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Rising Food Prices and Public Policy-BECKER
The World Bank's index of food prices increases by 140 percent from January 2002 to the beginning of 2008, and a full 75 percent just since September 2006. This highly unusual explosion of food prices has been seized upon by neo-Malthusians as the beginning of a day of reckoning due to the collision between he limited capacity of the earth to produce foods and the growing demand for food and other commodities induced by rapid world population and income growth. Malthusians have turned out to be wrong in the past when they extrapolated from events like food price inflation to prophesies about world catastrophe-witness the embarrassingly wrong predictions in Paul Ehrlich's The Population Bomb about the impending mass world starvation in the 1970's due to what he considered vastly excessive world population growth. They are also wrong about this current food price rise because it has nothing to do with population growth, and is only a little related to the rapid expansion in world incomes in recent years.
Rather, the boom in petroleum prices and subsidies to ethanol and other biofuels are the most important forces explaining the recent increase in food prices. Both the sharp run up in oil prices, and the continuing subsides to ethanol production in the United States, and to a lesser extent Europe, induced an increasing diversion of corn from feed and human consumption to the production of biofuels. The main goal of the diversion has been to produce more ethanol as a substitute for gasoline. During the past year, one quarter of American corn production, and 11 percent of global production, was devoted to biofuels, and the US contributes a lot to the world corn market. The growth in demand for biofuels explains why acreage was shifted from other grains to corn-the acreage devoted to corn in the United States increased by over twenty percent in 2007-8, while that devoted to soybean production declined by more than fifteen percent. The reallocation of production away from other grains explains the rapid price increases for wheat, soybeans, and rice as well as for corn.
The huge increase in petroleum prices also pushed up the cost of producing foods, and hence food prices, since energy is an important input in the production of fertilizers and agricultural chemicals. Other factors affecting the rise in food prices include the drought in Australia in 2006-07 that cut world grain production during those years, and the fall in the value of the dollar that may have increased the dollar value of foods and other commodities.
The World Bank's index of food prices increases by 140 percent from January 2002 to the beginning of 2008, and a full 75 percent just since September 2006. This highly unusual explosion of food prices has been seized upon by neo-Malthusians as the beginning of a day of reckoning due to the collision between he limited capacity of the earth to produce foods and the growing demand for food and other commodities induced by rapid world population and income growth. Malthusians have turned out to be wrong in the past when they extrapolated from events like food price inflation to prophesies about world catastrophe-witness the embarrassingly wrong predictions in Paul Ehrlich's The Population Bomb about the impending mass world starvation in the 1970's due to what he considered vastly excessive world population growth. They are also wrong about this current food price rise because it has nothing to do with population growth, and is only a little related to the rapid expansion in world incomes in recent years.
Rather, the boom in petroleum prices and subsidies to ethanol and other biofuels are the most important forces explaining the recent increase in food prices. Both the sharp run up in oil prices, and the continuing subsides to ethanol production in the United States, and to a lesser extent Europe, induced an increasing diversion of corn from feed and human consumption to the production of biofuels. The main goal of the diversion has been to produce more ethanol as a substitute for gasoline. During the past year, one quarter of American corn production, and 11 percent of global production, was devoted to biofuels, and the US contributes a lot to the world corn market. The growth in demand for biofuels explains why acreage was shifted from other grains to corn-the acreage devoted to corn in the United States increased by over twenty percent in 2007-8, while that devoted to soybean production declined by more than fifteen percent. The reallocation of production away from other grains explains the rapid price increases for wheat, soybeans, and rice as well as for corn.
The huge increase in petroleum prices also pushed up the cost of producing foods, and hence food prices, since energy is an important input in the production of fertilizers and agricultural chemicals. Other factors affecting the rise in food prices include the drought in Australia in 2006-07 that cut world grain production during those years, and the fall in the value of the dollar that may have increased the dollar value of foods and other commodities.
Paying the Poor to Improve their School Performance-Becker
In the mid-1990's Mexico started an anti-poverty program, called Progressa, that revolutionized the way low income countries try to reduce child labor and the school dropout rate. This new approach typically pays poor parents to keep their children in school and to take them for regular health check-ups. The reasoning motivating this approach is that while poor parents may love their children as much as rich parents do, the need for greater income induces poor parents to take their children out of school, so that they can go to work and add to the family's income. Offering monthly cash payments if the children remain in school and performs well instead of going to work helps compensate these families for the loss in their children's earnings.
The results of Progressa are publicly available so that they can be objectively analyzed, and compared with a control group of similar families who were not invited into the program. Studies by economists in the United States and elsewhere clearly show that Progressa has succeeded in inducing the mainly rural parents in the program to keep their children in school longer than they would have. The budgetary cost of that achievement has been sizable; although the cost would have been much less if Progressa had offered the subsidies mainly to parents with children at the ages-usually when children were in the 6-8 grades-when poor rural Mexican parents typically took their children out of school.
For many years I have enthusiastic about using incentives to encourage greater school attendance by children from poorer families. I first wrote about Progressa, and similar programs in Brazil and elsewhere, in a Business Week article entitled " 'Bribe' Third World Parents to Keep Their Kids in School", Nov. 22, 1999. Such programs seem to be the most effective way to induce poor families in developing countries to reduce child labor by keeping their children in school much longer. Prior to the introduction of these programs, poor parents simply ignored laws against child labor, and those requiring children to stay in school until they either reached a certain age or attained a minimum grade level.
In the mid-1990's Mexico started an anti-poverty program, called Progressa, that revolutionized the way low income countries try to reduce child labor and the school dropout rate. This new approach typically pays poor parents to keep their children in school and to take them for regular health check-ups. The reasoning motivating this approach is that while poor parents may love their children as much as rich parents do, the need for greater income induces poor parents to take their children out of school, so that they can go to work and add to the family's income. Offering monthly cash payments if the children remain in school and performs well instead of going to work helps compensate these families for the loss in their children's earnings.
The results of Progressa are publicly available so that they can be objectively analyzed, and compared with a control group of similar families who were not invited into the program. Studies by economists in the United States and elsewhere clearly show that Progressa has succeeded in inducing the mainly rural parents in the program to keep their children in school longer than they would have. The budgetary cost of that achievement has been sizable; although the cost would have been much less if Progressa had offered the subsidies mainly to parents with children at the ages-usually when children were in the 6-8 grades-when poor rural Mexican parents typically took their children out of school.
For many years I have enthusiastic about using incentives to encourage greater school attendance by children from poorer families. I first wrote about Progressa, and similar programs in Brazil and elsewhere, in a Business Week article entitled " 'Bribe' Third World Parents to Keep Their Kids in School", Nov. 22, 1999. Such programs seem to be the most effective way to induce poor families in developing countries to reduce child labor by keeping their children in school much longer. Prior to the introduction of these programs, poor parents simply ignored laws against child labor, and those requiring children to stay in school until they either reached a certain age or attained a minimum grade level.
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