamu.edu/drought.htm

  19. Return on Research • Case study: hybrid corn • For every $1 invested in hybrid corn in the U.S. • Until 1955 • Was $0.35 return per year • Since 1955 • Due to reduced price • Case study: Cassava mealybug • Research cost $27 million • Benefits exceeded $4 billion http://www.fofweb.com/Subscription/Science/Environ_Issues/EN0728.jpg

  20. Why don’t farmers invest in research? • Operation too small • To sponsor research • To benefit from research • Majority of ag tech benefit goes to consumers • Farmers lose revenue when new tech is introduced • Farm prices fall faster than production can increase http://www.donau-uni.ac.at/imperia/md/images/donau_uni_allgemein/presse/bilder2005/labor_w_236x157.jpg

  21. Why doesn’t industry invest more in Ag research? • Require patents to make research profitable • Machinery can be patented • Most biological innovations cannot be patented • Animal breeding • Animal nutrition • Plant breeding • Plant pathology • Entomology • Agronomy • Soil science • This research must be Government sponsored http://www.plantbreeding.iastate.edu/news.html Walt Fehr, ISU Soy breeder

  22. CGIAR • Consultative Group on International Agriculture • International Rice Research Institute (IRRI) • International Maize and Wheat Improvement Center (CIMMYT) • 13 other International research centers • Helps fill research gap in small countries

  23. Challenge of ag research in Africa • 90 percent of ag is mixed cropping • More than one crop in a field • Intercropping • 2 crops at same time • Relay Cropping • Not all crops planted at same time • Sequential cropping • Second crop planted after first harvested • Challenge: • improve productivity • While maintaining sustainability • Agroforestry • Alternate trees and crops • Conserves water, soil, organic matter http://www.afrol.com/images/agriculture/kenya_trees.gif Agroforestry, Kenya

  24. Extension • Government subsidizes • Education and advice to farmers • Case Study: Iowa • weed killer 2,4-D • Took only 11 years • From time first farmers heard about it • To when most were using it (1955) http://www.extension.iastate.edu/Connection/2002AR/farmbill.html ISU extension

  25. Sustainable Farming • Role for government to promote • environmentally appropriate practices • Extension to teach farmers • Will prevent future declines in productivity http://www.sendacow.org.uk/printed.asp?active_page_id=113

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