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Comment by pmw2007 | Hacker News Reader

pmw2007

Yes.

In 2008 and 2011 there was shortage (weather issues) and price spikes. Farmers around the world -- from Ukraine to Brazil to the US -- made a huge amount of money and invested in technology (new farm equipment, better seeds, etc).

In the meantime the weather globally has been perfect. Beyond specific local situations worldwide it has been perfect and the technology has only added to production.

There will be a problem in the future but the reason American farm bankruptcies are high is that the prices are beyond low and the production levels are lagged (they're based on past conditions and take time to correct). Currently it's beyond bad for large scale producers.

This is an actual issue. In the future the failure of producers now will lead to shortage ... and so begins a new cycle.

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Curious: I have had a couple of conversations with people (not arm chair quarterbacks - knowledgeable, but not expert) about pro & con of supply management systems as enacted in US and Canada (triggered by recent trade talks). This sort of cycle was brought up as a "pro supply management" - if we leave it strictly up to somewhat free and somewhat global markets we inevitably get these boom/bust cycles, but they can be avoided by management boards and the like. Do you think it's accurate?

It is not only accurate, but agriculture is pretty much the worst case.

The problem is that demand for food is rather inelastic. You are going to eat when you are hungry, and if you're hungry enough you'll pay whatever you can for that next meal. But food production is highly variable. For example the 88-89 drought in the USA dropped food production by 29%. Therefore to have enough food in a bad year, we have to be willing to overproduce in a good year. Which means that we guarantee an excess supply, and therefore a very low free market price.

How we get there is arbitrary. We can subsidize exports, we can buy up food to throw it away, we can pay farmers to not grow food in good years. All of these are done somewhere. There is no first world country that doesn't do at least one of these because everyone understands that it is a national security issue - if your people go hungry you're likely to get civil unrest.

As a concrete demonstration, consider the Arab Spring. One of the contributing factors was that China had a severe drought. To ensure their political stability, they bought wheat on the international market. Thanks to the laws of supply and demand, the cost of wheat doubled. Poor people in Arab countries that couldn't subsidize their citizens suddenly went hungry. They revolted. See https://en.wikipedia.org/wiki/Impact_of_the_Arab_Spring#Chin... to verify this sequence of events.

Management boards have not worked historically. One example might be the Australian Wheat Board. A second example is the Canadian Wheat Board.

On the supply side production management has not proved successful that I'm aware of.

The demand side is a little different. Egypt is the world's largest importer of wheat and GASC (basically the same as the production boards but for buying) has generally been one of the best traders. They're good for the most part. They're generally clever.

Free markets work best in my personal opinion. But for production side I don't see broad-scale management working, while on the consumption side it actually can work.

I find it ironic that your example of "it actually can work" is a country that recently suffered a revolution after the price of wheat doubled due to a drought in another country.

What would you consider a failure?

Well, there's a lot behind Egyptian food problems beyond trade policy. That's a really deep issue and quite interesting on its own.

I merely mean that economically the supply side is harder to manage at a board/national level than the demand side. Has a lot to do with many many producers but only a few companies able to import.

I disagree.

The problems managing the supply side tend to be very predictable - they happen most years. So you constantly see problems but they are manageable.

The problems managing the demand side are unpredictable. For many years you'll be going along fine, but when you have a problem you tend to have a BIG problem.

Of the two, you're better having manageable problems most years and no big disasters than having things usually go smoothly but occasionally you get a disaster.

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