 The historical track record says those societies that have been successful at raising food production, especially on small farms, have been very successful at improving their food security and bringing their whole society, including rural populations, bringing their societies out of hunger and out of food insecurity. But at the same time, even when food production is increasing rapidly, there will still be many households that do not have access to that food. And so something has to go on in the rest of the economy, as well as just on the small farms. That rest of the economy is the structural transformation, creating jobs, creating incomes for people who are actually not going to become food secure by growing their own food. They're going to get decent wages in cities and buy food in markets. Well, do you believe in supply or demand? You know, Malthus basically thought the world was supply constrained, and we would run out of food and that would keep the population under control. Sen thinks there's plenty of food out there. It's the poor do not have access. There's not enough demand among the poor populations. And it's interesting, in 2008 you would have said, boy, we're going into a Malthusian world. But here we are in November of 2014. And everybody's worried about low commodity prices, oil prices are falling, corn prices, my friends in the Midwest are bemoaning. They thought the corn prices were going up and they've gone down. And so it's almost as if we're in a Senean world because there's still hunger. Even with lower prices and easy supplies out there, there's still plenty of hunger. There's a lot of people food insecure. So I guess I'd have to say we're in a Senean world right now, but the worry is climate change, things change very quickly. The worry is we could go into a Malthusian world fairly quickly, and then how prepared are we? I think there are two fundamental insights from behavioral economics. First, behavioral economics is established pretty clearly that most decision makers, most individuals, make their decisions around some kind of a reference point. And the reference point is almost always where they are at the moment. And so if you're judging whether how you're going to change your food purchases when prices change, you make that decision based on what your current budget is and what your current diet is. That reference point decision making means that anytime things change, either for the better or for the worse, people are judging it against where they are and given the fact that we discount gains much more heavily than losses. We hate losses and gains are nice, but we don't count them as much. That's part of behavioral economics as well. What it means is even if the fluctuations are just perfectly up and down and even consumers lose out of that because they don't get the gain from when prices go down and they really feel the pain when prices go up. And so what that means is just for welfare economics, the gains to trade that we thought came from volatile food prices are illusory. They do not exist. That means the whole paradigm of free trade and the gains that come from free trade that we've grown up with the WTO is trying to bring that to everybody. That whole paradigm of free trade gets threatened with unstable food prices and behavioral responses to that. The second way behavioral economics is important is it stresses the role of expectations and how they are formed and in particular the prevalence of herd behavior. We tend to do what our neighbors are doing. We watch the TV and oh my gosh, there are people going to the supermarket buying all the rice up. Sam's Club in California has got a run on rice. I better go down and get a rice as well. In 2008 I was teaching as a visiting professor at Stanford and teaching a course on pathways out of rural poverty as the world rice crisis was playing out. So I would be online overnight and then I'd come into the class the next morning and tell them what was going on and I could see what was going to happen to rice prices and I had to confess to my class I went out to Trader Joe's and I bought all the rice off the shelf. I'm guilty of this. I was right of course. This is not irrational behavior but it's destabilizing behavior because if everybody does it then the prices spike. And so that insight from behavioral economics that we have to really understand the basis, the foundation of expectations in order to prevent herd behavior either up or down. If we want a stable environment you can't have herd behavior. That's a key insight. We are now seeing an urbanization process driven by the middle class that has the same dietary transition that we saw in Latin American and in Asia. Who feeds that? Well the concern has been the coastal cities historically have been fed with imports and they've been fed with really cheap imports because Europe and the United States dumped their food aid into Africa. I happen to think that prevented Africa from developing the food systems that would have provisioned their own cities. But what we see now is because of the dietary diversification and the demand from rapid growth in the urban areas we're beginning to see some supply chains working back and they're after higher quality fruits and vegetables. There's a modern poultry industry coming in West Africa now. High quality maize meal rather than the little stuff that breaks it up. We're seeing a demand for quality. We're seeing a demand for a diversified diet. I don't see any real reason why African farms can't respond to that if the supply chains work their way back. Tom Reardon is the supermarket guru that I work with a lot on agricultural marketing has just done a paper on urbanization in Sub-Saharan Africa and he was just startled to see how rapidly urban demand was growing. Now I think there's a legitimate question. Can urban demand grow a middle class without any significant industrial base? Is Africa really just going to skip over industrialization and go straight to a modern service economy? Build a transformed productive agricultural system in the rural areas that will feed a modern service economy in the urban areas and let Asia produce the widgets. I don't know. There's nothing in economic history that helps us play that scenario out but I think we have to think about that scenario going forward but it's very clear that urban areas are a real source of demand now in Africa. They're growing on their own. They don't rely on a successful structural transformation sending surplus workers to go into the factories. They're dynamic on their own. Now in China half of the rice that China consumes is procured in supermarkets. It comes in branded bags from very large scale highly integrated modern rice mills owned by the big conglomerates of the world. Cargill's in there, Weimar's in there. This is big business in the modern supply chain sense and these supermarkets are integrated pretty much back to the mill and the mill now has contracts with farmers to produce exactly the quality of rice they need to put in that bag to get to the supermarket. This is going to be a different world. It used to be, I sort of made my professional career emphasizing the fact that stable keeping rice prices or food prices, keeping them stable was a public activity because the private sector makes money when prices go up and down. They love market fluctuations and volatility and so stable food prices have always been a public responsibility and in Asia they really took that seriously. Asia knows how to stabilize rice prices. What happens when governments are no longer carrying the public stocks to stabilize prices in the market because they're not a very big part of the market? The supermarkets are doing it. Supermarkets are not dumb. They know consumers want prices to be stable. There are few enough supermarkets in each market that they can just tell their suppliers we need to keep prices stable. You keep enough supply and your storage at your rice silos. You keep enough supply that we can keep our prices stable. We'll have to charge a little more for that. Consumers are perfectly happy to pay a little more if the price will stay stable. Think about urban consumers. They're completely vulnerable to the market. They can't go back into the backyard and get a meal. They can't go pick a banana off the tree. They are totally dependent on the market and so anything that instills security, a sense of security and confidence in your urban consumer is sure to be popular and lead to food security. We have to stop converting food stuffs into liquid fuels. I don't know whether we do it with taxes or regulation. I don't think the economics are actually ever going to quite go away so I think it's going to take some kind of government action. But we're simply going to have to stop doing that. Now I know the technology people, oh there's second generation biofuels and third generation biofuels and that won't take away the food but they will require water and not only are we in a climate constrained world, we're going to be in a water constrained world in many, many areas. And so I think we need to make sure that the high quality food that's produced is available for human consumption. ASEAN plus three, there's an association of ASEAN plus South Korea, Japan and China that have a rice reserve scheme. The scheme itself isn't very important. There's not a lot of rice in it. But what is important is that Asian leaders sit down twice a year and they talk about food security. It was bad behavior on the part of Asian governments in 2008 that blew up the rice market. It was good behavior on the part of Asian governments in 2012 that kept rice prices absolutely stable and made prices skyrocketed with the Ukraine crisis, Russia crisis. Oh, if we behave ourselves, we can keep rice prices fairly stable. We don't have to basically beg our neighbor, the Philippines announced it will pay any price to buy rice. No, we'll make sure we build up our reserves quietly when the supplies are available. And then we don't panic when a big typhoon hits the Philippines and takes out a half a million tons of rice. Oh, we actually have rice in our warehouse. So we don't panic, we don't have to go into the market. So good behavior is part of that. I think the other thing will be in the future going forward as supermarkets become more and more important, their knowledge systems, their intelligence systems, their information systems are so good that they will be able to stabilize just because they can see better forward. Governments are not good at that. And so my sense is Asia is going to have a much more stable food system going forward. One proviso, if climate change really breaks havoc on Asian food production then I think we have to go back to the drawing board where we may need some kind of global agreement on how we're going to handle the big shortages that could come out of climate change. It looks different for a couple of reasons. First, they have a much less stable food system because they have very little irrigation. Irrigation is a big stabilizer in Asia. Indeed, most countries have domestic food production that's significantly more stable than the world market. And so in Asia, they've tried to keep the world market price from destabilizing. In Africa, the world market's way more stable than their domestic food systems because there's some such frequent droughts. You don't have good irrigation. You don't have very good transportation systems. So if you've got a localized drought, you're going to have real scarcity. And you can't get food across the borders very easily. And there's lots and lots of borders, a lot of small economies landlocked in Asia. But then the other thing is it's a multi-stable food system. It's corn and cassava and yams and sorghum and millets and wheat now. Lots of different staples. How do you stabilize that? I'm pretty good at stabilizing rice prices. I did it in Indonesia for 20 years. I know how to do that. But man, I would not know how to stabilize cassava prices. I wouldn't know how to stabilize the prices of chili peppers. Whether consumers wanted that or not, I just don't think logistically, mechanically. Financially, we know how to do that. That's where Africa is caught. It doesn't have that single dominant food stuff that is not too difficult to stabilize. My colleague at Michigan State, Tom Jane, has really spent a lot of his energy in the last 10 years showing why food price stabilization, especially in eastern Southern Africa where he works, is very, very difficult. Made more difficult as he points out by the fact that the private sector does not trust the government, any government, and none of the governments trust the private sector. And if you don't have that, then you're not going to be able to stabilize prices. It will be impossible. So then the question is, how do you do a successful structural transformation, agricultural transformation in the context of a very volatile food system? We've never done it before. So this is a big challenge to us as we look back at history and forward at the nature of that African agricultural system.