April 21: Production Gap Policies I

Question 1

What foods meet guidelines for fortification?

Answer 1

• At least partially processed
• Stable foods
• “normal goods” foods in an income elasticity sense; a. BAD IF: Inferior/luxury foods
• Foods with low price elasticity of demand (if fortification raises price, we don’t want ppl to switch to another good)

Question 2

What if there is a price ceiling and no subsidized price?

Draw graph (s.7)

Answer 2

1. Gov sets a low price for corn to keep prices cheap for urban ppl
2. Farmers are forced to sell at the low price w/o extra finance support to make up loss
   - enforced by marketing boards
3. CONSEQUENCE -> Generates EXCESS DEMAND
   - farmers receive low prices
   - supply shortages
   - potential riots over lack of avail food

Question 3

Inventions in food markets, what if a gov subsidized price of corn paid to producers?

Draw graph s.8

Answer 3

1. You get more corn produced than demanded
2. Happy producers -> hgih price for corn, demand less
3. END UP WITH -> surplus of corn, excess supply
   - Where US food aid originally came from = excess wheat/corn due to subsidized prices

Question 4

What happens if instead you hep producers with new technology or subsidized costs?

Draw graph s.9

Answer 4

1. lower production costs for farmers
2. Increase supply helps meet demand, avoiding shortages
3. Less risk of black markets and unrest

Question 5

Draw graph of expanding supply with new technology

s.11

Question 6

What is another way to expand supply (more quantity for same price)?

Answer 6

lower cost of inputs

1. subsidies on inputs
   (ex: fertilizers)
2. Increase competition between input sellers: monopolistic seller of a market (huge seed company) increasing competition can reduce prices farmers pay
3. Improve roads to lower transportation costs:
   - in many poor countries the costs of getting agricult inputs to farmers is too high for it to be profitable

Question 7

Describe increase competition between input sellers to expend supply

Answer 7

monopolistic seller of a market (huge seed company) increasing competition can reduce prices farmers pay

Question 8

Explain how Improve roads to lower transportation costs would increase supply

Answer 8

in many poor countries the costs of getting agricult inputs to farmers is too high for it to be profitable

Africa: transportation is double cost of fertilizer

Question 9

Draw graph of expanding supply with subsidized INPUTS

S.13

Question 10

Malawi Example of subsidized fertilizer

Answer 10

• After drought, Prez wanna subsidize fertilizer rather than give out food + poverty programs
• Farmers get coupons to buy subsidized fertilizer and improved maize seeds -> 2x, 3x yields
• Farmer takes coupon to agro-input dealer to buy fertilizer and seeds at subsidized rate

Question 11

Problems with the implementation fo the program of Malawi (subsidized fertilizers after drought):

Answer 11

• Besties of chiefs benefit the most
• Many chiefs died due to conflict emanating coupons: coupon shortage

Question 12

Malawi would rather target poor farmers or more productive farmers?

Answer 12

productive&raquo_space;

Question 13

Summary of conflict in Malari

Answer 13

Fertilizer subsidy -> boost production -> more maize supply

Price ceiling -> keep maize cheap -> farmers underpaid

Combined result -> should help both sides -> may cancel e.o out

Question 14

Outcomes of Malawi Food Security Programs

Answer 14

1. Maize yields 2007 triple of 2005
2. Benefitted 79% of farming households
3. BUT
   a. high levels of corruption within program
   b. very little improvements in yields, over the long haul
   c. targeting favored the politically connected