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Friday, April 25, 2008

Getting Real


In a previous posting I reprimanded Paul Krugman for not being more cheery about the future of commodity prices. I argued human ingenuity in the face of increased scarcity has been the source of many innovations over the past couple hundred of years and this commodity price crisis should be no different. However, I was probably too sanguine about the transition to this new world--it is and will be a painful ride. The Economist did a good job last week documenting the pain and the dynamics behind the transition: surging demand from growing Asia, possible speculation due to loose monetary policy, and diversion of farming capacity to biofuel production. This last factor is particular frustrating since some of the biofuel production is more about special interest groups than cleaning up the environment (e.g. ethanol). I would encourage you to take a look at The Economist article on this issue as well as Trade Policy for a New Deal on Hunger.

Update: Josette Sheeran, executive director of the U.N. World Food Program, on the food crisis via Foreign Policy:
I’m optimistic because the world knows how to beat the cycle of hunger and the world knows how to produce enough food for the global population. A lot of global hunger is an infrastructure and distribution problem—maybe half. We see up to half the food lost in developing countries simply because there’s no way to get it from farm gates to markets. We see virtually nonexistent agricultural markets, so there’s no place for buyer and seller to meet. These are things that can be solved. They don’t require a new scientific breakthrough or a Nobel Prize-winning team to find out how to produce enough food for the world. So, we need to focus our attention on a green revolution in Africa that will help break this cycle. In a way, the higher food prices may inspire more people to stay in farming as they see that it’s a good investment. But there will be a lag between what I hope will be a pretty robust response to world demand, and what I know will be a pretty difficult three to four years.

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