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Misconceptions, Untruths and Misconceptions, Untruths and MisinformationMisinformation

Harwood D. SchafferUniversity of Tennessee

Agricultural Policy Analysis Center

Dakar Agricole 2011Dakar, SenegalApril 18, 2011

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What’s the Big DealWhat’s the Big Deal

• With assessment tools?– Why do we care whether they are accurate

or not?

– Because they have an outsized impact on the policies that affect the poorest of the poor

• 800 million to 1.4 billion human beings

• Despite five decades of economic modeling, they remain socially and economically excluded

• For them it is a life or death matter—a permanent loss of human capability

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Declaration of Dakar 2003Declaration of Dakar 2003

• Developed by farmer organizations as they examined the impact of trade policies on their lives

• Three points that focus our discussion of trade and price models– WTO vision: The world upside down

– For agricultural policies founded on rights

– For mutually supportive international trade

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WTO Vision:WTO Vision:The World Upside Down - IThe World Upside Down - I

• I want to give voice to those farmers who gather here 8 years ago

• Commercial agriculture and WTO-style trade will work for 5% of the farmers– The numbers are the same in the US

• I want to speak for the other 95% of the farmers who comprise 2/3 of those suffering from chronic hunger in many countries – the other third are displaced rural poor living in urban settings

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WTO Vision:WTO Vision:The World Upside Down - IIThe World Upside Down - II

• Despite what we know about:– The low elasticity of supply,– The low elasticity of demand,– The fixity of resources– That we depend on markets NOT clearing

—we need a carryover• There is no such thing as a demand for stocks

—they are the RESIDUAL

• We treat ag commodities in the same way that we treat cars and computers

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Ag Policies Ag Policies Founded on Human RightsFounded on Human Rights

• Food is like any other product– No, Food is Different

• While food is a market good it is not a “free market” good

– The aggregate food market is a coercive market because of the nature of the product in the transaction rather than the actors in the transaction

– People need to eat every day

– They cannot wait for prices to drop before reentering the market—this is where we ration supplies with price

• Food is a human right that governments and international governmental organizations have the responsibility to Respect, Protect, and Fulfill

• Gender

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Ag Policies Ag Policies Founded on Human RightsFounded on Human Rights

• The role of food production– As Milton Friedman noted (though he did not say it this

way), self-production is the only tool people have when alternate employment is not available

– The growth of an underclass in major cities around the world are a direct reflection of the failure of ag policies in the rural areas

• PUSH (displaced rural poverty) vs. PULL (opportunity)

• The responsibility to Respect, Protect, and Fulfill has been abrogated when 1.4 billion people face chronic hunger

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For Mutually Supportive TradeFor Mutually Supportive Trade

• The world market is not a dumping ground where you solve your overproduction problems

• Agricultural trade is not a Human or even a Commercial Right

• Agricultural trade is a tool: – That can be used to ensure the

achievement of human capacity and the fulfillment of the Right to Food

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A Word on VolatilityA Word on Volatility

• Volatility in agricultural commodity prices is the consequence of bad policies that – Do not take into account the unique nature

of the agricultural sector• We need real stocks, both strategic and

operational – local, national, international

• CEOs in other sectors engage in management

– Ignore the needs of the poorest of the poor who are excluded from the market

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Some Words on ModelingSome Words on Modeling

• Model are a reflection of reality - I– Abstraction of a complex system using an

extremely limited number of variables

– Fallacy of Misplaced Concreteness• Numbers like 144 million lifted out of poverty and

$500 billion in added global income seem more real than they are

• Numbers are very sensitive to assumptions in the model

• Other modelers had widely different numbers for the impact of the same policy set

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Some Words on ModelingSome Words on Modeling

• Model are a reflection of reality - II– They look at production and GDP and

don’t account well for worker displacement

– They can’t model what they do not have numbers for:

• Production for self-consumption – a large number of producers in developing countries

• Those whose income is so low they do not have the price of entry into food markets (ineffective demand)

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Some Words on ModelingSome Words on Modeling

• Model are a reflection of reality - III– Can’t model the qualitative

• Human Rights – an evolving concept

• Values – solid and yet ever changing

– Can’t model the unpredictable• Human agency

• Black swans – a 9.0 earthquake off Japan

• The current economic crisis

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Where Do We Go From Here?Where Do We Go From Here?

• Continue to make improvements in modeling– Be clear about limits and biases of models

– Use social scientists (sociologists, anthropologists, political scientists, political economists) in defining problem and interpretation of results

– Offer the results with GREAT HUMILITY not a meat cleaver

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Let’s Keep Our Eye on the BallLet’s Keep Our Eye on the Ball

• The poorest of the poor

• Reserves are crucial to protect the most vulnerable

• Declaration of Dakar 2003– Trade policies must reflect the nature of

agriculture and benefit the weakest

– Ag policies must be based on human rights

– Mutually supportive international trade

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Agricultural Policy Analysis Center The University of Tennessee 310 Morgan Hall 2621 Morgan Circle Knoxville, TN 37996-4519

www.agpolicy.org

Thank YouThank You

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Weekly Policy ColumnWeekly Policy Column

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WTO Vision:WTO Vision:The World Upside Down - IIThe World Upside Down - II

• The agricultural sector is like any other economic sector- I– Crop marketing is not like what is taught

in Economics 101• Lack of a timely price response on the

consumer side– With low prices, people do not go to 5 meals a day

– At high prices, they may change to a cheaper mix of products, but they will buy something; they will do without other things and pay what is needed

– Unless they can’t afford to be in the market

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Second MisconceptionSecond Misconception

• The agricultural sector is like any other economic sector - II– Crop marketing is not like what is taught

in Economics 101• Lack of a timely price response on the

producer side – low prices– With low prices, farmers do not leave a significant

amount of land idle

– With low prices. instead of reducing supply, they over invest, politically and economically, in consumer demand enhancement efforts like ethanol

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Second MisconceptionSecond Misconception

• The agricultural sector is like any other economic sector - III– Crop marketing is not like what is taught

in Economics 101• Lack of a timely price response on the

producer side—high prices– With high prices, farmers convert land to crop

production and plant every slough, windy knob, and inconvenient corner

– This increased acreage wrings out very slowly in response to low prices as more bushels help

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Second MisconceptionSecond Misconception

• The agricultural sector is like any other economic sector - IV– Crop marketing is not like what is taught

in Economics 101• Fixity of resources

– Few alternate uses of land during times of low prices

– Once removed from production, it is hard to bring it back into production

– It is geographically locked – one can move industrial factories, but not land

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Second MisconceptionSecond Misconception

• The agricultural sector is like any other economic sector -V– Crop marketing is not like what is taught

in Economics 101• Production controls are different from those in

industry– Farmers determine land allocation

– Weather is often major factor in determining production

– Production decisions are made annually not on a daily basis, they are made well ahead of known demand

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Second MisconceptionSecond Misconception

• The agricultural sector is like any other economic sector -V– Crop marketing is not like what is taught

in Economics 101• We don’t want markets to “clear”

– As the Momagri Model reflects Invt + Invi cannot be negative

– There is a need for national/international reserves to protect availability in times of stress

– As we have seen, the markets have no incentive in providing reserves to protect people