Continuing my obsession with the butter shortage in Japan, I was interested to read today’s news:

Japan’s Farm Ministry said Thursday it ordered the nation’s four major dairy producers to churn out more butter to counter a 230-ton shortage.

…

The Agriculture Ministry asked Meiji Dairies Corp., Snow Brand Milk Products Co., Yotsuba Inc. and Morinaga Milk Industry Co. to release inventory and boost production by up to 20 percent of their monthly average.

“We should go ahead and increase the domestic production, and if that’s not enough we will have to consider a next step, such as making emergency imports,” said Chief Cabinet Secretary Nobutaka Machimura.

After a three-month shortage, you’d think that butter prices would rise, and supply would increase. Instead the government has to force producers to increase output. Like I said before, there’s plenty of milk on supermarket shelves. Why is it necessary for the government to order firms to reallocate production toward butter? It seems that something is going wrong in the market (some kind of market failure), although I don’t really know what the basic problem is.

PS: Some crazy Brit reckons that baked beans could fill the gap.

Umair Haque, director of the Havas Media Lab, calls out Silicon Valley entrepreneurs and investors for spending time and money on frivolous projects rather than saving the world from economic doom:

There are huge shocks rolling across the global economic landscape. Here are just a few. Food prices are skyrocketing. The financial system is melting down. Energy, of course, is more and more toxic, and costly. We are all, make no mistake, dancing on the precipice of economic cataclysm.

It is the obligation of radical innovators to create new value by solving these problems - or cede capital and resources to those who can.

But today’s revolutionaries are sheep in wolves’ clothing. They’re lost in the economically meaningless, in the utterly trivial, in the strategically banal: mostly, they’re cutting deals with one another to…try and sell more ads. That is, when they’re not too busy partying.

…

Today’s crop of investors and startups are perhaps even more economically autistic than megacorporations. Too many are willfully blind to today’s deepest and most essential strategic truth: that the path to radical value creation isn’t cutting more deals (dude, high-five!!) - but in rebuilding a flawed, false global economy: one which actively transfers wealth from the poor to the rich, from the sick to the healthy, from productivity to cronyism.

I totally disagree. I’m a firm believer in the “no dollar on the table” principle. If billions could be made by feeding starving Mauritanians, then somebody would be doing it. Idealists like Haque will say that I’m not being creative enough, that surely there’s a “path to radical value creation” that can help the poor and please the shareholders at the same time. Sorry, but it seems that there isn’t.

The reason that people are starving isn’t a lack of innovation and ideas. Take the infamous Haitian mud cakes, for example. It’s terrible and appalling that anyone should be reduced to eating mud. However, it shows that entrepreneurs and innovation abound in even the poorest conditions. And in energy, anyone who can invent a clean renewable energy source that’s cheaper than fossil fuels is going to become a trillionnaire. Suffice to say, people are already working on it.

So rather than blaming Twitter and other frivolous things, how can we fix the economy so that people don’t have to eat mud cakes? If you look at the reasons for rising food prices, many of them can be blamed on economic policies (or a lack of policy). If we really want to help the poor, much more can be done with policy changes than by idealistic hot air aimed at Silicon Valley startups.

(HT: RWW)

In economics, we talk about “margins” all the time, without really thinking about them. Yet, somebody, somewhere is on the margin. There’s someone for whom a 1% increase in food prices is the difference between life and death.

I’m struggling to figure out if it has to be this way in a market economy. Does markets plus people’s individual incentives to procreate mean that there is necessarily always someone who is on the margin of life and death with respect to food (and other) prices? A life-and-death prisoners’ dilemma? Do we need population control at least to ensure this doesn’t happen?

I’m thinking about this because the Washington Post has a special feature about the Global Food Crisis. Part of me wants to think that this is yet more media-driven gloom-and-doom hype. On the other hand, they have a video (available tomorrow) titled On the Margins in Mauritania.

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.