Food Crisis: reasons and solutions By team IT&LT United

Agenda Short Overview Microeconomics revisited Ethanol Overview Subsidies Tariffs Future perspective – problems and solutions

Short Overview Food prices have raised dramatically Why? Role of technology, productivity Mystery Source: Food and Agriculture Organization of the United Nations (

Microeconomics revisited Before year 2004 ∆Supply(technology) > ∆Demand After ∆Supply < ∆Demand Q(food) P(food) S D

Microeconomics Revisited Raising demand: Developing countries (population, preferences) Shift in tastes (vegetables – inferior goods?) Raising supply? Progress in technology continues, yet DMR Changes in use of land (food vs. biodiesel)

Ethanol: overview C 2 H 6 O – produced by fermenting sugars from food crops (canes, wheat, sunflower seeds) major use - as biofuels  reduces air pollution (cleaner emissions)  contributes to mitigate global warming Brazil – as a largest exporter Source: The Economist

75% of its ethanol output is still sold at home Why??

Ethanol: subsidies in USA & Europe USA - a fixed rate of 45 cents/gallon of ethanol ($316 million over the life of a typical ethanol plant) EU - approximately 1$/gallon “ The ethanol subsidy is worse than you can imagine „ - Robert Bryce  Flawed production towards inefficient use of land  Local producers, yet foreign producers  (Powell & Schmitz, 2005)  Local consumers of ethanol  LR effect of raising food prices  (Joseph E. Stiglitz, 2006)  Gov’t worse off as (T-G) deteriorates and DWL created (overproduction)  Pareto inefficient (Pandey, 2005, Arya, 2010)

Ethanol tariffs – a case of sugar cane Brazil's sugar cane-based industry is more efficient than the U.S. and EU corn-based industry Brazil – appreciated supplier (climate, land, know-how)  harvests ~600 billion tons/year using 2.5% of arable land  began using ethanol in vehicles in the 1920s So, tariffs of 25% by value (USA) and 50% by value (EU) Yet, trade barriers make this good unavailable in USA & Europe Lobbies are better off, Consumers are worse off

Future perspective: problems/solutions Distorted land use Increasing food prices and higher volatility Environmental problems Increasing inequality (society  big farmers) Inefficient income transfers Possible repetition of the food crisis FREE TRADE

Thank you for your attention. Questions?