Friday, June 27, 2008

Thursday, June 12, 2008

Neccessity breeding innovation, maybe the world won't end tomorrow

There are those that focus on the big black clouds and those who see the flowers blooming in the rain. This couple is the later:

Swift Fuel

Lets hope they are onto something. I am also going to have to read up on sorghum production.

Wednesday, June 11, 2008

Food Crisis or Subsidy Problem

I was discussing the current so called "Food Crisis" and I happened onto an interesting line of reasoning. Looking at this from a libertarian perspective, I have been following over the last few years the problem of the farmer in poorer countries. Typically they have had to quit farming and move to the cities to look for work because they could not compete with imports from either the U.S.A or the European Union. This has always struck me is quite odd. How can a poor substance farmer in Mexico not be able to grow corn for less than what American farmers are selling corn on the open market? These farmers have no substantial equipment costs, no burdensome fertilizer costs, no proprietary seed costs, no real mortgage cost on their land, in fact the poor farmer is only trying to pay for their children's school fee's and maybe a couple of luxuries. And yet the developed farmer with all those costs is out competing the poor farmer.

Then I hit on the idea. The developed farmer is receiving huge subsidize from the central government which is artificially lowering the price of the product below what the developing world farmer is willing to sell at. This tactic did work in the short term but was ultimately doomed. The market is finally correcting the price imbalance that the European Union and the USA have caused by subsidizing farmers. I am surprised that people, and leaders, think there won't be any negative repercussions from artificially lowering prices. Countries investment in food production, private investment by farmers and corporations, has fallen quite dramatically over the last decade as the rich countries subsidize domestic production which is in turn sold at below market value in poor countries. This forces food producers in non-subsidized countries to find jobs or other markets that will provide a higher return. Now the subsidized food producers find other markets for their land production more profitable and global food production starts to fall below demand. Market forces leveraged by this shift snap into action and correct the prices to what they should have been without subsidizes, for the poor this is very painful. It will now be a somewhat slow process as individuals see the potential for profits in food production without subsidizes and labour and investment moves back into food production. Unless the rich countries can be convinced to abandon their domestic subsidizes during this correction period, when the producers find the profits higher back in food production they will return and drive out the poor food producers again.

Here are some related articles
U.S. Cotton Subsidizes
Corn wins again at the UN
U.S. corn subsidies from 1996-2006
U.S farm subsidies from 1996-2006