Alleviating Poverty through Markets

A June article in Harper’s magazine was fairly negative on the prospects of alleviating world hunger through the development of commodities market. Basically, the article outlines why markets do not work to alleviate poverty, citing examples such as the Irish Famine, Ethiopian famine and last summer’s spike in grain and other prices. The author is clearly coming from a socialist, markets can be ugly school. That does not mean he is incorrect, but I do think it contradicts the empirical evidence. There is very little starvation in economies with lubricated, but regulated, markets. If you are curious, the full article can be found here: Poverty Article

Since I have too much time on my hands, I wrote to the magazine and they published my letter along with a response from the author. Pick up this month’s Harper’s to see it (edited) on old fashion pulp and paper. Either way, Harper’s has some great articles and the subscription is a paltry 20$, I do recommend you check it out.

My response:
Last summer, I travelled to Ethiopia to speak with the people setting up the Ethiopian Commodities Exchange (ECX) and I can assure you that the goal of the program is not to encourage speculation. No one imagines an uneducated rural farmer becoming a sophisticated commodities trader. Currently, produce is mostly sold locally (within 10 kms of production) and is subject to huge fluctuations in supply and demand, as farmers in a region tend to produce the same produce, flooding a local market at harvest. In fact, a marketplace for agricultural commodities will in all likelihood help stabilize food prices compared to the huge variations currently seen in villages across Africa.
I encourage readers to consult Dr. Eleni Gabre-Madhin’s (the CEO of the ECX) TED talk where she explains the logic and purpose of the ECX. Also, the ECX will set-up numerous warehouses throughout the country to stock food – not a unique one in the capital as Mr. Frederick Kaufman claims. Currently, farmers are unable to reliably store food for future sale; they lack the knowledge and infrastructure to do so, unsold food rots and goes to waste. By delivering the produce to climate controlled warehouses, stocks will be built up – ensuring a consistent flow of food.
The Chicago Board of Exchange helped build the united states and the midwest into a world power – delivering cheaper and cheaper food to drive innovation in the cities that in turn helped the country prosper. Cheap, reliable sources of food is essential to the growth of a nation – and regulated markets are the best mechanism to deliver that food.
Markets are not the only solution to world hunger, but Mr. Kaufman is incorrect in his conclusion that they will not help alleviate it. Money can feed people and with farmers comprising 80% of Ethiopian population, it is high time they gain access to a stable and transparent market for their produce.

Published on July 16, 2009