With a typical Egyptian household spending 38.3% of its budget on food in 2008, you can see why soaring food prices could fuel turmoil. But what about the other side?
For Senegal farmer and trader, Ndeye Sarr Diop, rising rice prices were an opportunity. The world price is the key. Why grow rice if you can import it more cheaply? Moreover, why export it if no one will buy it? In 2008, with prices soaring, expensive West African rice became desirable. Responding to the incentive, Senegalese farmers started planting. As Ms. Dopp said, “I hope rice will make me rich.”
The Economic Lesson
Hoping to encourage production and support farm income, countries subsidize certain crops. As a result, the selling price remains artificially low. Developing world farmers who receive no subsidy cannot compete. President Clinton is quoted here, concerned that Haiti has to import rice because U.S. subsidies make U.S. rice cheaper than theirs.
Saying that free trade was the answer, 19th century British economic thinker, David Ricardo (1772-1823) would have reminded us of comparative advantage and how subsidies distort world markets.