Tietenberg Tom, Lewis Lynne. Environmental & Natural Resource Economics

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281Summing Up: Agriculture in the Industrialized Nations

DEBATE

11.2

Should Genetically Modified Organisms

Be Banned?

One controversy surrounding genetically modified organisms is whether the

commercialization of these plants or animals should be banned or delayed

because of their potentially damaging environmental impacts. Because they

contain genetic combinations that do not occur in nature through normal

evolution, GMOs are exotic species. When introduced into open, complex

ecosystems, they raise the possibility of imposing significant social externalities.

Since these modified plants or animals are new to the ecosystem, their effects

on all the other elements of the ecosystem are simply unknown. Some of these

effects could prove to be detrimental and irreversible (NRC, 2002). Even if these

effects could, in principle, be managed (a controversial point), successful

management would crucially depend upon what many see as an unrealistic

degree of oversight and control by farmers.

Economic concerns have been raised as well. Some observers believe the

new technologies could favor large farmers or multinational corporations, to the

detriment of smaller farmers (Nelson et al., 1999).

In contrast, supporters suggest that genetically modified plants and animals

have the potential to considerably boost world food production at a reasonable

cost. Reducing the cost of food and fiber production would reduce the threat

posed by the weak scarcity hypothesis. Using GMOs to reduce the rate of appli-

cation of chemical pesticides could lessen the chemical contamination of water

supplies and reduce the exposure of farm workers to pest-control chemicals.

Genetically modified food organisms offer the possibility of introducing more

nutrients and reducing health-threatening substances (such as saturated fats)

into traditional food sources as well as the possibility of creating plants that grow

more productively in less hospitable climates or soil types.

Banning the use of GMOs could prevent the externalities and the possible

associated irreversible damage, but it could also reduce food availability and

increase cost.

One thing is clear. If GMOs offer increased opportunities to feed the world’s

poor, the private sector will underinvest in these new technologies. For example,

genetically modified varieties have appeared for many crops, but not for several

staple crops consumed by the poor, such as wheat and cassava (Cooper, Lipper,

and Zilberman, 2005).

Sources

: Sandra S. Batie, “The Environmental Impacts of Genetically Modified Plants: Challenges

to Decision-Making.” AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS, Vol. 85, No. 5 (2003),

pp. 1107–1111; Wallace E. Huffman, “Consumers’ Countries: Effects of Labels and Information in an Uncertain

Environment.” AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS, Vol. 85, No. 5 (2003),

pp. 1112–1118; National Research Council (NRC), ENVIRONMENTAL EFFECTS OF TRANSGENIC PLANTS:

THE SCOPTE OF ADEQUACY OF REGULATION (Washington, DC: National Academy Press, 2002); Gerald

Nelson et al., THE ECONOMICS AND POLITICS OF GENETICALLY MODIFIED ORGANISMS: IMPLICA-

TIONS FOR WTO 2000 (University of Illinois, Bulletin 809, 1999); and J. Cooper, L. M. Lipper, and

D. Zilberman, "Agricultural Biodiversity and Biotechnology. ECONOMIC DEVELOPMENT, Springer 2005.

282 Chapter 11 Reproducible Private Property Resources: Agriculture and Food Security

Are Consumers Willing to Pay a Premium

for GMO-Free Foods?

In the European Union, any food product containing an ingredient that consists of

more than 1 percent genetically modified organisms must be labeled as “contains

GMOs.” Although biotechnology may help to increase crop yields, improve pest

resistance, and enhance nutrition, the introduction of GMOs into food products

has faced considerable hostility, particularly among consumers in Europe. How

widespread is this hostility? And does it suggest that consumers might be willing

to pay a price premium for GMO-free food?

Economists Charles Noussair, Stéphane Robin, and Bernard Ruffieux reported

that 79 percent of French survey respondents agreed with the statement “GMOs

should be banned” and 89 percent were opposed to the presence of GMOs in

food products. Wondering whether this apparent anti-GMO sentiment would be

reflected in purchase behavior led them to design an experiment to find out.

Due to the lack of field data, they utilized an experimental method designed to

elicit and compare the willingness to pay for GMO-free products with those

containing GMOs. In particular, the laboratory experiment was designed to measure

how the willingness to pay would change in response to new information about GMO

content. Approximately 100 French consumers participated in the experiments.

Interestingly, in contrast to early studies, only 35 percent of the subjects com-

pletely refused to purchase a product containing GMOs. Some 42 percent turned

out to be willing to purchase a product containing GMOs if it was sufficiently inex-

pensive. The remaining 23 percent were indifferent.

This study suggests the advantages of using labels to segment the market. The

authors found that survey respondents were willing to pay 8 percent more for a

product labeled “GMO-free” compared to a product with an unknown GMO

status. However, respondents were willing to pay 46.7 percent more for a GMO-

free product compared to a product that they knew to contain GMOs.

Sources

: Charles Noussair, Stéphane Robin, and Bernard Ruffieux, “Do Consumers Really Refuse to

Buy Genetically Modified Food?” THE ECONOMIC JOURNAL, Vol. 114, January 2004, pp. 102–120; and

W. E. Huffman, M. Rousu, J. F. Shogren, and A. Tegene, “The Public Good Value of Information from

Agribusinesses on Genetically Modified Foods.” AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS,

Vol. 85, No. 5 (2003), pp. 1309–1315.

EXAMPLE

11.2

Distribution of Food Resources

The second hypothesis used to explain widespread malnourishment holds that the

problem may stem more from food distribution than from global availability.

According to this outlook, the basic problem is poverty. We would expect, therefore,

that the poorest segments of society would be the most malnourished and that the

poorest countries would contain the largest proportion of malnourished people.

If accurate, this representation suggests a very different policy orientation from

that suggested by global scarcity. If the problem is maldistribution rather than

283Distribution of Food Resources

Development Data Group, The World Bank. 2008. 2008 World Development Indicators Online.

Washington, DC: The World Bank. Available at: http://go.worldbank.org/U0FSM7AQ40.

shortage, the issue is how to get the food to the poorest people. The alleviation

of poverty, increasing the ability to pay for food, is a strategy that could alleviate

the problem. If the problem were a lack of food, this strategy would be totally

ineffectual.

Defining the Problem

Considerable and persuasive evidence suggests that the problem is one of distribution

and affordability. Poverty, population growth, and the sufficiency of food production

are all related. High poverty levels have historically been associated with high

population growth, and high population growth rates may increase the degree of

income inequality. Furthermore, excessive population levels and poverty both

increase the difficulty of achieving food sufficiency. Since we will examine population-

control strategies in Chapter 21, we shall focus here on strategies to increase the

amount of food available to the citizens in the poorest counties. What can be done?

Domestic Production in Developing Countries

What are the relative merits of increasing domestic production in the developing

countries as opposed to importing more from abroad? There are several reasons for

believing that many developing countries can profitably increase the percentage of

their consumption domestically produced—one of the most important is that food

imports use up precious foreign exchange.

Most developing countries cannot pay for imports with their own currencies.

They must pay in an internationally accepted currency, such as the American dollar

or the Euro, earned through the sale of exports. As more foreign exchange is used

for agricultural imports, less is available for imports such as capital goods, which

could raise the productivity (and hence incomes) of local workers.

The lack of foreign exchange has been exacerbated during periods of high oil

prices. Many developing nations must spend large portions of export earnings merely

to import energy. In 2005, for example, fuel imports made up 30 percent of all imports

for countries including Cameroon, the Côte d’Ivoire, Jamaica, Kyrgyzstan, Mongolia,

India, and Indonesia.

Little remains for capital goods or agricultural imports.

While this pressure on foreign exchange suggests a need for greater reliance on

domestic agricultural production, it would be incorrect to carry that argument to

its logical extreme by suggesting that all nations should become self-sufficient in

food. The reason why self-sufficiency is not always efficient is suggested by the law

of comparative advantage.

Nations are better off specializing in those products for which they have a

comparative advantage. Total self-sufficiency in food for all nations is not an

appropriate goal. Those nations with a comparative advantage in agriculture due to

climate, soil type, available land, and so on, such as the United States, should be net

284 Chapter 11 Reproducible Private Property Resources: Agriculture and Food Security

exporters, while those nations, such as Japan, with comparative advantage in other

commodities, should remain net food importers. This balance should not be

allowed to get out of line, however, by creating an excessive reliance on either

domestic production or imports.

Due to price distortions and externalities in the agricultural sector, most

developing countries have developed an excessive dependency on imports. What

kind of progress has been made in reducing this dependency? Generally, import

dependency has increased, not fallen and the lowest-income countries as a group

are having trouble even keeping up with population growth, much less making

headway in reducing imports. Progress on this front is elusive, it seems.

Price Controls and the Undervaluation Bias. Why has food production in

these countries barely kept pace with population growth for so many years?

Accumulating evidence suggests that the limits to further production are primarily

economic and political, not physical or biological. Agriculture in the low-income

countries has been undervalued, implying that the rate of return on investment in

agriculture is well below what it would be if agricultural output were allowed to

receive its full social value. As a result, investments in agriculture were lower than

they would otherwise have been and productivity has suffered.

Governments have used many mechanisms having the undesirable side effect of

undervaluing agriculture and destroying incentives in the process. Of these, two

mechanisms stand out—marketing boards and export taxes.

National marketing boards have been established in many developing countries to

stabilize agricultural prices and hold food prices down in order to protect the poor

from malnutrition. Typically, a marketing board sells food at subsidized prices. As the

subsidy grows, the board looks around for ways to reduce the amount of subsidy.

Two strategies regularly employed by marketing boards are the wholesale

importation of artificially cheap food from the United States (available under the

food aid program originally designed to eliminate wheat surpluses) and holding

down prices paid to domestic farmers. Both, of course, have the long-term effect of

disrupting local production.

Many developing countries depend on export taxes, levied on all goods shipped

abroad, as a principal source of revenue. Some of these taxes fall on cash-crop food

exports (bananas, cocoa beans, coffee, and so on). The impact of export taxes is to

raise the cost to foreign purchasers, reducing the amount of demand. A reduction

in demand generally means lower prices and lower incomes for the farmers. Thus,

this strategy also impairs food production incentives.

Government policies in developing countries not only affect the level of agricul-

tural production, they affect the techniques employed as well. Pesticide subsidies pro-

vide one example. Agricultural mechanization has also been stimulated by subsidies.

As a result of this distortion of prices, farmers have been encouraged to rely heavily on

pesticides and to embrace mechanization, strategies that make little sense in the long

run. Having proceeded down this path and become dependent on the subsidies, it

becomes difficult for these farmers to transition to sustainable agricultural practices.

Nonetheless, some basis for optimism exists. Agricultural techniques that are

both sustainable and profitable in a developing country setting can be identified.

285Distribution of Food Resources

The World Resources Institute conducted a series of studies in India, the Philip-

pines, and Chile (Faeth, 1993) to study the effects on farmer income of transitioning

to a more sustainable form of agriculture. The conclusion was that sustainable

agriculture could be profitable, but usually not without changing the current pricing

structure to reflect the full environmental costs of production. Better means of

diffusing information about sustainable agricultural techniques among farmers

would also be needed.

Feeding the Poor with Targeted Subsidies. The undervaluation bias was caused

by a misguided attempt to use price controls as the way to provide the poor with

access to an adequate diet. It backfired because the price controls served to reduce

the availability of food. Is there a way to reduce the nutritional gap among the poor

while maintaining adequate supplies of food?

Some countries are using food stamp programs to subsidize food purchases by

the poor. By targeting the subsidies so as to boost the purchasing power of those

with the greatest need (and only those with the greatest need), these programs

provide access to food while protecting the incentives of farmers. Those

countries lowering food prices for everyone with untargeted subsides necessitate

substantially higher payments by the government to finance them. When

governments search for ways to finance these subsidies, they are tempted to

reduce the subsidy by paying below-market prices to farmers or to rely more

heavily on artificially low-cost imported food aid. In the long run, either of these

strategies can be self-defeating. Targeting the assistance to those who need it is

one strategy that works.

The Green Revolution. Another approach to feeding the poor is an attempt to

ensure that the income distribution effects of agricultural policies benefit the poor.

One great hope associated with the “green revolution” was that new varieties of

seeds produced by scientific research would expand the supply of food, holding

down prices and making a better diet accessible to the poor, while at the same time

providing expanding employment opportunities for the poor to supply more grain.

How did it work out?

The green revolution started with maize hybrids adapted in the 1950s from the

United States and Rhodesia (now Zimbabwe) and later spread across large parts of

Central America and East Africa. Since the mid-1960s short-stalk, fertilizer-

responsive varieties of rice have spread throughout East Asia and varieties of wheat

have spread through Mexico, and in India and Pakistan.

In many areas with access to these hybrids, productivity doubled or tripled over

a 30-year period. Short-duration varieties have permitted many farmers to harvest

two crops a year where only one was formerly possible. The transformation was

historically unprecedented.

The effects were impressive. According to Lipton and Longhurst (1989), in most

areas with access to these modern varieties, small farmers adopted them no less

widely, intensively, or productively than others. Labor use per acre was increased

with a consequent increase in the wage bill received by the poor. Poor people’s

consumption and nutrition were better with the new varieties than without them.

286 Chapter 11 Reproducible Private Property Resources: Agriculture and Food Security

Yet the adoption of these varieties has had a darker side as well. As the Irish

potato famine of the mid-1800s made clear, reliance on a few species of hybrid

cereal grains increases the risk of disease and pests. Risk can be lowered by holding

a diverse collection of stocks. The security offered by diversity of agricultural

species has diminished as larger and larger areas are planted in these new varieties.

In other areas, those without access to the new varieties have probably lost out as

large quantities of new hybrid grains entered the market, outcompeting some of

the more traditional sources. Small farmers were not always the beneficiaries of

these new agricultural hybrids.

What about aid from the developed nations? Temporary food aid is helpful

when traditional sources are completely inadequate due to natural disasters, as long

as the food aid does not interfere with the long-term earnings of domestic producers.

In the long run, developed nations could provide both appropriate technologies

(such as solar-powered irrigation systems) and the financial capital to get farmer-owned

local cooperatives off the ground. These cooperatives would then provide some of

the advantages of scale (such as risk sharing and distribution), while maintaining

the existing structure of small-scale farms. Coupled with a balanced development

program designed to raise the general standard of living and effective population-

control efforts, this approach could provide a solution to the distributional portion

of the world food problem.

Climate Change

One last factor that could play a major role in future food production is climate

change. As the U.S. EPA summarizes the evidence:

Agriculture is highly sensitive to climate variability and weather extremes, such as

droughts, floods and severe storms. The forces that shape our climate are also critical to

farm productivity. Human activity has already changed atmospheric characteristics such

as temperature, rainfall, levels of carbon dioxide (CO

) and ground level ozone. The

scientific community expects such trends to continue. While food production may benefit

from a warmer climate, the increased potential for droughts, floods and heat waves will

pose challenges for farmers. Additionally, the enduring changes in climate, water supply

and soil moisture could make it less feasible to continue crop production in certain regions.

Feast and Famine Cycles

The remaining dimension of the world food problem concerns the year-to-year

fluctuations in food availability caused by vagaries of weather and planting decisions.

Even if the average level of food availability were appropriate, the fact that the

average consists of a sequence of overproduction and underproduction years means

that society as a whole could benefit from smoothing out the fluctuations.

http://www.epa.gov/climatechange/effects/agriculture.html

287Feast and Famine Cycles

Price

(dollars

per unit)

Quantity

(units)

FIGURE 11.4 The Cobweb Model

The point is vividly depicted by an analogy. If a person were standing in two

buckets of water—the first containing boiling hot water, the second, ice-cold

water—his misery would not be assuaged in the least by a friend telling him that

on average the temperature was perfect. The average does not tell the whole

story.

The fluctuations in food supplies seem to be rather large and the swings in

prices even larger. Why? One characteristic of the farming sector suggests that

farmers’ production decisions may actually make the fluctuations worse or at least

prolong them. This tendency is explored via the cobweb model (see Figure 11.4). The

source of the name is obvious, although no spider would own up to having created

such a pathetic specimen.

Suppose, due to a weather-induced shortage, Q

is supplied, driving the price up

to P

. For the next growing season, farmers have to plant well in advance of harvest

time. Their decisions about how much to plant will depend on the price they

expect to receive. Let us suppose they use this year’s price as their guess of what

next year’s price will be.

They will plan to supply (and in the absence of further weather aberrations will

supply) Q

. At price P

, the market cannot absorb that much of the commodity, so

the price falls to P

. If farmers use that price to plan the following year’s crop, they

will produce Q

. This will cause the price to rise to P

and so on.

288 Chapter 11 Reproducible Private Property Resources: Agriculture and Food Security

Theoretically, undamped oscillations that increase in amplitude over time are possible under certain

conditions, but this pattern does not seem to characterize existing food markets.

What is occurring is known in mathematics as a damped oscillation. In the absence

of further supply shocks, the amplitude of price and quantity fluctuations decreases

over time until the equilibrium price and quantity are obtained.

The demand for many foods tends to be price-inelastic. This has some important

implications. The more price-inelastic the demand curve, the higher the price has to

go in order to bring the demand into line with supply when a weather-induced

shortage occurs. Consider the implications of this in Figure 11.5.

Figure 11.5 records an initial equilibrium situation where demand D

and supply

are equal at point A. A supply shortfall is registered as a shift in the supply curve

from S

to S

. In the two demand curves shown, D

is the most price-elastic. Notice

that the more inelastic the demand curve, such as D

, the higher the price has to go

to clear the market.

Figure 11.5 also shows the effects of price shifts on producer revenues. How do

supply shocks affect the incomes of farmers? At first glance, the result seems

ambiguous, since during shortages they get higher prices (a plus!) but also have less

to sell (a minus!). Which effect dominates?

Since producer revenue is price times quantity, it is represented as a rectangle.

The size of the rectangle depends on the circumstances. Before the supply shift,

revenues received are depicted by the rectangle OP

. After the supply shift, the

Price

(dollars

per unit)

Quantity

(units)

FIGURE 11.5 Price Elasticity of Demand and the Size of Price Fluctuations

289Feast and Famine Cycles

This is not necessarily true for every farmer, of course. If the supply reduction is concentrated on a

few, they will unambiguously be worse off while the remaining farmers will be better off. The point is

that the revenue gains received by the latter group will exceed the losses suffered by the former group.

revenues for the elastic demand curve (D

) are OP

and for the inelastic demand

curve are OP

Have revenues increased with the supply shift? To answer the question, we have

to compare areas P

CD (the net amount gained with the elastic demand curve) or

BD (the net amount gained with the inelastic demand curve) to DAS

(the

revenue lost due to the lower production levels).

One conclusion is immediately obvious—the more inelastic the demand curve,

the more likely farmers as a group are to gain from the shortfall. As long as the

demand curve is price-inelastic in the relevant range (a condition commonly

satisfied in the short run by food products), farmers as a group will be better off by

supply shortfalls.

The recent expansion of ethanol production in the United States is a good

illustration of this point. Ethanol demand is very price-inelastic, indeed more

inelastic than food or export demands for corn. As the ethanol share of corn

production grows, however, the overall demand for corn is expected to become

more price-inelastic. Can you see how this would affect revenue to corn producers

using Figure 11.5?

For consumers, a quite different picture emerges. Consumers are unambigu-

ously hurt by shortfalls and helped by situations with excess supply. The more

price-inelastic the demand curve, the greater the loss is in consumer surplus from

shortfalls and the greater the gain in consumer surplus from excess supply.

This creates some interesting (and from the policy point of view, difficult) incen-

tives. Producers as a group do not have any particular interest in protecting against

supply shortfalls, but they have a substantial interest in protecting against excess

supply. Consumers, on the other hand, have no quarrel with excess supply, but want

to guard against supply shortfalls.

While society as a whole would gain from the stabilization of prices and quanti-

ties, the different segments of society have rather different views of how that

stabilization should come about. Farmers would be delighted with price stabi-

lization as long as the average price was high, while consumers would be delighted

if the average price were kept low.

The main means of attempting to stabilize prices and quantities is by creating

stockpiles. These can be drawn down during periods of scarcity and built up during

periods of excess supply. Currently, two different types of food stockpiles exist. The

first is a special internationally held emergency stockpile that would be used to

alleviate the hunger caused by natural disasters (such as drought). Established in

1975 by the Seventh Special Session of the U.N. General Assembly, with an annual

target of 500,000 tons, the World Emergency Stockpile has the potential to greatly

reduce suffering, without having any noticeable disruptive effect on the world grain

market (involving some 70 million tons traded). Unfortunately, its full potential has

not yet been reached. The bulk of reserves is distributed annually to needy nations

in that same year, leaving little in reserve.

290 Chapter 11 Reproducible Private Property Resources: Agriculture and Food Security

The second kind of stockpile represents the stocks held individually by the

various countries. While it was hoped that these stockpiles would be internationally

coordinated, that has proved difficult to achieve. Food stockpiles can potentially

increase food security on a worldwide basis, but implementation of an effective

system has proved difficult. Significant difficult political decisions on stockpile

management, such as timing purchases and sales, have yet to be agreed upon. Until

that time, because the interests of producers and consumer nations are so different,

it is unlikely that any uncoordinated system will be fully effective.

Summary

The world hunger problem is upon us and it is real. Serious malnutrition is

currently being experienced in many parts of the world. The root of the chronic

problem is poverty—an inability to afford the rising costs of food—and food

insecurity among the poor has been intensified by rising food prices.

These problems are not unsolvable and do not call for a massive retrenchment

by the developed world. The main barriers to a solution are political and economic,

rather than physical.

The FAO has not only concluded that developing countries could increase their

food production well in excess of population growth, but they also note that this

will occur only if (1) the developed nations share technology, (2) they provide the

developing countries access to their markets, and (3) the developing countries show

a willingness to adopt pricing policies that do not restrict output. This can be

accomplished without placing the poor in jeopardy by using targeted food purchase

subsidies (such as a food stamp program), rather than price controls.

Because a major part of the world hunger problem is poverty, it is not enough

to simply produce more food. The poor must be able to afford the food. This

is particularly important in light of the rapidly rising cost of agricultural

inputs, such as fertilizer, and the conversion of land from producing food to pro-

ducing fuels. Reducing poverty can be accomplished by bolstering nonfarm

employment opportunities, as well as by enhancing the returns of smaller-scale

farmers. Upward pressure on food prices could also be reduced by lowering the

very large subsidies responsible for converting land from food to fuel produc-

tion. As noted in Chapter 7, subsidizing corn-based ethanol is an inefficient

component of energy policy and it worsens the world’s food security problem at

the same time.

With respect to economies of scale, the available evidence suggests that no

necessary trade-off exists between efficiency and equity; small-scale farming can

compete effectively, given access to credit markets and new, improved technologies.

Food stockpiles—key elements in a program to provide food security—exist, but

are not yet fully effective. The emergency stockpile has not achieved its designed

capacity and the system of national stockpiles is large but not effectively managed.

The light is visible at the end of the tunnel and the train is moving, but the journey

is distressingly slow.

Tietenberg Tom, Lewis Lynne. Environmental &amp; Natural Resource Economics

Подождите немного. Документ загружается.

Tietenberg Tom, Lewis Lynne. Environmental & Natural Resource Economics