Malawi restricts trade in corn (Optional)
User Contributions (0) and Related Materials (1)
Ask a Question
Isn't it unbalanced to look at Malawi in isolation from the world market? The facts of the matter are free trade means competing with incredibly subsidized U.S. and European corn producers. The U.S. destroyed Mexico (the birthplace of corn) as a corn producer because it could sell under the cost of production. Not to mention that all USAID food aid (which also totals in the billions) is required to come from the U.S., which gives another huge boost that is not counted as "direct aid" to the American corn industry. When facing an opponent with an unfair advantage, isn't some protectionism warranted? Or, to borrow some terminology from the world of sports, free trade is not a panacea if some of the competitors are "chemically enhanced".
Why not allow these cheap imports? Malawian farmers could then specialize in some other crop.
The only reason to follow this policys is precisely the politics Josh mentiones above. If you get a huge inflow of corn as donation or below producing costs, the local population will buy the cheaper corn and consequently destroy the local market. Local corn farmers will reduce or finish their corn production as they are not able to sell it anymore and the whole country might become dependant on imports. Thats by the way the same reason why the US and EU have such high subsidised agricultural policies - food security troght surplus production for times of crisis.
If Americans or Europeans want to send heavily subsidized (or free for that matter) corn to Malawi, why would that be bad a bad thing for Malawis? Or do you also complain when aid agencies send food to developing nations?
I think subsidizing corn growers is bad policy for the US or the EU: it favors domestic corn growers but harms the general tax payer in those countries, and overall distorts the market for trade, but the person who gets to buy the subsidised food can't be happier that the price is cheaper thanks to the generous donations of the US or EU governments.
Firstly you state that only 15% of corn in Malawi is traded. Then you claim that Price controls have a significant impact on Corn Production? hmm that doesn 't really make a lot of sense if only 15% is grown as a "Commodity" ie for trade. Secondly at 4:20 you claim that the action of Speculators smooths out price fluctuations with no evidence or mathematics to back up this claim. In general I was of the impression that the actions of Speculators tends to cause increases in Price Volatility as they tend to manipulate the demand to increase prices.
These videos are just full of unsubstantiated claims. You can't just state these things as fact without evidence. This is supposed to be educational not propaganda.
@Echo Luke
While certain types of financial speculation have been harmful in recent years, this should not be taken as a general statement about the value of speculation. For some empirical evidence about speculative price smoothing, see this VOX article: http://www.voxeu.org/article/speculation-oil-markets-what-have-we-learned
Or this stylized example comparing oil (which has a futures market) with onions (which don't): http://mjperry.blogspot.com/2011/05/what-can-onions-teach-us-about-oil.html
Or this very good piece: http://www.econbrowser.com/archives/2012/04/a_ban_on_oil_sp.html
This evidence comports with economic theory. Move away from commodities and consider a simplified model of the US stock market. Typically, one would want to buy at a low price and sell at a high one; that is simply to say, investor behavior is countercyclical and tends to smooth stock prices over time (think what would happen if a stock priced increased and investor behavior was to buy instead of sell, the price would increase without bound. True, what qualifies as a "high price" is very context dependent, but stocks rarely increase above some "fundamental value" for long periods). Speculators' behavior is no different than that of the typical investor, it's simply that the order of transactions is reversed: they sell high and buy low. Replace "stocks" with "rice" and you can get the idea, which is what Tyler was discussing with his chart during the beginning of the video.
4:40 - So when the State buys up Corn its bad, but when Speculators buy up corn its good? Please explain that one for me there?
The speculators are responding to price signals and will release it back into the market when price signals indicate they should. The state will be taking and releasing on political whims, which are often arbitrary.
If you read about it further (e.g. here: https://ueaeprints.uea.ac.uk/10599/1/Thesis_manda_e_2010.pdf), it's clear that the state marketing board (ADMARC) was not making arms length free market purchases, but rather engaged in a variety of distortionary practices, such as setting prices and acting as a monopsonist.
Speculators rarely, if ever, will ultimately take possession of the physical commodity...
I follow the "Buy Local" movement and locavores from a critical perspective, and the case of Malawi strikes me at the most recent nail in their coffin. Is there any reason to suspect that communities in North America that try to be self sufficient in terms of agriculture would not experience the same price volatility? Possible reasons could be technology and higher production, but with a refusal to allow imports they would be in a jam.
I can sort of understand the locavore movement as a peacetime resurgence of victory gardens: projects that put previously idle resources to use. Granted, I'm not sure that ever enters the minds of the people that fixate on locally sourced food.
And how, pray tell, can speculators "manipulate" demand?