World Food Policy Volume/Issue 2-2/3-1 Fall 2015/Spring 2016 | Page 127

World Food Policy

wicked problem is. Now, there is a growing
acceptance that food security is a wicked
problem, it is a very complex thing to pull
off.

First of all, to solve the problem
of food insecurity, markets have to do the
“heavy lifting”—markets have to be the
arena where virtually every decision that
matters is going to get made. There are
three things markets have to do. There
are engineering functions: they have to
move inputs and outputs from the farm
through the processing sector into retail—
moving and transforming the product
in time, in place, and form. Whether the
Soviet Union or North Korea—any kind
of socialist, planned economy—they still
have to do this. I was in China in 1975
there was total denial by the Maoists at
the time that markets did anything. But
China moved its grain, its vegetables,
and its livestock products in time, place,
and form—they transformed them. They
actually had to do all of these functions.
Now the question is how do you do them
efficiently? That was not a question that
the Chinese were asking from the point
of view of an economist, they were asking
from the point of view of an engineer—a
planner in that sense. But if you do
these tasks efficiently—transportation,
storage, processing—the marketing sector
becomes the arena for price discovery
because the different prices at each stage
in the marketing chain have to match
the costs of creating the value added:
milling the rice, moving from farm gate to
warehouse, or storing it from the harvest
season to the short season. Each of those
costs involves real economic resources
and what we want for efficiency is the
costs of doing those tasks gets matched by
the price differentials so that the people

who will do these marketing activities sort
of automatically know that they can make
a little profit if they can move rice from
West Java to Jakarta, for example.

So the marketing system then
becomes the locus for price discovery and
for efficient exchange of commodities.
Each time a transaction happens, these
commodities typically change hands—
they get a new owner. Increasingly, with
modern supply chains and supermarkets
at the end, there may be a single
ownership pattern all the way back to
the farm. Typically, of course, farmers
are usually not part of that process. In
more traditional marketing systems, the
commodities change hands—there has
to be an agreement on the terms of the
exchange. All of this sounds very busy.
There must be 10 billion or more of those
transactions every single day. Planning
agencies can’t plan that. You need to
get the price discovery and the efficient
exchange working almost automatically
so that governments don’t have to do this,
the market does it. The critical role for the
market is this discovery of prices that leads
to efficient exchange. And when those
prices are out and visible—transparent
if you like—then they provide signals to
producers and to consumers for efficient
resource allocation. If the price is high,
you want farmers to be investing more in
increasing output. You want consumers to
look for substitutes for rice—be it cassava
or corn (or eggs or pork).

That’s what responding to these
price signals is all about. And when those
responses are reasonably flexible you get
efficient resource allocation. It is simply
impossible to sustain poverty reduction
without using our resources reasonably
efficiently. I am not a Chicago economist

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