The Reality of Rising Food Prices: Benefits to the Poor

EDITOR’S NOTE: In a recent Oxford-style debate hosted by the Economist magazine, Homi Kharas, senior fellow at the Washington-based Wolfensohn Center for Development, argued that higher prices can benefit the poor. “This debate is not about comparing a world of high food prices with some other idealised world which is ordered differently,” he said. “The debate is about whether the rise in food prices in this messy, distorted world we live in can have some benefit for humanity. Surely yes.” A few excerpts:

Images of food riots and hungry people stir deep emotions. But we must debate trade-offs: will the rise in food prices generate more food for the world and less poverty for poor people in the future?Are today’s food prices fair to producers and consumers?

Yes, because higher food prices will bring about new investments in agriculture and higher global production. This is already happening in Asia and other parts of the world, and will accelerate over time.

Yes, because a system with food prices in free fall for 30 years did not produce any measurable decline in hunger and poverty. But the last time food prices were as high as they are today we witnessed the Green Revolution and a rapid reduction of rural poverty in one of the largest population centres of the world, South Asia.

I presented evidence from studies on India, China and Indonesia, where the mass of humanity resides, suggesting that farmers (including the poorest of the poor) would benefit in net terms, when both income and expenditure effects are taken into account. No one has advanced any evidence to the contrary, although many choose to believe their own instincts rather than the evidence I presented.

In the last analysis, almost everyone agrees that we need faster rural development to alleviate poverty and hunger.

This debate is not about comparing a world of high food prices with some other idealised world which is ordered differently. The debate is about whether the rise in food prices in this messy, distorted world we live in can have some benefit for humanity. Surely yes.To all those who bemoan the hunger and hardship that higher food prices are causing for the poor, I would simply say that a system which failed to produce any marked change in hunger and poverty over a 30-year period of price declines was not working for the poor. Give a different system a chance. If a strategy has not worked for 30 years, surely there is an upside to changing strategies.

What we are really debating is whether there is an upside to humanity from fair food prices. For years, poor farmers in developing countries have been getting short shrift, fighting competition from increasingly subsidized, mechanized farmers in rich countries. The result was a historical rise in inequality and growing urban/rural income differentials in the developing world. Now the tables are turned and there is a fairer outcome in income distribution.

Re-published with permission by the Wolfensohn Center for Development at Brookings. Visit the original article.

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