Rice prices

Recently, Tyler Cowen wrote in the New York Times saying that lack of free trade in rice and growing protectionism is not a good thing from the long-term perspective.

IAS Officer Gulzar Natarajan (now with the Vijayawada Municipal Corporation) took him on and elaborated as to why protectionism might be necessary.

I left the following comment on Gulzar’s blog. Given that I’m not blogging much nowadays, and I almost wrote an essay over there, I reproduce here that comment in full.

“trade” doesn’t necessarily mean foreign trade. it can also stand for trade within the country. and this is essential in order to “send out the right signals”.

basic thing is that we need to ensure that farmers receive a fair price for the rice they grow. given that the total demand for rice is increasing, it is only fair that the farmer sees this increasing demand by way of higher rice prices. higher rice prices (as realized by hte farmer) will lead to increase in production which can combat the growign demand.

international trade is one thing. the bigger problem lies with the procurement of goods such as rice by the governments. a number of countries don’t allow the farmer to sell to the open market. procurement is highly controlled, and despite the rising prices, the farmer gets none of it. and thus has no incentive to grow more.

yes, a country might ban exports because it feels that the rice available is enough only to feed its own population. however, this shouldn’t be done at the farmers’ cost. and they should be able to see the right demand for the commodity so that they can adjust.

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