Thursday, February 12, 2009

A New Flood Resistant Rice Hybrid

Recently Pamela Ronald, David Mackill and Julia Bailey-Serres have come up with a more flood resistant variety of rice. Since rice fields around the world are at risk of flooding - especially if sea levels rise in the near future - this new rice hybrid discovery can partially alleviate millions of people from hunger and starvation as the supply of rice that makes it to market increases. This is a truly remarkable achievement and one that greatly improve the overall human condition for millions of people around the world.

Yet, the dismal science sees rain clouds on the horizon - specifically to some rice farmer's income. Let me see if I can explain. Since the demand for rice is price inelastic (i.e. the demand curve is relatively steep since consumers are not responsive to changes in the price of rice) the new rice hybrid increases the total supply of rice - and shifts the supply curve for rice to the right. With the supply curve shifting right - the market equilibrium quantity of rice increases (which is the goal of the new hybrid), but the price of rice falls. The total revenue test tells us that when demand is inelastic, a decrease in price results in a decrease in total revenue, which in this case is the rice farmer's income. So rice farmers that were in the past able to get their rice to market are likely to see their overall incomes fall. Those rice farmers that lost their rice crop due to flooding are not adversely affected, since they will be more likely to bring their crop to market and earn some income.

While the new flood resistant rice hybrid is great news to millions of hungry and starving people around the world - it may not be very good news for rice farmers income.

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