Freeman

THE CALLING

Droughts, Famines, and Markets

Why crop failures need not starve anyone.

AUGUST 23, 2012 by STEVEN HORWITZ

Filed Under : Division of Labor

As I write, many high school students all over the United States, my daughter included, are reading John Steinbeck’s The Grapes of Wrath, with its portrayal of the 1930s Dust Bowl, in preparation for literature courses in the fall.  Steinbeck’s fictional account vividly captures the suffering endured by many Americans due to the severe drought, poor farming techniques, and ensuing dust storms in Texas, Oklahoma, and other states.

With the U.S. Midwest stricken by drought this summer, it’s worth considering why the crop failures there have not led to food shortages and other serious problems.

It’s also worth considering why famines, which occurred with regularity for most of human history, have all but disappeared in the last 100 years or so.

The answer is: the market and globalization.  This combination, for reasons I explore below, enables humanity to be far less at the mercy of the weather and provides us with ways to ensure that food gets to where it needs to go.

Markets help us avoid famines in two ways.  First, the innovation made possible by the search for profit and the relative freedom of markets in the western world have increased agricultural productivity by an order of magnitude.  We feed a planet of almost 7 billion reasonably well–although not as well as we might like–and we do it with a decreasing number of people and acres of land.  The United States can feed its own population and still export grain to the rest of the world–even as farmers are forced to divert corn to boondoggles like ethanol.  We are at less risk for famines simply because we can produce more food with fewer resources, and even if one large crop fails, we have more large crops elsewhere to make up the loss.

Signals

The second way markets help is that price and profit signals inform producers where foodstuffs are in short supply and simultaneously provide incentives to get the food there.  Prices are an incentive wrapped in knowledge, enabling them to serve as traffic signals to ensure that no one goes without. True, food may be more expensive during a drought, but that is far better than no food at all, as was often the case in human history.

We see these processes at work right now.  The drought in the middle of America destroyed a good deal of the corn crop in Indiana and Iowa.  Meanwhile, farmers in places like Washington state and Virginia have largely escaped unscathed.  The short supply in the Midwest drives up prices and signals to producers elsewhere that profit opportunities exist in those places; the incentive associated with that signal leads farmers to get their crops to where the demand is.  Yes, the higher prices mean that folks will be a little worse off, but corn is in fact more scarce, so those higher prices are not the result of farmers exploiting the drought, but rather a reflection of genuinely shorter supply.

The price signals might also cause corn producers to divert some corn from other uses to food for humans. Such substitution is only possible because market prices provide the needed knowledge and incentives. In a world without markets, producers could not get information so easily and effectively; nor would they have the incentive to respond appropriately. More famines would result.

Globalization

Finally, globalization has nearly eradicated famines.  All the market processes I have identified are even more effective when the area of trade expands.  When commodity markets are global, countries facing droughts and bad harvests have a whole world from which they can attract new supplies.  The United States is not limited to tapping farmers in Washington and Virginia. It can attract corn from around the world.  In fact, Canadian farmers have had a much better year and are already seeing higher prices for their exports to the United States.  Canadians will pay a bit more for their grains as a result, but prices in the United States will be significantly lower than they would be without the Canadian imports.

As Pierre Desrochers and Hiroko Shimizu point out in their wonderful new book, The Locavore’s Dilemma, the belief that making food production and distribution more local and less global will increase “food security” has it exactly backward.  The most important thing we can do to ensure a secure food supply in the face of droughts and other threats to the harvest is to allow markets to work freely and extend that freedom globally.

We cannot control the weather, so the threat of drought is always present. But we can unleash the market and further globalize food production to avoid the human disaster of famines when harvests go bad.  The conquering of famine is one of the great human accomplishments of the last century.  That no one is starving because of the drought this summer is evidence of that victory.  Let’s not let the forces of locavorism reverse those gains.

ABOUT

STEVEN HORWITZ

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

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