The movement to certify cocoa has taken two steps forward in recent months. Consider these two stories:
1. Mars, which is the world's largest end-user buyer of cocoa, has promised to certify that all its cocoa will come from sustainable sources by 2020. Unfortunately, this article from the Financial Times does not tell us what a 'sustainable source' is, how it will be certified or why it will take over 10 years to complete the process. However, they do hint at the root of the problems of the cocoa sector: very low yields in West Africa, where two-thirds of the world's cocoa comes from. Mars seems to understand that since there is little primary forest left to cut down in Ghana or Côte d'Ivoire, the only way to increase cocoa production is to apply inputs to existing trees and replant them with higher-yielding varieties.
2. Cadbury, the UK's best-selling chocolate maker, has announced all its Dairy Milk bars will be certified 'Fair Trade' by the middle of 2009. The BBC reports this will mean tripling the volume of Fair Trade cocoa it buys from Ghana, to 15,000 tonnes. The more detailed press release points out that they are no longer relying just on Ghana's well-established 'Kuapa Kokoo' cooperative, but will help set up farmers' groups and cooperatives in other parts of the country.
Both Mars and Cadbury promise that chocolate prices won't rise, while promising higher farmgate prices for the cocoa growers. How can they do this without squeezing their profit margins? I can think of two ways. First, certified cocoa has been expensive in the past because it was a niche product. If certification becomes the standard, the economies of scale may make it cheaper to operate the tracing systems, audits and inspections required for certification. Two, Fair Trade (which Cadbury backs, but Mars doesn't) guarantees a minimum price to farmers, but when cocoa prices are as high as they are now, there is no difference between Fair Trade and the world market price. (There is a small 'bonus' for Fair Trade growers, but it's tiny and usually given to the cooperative for community projects, rather than individual farmers).
Will these schemes help cocoa farmers, then? I'd like to see more details of what Mars is planning, but there are some benefits. If certification works, it will make the supply chain more efficient and thus cut out some of the profits made by middlemen. If Fair Trade works, it will reduce the risk of a sudden crash in cocoa prices leaving farmers worse off. Neither of these schemes will do much to reduce poverty in cocoa-growing communities, however. To increase their income, they will need to raise productivity. Higher productivity will come from growing more and better cocoa on the same land, with higher-yielding trees and more inputs including fertiliser (sorry). You can do this through subsidised credit and government- or private-sector led replanting schemes; certification and higher prices alone will not be enough.
13 April 2009
02 February 2009
Interesting and disturbing food and agriculture news
First, this thoughtful number from Senegal, on the see-saw of global price prices.
Second, a mysterious plague of worms riddles Liberia. There is still no certainty on what they are and many upcountry farmers feel frightened and abandoned - but even though the spray teams from the Ministry of Agriculture come late, at least there are spray teams.
Third, another story on middle income countries buying food through barter deals. This time last year, it was because food was too expensive. This year, food is cheap, but they can't get credit to pay for it.
Second, a mysterious plague of worms riddles Liberia. There is still no certainty on what they are and many upcountry farmers feel frightened and abandoned - but even though the spray teams from the Ministry of Agriculture come late, at least there are spray teams.
Third, another story on middle income countries buying food through barter deals. This time last year, it was because food was too expensive. This year, food is cheap, but they can't get credit to pay for it.
24 December 2008
Cocoa prices hit a 'record high' - or do they?
The Financial Times reports a sudden increase in the cocoa price, as bad weather and black pod disease lead to lower-than-expected deliveries to ports in Cote d'Ivoire. Good news for cocoa farmers, if the price spike is passed onto them. My concern is, it won't be - the traders will take a profit and the underlying conditions that led to the price spike will return. In the medium term, prices are likely to fall anyway, as global demand for chocolate (and especially high-quality chocolate, such as that coming from Latin America and Ghana) flattens after years of steady increases. (See this from the same paper).
Viewed over the last 15 years, the current price of £1,820 per tonne certainly looks impressive:
However, the current price may be less impressive than it looks, for two reasons. First, this chart reveals a similar spike in 2002 (presumably a result of the civil war in Côte d'Ivoire) that was followed by a 50% drop in prices and a 5-year slump. That would now equate to a price of around £900. Second, cocoa futures are priced in pounds, but the biggest cocoa producers and consumers use euros. Since the pound's value has declined from around €1.40 a year ago to €1.10 today, a cocoa price of £1,800 today is equivalent to around £1,400 a year ago - namely €2,000. The effective export price in Côte d'Ivoire, whose currency is tied to the euro, is some 10%-15% lower now than in July, when cocoa prices peaked at £1,700 (then €2,200 or $3,000).
In the meantime, what might be the effect of cocoa prices on the second round of Ghana's presidential elections, scheduled for 28 December? Probably very little, since the Cocobod fixed its annual price in August. But with only a percentage point between the two candidates, small psychological factors could make the difference. To all friends in Ghana and friends of Ghana, I wish you a peaceful Christmas and an even more peaceful election.
Viewed over the last 15 years, the current price of £1,820 per tonne certainly looks impressive:
However, the current price may be less impressive than it looks, for two reasons. First, this chart reveals a similar spike in 2002 (presumably a result of the civil war in Côte d'Ivoire) that was followed by a 50% drop in prices and a 5-year slump. That would now equate to a price of around £900. Second, cocoa futures are priced in pounds, but the biggest cocoa producers and consumers use euros. Since the pound's value has declined from around €1.40 a year ago to €1.10 today, a cocoa price of £1,800 today is equivalent to around £1,400 a year ago - namely €2,000. The effective export price in Côte d'Ivoire, whose currency is tied to the euro, is some 10%-15% lower now than in July, when cocoa prices peaked at £1,700 (then €2,200 or $3,000).
In the meantime, what might be the effect of cocoa prices on the second round of Ghana's presidential elections, scheduled for 28 December? Probably very little, since the Cocobod fixed its annual price in August. But with only a percentage point between the two candidates, small psychological factors could make the difference. To all friends in Ghana and friends of Ghana, I wish you a peaceful Christmas and an even more peaceful election.
07 December 2008
What to do about Rwanda?
Right now, if you're in development in Britain or America, Rwanda is a good place to be. Please note I'm not talking about economic growth or political stability (though it has both of those), but things like NGO presence, media attention, politicians visiting to show they care. If you have ever read accounts of the Rwandan genocide, or remember those dark days in 1994, Rwanda's peaceful reconstruction is surely something to celebrate. It even has the ultimate capitalist accolade: a business-school case study.
Unfortunately, there is a dark side to Rwanda: its role in the never-ending conflict in Eastern Congo. This disturbing account comes from the New York Times. Notice that the Rwandan officials do not deny that Rwandan citizens are crossing into DRC to fight, merely that their government is encouraging or paying them. But then who needs pay when mineral riches await?
I know very little about Congo and would not dare to take sides or argue that Rwanda's fears about Hutu extremists hiting in the jungle are unjustified. But I still feel wary about a country celebrated as a model of enlightended leadership in a troubled region intervening in its neighbour's affairs militarily. Yes, Congo is a threat to regional stability; yes, the Congolese government has failed to gain control of Eastern Congo or disarm the Hutu militia; but that is still not a pretext for unilateral military intervention, even by proxy. (As this guy, or this one, could tell their Rwandan friends).
It may suit Western governments to continue supporting President Kagame's regime (except for France); it may well be the best regime for Rwandans as well. But let's not allow the West's failure to prevent the Rwandan genocide become a pretext for inaction in the Congo, or get caught up in some stupid neo-colonial rivalry. We need a united approach and we need it now.
Unfortunately, there is a dark side to Rwanda: its role in the never-ending conflict in Eastern Congo. This disturbing account comes from the New York Times. Notice that the Rwandan officials do not deny that Rwandan citizens are crossing into DRC to fight, merely that their government is encouraging or paying them. But then who needs pay when mineral riches await?
I know very little about Congo and would not dare to take sides or argue that Rwanda's fears about Hutu extremists hiting in the jungle are unjustified. But I still feel wary about a country celebrated as a model of enlightended leadership in a troubled region intervening in its neighbour's affairs militarily. Yes, Congo is a threat to regional stability; yes, the Congolese government has failed to gain control of Eastern Congo or disarm the Hutu militia; but that is still not a pretext for unilateral military intervention, even by proxy. (As this guy, or this one, could tell their Rwandan friends).
It may suit Western governments to continue supporting President Kagame's regime (except for France); it may well be the best regime for Rwandans as well. But let's not allow the West's failure to prevent the Rwandan genocide become a pretext for inaction in the Congo, or get caught up in some stupid neo-colonial rivalry. We need a united approach and we need it now.
23 November 2008
Rich countries buy up agricultural land: who benefits?
I'm back from an exhilirating few weeks on the Obama campaign and haven't thought, talked or read about much else for the last month or so. But as the President-elect's team takes shape and the economic news has settled into a consistently - but predictably - gloomy pattern, I'm trying to find out what happened to some of the big issues from earlier in the year.
One problem that hasn't gone away is the global food crisis. The prices of key commodities may have begun falling, but the structural factors that led to their sustained increase over the last few years haven't gone away. A timely article from the Guardian sheds light on the practice of small, rich countries buying land in large, poor ones to safeguard their future supply of food.
The Guardian journalists do not hide their distaste for the deals, in which cash-hungry governments from Laos to Malaysia to Ukraine sell land to investors from Korea, Abu Dhabi, China and Saudi Arabia to grow food on a large scale. For smallholders who are turfed off their land, or don't have access to the advanced technology of the commercial farms, it's certainly a raw deal. But could there be a benefit to these deals that goes beyond food security for a few small countries?
In principle, there could be. Here is where the land is being bought. If the effect of introducing commercial agriculture to Sudan and Madagascar is a dramatic increase in productivity, the global supply of staple crops like rice and maize will increase and their price will fall. (The rice grown in Madagascar may go straight to South Korea, but South Korea will be able to reduce its imports from other countries commensurately). This could be good news for urban Malagasies, though not for the rural (rice-growing) majority.
A second benefit might come from technological spillovers. Small farmers in Africa and South-East Asia aren't an attractive market for new seed varieties or fertilizer, but large commercial farmers could be. I realize these spillovers are difficult to capture in practice, but surely having more commercial agridealers would be of benefit to everyone.
I don't want to suggest that these deals are good for everyone: some poor people will probably lose their land, the productivity gains may not be spectacular and the global price effect will be too small to notice. I just think we should look at each deal on its merits. Like the Chinese infrastructure deals, some are better than others. Like the Chinese infrastructure deals, we need more research into which ones.
One problem that hasn't gone away is the global food crisis. The prices of key commodities may have begun falling, but the structural factors that led to their sustained increase over the last few years haven't gone away. A timely article from the Guardian sheds light on the practice of small, rich countries buying land in large, poor ones to safeguard their future supply of food.
The Guardian journalists do not hide their distaste for the deals, in which cash-hungry governments from Laos to Malaysia to Ukraine sell land to investors from Korea, Abu Dhabi, China and Saudi Arabia to grow food on a large scale. For smallholders who are turfed off their land, or don't have access to the advanced technology of the commercial farms, it's certainly a raw deal. But could there be a benefit to these deals that goes beyond food security for a few small countries?
In principle, there could be. Here is where the land is being bought. If the effect of introducing commercial agriculture to Sudan and Madagascar is a dramatic increase in productivity, the global supply of staple crops like rice and maize will increase and their price will fall. (The rice grown in Madagascar may go straight to South Korea, but South Korea will be able to reduce its imports from other countries commensurately). This could be good news for urban Malagasies, though not for the rural (rice-growing) majority.
A second benefit might come from technological spillovers. Small farmers in Africa and South-East Asia aren't an attractive market for new seed varieties or fertilizer, but large commercial farmers could be. I realize these spillovers are difficult to capture in practice, but surely having more commercial agridealers would be of benefit to everyone.
I don't want to suggest that these deals are good for everyone: some poor people will probably lose their land, the productivity gains may not be spectacular and the global price effect will be too small to notice. I just think we should look at each deal on its merits. Like the Chinese infrastructure deals, some are better than others. Like the Chinese infrastructure deals, we need more research into which ones.
18 October 2008
Off to Ohio
I'm taking a few weeks off to volunteer with the Obama campaign. I expect little or no time for blogging, but I do want to celebrate the dedication of people like Jesse, my friend and campaign organizer in Toledo, Ohio, who has got me over there. (See here for a report on a campaign rally in Toledo - Obama even thanked Jesse personally! What cool people I know).
If you have a few days or even just a weekend, the campaign needs people to knock on doors and make calls - the more face-to-face contact the better. This has got to be one of the biggest mass social movements in history.
If you have a few days or even just a weekend, the campaign needs people to knock on doors and make calls - the more face-to-face contact the better. This has got to be one of the biggest mass social movements in history.
10 October 2008
Deaton on the randomistas
Last night, Angus Deaton gave the British Academy’s annual Keynes lecture on ‘Instruments of Development?’. I expected it to be enlightening; it turned out to be witty as well.
Some questions recur in economic research again and again, without ever seeming to get closer to a resolution. “Does aid work?” is one. “Do children learn better in small classes?” is another. Frustrated by years of trying to identify ever smaller effects in ever more complicated regressions, we have resorted to two clever techniques: instrumental variables (in macro) and randomized controlled trials (in micro). Angus Deaton suggested that these apparently different techniques are closely linked and similarly flawed.
Economics, like any social science, has a problem with experiments. You can’t work out the effect of aid on development by randomly selecting one country to receive aid and another not to: even if it were moral, it wouldn’t be practical because there’s so much else going on. Instrumental variables are a clever technique to overcome this (see ‘Freakonomics’): basically, you have to find a factor that could contribute to the effect you care about (latitude helps determine prosperity) without any possibility of reverse causation (because the prosperity of a country has no effect on its latitude). Deaton argued, in short, that instrumental variables are no panacea, because they are not statistically exogenous and in any case countries differ in ways we cannot control. If economists set instrumental variables up as a gold standard, we doom ourselves to eternal methodological debates amongst ourselves and ridicule from everyone else.
Randomized controlled trials are even more popular in the micro development world. Want to know by how much a vaccination programme improves public health? Easy: just pick the counties you vaccinate at random and compare the outcomes. Leaving aside the ethical difficulties with this (who deserves to come first?), the technique only tells us the mean treatment effect; it doesn’t tell us whether the effect was distributed widely or limited to a few very special cases. Moreover, some of the randomizations are less random than they seem. Supposed you picked schoolchildren with surnames starting with A to take part in an experiment: would they really do better because of the experiment, or because they have always sat in the front row and got more attention from their teachers? Maybe, maybe not: we don’t know.
Deaton poked fun at the ‘randomistas’ (Banerjee, Duflo, Kremer and others) but was sympathetic to their quest for identification, as long as it has a theoretical foundation. He also argued we should avoid randomization to test very obvious propositions (“Do parachutes help keep people who fall out of planes alive?”) or those that pose grave ethical problems (“do HIV-positive people receiving anti-retroviral drugs live longer than those who don’t?”). Rather as with evidence-based medicine, the statistical evidence is only as good as its interpretation by the doctor, or the economist, who applies it to the patient’s condition. Randomized controlled trials, in this view, should take their place in the economist’s toolkit, as one useful tool among many rather than as the knockout argument.
I agreed with all of his points as far as economists are concerned. My worry is what the non-economists (and that’s most of us) are supposed to do. Are we really supposed to wade through umpteen regression models and meta-analysis papers? Are we supposed to get excited about some tiny coefficient that is significant at the 95% level? I fear that policymakers and donors, who might understand the finding of a random evaluation, will turn off as soon as regressions rear their head. Surely it’s better for decision-makers to have some scientific evidence than none at all. Let the economists work out the 95% answer; meanwhile the rest of us will make do with 80%.
Some questions recur in economic research again and again, without ever seeming to get closer to a resolution. “Does aid work?” is one. “Do children learn better in small classes?” is another. Frustrated by years of trying to identify ever smaller effects in ever more complicated regressions, we have resorted to two clever techniques: instrumental variables (in macro) and randomized controlled trials (in micro). Angus Deaton suggested that these apparently different techniques are closely linked and similarly flawed.
Economics, like any social science, has a problem with experiments. You can’t work out the effect of aid on development by randomly selecting one country to receive aid and another not to: even if it were moral, it wouldn’t be practical because there’s so much else going on. Instrumental variables are a clever technique to overcome this (see ‘Freakonomics’): basically, you have to find a factor that could contribute to the effect you care about (latitude helps determine prosperity) without any possibility of reverse causation (because the prosperity of a country has no effect on its latitude). Deaton argued, in short, that instrumental variables are no panacea, because they are not statistically exogenous and in any case countries differ in ways we cannot control. If economists set instrumental variables up as a gold standard, we doom ourselves to eternal methodological debates amongst ourselves and ridicule from everyone else.
Randomized controlled trials are even more popular in the micro development world. Want to know by how much a vaccination programme improves public health? Easy: just pick the counties you vaccinate at random and compare the outcomes. Leaving aside the ethical difficulties with this (who deserves to come first?), the technique only tells us the mean treatment effect; it doesn’t tell us whether the effect was distributed widely or limited to a few very special cases. Moreover, some of the randomizations are less random than they seem. Supposed you picked schoolchildren with surnames starting with A to take part in an experiment: would they really do better because of the experiment, or because they have always sat in the front row and got more attention from their teachers? Maybe, maybe not: we don’t know.
Deaton poked fun at the ‘randomistas’ (Banerjee, Duflo, Kremer and others) but was sympathetic to their quest for identification, as long as it has a theoretical foundation. He also argued we should avoid randomization to test very obvious propositions (“Do parachutes help keep people who fall out of planes alive?”) or those that pose grave ethical problems (“do HIV-positive people receiving anti-retroviral drugs live longer than those who don’t?”). Rather as with evidence-based medicine, the statistical evidence is only as good as its interpretation by the doctor, or the economist, who applies it to the patient’s condition. Randomized controlled trials, in this view, should take their place in the economist’s toolkit, as one useful tool among many rather than as the knockout argument.
I agreed with all of his points as far as economists are concerned. My worry is what the non-economists (and that’s most of us) are supposed to do. Are we really supposed to wade through umpteen regression models and meta-analysis papers? Are we supposed to get excited about some tiny coefficient that is significant at the 95% level? I fear that policymakers and donors, who might understand the finding of a random evaluation, will turn off as soon as regressions rear their head. Surely it’s better for decision-makers to have some scientific evidence than none at all. Let the economists work out the 95% answer; meanwhile the rest of us will make do with 80%.
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