07 January 2008

Rice in Ecuador: price control or export ban?

A few weeks ago, The Economist reported on the ever-rising price of agricultural commodities, including rice. What's good news for farmers is bad news for urban consumers and since cash crop farmers need to eat, they get hurt by higher food prices as well.

I've been spending some time in beautiful Ecuador visiting friends and picked up a copy of the local paper. Rising food prices are a major topic here as well, but the government's response is a little unusual: they simply banned rice exports.

Now, I could understand that if there were a real risk of people going hungry: Ireland famously continued exporting potatoes to England during the 'Potato Famine' of 1847. But since most of the poorest people in Ecuador are farmers, stopping them from selling their rice at the best price they can get seems like a bad idea.

On the other hand, banning rice exports will not lead to rice shortages in the short term, whereas price controls would, because any sensible farmer would just sell them abroad. So maybe it's the lesser of two evils?

Maybe, but beware the unintended consequences: Colombia, which used to import rice from Ecuador, has now imposed a ban on imports of other agricultural commodities! The same newspaper showed a farmer throwing lovely ripe mangos in a ditch, because Ecuador now has a mango glut. Simultaneous food shortages and other kinds of food going to waste? That's precisely what happens if you stop farmers from trading.


johninmaine said...

my wife is Ecuadorian and i lived there for 7 years. what they are doing is a type of "nationalistic-socialism".

they don't want to trade with anyone but a few "handpicked" countries.

they want to produce everything in EC, and keep it there. washermachines, cigarettes, etc

leftside said...

Blame for the (just beginning) food crisis must lie squarely on the back on Bush's plan to turn the American breadbasket into our car's fuel. How poor government's deal with food inflation and $100 oil is always going to be a losing game for someone. The decision not to use price controls is interesting, as was Chavez's lifting of several controls last week. They are a crude tool. A specific export ban like this is not perfect either, but offers quick relief, which people tend to like.

Anonymous said...