Many people in the class (including Professor Ho!) laughed at the notion of vertical farming in urban areas. The argument underlying this scorn presumably involves the inefficient use of valuable urban real estate for (less valuable?) agricultural purposes. It would follow that agriculture would be better purposed on less expensive land in places with less people/economic activity.
I will argue that most instances of urban farming, including vertical farming in urban areas, are economically prudent activities that deserve more attention and will grow in the future for reasons that make economic sense.
Consider two probabilities:
Pall = probability that a specific large area (the northeastern US, for example) can import all of its food at all times
Pswitch = Probability that the same region can quickly reorganize its economy in the midst of a food shortage to produce food to support itself
Let’s dig a bit deeper into the probabilities. Pall is almost always true. But is it always true? Are we 100% confident that we can import milk from other states forever? Always? From China? The answer must be “no.” So at any given time there is some value P’all that represents the probability that the region needs (to some extent) to support itself with food production.
Pswitch increases along a learning curve. If no one across the entire region practices agriculture in that specific region, then Pswitch is very small, if not zero. As some people begin to practice agriculture in that region, Pswitch increases. Let us also assume that one cannot simply import farmers in to a region and have them immediately begin growing, since knowledge of local growing conditions, seasons, etc. is cumulative and learned over time.
Here is why we shouldn’t laugh at vertical farming in urban regions: without such activities, the probability of surviving a major food shortage in a region (or less gravely, not destroying economic value) is very low. P’all * Pswitch represents the scenario wherein a region for some region cannot import all of its food and is forced to switch. Without any value for Pswitch, maximum value is destroyed. With some value, there is a chance that the system can absorb shocks.
This probability exercise is simple to the point of being silly, but it illustrates the real option value of widespread regional, small farm agriculture – particularly in or near urban areas. And it hints at the potential benefits of such a decentralized system in absorbing less probable system shocks. I’ll add that there are positive externalities (urban agriculture has aesthetic and educational value) that developers are interested in incorporating into their developments.
Opponents to my argument will invariably counter that in this age of specialization and global portability of resources, the odds of Pall must be 100%. And it seems they are willing to take that bet.
I prefer the taste of cherry tomatoes right off the vine and a cheap hedge against highly improbable events.
Interesting idea. But a cheap hedge? So my rough math was that an acre of land in Iowa is a couple thousand, while an acre of office space in manhattan was a few hundred million dollars. I don't understand how that's cheap.
ReplyDeleteAlso, just because something's possible doesn't mean we should do something about it. That's a bit of a fallacy no? Can you be 100% sure that aliens will not invade? If not, then should be stockpiling nuclear weapons for such an invasion?
Finally, the economist argument about dealing with the danger of shortages (because they are more probable than alien invasion) is stockpiling. Which is common practice. Much cheaper to stockpile an acre worth of corn kernels than to plant that corn in manhattan.
bh
The problem with "real options" for a food shortage is that food shortages are always localized. There's never been a worldwide famine, only been localized ones (the Irish potato famine, etc.). When localized food shortages occur, it creates an arbitrage opportunity for exporters to send food to that region at higher prices, so there's never a need to quickly reorganize a economy to produce more local food. A natural disaster might take out roads and other transportation infrastructure, but depending on the arbitrage opportunity, there would always be some profitable way to export food to that region (air drop?).
ReplyDeleteIn some cases of famine, the governments restricted international trade (famines in the USSR and North Korea), so in these cases real options would be valued higher, but in a country like the US, with extremely open international trade, crop failures in the northeast would be quickly followed by food shipments from other regions.
I'm not saying we shouldn't encourage people to grow vegetables in window-boxes, but I'd never invest in a company that was trying to grow crops in New York City - it's simply a loosing proposition.