The Reality of Rising Food Prices: Benefits to the Poor

Editor’s Note: The Economist challenges its readers by proposing an Oxford-style debate on important policy questions. Through a series of three statements—an opening, rebuttal, and closing—the proponent and opponent of the debate have the opportunity to argue their position and react to not only each others but also the readers’ comments and opinions. Brookings Senior Fellow Homi Kharas supported this proposition and made his case against the opposition, Dr. Joachim von Braun, Director General of the International Food Policy Research Institute. The debate was moderated by John Parker, The Economist’s Globalisation Correspondent.

To read the debate and discover the results, visit The Economist »

Images of food riots and hungry people stir deep emotions. But we must debate trade-offs: will the rise in food prices generate more food for the world and less poverty for poor people in the future?

Are today’s food prices fair to producers and consumers?

Yes, because higher food prices will bring about new investments in agriculture and higher global production. This is already happening in Asia and other parts of the world, and will accelerate over time.

Yes, because without higher food prices, land use would shift towards corn-for-ethanol and other biofuel crops and we would have less food available.

Yes, because a system with food prices in free fall for 30 years did not produce any measurable decline in hunger and poverty. But the last time food prices were as high as they are today we witnessed the Green Revolution and a rapid reduction of rural poverty in one of the largest population centres of the world, South Asia.

Yes, because the great urban/rural divide that was cleaving societies across the developing world has now narrowed.

Some have argued that the proposition is unfairly worded. As there is an upside to most things, surely food prices are no exception. I do not want this debate to be about such sophistry. Instead let us be clear about the real changes in people’s lives that can come about in the long run from higher food prices. Most of the evidence I have seen suggests that when looked at in detail, most poor people will gain from higher food prices.

Many commentators have argued that subsistence farmers do not benefit from high food prices. I presented evidence from studies on India, China and Indonesia, where the mass of humanity resides, suggesting that farmers (including the poorest of the poor) would benefit in net terms, when both income and expenditure effects are taken into account. No one has advanced any evidence to the contrary, although many choose to believe their own instincts rather than the evidence I presented. My opponent claims that millions of poor African and Asian farmers are suffering, but he has not actually challenged any of the studies I cite, nor has he presented any facts to back up his claims.

To all the sceptics who view farmers in developing countries as isolated from markets and impervious to the incentives of high global prices, I would simply refer to the comments by Dr Seck, a true expert on Africa: “The current food crisis caused by rising food prices is a unique historical opportunity for Africa to break from decades of policy bias against agriculture.” Please look at his credentials before dismissing his conclusions.

In the last analysis, almost everyone agrees that we need faster rural development to alleviate poverty and hunger. Higher farmgate prices are a key element for this to happen. One blogger commenting on this debate offered a nice example of this process at work. When Vietnam liberalised and raised rice prices in the 1990s, rural families were able to afford to send their children to school rather than having them work as farm labourers. These educated children are today fuelling Vietnam’s rapid growth. The country has seen arguably the fastest decline in poverty in history. And it started with a rise in food prices.

Several commentators have noted that high food prices are the result of misguided policies—towards ethanol, the dollar, speculators, meat eaters. Because those commentators are vehemently against the cited policies, they think all the consequences, including higher food prices, must be bad. I am not arguing that those other policies are good. I would also like to see many of them reversed. But what I am arguing is that the effects of those policies would be far worse if the market for food was not permitted to adjust through higher prices. The alternative would be food shortages and large-scale rationing. This debate is not about comparing a world of high food prices with some other idealised world which is ordered differently. The debate is about whether the rise in food prices in this messy, distorted world we live in can have some benefit for humanity. Surely yes.

To all those who bemoan the hunger and hardship that higher food prices are causing for the poor, I would simply say that a system which failed to produce any marked change in hunger and poverty over a 30-year period of price declines was not working for the poor. Give a different system a chance. If a strategy has not worked for 30 years, surely there is an upside to changing strategies.

Let there be no mistake. Our global food production system was under severe threat in the early years of this century. We needed a change. Could anything have generated a successful change to encourage more production in the absence of higher food prices? I think not.

What we are really debating is whether there is an upside to humanity from fair food prices. For years, poor farmers in developing countries have been getting short shrift, fighting competition from increasingly subsidized, mechanized farmers in rich countries. The result was a historical rise in inequality and growing urban/rural income differentials in the developing world. Now the tables are turned and there is a fairer outcome in income distribution.

Thank you to all those who have taken the time to follow this debate and enrich it through their comments. Thanks to my opponent for his enormous contributions to solving the world’s food problems, not just debating them. Thanks also to the guest commentator who has provided a voice with the weight of so much experience. And thanks to our moderator for focusing us on balance, judgment and the weight of empirical evidence, rather than on principle and emotion.