The phenomenon in question is not general inflation, so increases in price actually translate into profits (whereas in a normal inflationary system increased gains in revenue vanish due to inflationary pressures on costs). That means that their increased revenue is real as opposed to strictly nominal (i.e. wiped out by inflation). As per price, grain sellers are in general indifferent as to whether they are compensated by the government (direct subsidies to offset domestic versus international prices) or by consumers. My concern isn't over the open market price per se; I'm more concerned that producers receive the same compensation as they would in a free trade environment.Stas Bush wrote:What if incomes don't grow at the same pace as prices? The very immediate step is to stop the prices, I guess. Either forcibly, or by throwing out cheap and massive grain reserves into the markets. Any other measure will have a delayed effect or, at the worst, can be offset by speculation which can lead to an inflatory vicious cycle and, eventually, famine. Such things happened in Africa, if you've read some UNCTAD papers on it's hunger development, the government there always has to have to enact regulation, or use up a grain reserve to break inflatory cycles, or else.Gerald Tarrant wrote:The goal is not to halt prices. The goal is to make food available to your country.
I'm a little puzzled by this. I think our understanding of the forces at work may be different.A subsidy to the populace will exacerbate the inflation problem. A subsidy to producers will mean that the government is compensating the profits lost by farmers from higher world grain prices, which is allright. So the first measure doesn't sound good, but the second is also my suggestion too from the very start, up to using up superprofits from other industrial sectors to support agriculture. In fact, many FW countries intensely support lossy agriculture for the causes of national security, and it doesn't crash their economies so far.Gerald Tarrant wrote:I don't understand why you don't explore that suggestion. The classical Trade approach that would be least disruptive is a subsidy to either the populace (to offset increases in cost, this has an advantage of the government being able to apply means tests) or the producers to provide them incentives to sell domestically at the lower price.
My position is that the following 2 choices are equivalent for a farmer, meaning they would be indifferent to about choosing between them: Being paid at the international trade price by consumers, or being paid at the pre-trade rate, and having the difference paid by the government. I don't see the inflationary mechanism, because it seems to me that the two methods are practically identical. I think both methods provide Russian consumers with a way of outbidding foreign buyers.
I will agree that since these Supply and demand curves aren't the simple linear ones seen in beginning econ, deciding who gets the subsidy will have some different effects. However I don't think the previous caveat is the reason for our disagreement over what a subsidy to consumers would do.
It may take a while for supply to grow to cover the higher demand, however if profits on food don't grow for farmers, they have little incentive to increase yields. So yes it may take years for price increases to result in large food increases. But it will take even longer if farmers don't receive incentives in the form of higher profits. And there are some techniques which will almost certainly take effect immediately: different pesticides, better seeds (generally of the GM variety), different fertilizers. All those have immediate (i.e. one growing season) impacts on yields. Other increases as in upgrades to harvesting equipment and increasing acreage planted take longer to implement, but they aren't the sole means of increasing yields. So I think that higher profits for farmers may actually result in increased yields next year, as some of those profits might find investment as mentioned.Agriculture cannot just "increase" supplies that fast. It will need years - if it can do so at all, since peak production even with massive cultivation was something like 105 million tons, and it was when Russia's combine park was far greater.Gerald Tarrant wrote:I think it's going to persist until Russian supplies increase to offset the export demand
I don't know anything about Russian agriculture. Hopefully you're correct and the system is too inflexible for farmers to find ways around the ban.If you know stuff about Russian agriculture, it's that it's rather hard to shift to some other cultures. Grain is export-capable culture, but shifting to something else? There are no other cultures which will yield higher profits, I fear, neither can they be easily massively expanded, since Russia's enterprises are large farms which are oriented towards producing some type of agricultures with all their machinery and field disposition (for example, colder lands cannot be used up for grain production, just as it's unlikely to use chernozem for potato production, since the potato market is satisfied and doing rather ok).Gerald Tarrant wrote:I'm concerned that the price decrease in question may overlap growing/planting season, which is when farmers make their decisions on planting.
Do you know if they are providing subsidies to their agribusiness folks?In short, your position is reasonable. As Ukraine is running a ban very similar to the one we're discussing, I guess post-analysis of that would be useful to determine a possible course of action should the situation worsen.
As to how well it works, if you look at the graph you posted, there is an important point it illustrates. You'll note that when they simulate the re-opening of the log market Domestic price has a prolonged duration (~1 year) price spike. I think this emphasizes the need for Domestic supply to grow. Otherwise the ban can't really be removed without causing the same inflation that forced the ban in the first place.
How did the yield increase in the previous years, under a stable price? And doesn't competition actually force prices down while maintaining the same or greater yield of production, no?
Price raises for foods in the range of 7-25%, for housing tariffs - 10-20% are totally eating up the ridiculous 10% raises to pensions and student stipendiums, as well as rising wages. Too fucking bad.
