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Monday, April 28, 2008

Food Shortages and Free Trade

The New York Times had an excellent piece on the connection between world food prices and free trade.

The damage that trade restrictions cause is probably most evident in the case of rice. Although rice is the major foodstuff for about half of the world, it is highly protected and regulated. Only about 5 to 7 percent of the world’s rice production is traded across borders; that’s unusually low for an agricultural commodity.

So when the price goes up — indeed, many varieties of rice have roughly doubled in price since 2007 — this highly segmented market means that the trade in rice doesn’t flow to the places of highest demand.

Rice appears to be a microcosm of the benefits of free trade. The theory behind free trade goes like this. Every country and area has things they specialize in. Through free trade each country can focus on those things and can import that which they don't specialize in. Rice is one of many goods and services for which this is true.

It is also clear what the results of protectionist policies is vis a vis rice. Since much of the world doesn't have access to a lot of rice, it doesn't get to where it needs to because countries also put tariffs and other restrictions on its importations. Ultimately, the people it really hurts are the poor folks in each of these countries.

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