Wednesday, January 14, 2015

Greg Page on EconTalk- Channeling Hayek on Food and Agriculture

I have to say I absolutely recommend the recent EconTalk discussion between Russ Roberts and Greg Page (formerly CEO of Cargill): 

"Greg Page, former CEO of Cargill, the largest privately-held company in America, talks to EconTalk host Russ Roberts about the global food supply and the challenges of running a company with employees and activity all over the world. Page talks about the role of prices in global food markets in signaling information and prompting changes in response to those signals. Other topics include government's role in agriculture, the locavore movement and genetically modified organisms (GMOs)."

It is really interesting to me, and you have probably seen before via social media the charts that try to depict our food system as being controlled by only a few companies creating a vast array of products but an 'illusion of choice.' Critics often complain about 'Big Ag' controlling the food supply and pillaging the planet. But what I have always seen in this is actually the work of a spontaneous order of a complex network of modern family farms, biotechnology companies, food processors, and retailers that cooperate to deliver healthy and sustainable food to a growing global population. And in terms of sustainability, I have said previously that modern food supply chains, made possible by companies such as Cargill, ADM, and retailers like Wal-Mart, have not only allowed us to get foods cheaper than we can produce ourselves or source locally, but may have also helped to reduce our impact on the environment (see I, Chicken).

Greg has a strong understanding of what economists (particularly F.A. Hayek) refer to as a spontaneous order and how the use of knowledge in society is optimized via price discovery:

"I think an underappreciated aspect of food and agriculture certainly the interconnectedness of the various links in the supply chain but powerfully within that is the role of price in changing behavior in a positive way."

"In point of fact,that you watch as price signals very quickly go through the global agricultural landscape and cause players and each individual link to behave differently. And I've seen it in a very positive way. That after, for instance, the very recent result, severe weather in 2012 in the U.S. Midwest, ... And I think people miss that, and it's under-reported, that that signal went out and its speed of response all across the food supply chain to price signals is something that I would not have appreciated as I came out of college in spite of taking a few courses in microeconomics. point of fact people miss the huge positive value they have in terms of food security. "

Also food security, comparative advantage and free trade vs. locavorism:

"One of the big threats to food security is the attempt by individual countries to define food security only in the context of their own citizens. That manifests itself in some cases--people try to start trying to grow crops for which they enjoy no comparative advantage. And so they take valuable acres, valuable rainfall, and force farmers, through tax policy or other means, to plant crops which don't really suit their situation, because they are simply not prepared to have trust-based trade with others who do enjoy advantage in that crop....Might make great local politics in a given country. But if that were practiced on a broad scale by a large number of countries, a lot of our food security would evaporate."

On farm policy:

"the best thing about the U.S. farm bill versus what existed before the last decade--so, what we call freedom to plant--that a farmer can sit down in February and look at his land and look at an array of price signals that he is receiving and determine what crops he should grow. If you go back 15 years ago, in many cases you had to farm to the legislation--that in order to maintain your base acres, and therefore your safety net, you were compelled to grow crops. Today you have in the United States an enormous amount of latitude to make the single best decision for you and your family as to what crop you will grow this year, given your soil moisture levels and a host of other signals. But to sit down at your kitchen table with your advisor or whatever and to make a 10-key calculator determination of what to plant in response to the market signals that you are getting. And so one of the big plusses, and it also has been in the last 15 years, this freedom to use your land according to market signals. Are those market signals shaped by things like biofuels policy? Absolutely. And so, what affects one crop, what affects the price of one crop will clearly affect the level of production for all other crops as well."

They also get into the promises of biotechnology:

"we could feed the world without GMOs; there are other practices that we could follow. So the idea that we are prisoners of this technology I think is something that should be dispelled. On the other hand, I don't think we should try that. I think if our water is precious, if our topsoil is precious, if we really care about the hydrocarbon footprint that we have in terms of the amount of cultivation that we need to carry out, that we should think very carefully about eliminating or demonizing genetic engineering."

Russ closes by asking Greg about his interest and education in economics:

Russ:  "I want to close by asking about your interest in economics and where it comes from, and how it affects your work life, to the extent that it does."

Greg: "Well, it affects it enormously. I see Cargill as a great laboratory of both macroeconomics and microeconomics; ... each year provides the opportunity to see many of the things that economic theorists would tell us actually play out on the kitchen tables of individual farmers with 10-key calculators responding to signals." 

"We see people ignore--to me, to their great disadvantage--the lessons of those three economists [Hayek,Smith & Ricardo] in terms of how they price water, in terms of how they charge for infrastructure. And so we get to see both the positive power of the messages that those economists talked about but we also get to see the damaging effect of ignoring them. And in very few cases to we see them as being wrong. That these are rules that at least in food and agriculture apply rather consistently and rather quickly."

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