In response to soaring food prices

In “Soaring food prices threaten the poor,” (Business Day, Feb. 11, 2011) Jose Graziano Da Silva and Ekaterina Kriovons argue that the only long-term solution to the problem of rising food prices “lies in securing an ample and stable supply.” They are surely right.

To increase production they suggest increases in agricultural investment coupled with improvements in rural institutions and the governance of commodity markets.

They do not mention however, why investment in this sector has been low. Basic institutional and sectoral concerns continue to plague food production, particularly in sub-Saharan Africa. Farmers lack secure rights to land, which limit incentives to invest. Little in the way of value chain infrastructure – such as competitive storage and milling facilities – exists. Timely price information remains difficult for farmers to obtain and regional trade barriers make cross-border exchange costly.

More investment in agriculture will be welcome but to increase investment national governments need to enact and enforce policies that will free farmers to respond to the very strong market signals we now see. With greater security over their land, a more competitive value chain, improved access to information, and lower transaction costs farmers will supply what the market demands.

Author: Karol C. Boudreaux is a Senior Research Fellow at the Mercatus Center at George Mason University.

FMF Policy Bulletin/ 15 February 2011