Last week, the World Bank's President Zoellick made a brief stop at the Kennedy School to address the Harvard International Development Conference. A few of us were also lucky enough to attend a small group meeting with him beforehand.
Zoellick is probably the most impressive Republican official I have ever encountered: smart, engaging and thoughtful. He spent an hour and a half asking each of us where we came from and what we were working on. In the picture above, he is quizzing my friend Carlos on the effects of the Colombia Free Trade Agreement (which Zoellick helped negotiate) on Carlos' native Ecuador.
It was left to Professor Dani Rodrik, sitting opposite Zoellick in the picture, to point out the inconsistency in the World Bank's attitude towards trade. (He did so in a different meeting, as we didn't let the professors say anything in the first one!). Essentially, Zoellick wants to conclude the Doha Round at the same time as increasing the supply of basic foods. But the Doha Round entails reducing the subsidies the USA and EU pay to farmers to grow these foods, which will raise their price in the short run, just when the world is facing record shortages of rice and other staples.
Is this a real contradiction, or will it disappear over time? I'm inclined to think that the supply response of farmers in Africa and Asia will ultimately outweigh the decline in US and European production. After all, the subsidies are most distorting in crops like cotton, which is not a food crop and not in short supply. The Bank's own research suggests that eliminating subsidies will increase global rice prices by 4.2% and wheat by 5%. That's much less than the current spike in prices. So what is the elasticity of rice supply over 3-5 years?