Cost of smelling rice!

Nice cartoon:

The future of SAFTA

Ever since the South Asian Free Trade Agreement (SAFTA) was launched (though in bits and pieces), there has not been a substantial change in trade flows among the member countries. It is interesting to see that people are still optimistic about SAFTA and think that it makes "economic sense," according to a survey conducted by ADB and UNCTAD. Of course, any FTA would make economic sense, provided that there are gains for all or gains outweighs loses.

“Our analysis shows that the situation of product complementarity has improved in the region, and that SAFTA has the potential to boost intra-regional trade by 120 percent from the present level with sufficient development impact,” said Abhijit Das, deputy coordinator of UNCTAD, one of the two agencies conducting the study.

The major highlights of the report suggest that Nepal will not gain additional market access in India under SAFTA, but it will expand its market access in Bangladesh and Maldives by 52 percent and in Pakistan and Sri Lanka by 46 percent when SAFTA is fully implemented.

“Bangladesh's welfare gains will be the highest in South Asia, and the country could do well in areas like apparel, pharmaceuticals, plastics and ceramics,” says the report. India will witness export gains in automobiles and a few other manufacturing products.

Pakistan will record a twofold growth in its exports in the region and see positive impacts on employment in the agricultural sector. But it could lose on commodities like apparel, leather products and sugar, says the report.

The study has estimated that full implementation of SAFTA could cause Nepal to lose revenue amounting to about US$ 0.1 billion (on the basis of simple and weighted average tariff).

The study has also noted that regional trade largely suffers from barriers apart from tariffs. Removal of non-tariff barriers and political constraints alone could cause intra-regional trade to rise by a further 40 percent, it estimates.

What I don't understand is why is there such a rush in enacting FTA in South Asia if it is already crystal clear that poor infrastructure, poor access to credit, clear disadvantage for some countries in terms of revenue generation, capital market and current account volatility, exchange rate uncertainty, etc. are bottlenecks to realizing the fruits of free trade. I see no reason why Nepal should be so excited about this trade agreement at a time when it is not even able to exploit business opportunities in the bordering Indian states.

Time 100: The World's Most Influential People

The Time magazine has a list of world's 100 most influential people. I was expecting some economists on the list but found just one: Ben Bernanke. Or am I missing something?

Leaders & Revolutionaries

• Dalai Lama
• Vladimir Putin
• Barack Obama
• Hillary Clinton
• John McCain
• Hu Jintao
• George W. Bush
• Jacob Zuma
• Anwar Ibrahim
• Kevin Rudd
• Bartholomew I
• Ben Bernanke
• Muqtada al-Sadr
• Robert Gates
• Michelle Bachelet
• Sonia Gandhi
• Baitullah Mehsud
• Evo Morales
• Ma Ying-jeou
• Ashfaq Kayani

Heroes & Pioneers

• Brad Pitt & Angelina Jolie
• Oprah Winfrey
• Oscar Pistorius
• Mia Farrow
• Andre Agassi
• Lance Armstrong
• Bob and Suzanne Wright
• Peter Gabriel
• Kaká
• Sheik Mohammed al-Maktoum
• Yoani Sánchez
• Madeeha Hasan Odhaib
• Randy Pausch
• Lorena Ochoa
• Tony Blair
• Alexis Sinduhije
• Aung San Suu Kyi
• George Mitchell

Scientists & Thinkers

• Michael Bloomberg
• Craig Venter
• Jill Bolte Taylor
• Larry Brilliant
• Jeff Han
• Mehmet Oz
• Nancy Brinker
• Harold McGee
• Peter Pronovost
• Eric Chivian & Richard Cizik
• Mary Lou Jepsen
• Paul Allen
• Nicholas Schiff
• Mark Zuckerberg
• Wendy Kopp
• Shinya Yamanaka & James Thomson
• Michael Griffin
• Susan Solomon
• Isaac Berzin

Artists & Entertainers

• Lorne Michaels
• Miley Cyrus
• Robert Downey Jr.
• Herbie Hancock
• Joel & Ethan Coen
• Bruce Springsteen
• Peter Gelb
• Mariah Carey
• Khaled Hosseini
• Elizabeth Gilbert
• Rem Koolhaas
• Judd Apatow
• Alex Rigopulos & Eran Egozy
• George Clooney
• Tim Russert
• Suze Orman
• Stephenie Meyer
• Tyler Perry
• Tom Stoppard
• Chris Rock
• Takashi Murakami

Builders & Titans

• Indra Nooyi
• Ali al-Naimi
• Rupert Murdoch
• Steve Jobs
• Radiohead
• John Chambers
• Jeff Bezos
• Jay Adelson
• Steve Ballmer
• Jamie Dimon
• Prince Alwaleed bin Talal
• Lou Jiwei
• Neelie Kroes
• Jeffrey Immelt
• Karl Lagerfeld
• Lloyd Blankfein
• Carlos Slim
• Mo Ibrahim
• Ratan Tata
• Cynthia Carroll
• Carine Roitfeld
• Michael Arrington

Food Crisis and South Asia

The World Bank's South Asia section has a nice analysis of the impact of rising food prices in South Asia, where at least 75% of the population live in rural areas and 60% of the labor force depend on agriculture. Crop yields have declined from 2.1 percent a year between 1950 and 1990 and to 1.2 percent after 1990. The WB believes that technology has the answer to slacking yield in the region.

"Organizing and providing economy of scale to small producers will significantly reduce the cost of doing business in rural areas and facilitate their integration into value chains. This will transform small farmers into an attractive market with greater bargaining power in dealing with the public and the private sector," said Brizzi. While these investments will not affect food prices in the short term, they can help to achieve food security in the future.

...Brizzi attributed the increase in the world food prices to raising standards of living in countries like China and India, increased use of food crops for bio-fuels, and increased oil and fertilizer prices. The major grain exporting countries such as Australia has experienced a substantial drop in its production due to weather-related shortages. Increasing demand for meat and protein diet, which requires more input than cereals, in the developing countries have added a new dimension to this phenomena. Also the high international oil price has accounted for increased fertilizer and transportation costs. More analysis is required to determine the impact of these changes on world food prices.

...Brazil currently does not provide subsidy support to the bio-fuel industry. Brizzi, however, warned that Brazil success story will not necessarily apply to South Asia. He pointed out that sugarcane is a water-intensive crop and in Brazil it is largely rain-fed in contrast India, which is mostly based on irrigation. The feasibility of producing fuels with other crops still needs validation in South Asia.

Btw, Will Martin and Marcos Ivanic from the WB has a nice, interesting, and revealing paper about the impact of rising food prices on poverty. The paper is titled "Implications of higher global food prices for poverty in low-income countries."

Summary:

In many poor countries, the recent increases in prices of staple foods raise the real incomes of those selling food, many of whom are relatively poor, while hurting net food consumers, many of whom are also relatively poor. The impacts on poverty will certainly be very diverse, but the average impact on poverty depends upon the balance between these two effects, and can only be determined by looking at real-world data. Results using household data for ten observations on nine low-income countries show that the short-run impacts of higher staple food prices on poverty differ considerably by commodity and by country, but, that poverty increases are much more frequent, and larger, than poverty reductions. The recent large increases in food prices appear likely to raise overall poverty in low income countries substantially.

Food Crisis: Clipping, Scrimping, Saving

And this is the fifth article on the Washington Post series on global food crisis.

Clipping, Scrimping, Saving

...Since March 2007, according to the Bureau of Labor Statistics, the price of eggs has jumped 35 percent. A gallon of milk is up 23 percent. A loaf of white bread has climbed 16 percent. And a pound of ground chuck is up 8 percent. Overall, U.S. food prices in 2008 are expected to rise 4 to 5 percent, about double the increases of recent years. And while the total rise is far less drastic than elsewhere around the world, the sharp hike for staples means everyone is feeling the pinch.

...In March, Nielsen reported that the annual number of shopping trips per household had dropped 9 percent, from 181 in 2001 to 164 in 2007.

...Case in point: Poli Marinova, a Bethesda marketing communications manager, said she has cut her grocery bills by almost 30 percent without switching to conventional foods. Instead, she skips "luxury items" like sushi and prepared sandwiches and soups. "We're buying a lot less overall at Whole Foods. We used to buy juice, biscuits and baby food from there," she said. "Now, we get a lot of that stuff at Costco or the Giant so we can afford to keep buying organic."

Food Crisis: Siphoning Off Corn to Fuel Cars

This is a fourth series form the Washington Post articles on food crisis.

Siphoning Off Corn to Fuel Our Cars

...Across the country, ethanol plants are swallowing more and more of the nation's corn crop. This year, about a quarter of U.S. corn will go to feeding ethanol plants instead of poultry or livestock.

...Rising food prices have given Congress and the White House a sudden case of legislative indigestion. In 2005, the Republican-led Congress and President Bush backed a bill that required widespread ethanol use in motor fuels. Just four months ago, the Democratic-led Congress passed and Bush signed energy legislation that boosted the mandate for minimum corn-based ethanol use to 15 billion gallons, about 10 percent of motor fuel, by 2015. It was one of the most popular parts of the bill, appealing to farm-state lawmakers and to those worried about energy security and eager to substitute a home-grown energy source for a portion of U.S. petroleum imports. To help things along, motor-fuel blenders receive a 51 cent subsidy for every gallon of corn-based ethanol used through the end of 2010; this year, production could reach 8 billion gallons.

..No place demonstrates the competing demands on corn better than Iowa, one of the two biggest corn-exporting states. Iowa is home to 28 ethanol plants, which consume more than a quarter of its corn crop; two dozen others are under construction or in planning stages.

Food Crisis: Countries in Crisis Requiring External Assistance

This one is from the FAO:

AFRICA (21 countries):

Exceptional shortfall in aggregate food production/supplies

• Lesotho (Multiple year droughts until last season)
• Somalia (Conflict, adverse weather)
• Swaziland (Multiple year droughts until last season)
• Zimbabwe (Deepening economic crisis, drought last season, recent floods)

Widespread lack of access

• Eritrea (IDPs, economic constraints)
• Liberia (Post-conflict recovery period)
• Mauritania (Several years of drought)
• Sierra Leone (Post-conflict recovery period)

Severe localized food insecurity

• Burundi (Civil strife, IDPs and returnees)
• Central African Republic (Refugees, insecurity in parts)
• Chad (Refugees, conflict)
• Congo, Democratic Republic of (Civil strife, returnees)
• Congo, Republic of (IDPs)
• Côte d'Ivoire (Civil strife)
• Ethiopia (Insecurity in parts, localized crop failure)
• Ghana (Drought and floods)
• Guinea (Refugees)
• Guinea-Bissau (Localized insecurity)
• Kenya (Civil strife, adverse weather)
• Sudan (Civil strife)
• Uganda (Civil strife in the north, localized crop failure)

ASIA (10 countries)

Exceptional shortfall in aggregate food production/supplies

• Iraq (Conflict and insecurity)

Widespread lack of access

• Afghanistan (Conflict and insecurity)
• Korea, Dem. People's Rep. of (Economic constraints and effects of past floods)

Severe localized food insecurity

• Bangladesh (Past floods and cyclone, avian influenza)
• China (Disastrous cold, ice and snow in the south)
• Nepal (Poor market access, conflict and past floods)
• Sri Lanka (Conflict and floods)
• Tajikistan (Severe cold, floods/landslides, poor market access)
• Timor-Leste (IDPs, past drought and floods)
• Viet Nam (Cold spell in the north)

LATIN AMERICA (5 countries)

Severe localized food insecurity

• Bolivia (Floods)
• Dominican Republic (Past floods)
• Ecuador (Floods)
• Haiti (Past floods)
• Nicaragua (Past floods)

EUROPE (1 country)

Exceptional shortfall in aggregate food production/supplies

• Moldova (Drought, limited access to inputs for winter cropping)

COUNTRIES WITH UNFAVOURABLE PROSPECTS FOR CURRENT CROPS

AFRICA

• Ethiopia (Insufficient rainfall)
• Kenya (Insufficient rainfall)
• Somalia (Adverse weather, conflicts)
• Zimbabwe (Early Floods and late dry spells in parts, shortage of inputs)