Global Inequality and Essential Resources: Focus on Food Joshua Farley Community Development and Applied Economics Gund Institute for Ecological Economics University of Vermont

Planetary Boundaries and Conventional Agriculture

How do we solve this problem? How serious is the problem? How serious is the problem? Essential and non-substitutable resources Essential and non-substitutable resources Ecological thresholds Ecological thresholds Economic/physiological thresholds Economic/physiological thresholds Can markets solve it? Can markets solve it? Economic efficiency and just distribution Economic efficiency and just distribution Ecosystem services Ecosystem services Technological advance Technological advance What other options exist? What other options exist?

Essential and Non-substitutable Resources Food, water, energy, ecosystem services Food, water, energy, ecosystem services Essential to human survival with no adequate substitutes Essential to human survival with no adequate substitutes Schelling, 2007 Schelling, 2007 Critical thresholds Critical thresholds Ecological Ecological Physiological Physiological

Essential and Non-substitutable Resources Inelastic supply Inelastic supply Supply very difficult to increase regardless of price Supply very difficult to increase regardless of price Inelastic demand Inelastic demand Quantity demanded does not respond to price Quantity demanded does not respond to price Large changes in marginal value with small changes in quantity Large changes in marginal value with small changes in quantity E.g. grain prices in 2007 E.g. grain prices in 2007

Oil production and oil prices from 2003 to Oil prices more than tripled between January, 2005 and July, 2008, while total production increased by less than 3%. Example of Inelastic Supply

Ecological Thresholds and the Supply Curve for Food (or Fossil Fuels) Must sum together all costs: labor, capital, biodiversity loss, nitrogen, climate change, etc. (marginal cost)

Social/Physiological Boundaries

Physiological Boundaries/Thresholds and the Demand curve Value: low and stable Trade-offs: relatively unimportant benefits Value: shift from marginal to total value (e.g. diamond-water paradox) Trade-offs: Life sustaining benefits Value: Increasing rapidly with decreasing quantity. Trade-offs: Resilience, increasingly important benefits physiological threshold: e.g. starvation food security, household security Opportunity cost Economic output (fossil fuel economy)

Irreconcilable Thresholds?

Market Solutions? Negative externalities Negative externalities Must be internalized for efficient allocation Must be internalized for efficient allocation Monetary valuation (implies substitutability) Monetary valuation (implies substitutability) How do we account for changing values? How do we account for changing values? Army of technocrats providing data to politicians? Army of technocrats providing data to politicians? $ $

Market demand in an unequal world Competition and self interest Competition and self interest Americans spend 6.7% of income on food for home consumption Americans spend 6.7% of income on food for home consumption 11.6% of food dollar goes to farmers 11.6% of food dollar goes to farmers <1% of income spend on raw food <1% of income spend on raw food How did you react when wheat prices tripled? How did you react when wheat prices tripled? Elasticity of demand Elasticity of demand 1%  in retail prices ~.08%  in consumption 1%  in retail prices ~.08%  in consumption 1%  raw food prices,.001%  consumption 1%  raw food prices,.001%  consumption

Market demand in an unequal world Many poor countries spend >70% of income on food for home consumption Many poor countries spend >70% of income on food for home consumption Perhaps 50% spent on raw food? Perhaps 50% spent on raw food? How do poorer countries react when wheat prices triple? How do poorer countries react when wheat prices triple? Arab spring Arab spring Elasticity of demand ~.7 Elasticity of demand ~.7 Budget share and elasticity Budget share and elasticity Market demand = preferences weighted by purchasing power Market demand = preferences weighted by purchasing power

Market Demand, Unequal World 2700 Physio thresh w/ equal distribution Eco thresh nitrogen Eco thresh carbon Trade-offs: Starvation now or in future Sustainability and justice vs. preferences

Market Supply and Demand Marginal market costs (Market supply curve)) Poor people have no demand Physiological boundaries for rich Price food output

Market Allocation of Essential Resources on an Unequal Planet Does it maximize utility? Does it maximize utility? The perversion of utility The perversion of utility Is it efficient? Is it efficient? Does it maximize monetary value? Does it maximize monetary value? Would it be possible to re-allocate food from obese people to malnourished people without making anyone worse off? Would it be possible to re-allocate food from obese people to malnourished people without making anyone worse off? Do we need to make subjective value judgments to answer this? Do we need to make subjective value judgments to answer this? Objective needs should take priority over subjective preferences weighted by purchasing power Objective needs should take priority over subjective preferences weighted by purchasing power

Market Equilibrium on a Full and Unequal Planet? Equilibrium result of negative feedback loops Equilibrium result of negative feedback loops Scarcity  price increase  decrease in demand; increase in supply  equilibrium Scarcity  price increase  decrease in demand; increase in supply  equilibrium No prices for non-market goods (most threats to planetary boundaries No prices for non-market goods (most threats to planetary boundaries Essential resources Essential resources Price increase  decrease in demand Price increase  decrease in demand Finite resources on full planet (food, energy, land, stocks) Finite resources on full planet (food, energy, land, stocks) Price increase  increase in supply (or only at cost of future supply) Price increase  increase in supply (or only at cost of future supply) Speculation Speculation Price increase  increase in demand Price increase  increase in demand Dis-equilbrium, redistribution from positive feedback loops Dis-equilbrium, redistribution from positive feedback loops  

Solutions Redefining agricultural efficiency to identify leverage points Redefining agricultural efficiency to identify leverage points Assessing the role of agroecology in pushing those levers (if there’s time) Assessing the role of agroecology in pushing those levers (if there’s time)

Redefining Goals: Efficiency What is efficiency? What is efficiency? Ratio of benefits/costs Ratio of benefits/costs Agriculture Agriculture Food production/land; food/labor Food production/land; food/labor Most efficient system ever? Most efficient system ever? Energy in, energy out? Energy in, energy out? Economics Economics diminishing MB, rising MC. MC=MB diminishing MB, rising MC. MC=MB Maximizing monetary value Maximizing monetary value How do we do this for food? How do we do this for food?

Ecological Economic Efficiency What is the desirable end? What is the desirable end? Normative judgement Normative judgement What are the costs? What are the costs? economic technical ecological economic technical ecological efficiency efficiency efficiency efficiency efficiency efficiency

Allocative efficiency Producing the right foods with the right resources on the right land Distributive efficiency Ensuring these foods go to those with the greatest physiological need More equitable distribution of wealth? Alternatives to price rationing? Food Security

Throughput broadly defined Water, energy, fertilizers, labor, capital, land Cannot rely on non-renewables Requires major investments in R&D, extension Economics of information Minimize costs, maximize benefits Land grant universities Markets fail to account for future generations, the poor, the environment

Minimizing impact of throughput on ES Minimizing agrotoxins, fossil fuels, erosion Accounting for non-market benefits Open access and public goods Cooperation required

Summary & Conclusions Must define appropriate goals for agricultural systems on crowded, finite planet Must define appropriate goals for agricultural systems on crowded, finite planet Market allocation is highly inefficient economically, technically and ecologically Market allocation is highly inefficient economically, technically and ecologically Must tailor economic institutions to goals and resource characteristics Must tailor economic institutions to goals and resource characteristics