From the Editor
Ripe For New Opportunities
On Aug. 15, 1971, President Richard Nixon severed the final connection between the dollar and gold. The result was inevitable — on that day, gold was worth $35 an ounce. By the end of 1974, gold had reached $195 an ounce.
Growing up in a food exporting family, this columnist had the opportunity of watching one European importer after another come to visit and all had the same story: They were not sure what they were looking for, but any time a currency falls so far, so fast, there must be opportunities.
And there turned out to be many such opportunities.
Whole industries, such as the export of Florida grapefruit to France, developed. Favorable currency ratios encouraged the initial trial, and the initial trial led to a taste for the product among the population of France that would lead to imports long after currency ratios had turned around.
Much as in those days of crisis that led to the severing of the link between gold and the dollar, the world finds itself in crisis today:
All this is causing stress in rich countries and riots in poor countries.
The impulse of governments is often to hold on to whatever resources they have. The United States itself has a shameful history here; back in 1973, President Nixon placed an embargo on the export of U.S. soybeans to lower high prices stressing the U.S. livestock industry. To our eternal shame, this left our customers, especially the Japanese, “high and dry.”
The solution is not protectionism, which caps farmers’ returns by preventing them from realizing world market prices. It is more trade.
The goal is threefold: First, encourage production. Second, get product where it is needed. Third, move consumption away from items in short supply and toward those in surplus.
Trade enables producers to get the highest price for their production, which encourages more production. Any move to set up roadblocks and embargoes is exactly the same thing as reducing returns to producers, which reduces the incentive to produce.
Trade is the mechanism for bringing food to where it is most needed and most valued. To help those too poor to buy food, the focus should not be on moving crops; it should be on moving buying power. Dumping food in an impoverished country typically destroys the market for locally grown and produced food. Give aid as money so it can be used to encourage local production as well as purchase from the most efficient export sources.
Trade is the tool by which supply and demand come into balance. If beef is expensive, people gravitate to chicken. If Australia has a crop failure, traders look to North America for supplies.
To the extent trade is free, the world will be more prosperous. Production will take place where it is most efficient, taking into account both production and transport costs. Consumers will get good price signals as to the relative value of different foods and shift their purchases accordingly. Importers, by introducing new cuisines, do consumers an enormous favor. If the only thing people have ever known is rice, the price signals the world gives are irrelevant. The ability of cosmopolitan consumers to change their diets to take advantage of price fluctuations is a big advantage. If wheat gets pricey, they will eat more rice. If corn is high, they will eat more wheat, etc.
The necessity for trade and the openness to new ideas extends to GMOs. About 65 percent of U.S. soybeans is of a gene-spliced variety; about 35 percent of U.S. production of corn is gene-spliced as well. Farmers around the world are turning to genetically modified crops to increase yields, reduce pesticide use, etc.
For many years, seed companies have been criticized for how they introduced GMO crops to the world. By promoting attributes such as yield, the critique goes, the companies focused on attributes distant from consumer concerns. This made it easy to develop political opposition to GMOs.
Had the seed companies focused on products such as “Golden Rice,” a biofortified rice that can help eliminate the deficiency of beta-carotene (provitamin A) that manifests itself in blindness in much of the world, consumers would have recognized the value of bioengineering and supported its expansion.
Perhaps. What is clear, however, is that today, with food prices climbing, governments and consumers are likely to see value in technologies — including bioengineering — that can allow food to be grown in formerly hostile environments, increase yields and provide both the food and energy that the world desperately needs.
It is the traders — whose true mission is spreading new ideas and new ways of doing things — who will carry the fruits of this new technology to entertain the rich and feed the hungry in distant corners of the globe. EXP