Saturday, May 10, 2008

Economics of the Global Food Trade

Following on from the Krugman posts on lumpy trade the efficiency of the global transport network is again in the headlines. This time related to food transportation and how the current network leads to some perverse stories of product shipments.

We are used to factor price differentials driving the relocation of manufacturing but the link to food production is rarely considered.

The New York Times had a look at this:

Environmental Cost of Shipping Groceries Around the World [New York Times]

Cod caught off Norway is shipped to China to be turned into filets, then shipped back to Norway for sale. Argentine lemons fill supermarket shelves on the Citrus Coast of Spain, as local lemons rot on the ground. Half of Europe’s peas are grown and packaged in Kenya.


Increasingly efficient global transport networks make it practical to bring food before it spoils from distant places where labor costs are lower. And the penetration of mega-markets in nations from China to Mexico with supply and distribution chains that gird the globe — like Wal-Mart, Carrefour and Tesco — has accelerated the trend.

The cost of this labour cost saving is the externalities associated with this increased traffic.

But the movable feast comes at a cost: pollution — especially carbon dioxide, the main global warming gas — from transporting the food.

Under longstanding trade agreements, fuel for international freight carried by sea and air is not taxed. Now, many economists, environmental advocates and politicians say it is time to make shippers and shoppers pay for the pollution, through taxes or other measures.

Why Dr Watkiss focused on waffles is not clear but waffles do have a comedy element to them so perhaps that is why.

“We’re shifting goods around the world in a way that looks really bizarre,” said Paul Watkiss, an Oxford University economist who wrote a recent European Union report on food imports.

He noted that Britain, for example, imports — and exports — 15,000 tons of waffles a year, and similarly exchanges 20 tons of bottled water with Australia. More important, Mr. Watkiss said, “we are not paying the environmental cost of all that travel.”

The UK figures are somewhat surprising.

Britain, with its short growing season and powerful supermarket chains, imports 95 percent of its fruit and more than half of its vegetables. Food accounts for 25 percent of truck shipments in Britain, according to the British environmental agency, DEFRA.

I suspect that we will see further EU regulation in this area. Even a polluter pays tax will not change the economics - it will still be cheaper to ship the fish from Norway to China and back again.


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