Agriculture links to think about

1. Is the world going to run out of phosphorus? (It's in all our bones and puts the P into NPK fertiliser). Answer: Probably not for 100 years, but we should look for supply shortages now and start recycling it before we get another disastrous spike in fertiliser prices.

2. 25 stories on African agriculture. Haven't read them all, but good news in no. 18 (Zimbabwe grows more maize), bad news for Kenyan horticulture in no. 9 (is that a climate-compatible industry?). The DR Congo award for "world ignores ongoing disaster" goes to no. 12 on Lake Chad drying up.

3. Interesting post on what to eat by a soil scientist. She has a few rules of thumb which she readily admits are imperfect and inconsistent and - because the budget constraint usually binds for grad students - "I can't always decide whether the cost of organics reflects the true cost of the food or whether I'm paying for the word 'organic'."

My rules of thumb are also imperfect and inconsistent: no beef, other meat or fish every other day not every day, seasonal fruit and vegetables because they taste better anyway. Organic milk, fruit and vegetables yes, free range eggs always BUT conventional wheat/rice/maize (where I think the yield benefit of conventional techniques outweighs the biodiversity loss - i.e., I'd rather have a factory farm next to the Amazon than no factory farms and no Amazon). Do I stick to them religiously? No. Do I try? Yes. Am I a hypocrite? Yes and so are you. If we were honest we'd all eat beans.

Thank you Sarah Holmes, Sue Murray and Etienne Pollard for pointing these out!

Can biotech cure world hunger?

Last week we learnt that there are now 1 billion hungry people in the world, more than ever, albeit a smaller proportion of the population than in the 1950s. I found this debate from the New York Times a useful guide to how to respond. On the one hand, it would be absurd to condemn millions to malnutrition because we don't like high-tech farming in Europe. On the other hand, genetic modification has delivered very little for poorer countries so far: herbicide-tolerant maize and soybean varieties, yes, but none of the drought-resistant crops that the biotech companies promised.

Beyond the biotech dichotomy, most contributors recognized that the solution to the food crisis will involve a combination of technologies, including some that don't exist yet. High-input farming depends on natural gas, which won't be around forever; water is running short in many grain-growing regions; a strictly organic world food system would be a disaster for forests, but many techniques from organic farming are useful and should be spread. It would probably help if the NGOs and corporations stopped insulting each other and worked together for a change.

If I could contribute to the debate, it would be on prices and the signals they send. High food prices are in general a disaster for development, but we need higher prices for meat, fish and air-freighted vegetables for richer people (not just rich countries) to change their destructive eating habits. We need to tax water and energy use in such a way that basic grains and vegetables are cheap enough for everyone, but beef becomes an expensive luxury for the Americas, Europe and Australia just as it is for the rest of the world. A serious carbon tax would stop us agonising between strawberries grown in Dutch greenhouses or flown from Kenyan orchards: they will be too expensive to eat anytime they're not in season.

In the absence of carbon and water taxes, more information can help: just publishing the emissions associated with beef burgers led 20% of diners to switch to chicken or the veggie option, according to this photo essay. Ultimately, though, the most powerful information is provided by the price.

Sustainable cocoa isn't all it seems

The movement to certify cocoa has taken two steps forward in recent months. Consider these two stories:

1. Mars, which is the world's largest end-user buyer of cocoa, has promised to certify that all its cocoa will come from sustainable sources by 2020. Unfortunately, this article from the Financial Times does not tell us what a 'sustainable source' is, how it will be certified or why it will take over 10 years to complete the process. However, they do hint at the root of the problems of the cocoa sector: very low yields in West Africa, where two-thirds of the world's cocoa comes from. Mars seems to understand that since there is little primary forest left to cut down in Ghana or Côte d'Ivoire, the only way to increase cocoa production is to apply inputs to existing trees and replant them with higher-yielding varieties.

2. Cadbury, the UK's best-selling chocolate maker, has announced all its Dairy Milk bars will be certified 'Fair Trade' by the middle of 2009. The BBC reports this will mean tripling the volume of Fair Trade cocoa it buys from Ghana, to 15,000 tonnes. The more detailed press release points out that they are no longer relying just on Ghana's well-established 'Kuapa Kokoo' cooperative, but will help set up farmers' groups and cooperatives in other parts of the country.

Both Mars and Cadbury promise that chocolate prices won't rise, while promising higher farmgate prices for the cocoa growers. How can they do this without squeezing their profit margins? I can think of two ways. First, certified cocoa has been expensive in the past because it was a niche product. If certification becomes the standard, the economies of scale may make it cheaper to operate the tracing systems, audits and inspections required for certification. Two, Fair Trade (which Cadbury backs, but Mars doesn't) guarantees a minimum price to farmers, but when cocoa prices are as high as they are now, there is no difference between Fair Trade and the world market price. (There is a small 'bonus' for Fair Trade growers, but it's tiny and usually given to the cooperative for community projects, rather than individual farmers).

Will these schemes help cocoa farmers, then? I'd like to see more details of what Mars is planning, but there are some benefits. If certification works, it will make the supply chain more efficient and thus cut out some of the profits made by middlemen. If Fair Trade works, it will reduce the risk of a sudden crash in cocoa prices leaving farmers worse off. Neither of these schemes will do much to reduce poverty in cocoa-growing communities, however. To increase their income, they will need to raise productivity. Higher productivity will come from growing more and better cocoa on the same land, with higher-yielding trees and more inputs including fertiliser (sorry). You can do this through subsidised credit and government- or private-sector led replanting schemes; certification and higher prices alone will not be enough.

Interesting and disturbing food and agriculture news

First, this thoughtful number from Senegal, on the see-saw of global price prices.

Second, a mysterious plague of worms riddles Liberia. There is still no certainty on what they are and many upcountry farmers feel frightened and abandoned - but even though the spray teams from the Ministry of Agriculture come late, at least there are spray teams.

Third, another story on middle income countries buying food through barter deals. This time last year, it was because food was too expensive. This year, food is cheap, but they can't get credit to pay for it.

Rich countries buy up agricultural land: who benefits?

I'm back from an exhilirating few weeks on the Obama campaign and haven't thought, talked or read about much else for the last month or so. But as the President-elect's team takes shape and the economic news has settled into a consistently - but predictably - gloomy pattern, I'm trying to find out what happened to some of the big issues from earlier in the year.

One problem that hasn't gone away is the global food crisis. The prices of key commodities may have begun falling, but the structural factors that led to their sustained increase over the last few years haven't gone away. A timely article from the Guardian sheds light on the practice of small, rich countries buying land in large, poor ones to safeguard their future supply of food.

The Guardian journalists do not hide their distaste for the deals, in which cash-hungry governments from Laos to Malaysia to Ukraine sell land to investors from Korea, Abu Dhabi, China and Saudi Arabia to grow food on a large scale. For smallholders who are turfed off their land, or don't have access to the advanced technology of the commercial farms, it's certainly a raw deal. But could there be a benefit to these deals that goes beyond food security for a few small countries?

In principle, there could be. Here is where the land is being bought. If the effect of introducing commercial agriculture to Sudan and Madagascar is a dramatic increase in productivity, the global supply of staple crops like rice and maize will increase and their price will fall. (The rice grown in Madagascar may go straight to South Korea, but South Korea will be able to reduce its imports from other countries commensurately). This could be good news for urban Malagasies, though not for the rural (rice-growing) majority.

A second benefit might come from technological spillovers. Small farmers in Africa and South-East Asia aren't an attractive market for new seed varieties or fertilizer, but large commercial farmers could be. I realize these spillovers are difficult to capture in practice, but surely having more commercial agridealers would be of benefit to everyone.

I don't want to suggest that these deals are good for everyone: some poor people will probably lose their land, the productivity gains may not be spectacular and the global price effect will be too small to notice. I just think we should look at each deal on its merits. Like the Chinese infrastructure deals, some are better than others. Like the Chinese infrastructure deals, we need more research into which ones.

The market versus the mall

Whenever I travel out of Accra towards Ghana's central or west coast, I pass through Kaneshie station - which is really a large market with a bus station attached. It looks chaotic, but is actually very well structured: if you can bear the noise and the smell, you will be on a minibus to almost anywhere within a minute or two. The market sellers are organized too: all the plastic-sandal-merchants are in one corner, all the beef-and-goat-meat-choppers in another.

A few miles away is the Accra Mall: a new, air-conditioned shopping emporium as clean and bland as any other in the world. Between the stressed-out SUV drivers and lost-looking backpackers, upper-class local kids 'hang out' in the food court, because that's what kids do in malls.

Where is the future of African retail? For now, my money is on Kaneshie market. Their local produce is cheaper and better (never mind the cold chain: it was picked this morning) and their imported Chinese crap is as cheap and as crap as anyone else's. The problem is, there are no economies of scale and virtually no product differentiation. 500 people selling the same pile of onions equals 500 tiny profit margins. Fine if you are content for people to just survive. Not fine if you want some of these businesses to grow, employ others, maybe move into a proper shop so I don't have to trip over goat heads on my way to the beach.

So far, so much anecdotal speculation. Fortunately, when I got back from the beach I found this new paper by Rafael La Porta and Andrei Shleifer. (Thank you Dani Rodrik for pointing it out). Their question is: does a large informal economy help or hinder economic development? Their answer is: neither.

According to La Porta and Shleifer, there are three ways of viewing the informal economy. The first is the 'romantic view', associated with Hernando de Soto and a thousand microfinance outfits. According to this view, the sellers at Kaneshie market are all budding entrepreneurs. Give them secure property rights and some microloans and presto, within a few years we'll have a Kaneshie Mall with a plastic sandal supermarket and value-added goat head products.

Not much evidence for that, unfortunately: it turns out that almost all small businesses stay small even when you pump them up with microloans. So how about the 'parasite view', exemplified by this article from the McKinsey Global Institute? These guys say informal firms have a cost advantage in spite of their low productivity, because they pay lower taxes and rent than the formal ones. This prevents more productive formal-sector firms from getting off the ground. The solution: cut taxes on the formal sector and enforce them in the informal one. Then watch the Accra Mall outcompete the street markets, just like Wal-Mart does in Mexico.

This is a controversial view: who likes Wal-Mart? There's not much evidence for it either. Many city governments have cracked down on street vendors and markets, only to find them creep back months or years later. Zimbabwe's Operation Murambatsvina ('Drive Out the Rubbish') in 2005 destroyed the informal economy in Harare, but did nothing to alleviate food shortages. Rather than the informal entrepreneurs rushing to register their businesses, most just stop trading and are forced to find another livelihood.

The most interesting finding of the paper is that the formal sector does not grow out the informal sector, it replaces it. Most formal firms started off that way: they registered and paid tax from the beginning, using seed capital from friends, family or foreign investment (rarely banks). That lends credence to the third view of the informal economy, the 'duality view'. This view explains the productivity differences between formal and informal firms in the skills of their owners and managers. Skilled managers (usually those with a college education) go to work in the formal sector, where their productivity is rewarded with high wages. Less educated managers stay in the informal sector, whose meagre returns are commensurate with their skills. The formal and informal sector are different people selling different things in different markets. The South African running the Nike store in the Accra Mall would no more think of competing with the Hausa shoe trader at Kaneshie than she would of buying her biltong from him.

A good friend recently came to Accra to research the same topic and he described the informal sector as facing a 'mesh ceiling': there is no insurmountable obstacle to small businesses growing large, it just almost never happens. He found that even when market-traders and shopkeepers were selling the same product, their perceptions of the challenges and opportunities of the business were completely different. In particular, the shopkeepers, who usually have some access to credit, complained bitterly about high interest rates and stingy banks; the market traders, who have none at all, didn't even mention it.

The informal economy doesn't formalize when an economy develops, therefore: it just gradually becomes less important. In the USA, 95% of food is sold in supermarkets; in Latin America it's close to 50-50 and in China their share is growing fast. Shoprite won't put my local fruit seller out of business. But her grandson might get a job there.

The Great Illusion: Part One

Paul Krugman has a thought-provoking piece in the New York Times. He compares the international situation now with 1914, when the last great wave of globalization ended and the world turned in on itself for more than a generation.

I am substantially less well informed to comment than Krugman or many others, but it seems to me he is right to highlight the end of Pax Americana (but didn't that end in 2001, if it ever existed?). He is also right to point out how quickly national selfishness and protectionism reared their heads in the food price crisis - with export bans and the like.

There are three crucial differences between 2008 and 1914, however, which make me hopeful that we are not about to see an end to globalization.

The first is that international institutions are enormously stronger now than in 1914. The UN Security Council may have been powerless to do much about Russia and Georgia fighting, but that's because Russia is a member of it. The League of Nations would have issued a nice condemnation, but that institution was useless precisely because the USA, USSR, Germany and Japan were not a partof it. Besides the powerful military and economic bodies, there are countless talking shops where even sworn enemies without diplomatic ties can talk to each other in private, with a mediator if necessary. Europe depends on Russian gas; but Russia depends on Europe's continuing custom: you can't re-route a pipeline.

Second, unlike the Great Depression, the food price crisis contains the seeds of its resolution. 'Crisis' is often taken to mean a disaster, when really it means a turning point: this crisis is also an opportunity, by giving farmers in food-importing countries the incentive they need to grow more food. Here in West Africa, the price of imported rice and cooking oil has gone through the roof; but local food and oil production are starting to rise. Behind the crisis talk on the World Bank's website, a press release celebrates the halving of rice imports in countries as diverse as Guinea, Nigeria and Uganda, thanks to high-yielding rice varieties!

Third, there are large areas of the world that are as stable now as they ever have been. Krugman reminds us that war is now unthinkable in Western Europe; I would argue this extends to all 27 EU member states. The Americas and most of Asia are not islands of stability, they are oceans.

Rather than the end of globalization, I am much more concerned about another great illusion: the idea that we can deal with climate change by burying our heads in the sand. More uninformed ramblings on that to follow . . .

Two even better articles on the food situation

The Financial Times has two great articles on why we should have been talking about food ten years ago. (Thanks to Joost Bonsen for alerting me to them).

The first is by Javier Blas: 'The end of abundance.'

The second by Alan Beattie on Africa: 'Seeds of change'.

They note that: "Farmers, agronomists and development experts say that new technology alone, particularly in the short term, will bring no radical transformation. Quicker gains can be made improving markets and transport, which will help expand existing, under-used technologies."

Exactly. Roads and rice mills, then . . .

Rice is back

The price of rice has stopped rising, for now, but the scramble to grow more rice has only just begun.

Agriculture ministers and scientists have been calling for a 'Green Revolution for Africa' for years. The Gates Foundation wants to fund it. Belatedly, the World Bank has agreed. The central focus seems to be on improved seed varieties, bred or modified for African conditions. A blog in the New York Times describes 'The Hunt for Super-Rice', a distributed computing project wherein unused time on personal computers is used to model genetic variations of rice. (This is the same technique as used to search for extraterrestrial intelligence and protein folding combinations).

By contrast, a friend has pointed out a low-tech approach to raising yields in today's edition of the same newspaper. Professor Norman Uthoff at Cornell University has developed a 'System of Rice Intensification' which relies on early and less dense planting. It may seem counterintuitive, but apparently yield can be raised without recourse to the flooded paddy fields or chemical fertiliser familiar from Asia. At a time when the cost of fuel (and hence fertiliser) has risen even faster than the price of the crop, this is welcome news.

As so often, however, the article skirts around the question of implementation. There may be isolated incidents of doubling or tripling yields, but techniques are even more difficult to disseminate than seeds or fertiliser: they need trained extension workers. Even if the System of Rice Intensification raises yields more cheaply or reliably than a 'Green Revolution', it will need a new army of extension agents to make it work. Unless it's so good that it can be spread by word of mouth. Maybe the best agricultural technology is the mobile phone . . .

The impact of food price rises on trade balances

As world leaders, UN officials and thousands of hangers-on gather in Rome to talk about food, the US Department of Agriculture has released a fascinating map showing how food price increases affect trade balances.

On the face of it, this looks like bad news for developing countries, especially in Africa. A few traditional food exporters, mostly temperate-zone countries like the USA and Argentina, stand to improve their trade position, while densely populated Asia and Africa will see their trade balances move towards deficit.

However, we should beware the mercantilist fallacy that a trade surplus is somehow a sign of virtue: in fact, it could be a sign of excess saving (Japan, after all, ran a trade surplus throughout the recession years of the 1990s). So maybe a slide towards deficit in countries like Nigeria or Peru, where high commodity prices have created trade surpluses and risks of 'Dutch disease', isn't such a bad thing.

The problem with this graph is that it doesn't tell us anything about the terms of trade between countries. Trade in food, like anything else, is determined by relative prices: so the real question is which countries stand to improve their terms of trade as a result of food price changes. After all, if your terms of trade improve, you can afford more imports for the same quantity of exports. You could conceivably increase your import volume while the value of your imports falls. That's a real welfare gain. A trade surplus is nothing of the sort.

Sushi

The Washington Post reports that a new sushi bar has opened in Liberia.

So now there are two of them. If only the sushi were made from local fish (fresh and delicious), I wouldn't mind. But importing tuna and salmon to serve to aid workers, when the rest of the population can barely get enough rice (let alone fish), seems a little absurd.

Let them eat spaghetti

When I last visited Liberia in January, there was much talk of higher rice prices and their impact on people's eating habits. After all, the Kennedy School's Nolan Miller has shown that rice consumers sometimes exhibit Giffen behaviour - that is, they consume more when the price rises, because they have had to cut back spending on vegetables, meat or other foods. (His paper is due to be published in the American Economic Review).

I had been hoping that Liberians would respond to the rising price of imported rice by switching to home-grown country rice, which tastes just as good but often has rocks in it and is difficult to find in the capital.

People often told me that "people in Monrovia won't eat country rice". But the Liberian palate may be more flexible than that! The BBC's Katie Price reports that restaurants in Monrovia have started serving spaghetti. A plate costs $1 - half that of a plate of rice. Could be good with a hot chilli sauce. I have eaten spaghetti in Somali restaurants, where the Italian influence on cooking lingers, but this is the first time I have seen or read about it being served in West Africa. Sadly, I doubt this will be a lasting response to the food crisis, because most Liberians don't eat in restaurants and the price of wheat has been going up too.

Now, how about making spaghetti from cassava flour?

Driving up food prices

The BBC reports that Cote d'Ivoire's president has reduced taxes and customs duties on food in response to rioting. As the prices of wheat, rice and other staples continue to rise, I wonder if we are seeing a new kind of 'beggar-thy-neighbour' trade policy emerging?

In the last few months, export taxes have been imposed in Argentina and export restrictions imposed in Thailand and Vietnam. A few months ago, I noticed the same thing in Ecuador. These measures may work to contain the price rise in food exporting countries, for a while; but they will drive prices even higher for everyone else. This hasn't had much effect in Cambridge, Massachusetts, where food makes up maybe 10% of our expenditure, but most of the poorest countries in the world are food importers and poor people spend over two-thirds of their income on food.

I teach a course on globalization and the parallel with the 1930s is alarming: at that time, the Smoot-Hawley tariff provoked retaliatory tariff increases by Europeans, South Americans and others. A tariff may be optimal for one country is detrimental to the world. Only this time, we are talking about restrictions on exports, not imports.

What are the options for dealing with this? Maybe the World Food Programme or FAO should convene an emergency food summit to try to persuade food exporters not to starve everyone else.

Who wants to develop a low-cost rice mill?

Anyone visiting a West African village will notice the distinctive sight and sound of women pounding food to eat - yams, cassava or rice. As combine harvesters spread across Europe and North America and the green revolution throughout Asia, farming and processing practices in Africa barely changed. Rice mills, such as the one shown below, are the exception, not the rule, in rice-growing countries like Liberia and Sierra Leone.

Does this matter? Not if pounding rice by hand yielded the same quality of rice as milling it - but it doesn't and it's hard work as well. The evidence suggests that African farmers continue pounding by hand because the alternatives are too expensive or simply not available. In some countries, women are actually going back to hand pounding, because their diesel-powered mills broke down or were sold for scrap to fuel a civil war.

There are various programs led by NGOs and the UN trying to change this, based on the belief that agricultural processing technology is essential if farmers want to move beyond subsistence and grow a surplus for sale. However, their efforts are generally uncoordinated, fall well short of what is required and may just hand out the same old technology that is inefficient and breaks down easily.


Now there are two exciting developments in this field. The first is a program sponsored by the Gates Foundation to create 600 agro-enterprises in Senegal, Mali and Burkina Faso using multifunctional platforms, essentially a diesel generator to which different machines (rice threshers or mills, peanut shellers and cassava graters) can be attached. It's a traditional grant-based program, but I'm optimistic because Gates is paying for it and they insist on value for money.

The second development - and one I am keen to join - is the spread of social enterprise models using new technology. New technology here means redesigning a product to make it simpler and cheaper: this is the One Laptop per Child model, not the MacBook Air! Typically these enterprises bring together engineers, designers and development practitioners and create some clever, cheap technology. The challenge, as always, is taking it to scale and getting people to pay for it.

There are some great organizations working out there: in the last few months, I have been introduced to the MIT D-Lab, the Extreme Affordability program at Stanford's d.school (d for design), KickStart and Design that Matters. Fortunately for me, Cambridge seems to be a hub for this kind of thing! I have also heard of Engineers without Borders and Practical Action. But nobody has developed a low-cost rice mill yet. Is nobody interested, or am I just not looking hard enough?

New Rice for Africa

Last week, I presented some of my work on agriculture in Liberia to classmates in the MPAID program. It's always nice to have a sympathetic audience, but there was some friendly criticism as well - not least, of my main suggestion that the fastest way to grow more rice is to provide traditional shifting cultivators with better seeds, rather than invest in rice swamps, irrigation and fertiliser. I cited Guinea as a country that has done so with some success, provoking some bewildered looks from my friends, since Guinea is still one of the world's poorest countries.

Imagine my surprise, then, to find that today's New York Times has a photo series celebrating rice cultivation in Guinea! Cultivating the 'New Rice for Africa' has, it seems, enabled villagers to grow 50% more rice without fertiliser and up to twice as much with it. Yet sadly, these wonder seeds (which are off-patent and non-hybrid, meaning farmers can keep some of their harvest for planting) are only being planted by 200,000 farmers in West Africa. This article tells you why. No surprises: it's roads, input supply chains and output marketing . . . again.

It's all about rice

The Law of Demand is one of the most basic rules in economics: when the price of something goes up, demand goes down. Professor Nolan Miller, my tutor in microeconomics at the Kennedy School, has just found the first exception to this rule: rice in China. The paper is at http://ksgnotes1.harvard.edu/Research/wpaper.nsf/rwp/RWP07-030.

It turns out that some people in Hunan, Southern China, spend so much of their limited income on rice that if you raise the price, they consume MORE rice. This is because raising the price of rice, in effect, reduces their income. The only way to avoid the gnawing pain of an empty stomach is to spend less on pork and vegetables, and fill up on rice instead.

Economists call this 'Giffen behaviour', after a Victorian economist called Robert Giffen who asserted that poor people in Britain ate more bread when the price of bread went up. Nobody has ever verified that example, or found any other, until now. Professors Miller and Jensen comment on the irony that economists have spent the best part of a century convincing themselves that Giffen behaviour was a theoretical curiosum, only to find it in the staple crop of the world's most populous nation.

Interestingly, the result only holds for rice, among very poor urban households in southern China. Rural households grow their own rice, so a higher price is good for them. In northern China, a similar relationship holds for wheat, but it is weaker for two reasons. One, wheat can be consumed in different forms: as flour, or processed into buns and noodles. Two, rice is relatively cheaper in northern China than wheat is in the south, so a substitute is more readily available.

My own experience in China makes me think that this phenomenon won't last forever: transport costs are falling all the time, the poor in China are getting richer and regional differences in taste are less pronounced than they used to be. I was able to eat noodles in the south for only 1 or 2 yuan more than they cost in the north.

Sadly, I don't have the data to investigate this relationship for Liberia. Liberia is several decades behind China in development: while even the most isolated Chinese village has a regular bus service, many counties in Liberia are virtually inaccessible at this time of year. Rice production is only half of what it was in 1990, when the war began. Some farmers have switched to growing cassava, others are so hungry that they eat the rice seed the UN donates them instead of planting it. But it is in the city that rice is - pardon the mixed metaphor - a political hot potato.

In 1979, increases in the price of rice (mostly imported from the USA) led to riots in Monrovia. The government tried to put them down, using the army. But a 28-year-old sergeant, Samuel Doe, decided to put the government down instead. His coup ushered in 3 decades of bad government and eventually civil war. Small wonder that the new government has put growing more rice at the top of its agenda. But let the Chinese have the last word:

"If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate people."