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The increasingly of enhanced productivity and yields of the farm sector have been driving the worldwide food prices falling for the past 25 years. However, this phenomenon came to a sudden change due to the global food prices increased dramatically by 2007, creating a global crisis and causing political and economical instability and social unrest in both poor and developed nations.
Increased demand for more resource intensive food
The head of the International Food Policy Research Institute stated in 2008 that the gradual change in diet among newly prosperous populations is the most important factor underpinning the rise in global food prices(Wikipedia, 2010), most notably in developing country like China and India. Rising of consumption of meat particularly has resulted in increase demand for grains; One kilogram of beef requires eight kilograms of feed grain, so as the demand for meat surges, consumption of grains by cattle soars, that driving up grain prices.
Issue of bio-fuel subsidies
Both the United States and European Union have implemented policies by giving the subsidies for ethanol and bio-diesel production to many farmers which have prompted them to switch to production for bio-fuel, even though exactly how effective they are at generating less CO2 emissions and decelerating global warming is actively debated. Ultimately this has diverted the land away from production of corn and soy for food, and reduced the supply of land devoted to growing crops that don’t received bio-fuel subsidies, such as wheat. As a result, it generated a huge effect on demand for corn and soy beans. In 2007, for example, the U.S. increase in demand for corn-based ethanol accounted for more than half of the worldwide increase in demand for corn.
The problem of imposition of high tariffs
From the U.S. and EU markets by high tariffs, which are shutting out manufacturers of alternative products that can be turned into bio-fuels, most remarkably sugar cane, So as a result, the price of imported sugar cane is increased and making it extremely uncompetitive with subsidized corn and soy beans, this is unfortunate as sugar cane is a more environmentally friendly raw material for bio-fuels than corn and soy beans. As matter of fact, the circumstances may get even poorer, in case policy makers have their way. Policies in both U.S. and the EU require increase in the production of bio-fuels, but none of them has permitted decreasing tariff barriers on sugar cane or to remove the trade distorting subsides given to those who generate corn and soy for bio-fuels.
2) Case Discussion Questions 1 & Answer
Who benefits from government policies to (a) promote production of ethanol and (b) place tariff barriers on imports of sugar cane? Who suffers as a result of these policies?
The policies who benefit from the government policies to promote production of ethanol will be the country and its domestic producers. For this case, it will be United States and the domestic’s producers in United States. Also, it will provide the producers with the chance to expand or increase their export market. For example, Archer Daniels Midland Company is one of the United States domestic company which turn crops into renewable products. At the same time, the tariff barriers on imports of sugar cane would minimize the foreign imports. Most of people believe that the ethanol production provides large benefits to the farmers, but in fact the profits to farmer are minimal. However, most of the domestics producers (like Archer Daniels Midland) are making huge profits from ethanol production which were received the ethanol subsidies. (EV World, 2002)
Refer to the attached table from the United States Energy Information Administration:
In the recent year, the production of ethanol in United States is fully consumption by them and the continuous declined the import of ethanol. This is well obviously the domestics consumption and no import market for the ethanol.
In additional, sugar cane, corn and soybeans are mainly used for production of biofuel. Most of the developed countries (e.g. China and India) are usually provided the subsidies, it will make the production of corn, sugar cane increasing faster and the farmers will plant more. These will be also beneficial to the developed countries. The land owners will give the benefit as well as the more ethanol production needed more arable land for crops.
On the other hand, the consumers will suffer by paying more for the corn, sugar cane, etc. as the demand for ethanol is increased. In addition, the drivers in United States will suffer a lack of competition as the ethanol prices are higher. Also, the energy and pollution need to be balance of the whole cycle of ethanol production.
3) Case Discussion Questions 2 & Answer
One estimate suggests that if food prices rise by one-third, they will reduce living standards in rich countries by about 3%, but in very poor ones by about 20%. According to the international food policy research institute, unless policies change, cereal prices will rise by 10% to 20% by 2015, and the expansion of bio-fuel production could reduce calorie intake by 2% To 8% by 2020 in many of the world’s poorest nations. Should rich countries do anything about this potential problem? If so, what
Yes we do, from the perspective of ethics the rich nations should provide helps hence these nations is already very well developed and they have more resources or extra resources to reallocate to the poor nations by providing helps to save life.
To tackle the current situation of high food prices by providing emergency assistance to the poorest countries is needed. By revitalizing rural communities and re-launching agriculture are the key elements to reduce hunger and ensure an improved world food situation.
Protecting the people who suffers hunger in rural and urban areas would require direct food distribution, food subsidies, cash donation and nutritional programs, such as school feeding. Enhance social protection is also very important for vulnerable groups, including pregnant women, elderly and the children.
For short-term action, local food production should be the first prioritize. Subsides program should include the distribution to local farmers of fertilizers, seeds, animal feed or other input. Support should focus on agricultural research serving the needs of poor farmers, many of whom farm in increasingly marginal areas; poor farmers should have better access to factors of production, namely land, water and inputs. If this program worked effectively, such program would enhance the supply response in poor countries and improve food availability, during the increase of the income with small producers and it might also reduce price increases in local markets as well.
For mid and long term actions, high food prices also represent an opportunity for increase investments in agriculture by both the private and public sectors to stimulate production and enhance productivity. Invite private firm for investment into long neglected areas such as agricultural research, extension for infrastructure, on the other hand production and trade policies on bio fuels may also need to be re-examined for their possible effects on food markets and food security, especially in those vulnerable countries.
If all the short and long terms projects which works effectively, the food prices should decline dramatically because the supply of food increase and it could save millions of peoples who don’t have to suffers of hungers and diseases, It may stop the wars between the poor countries which competes again for access to resources.
4) Case Discussion Questions 3 & Answer
The argument for giving subsides to ethanol producer rests upon the assumption that ethanol results in lower CO2 emission than gasoline and therefore benefits the environment. If we accept that global warming is a serious problem in itself, should we not be encouraging government to increase such subsides? What are the arguments for and against doing so? On balance, what do you think is the best policy?
Biofuel as E85 is an ethanol fuel that typically contains a blend of up to 85% ethanol and 15% gasoline. E85 is commonly used in the United States and Europe.
Ethanol is one of the best tools to address environmental issues such as reduction in greenhouse effect and exhaust pipe emissions. Because ethanol is made from renewable, plant-based feedstock such as corn or sugar cane. The CO2 released during a vehicle in motion is recycled during the growth of ethanol feedstock.
In 2007, U.S. governments have given subsidies to farmers caused that corn production increased to 85 million tons from around 15 million tons in 2000. Also subsidies amount to between $0.29 and $0.36 per liter of ethanol. In Europe the subsidies are as more as $1 a liter.
The greenhouse effect is an essential environmental prerequisite for life on Earth. The problem is human activities destroy and accelerate the process by creating more greenhouse gases which include carbon dioxide, emitted by fossil fuel combustion and deforestation etcâ€¦ Global warming is produced mainly by the growth of greenhouse effect and emission of carbon dioxide.
The Earth’s average surface temperature rose by 0.74±0.18 °C over the period 1906-2005. The carbon dioxide emission is estimated some 80 % rise in the economic growth of China. In the meantime the US and EU managed to reduce emissions slightly. It seems that global warming is a serious problem.
The initial purpose of the subsidy was to help a nascent biofuels industry, hope to reduce America’s petroleum dependence. However, the ethanol is an effective way to break our petroleum addiction but not be the best of tools to improve the environmental and economic. In case we still encouraging government to increase the subsidies in the ethanol. It can be improved cellulosic technologies for energy efficient, reduce reliance on petroleum or displacement if possible. on the other hand, it may be developed an agriculturally-based rural energy workforce and help domestic producers to earn more revenue and advance economic growth because as the government policy to compete against low-cost foreign imports, gain export markets and improve the environmental better.
In turn, Eliminating or not increasing ethanol subsidies will lower your grocery bill, saving $30 billion in wasteful spending and increasing edible maize by 14%. Because subsidies caused high demand for corn and soy beans turn into ethanol, then reduce the supply of land devoted to growing crops, that its existence increases the price of corn, and that food prices rising.
On balance, I think the best policy is ethanol has helped in the development of the biofuel infrastructure. The subsidies still carry on but should be set up expiry dates and limit budget, also able to increase subsidies directed towards a broader range of approaches. From the technological and economic benefits, ethanol production still has little potential upside left in process cost reduction. Some subsidies should be used to introduce new competition to markets or support other new technologies to get higher revenue.
5) Application to Hong Kong Business Environment
Government’s policy is a critical factor. US and EU government implement Bio-Fuel Subsides and high tariff for sugar cane which is part of reason to rise global food price.
There are many similar cases in Hong Kong. MTR Corporation Ltd is a typical example. The MTR Corporation was established in 1975 as the Mass Transit Railway Corporation and the Hong Kong Government was the only sole shareholder. Although the Hong Kong Government sold 23% of its issued share capital to private investors in an Initial Public Offering in 2000, Hong Kong Government is still a main shareholder. Since 90s, Hong Kong Government has adopted a transportation policy – Railway as a backbone on the public policy. There are now 10 lines, but the Corporation is still developing and expanding its network. Within the next decade, the Corporation will complete five new strategic rail extensions. They include: West Island Line, Guangzhou – Shenzhen – Hong Kong Express Rail Link, Shatin to Central Link, Kwun Tong Line Extension and South Island Line (East).
The Hong Kong Government supports the MTR Corporation Ltd non-stop network expansion. On the other hand, the Government adopts a tight control to others transportation with direct competition with MTR Corporation Ltd. For Example, franchised public bus – KMB, who has been constrained the No. of vehicles, Bus routing expansion / abridgment and so on.
Application to Hong Kong Resident
Supply and Demand is an important issue. Due to the population growth the demand of meet, so the demand of food relatively increase which cause the global food price rise.
Hong Kong residents are also affected by the issue of supply and demand of property. The price of property has been dramatically gone up from 40 to 115 since 2002 up to 2012 according to Centa-City Leading Index. In past, the ex- Chief Executive Donald Tsang did not have any policy to increase the supply of property. This result the supply of property maintains on the low level. However, the population of nubile age is increasing and they have a huge of demand on the property.
Government is the main supply of property as it provides lands to property developer before property building and it directly build subsidized houses. However, in the past ten years, the supply of property is relatively low. The stop building of subsidized houses and slow land sold by “Land Sale by Application”, the supply of property is only around 10 thousand per last few years, but the demand of property is around 25 thousand as the No. of the marriages is over 50 thousand in the recent years. It causes a sharp difference between supply and demand. There is not enough supply to fulfil all demand.
The global food price increase is one of the signs of the global food crisis. Global food crisis is a profound problem to all the human being. 22 countries have already suffered from this issue and more than 900 million people suffer from not having enough to eat every day according to FAO 2010.
Global food crisis is more serious than war and environmental crisis as it would create a lot of social issue and affect social stability. Therefore it is time to take precautions before it is too late, we start! General public can as well reduce the food waste.
In addition, the case study of global food price increase also shows the importance of government’s policy. Government policy affects the business environment – the industry’s recession or boom. Government policy affects the living standard of general public. To take necessary precautions, Hong Kong resident should keep an eye on government daily operation.
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