What Policies Cause High Food Prices?

by Tom Bozzo

Over at his FT blog, Willem Buiter sensibly calls for an end to biofuel subsidies and mandated levels of biofuel use, and suggests that the money be spent on environmentally friendlier renewable energy research instead. He delivers a great bit of wonk snark after reciting various biofuel targets, then saying:

All this will have to go. It is part of a process called ‘learning’. More governments and official institutions should try it.

Buiter does deliver a “Paging Dr. Baker” moment in adding a more general call for agriculture liberalization in the rich world to the pitch:

End all policies to subsidise or protect agriculture as well as all policies to restrict agricultural production through set-asides (paying farmers not to grow stuff) and other idiocies.

Do subsidies and restrictions on production both affect price in the same direction? (Not all set-asides are “idiocies” either, notably those on the margins of waterways.)

Agriculture subsidies is one of those areas that tends to unite economists against politicians; the elimination of them seems to offer benefits across the political spectrum — a little expansion of the “free” market for the right, a little reduction in corporate welfare for the left, say. Much as I might be receptive to both under the right circumstances, this is not enough reason to pursue the near-total liberalization of ag markets.

It can be argued that there are goods where we should be willing to trade some efficiency of provision for reliability and/or affordability, which favors the intervention of the visible hand; I’d argue that food staples are among them. To the extent this is the policy aim, then economists should be more aware than most that there’s no theoretical reason to expect free markets to provide them reliably or affordably for all, or even all important, values of “reliable” and “affordable.” It’s part of a process called ‘learning,’ natch!

It’s necessary to actually make the case that subsidies aren’t warranted, or at least that the effects of existing as opposed to ideal subsidy programs in total are worse than whatever could be reasonably expected under liberalization, and that’s a tough one to make categorically. Even Buiter is willing to countenance subsidies for production of staple crops in poor and underdeveloped countries. The question is whether that should be the limit of them, and there isn’t a simple answer.

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