Global Inequality and Essential Resources:Focus on Food

Joshua FarleyCommunity Development and Applied

EconomicsGund Institute for Ecological Economics

University of Vermont

Planetary Boundaries and Conventional Agriculture

How do we solve this problem?

How serious is the problem? Essential and non-substitutable

resources Ecological thresholds Economic/physiological thresholds

Can markets solve it? Economic efficiency and just distribution Ecosystem services Technological advance

What other options exist?

Essential and Non-substitutable Resources

Food, water, energy, ecosystem services Essential to human survival with no

adequate substitutes Schelling, 2007

Critical thresholds Ecological Physiological

Essential and Non-substitutable Resources

Inelastic supply Supply very difficult to increase

regardless of price Inelastic demand

Quantity demanded does not respond to price

Large changes in marginal value with small changes in quantity

E.g. grain prices in 2007

Oil production and oil prices from 2003 to 2010. 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

phys

iolo

gic

al t

hres

hold

: e.

g. s

tarv

atio

n

food

sec

urity

, hou

seho

ld s

ecur

ity

Op

port

un

ity c

ost

Economic output (fossil fuel economy)

Irreconcilable Thresholds?

Market Solutions?

Negative externalities Must be internalized for

efficient allocation Monetary valuation

(implies substitutability) How do we account for

changing values? Army of technocrats

providing data to politicians?

$

$

Market demand in an unequal world

Competition and self interest Americans spend 6.7% of income on

food for home consumption 11.6% of food dollar goes to farmers <1% of income spend on raw food How did you react when wheat prices

tripled? Elasticity of demand

1% in retail prices ~.08% in 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 Perhaps 50% spent on raw food? How do poorer countries react when

wheat prices triple? Arab spring

Elasticity of demand ~.7 Budget share and elasticity

Market demand = preferences weighted by purchasing power

Market Demand, Unequal World

2700

Physi

o t

hre

sh w

/ equal dis

trib

uti

on

Eco

thre

sh n

itro

gen

Eco

thre

sh c

arb

on

1245 1800

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

Physi

olo

gic

al boundari

es

for

rich

P

rice

food output

Market Allocation of Essential Resources on an Unequal Planet

Does it maximize utility? The perversion of utility

Is it efficient? Does it maximize monetary value? 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?

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 Scarcity price increase decrease in demand; increase in

supply equilibrium No prices for non-market goods (most threats to planetary

boundaries Essential resources

Price increase decrease in demand Finite resources on full planet (food, energy, land,

stocks) Price increase increase in supply (or only at cost of

future supply) Speculation

Price increase increase in demand Dis-equilbrium, redistribution from positive feedback loops

Solutions

Redefining agricultural efficiency to identify leverage points

Assessing the role of agroecology in pushing those levers (if there’s time)

Redefining Goals: Efficiency

What is efficiency? Ratio of benefits/costs

Agriculture Food production/land; food/labor Most efficient system ever?

Energy in, energy out?

Economics diminishing MB, rising MC. MC=MB Maximizing monetary value How do we do this for food?

Ecological Economic Efficiency

What is the desirable end? Normative judgement

What are the costs?

economic technical ecological 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

Market allocation is highly inefficient economically, technically and ecologically

Must tailor economic institutions to goals and resource characteristics