You would think that 200 years since David Ricardo, we’d have a little thing like the effects of international trade all sorted out already. However, it still generates much controversy and disagreement. For example, Tyler Cowen argues that food shortages could be reduced to a large extent by freer trade in food. Trade in food suffers from a lot of restrictions, which leads to inefficient production and distribution. It sounds like a valid argument to me.

However, in response Dani Rodrick points out that in freeing up trade, the relative price of food must rise in those countries that become net food exporters. Of course, the relative price of other things falls in these countries, but (Dani doesn’t say this, so I’m guessing) poor people in the food exporting countries could become worse off if they consume mostly food. On the other hand, food producers will be better off, and the country as a whole will be richer. The problem though is that the gains from trade are unevenly distributed. Ricardo tells us that the net result is positive, but trade doesn’t make every individual instantly better off.

Anyway, the funny thing is that this is controversial. What is it about trade that makes it such a difficult topic? What haven’t we learned in the past 200 years that means we can’t accurately predict the results of freer trade? Why haven’t we got a set of policies all worked out to ensure that everyone benefits from the bigger pie created by trade? Why is this so hard?

The shortage of butter in Japan continues: it is still virtually impossible to obtain butter for love or money.

Via a comment over at MR, I found an interesting interview (translated to English) with a Japanese dairy farmer that attempts to explain the situation:

The cause of the shortage, as reported already, is said to be the shortage of milk.

I’m confused by this, because there is no shortage of milk for drinking at supermarkets, and the price of it hasn’t gone up a lot. Is milk used for butter somehow different from milk for drinking?

The consumption of milk has been stagnant, and in 2006 milk was seen being disposed of in Hokkaido. Also, a large number of cows were slaughtered.

The shortage has only occurred in the past 2 or 3 months. Why are events from 2006 relevant?

… because skim milk is produced when butter is made, if powdered skim milk cannot be sold then stockpiles build up, creating a situation in which the quantity of butter produced cannot be increased all at once.

This is interesting. But why not export the excess skim milk powder? I heard there’s a big demand for it in China. Or just incorporate the cost of disposing the excess skim milk powder into the price of butter.

Nowhere does the article mention the massive tariffs on imported butter in Japan. If I am reading the complex WTO tariff database correctly, the tariff is 29.8% on value plus 1,203 yen per kg for butter imports to Japan. Whatever the underlying domestic cause of the shortage, this is surely not helping things.

I remember the first time I came to Japan, about 6 years ago, I was stunned by the high prices of food compared to back in New Zealand. However, with food price inflation in New Zealand at almost 30% over the past year, I wondered how this has changed. So I decided to try to do a few non-scientific comparisons. It is difficult, because food products are not standardised. Even something orange juice has many different varieties and qualities. I tried to choose products and brands that were as similar as possible, based on my experience having lived in both countries. I got NZ prices from the Foodtown website, which is a pretty average supermarket in NZ. I got Japan prices from my local branch of Seiyu (in Tokyo), which is a similar average supermarket over here. I used an exchange rate of 80 NZD per yen. I used regular prices, not special prices.

Here’s what I found:

Eggs: For standard eggs (not fancy free-range or anything), 10 (slightly small) eggs in Japan are 225 yen, or NZD 0.28 per egg. In NZ, size 6 (small) eggs are NZD 3.89 for 12, or NZD 0.32 per egg. So eggs are 15% more expensive in NZ.

Orange juice: 1L of “store brand” orange juice (not fresh) is 150 yen in Japan, which is NZD 1.88. In NZ it is NZD 1.97. So orange juice is 5% more expensive in NZ.

Coke: A 1.5L bottle in Japan is 168 yen, or NZD 2.10. In NZ it’s 2.59. Coke is 23% more expensive in NZ.

Milk: 1L of standard milk (not low-fat or anything special) goes for 178 yen in Japan, or NZD 2.23. In NZ, 1L costs NZD 2.39. Milk is 7% more expensive in NZ.

Kiwifruit: One kiwifruit costs 88 yen in Japan, or NZD 1.10. In NZ, one costs NZD 0.75. Kiwifruit are 47% more expensive in Japan.

Margarine: It’s hard to find a close comparison, but 50% olive oil margarine costs 248 yen for 140g in Japan, so NZD 3.10 per 100g. In NZ it goes for NZD 3.29 for 500g, so NZD 0.66 per 100g. Margarine is 237% more expensive in Japan.

Bread: People in Japan don’t eat so much bread, so it’s sold in small packets. One 340g packet of 6 slices of white toast bread goes for 97 yen in Japan, or NZD 0.36 per 100g. In NZ, 700g of white toast bread is NZD 1.79, or NZD 0.26 per 100g. Bread is 39% more expensive in Japan.

Soy milk: Japanese people drink a lot of soy milk, much more than regular milk. 1L of plain soy milk goes for 240 yen, or NZD 3.00. In NZ it’s NZD 3.29. Soy milk is 10% more expensive in NZ.

Overall, I was surprised that milk, orange juice and coke were more expensive in NZ compared to Japan. I was not surprised about the kiwifruit or margarine. Other comparisons of meat and vegetables are hard, because qualities and types vary a lot. However, my wife and I have been spending about 10% less per month on food in Japan compared to what we were spending back in NZ. Of course, our consumption bundle has changed a lot. And I lost weight, so it’s hard to reach a definitive conclusion about where is more expensive.

A reader wrote to me to let me know about The Catalyst Code, which is a book and blog by economists David Evans and Richard Schmalensee about business strategy in two-sided markets. I haven’t read the book, but the blog looks very good, I suggest you check it out if you’re interested in two-sided platform economics.

Some random thoughts on a Friday afternoon …

In the beginning, all we had for one-to-many communication was text. Then we got audio (radio) and then video. Initially, these displaced text. Video, especially, is high bandwidth compared to text — more information can be communicated per unit of time (I think). However, high bandwidth also requires high attention. You cannot skim a video very easily. Then life got faster and faster, and along came the Internet. Video works on the Internet too, but people don’t have so much time for it. Hence, text is coming back, because although it is low-bandwidth, it is also low-attention.