ISET Economist Blog

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Managing Organic Waste Optimally – the Current Trends and Potential Solutions for Georgia
As waste accumulation keeps expanding, it increasingly poses a serious threat to human health and the environment.
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Quitting or Going Underground? How Georgians Responded to Increased Tobacco Regulations
here I explore topics connected to the local economic and health impacts of smoking, and the corresponding policy responses from the authorities.
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Tobacco Control in Georgia
Smoking and passive smoking are some of the main problems for public health in Georgia.
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Sweet Little Lies – Things That Make Us “Happy”
APRC is conducting a research on livestock farm- enterprise models in Kakheti to better understand current arrangements and options in livestock market system in the region.
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Mandatory Flour Fortification in Georgia: a Boon or a Burden for the Poor?
We are what we eat – in the near future Georgians are likely to be reminded of this universal truth.   Soon the Georgian Parliament will be discussing a small but important change, which will affect something as significant and vital as bread, along with pasta, khachapuri and anything made with wheat flour. The Georgian legislators will be considering a law, according to which flour fortification will become mandatory in Georgia. Mandatory food fortification is a contentious issue. The proponents of the law argue that this change is a great way to drastically improve the health of the Georgian society at a low cost. The opponents say that the law will put a burden on the very people it is supposed the help – the poor will be hurt the most by a potential increase in the cost of bread. So what do we need to know to make up our minds in this debate? WHAT IS FOOD FORTIFICATION? Food fortification is the process of adding essential vitamins and minerals (e.g. iron, vitamin A, folic acid, iodine) to basic foods to replace nutrients lost in food processing. Correcting nutritional deficiencies of people is particularly important in the developing countries, but it comes at a cost. As an initial investment, the food manufacturer is required to purchase both the equipment and the vitamin and mineral premix. The experts, however, argue that the overall cost of fortification is extremely low compared to its benefits. The Copenhagen Consensus Center, a US based think tank, estimates that every $1 spent on fortification results in $9 in benefits to the economy. FOOD FORTIFICATION WORLDWIDE Fortification mechanism has been used around the world since the 1920s. In 1996, Oman was the first country to introduce the Flour Fortification strategy at a national level. This was done in order to prevent neural tube defects in infants. The United States and Canada began flour fortification in 1996. In 2007, about 2 billion people had access to fortified products. Today, flour fortification is mandatory in 61 countries. WHY FOOD FORTIFICATION IS IMPORTANT IN DEVELOPING COUNTRIES? People’s diets in developing countries are less diversified and often do not contain sufficient amount of vitamins and minerals. In these countries the vast majority of the population does not have access to sufficient amount of fruit, vegetables and meat. This is particularly true for the urban poor – people who do not have the possibility to grow their own produce. Although people in poor rural areas can also be nutritionally deprived. This is why fortification is considered as a cheap, practical and sustainable alternative for people to get appropriate amounts of micronutrients. This is also why the most commonly fortified foods are primary products, such as salt, maize flour, wheat flour, sugar, vegetable oil, and rice. The issue of food fortification is not free from controversy. Some argue that the practice may lead to the over-consumption of some nutrients by certain groups of people. This, however, is not a very likely outcome. On the contrary, a study which was done in 2004 found that the “prevalence of excessive micronutrient intakes in current European diets is non-existent or extremely low”. Also there have been discussions about a controversial recent study, which suggested that folic acid may promote cancer in mice. These fears were downplayed by the subsequent study on humans. Nevertheless, experts agree that a key feature of fortification involves calculating the optimum amount of nutrient to be used. SITUATION IN GEORGIA  According to the 2009 Report of the Georgian National Nutrition Survey (NNS) about half million people, mostly women and children in Georgia, are suffering from malnutrition. Every year approximately 300 children under five years old die due to different reasons, which include children being born underweight, and children having various congenital anomalies (birth defects).  These conditions are associated in particular with deficiencies of iron and folic acid in the mother’s body during the course of the pregnancy.   How can the country overcome these problems? Poverty in Georgia is still very prevalent, even by the regional standards. For example, in 2013 about 11% of the population lived at or below 1.90 USD per day (World Development Indicators data). To compare, according to the same statistics, in the neighboring Armenia this kind of poverty affects only 2.4% of the population and in Turkey, less than 1%.  High poverty rates imply that people get most of their nutrition from bread and cereals. According to some reports, consumption of bread and bakery product in Georgia are 1.8-2 times higher than the physiological norm, and 62% of the food ration’s energetic value comes from bread.  In Georgia the strategy of flour fortification (with iron and folic acid) was first introduced in 2006. This 3-year program was financed by the Global Alliance for Improved Nutrition (GAIN). However, according to the NNS, in 2009 only 24.9% of bread and 21.2% of flour samples were adequately fortified.   In 2013 UNICEF launched an initiative to fortify wheat flour, as wheat bread is the most consumed type of bread in the developing countries. It is based on these UNICEF recommendations that the Parliament of Georgia will be considering a package of laws to make flour fortification mandatory. If the law is passed, the imports of non-fortified wheat flour will be prohibited. Also, most of the wheat flour milled inside Georgia will be have to be fortified as well. WHO ARE THE PLAYERS ON THE FLOUR MARKET IN GEORGIA? Local millers are the important players on the flour market. There are about 54 flour mill plants in Georgia. Out of these, 13 are large flour mills. “Karat Holding”, an Azeri company, holds 3 large scale mill plants in Georgia, which daily produce around 1400 tons of flour. This constitutes about 40% of the flour market.    The proposed flour fortification requirement will affect only big flour mill plants which daily produce 40-50 tons of flour. This way, around 90% of all flour sold in Georgia could be fortified. The remaining 10% of non-fortified flour will be coming from the small mills. Although Georgia mostly imports wheat from abroad, it also imports a small amount of ready-made flour from Russia, Ukraine and Kazakhstan. Most of the flour imported now is not fortified, but that will change if the requirement is signed into law. WILL THE INTERVENTION BE A BURDEN ON THE POOR?   As a consequence of the requirement we might see an increase in the price of flour, and consequently an increase in the price of bread and bread products.  By how much are flour prices likely to rise? According to the UNICEF, not by much. In particular, the cost of flour fortification is estimated to be around 1-2 USD per ton. That could mean around 1-2 tetri cost increase per kilogram of flour. Will all of these costs be passed on to consumers? According to the economic theory, this is not very likely. Even though the flour market in Georgia has a few large players, the demand they face is not completely inelastic – in other words, there is a degree of competition on the flour market which can force the big producers to bear at least part of the increase in the production costs.   Overall, there currently seem to be more benefits than costs associated with flour fortification strategy, not the least of which is the probable reduction in infant deaths, less health problems for pregnant women, and lower rates of birth defects in the country. The cost savings to the government and to the society could be significant.  If flour fortification requirement is signed into law, there will be a lot more interesting and important work to be done by the economists trying to assess just how effective such interventions are.
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Decriminalize Marijuana?
  According to a recent study, smoking marijuana for many years leads to a severe loss of intelligence: compared with people who did not consume cannabis, the IQ’s of smokers were lower by 13-38 points (Meier et al.: “Persistent cannabis users show neuropsychological decline from childhood to midlife”, PNAS 109, 2012). Moreover, after a long time of consumption, cognitive abilities and memory do not recover when smoking marijuana is eventually given up.  Recently, decriminalization of marijuana became a hotly discussed topic in Georgia. The opinions are strongly polarized, with peaceful protests for liberalization on the one side and strong moral objections and concerns about public health on the other. Member of Parliament Goga Khachidze drafted a law for the decriminalization of marijuana, which was sharply repudiated by Prime Minister Irakli Garibashvili. Consuming marijuana comes with more serious health risks than often hawked by legalization advocates. Clearly, a loss of intelligence of up to 38 points is not a trifle. Yet does it follow directly that smoking cannabis should be outlawed? While in the political arena, bombastic statements often dominate sober analysis, in this article I will look at the issue from philosophical and economic angles, trying to be as impartial as possible. OWNERSHIP OF ONE’S OWN BODY The question of cannabis legalization touches on a very fundamental issue: should people be allowed to harm themselves? The philosopher John Locke (1632-1704), one of the fathers of liberal thought, would have answered this question affirmatively. He derives the moral legitimacy of private property from the very assumption that people own their own bodies. Because they own their bodies, they own their labor, and thus they have legitimate claims on the product of their labor. As “ownership of one’s body” is a central notion in Locke’s thought, which can hardly be reconciled with the idea to “protect people from themselves”, libertarians around the world unanimously support the legalization of marijuana. In reality, however, there is not one single society in the world which is fully in line with the principle that one is unrestricted owner of one’s own body. In addition, in most societies the rules regarding harming oneself are highly inconsistent: while people are typically allowed to drink alcohol, smoke tobacco, adopt unhealthy eating habits, and exercise dangerous hobbies, states usually try to prevent people from committing suicide, wasting their money in gambling, and consuming certain drugs. Even if one does not agree with the idea of ownership of one’s body, these inconsistencies cause serious justification problems. Is it reasonable that in a country like Georgia smokers of marijuana may be jailed for many years while smoking of ordinary cigarettes is not even considered a misdemeanor? IMPACT ON SOCIETY The legal inconsistencies are even more striking in view of the fact that in many respects marijuana resembles much more tobacco than heavy drugs like heroin and cocaine, and some experts consider it even less dangerous than tobacco. For example, smoking marijuana is less addictive than smoking normal cigarettes (cf. Wes Boyd from the Harvard Medical School, who writes in Psychology Today: “The physiological effects of cannabis withdrawal are generally mild.”) Moreover, marijuana can be cultivated in lofts and winter gardens or even in a plant pot on the window sill. This makes it cheap even if it is illegal, while the very combination of being highly addictive and highly priced is what makes hard drugs like heroin and cocaine so destructive for society. High prices trigger consumers of those drugs to engage in all kinds of illegal activities for funding their addictions (so-called “trigger offenses”), while crime associated with obtaining marijuana is rarely observed. However, smoking cannabis may have negative externalities on others. According to the medical portal WebMD  the immediate effects of smoking marijuana are altered senses (e.g. seeing brighter colors), accelerated heart rate, more appetite, impaired body movement, and sometimes nasty symptoms like anxiety, paranoia, and “random thinking”. Therefore, people who smoke marijuana and drive cars pose serious threats for others. While this is also true for alcohol, it is not possible for the police to quickly find out whether a person has smoked marijuana, as the test can only be carried out in police stations.  Long term effects of cannabis consumption include not just the standard issues also associated with tobacco smoking, like increased risk of cancer, fertility problems, and higher risk of heart attacks, but also mental disorders like schizophrenia and depression. This is an important difference between the two kinds of smoking: health problems resulting from tobacco smoking are not increasing health care expenditures, as smokers typically die rather quickly, but mental problems do cause additional costs.  However, these costs could be covered by special taxes levied on marijuana consumption, as they exist, for example, in the Netherlands. Moreover, experts do not believe that these mental illnesses are genuinely caused by cannabis – rather, marijuana seems to trigger the outbreak of mental issues people already have. Unlike with most other drugs, including legal ones like alcohol, there has not been recorded one single death caused by an overdose of cannabis. CRIMINALIZATION COSTS   Is it smart to send people to prison who did nothing else but smoke marijuana? In most countries of the world, including Georgia, prisons are “universities of crime”. The socialization among other inmates in prisons and the stigmatization that follows from imprisonment has turned many essentially harmless people into “bad eggs”.  What started with some minor offenses like smoking marijuana, perhaps part of teenage rebellions, ruined many persons’ future lives and careers.  Another question is whether the ban really achieves its goal to reduce the number of consumers. A recent study from Australia, where marijuana is decriminalized only in some states but not in others, did not find statistically significant increases in the number of marijuana smokers as a result of decriminalization (Williams and Bretteville-Jensen: "Does liberalizing cannabis laws increase cannabis use?", Journal of Health Economics 36, 2014). However, it seems that in states with liberal laws the distribution of consumers is shifted towards younger people, which is clearly problematic.  One largely refuted argument against decriminalization is the so called “gateway theory”. It states that smoking marijuana is just a first step of an “addiction career” and will later lead to the consumption of harder drugs. Yet as one of many reports state clearly: “There is no evidence that marijuana serves as a stepping stone on the basis of its particular drug effect.” (Joy et al.: “Marijuana and Medicine – Assessing the Science Base”, National Academy Press, Washington 1999).  One should also take into account that cannabis could be a source of tax income for the government. The Netherlands, where for many decades marijuana consumption is permitted in highly controlled cafes with special licenses (so-called “Coffee Shops”), managed to attract huge numbers of tourists from other European countries who came for smoking marijuana in Holland (as many other European countries have liberalized their policies, this kind of tourism has decreased). Georgia, which is happy to offer gambling to Turks, Azeris, and whoever else is not allowed to have casinos in their home country, might attract (mostly young) tourists from countries where cannabis consumption is illegal. The money paid for purchasing marijuana, currently pocketed by dealers, could be a source of income for the government. BACK TO PROPORTION! The global trend in the last years is to decriminalize the consumption of cannabis. There are still countries where consumption, possession, and production are illegal, like Georgia, France, and Greece. In many others, however, consumption is now de jure or de facto decriminalized, like in the Netherlands, Spain, some states of the US, and Australia. Typically, production and trade is still illegal, but there are even a few countries where marijuana it is totally legalized, like Uruguay and, allegedly, North Korea. In Georgia, the consumption, possession, production, and sale is illegal. Repeated consumption and possession of certain amounts can lead to imprisonment of up to 14 years! While the Georgian society may not be ready yet for a full legalization, in light of the enormous societal cost of imprisoning people, it should be seriously considered to make the legal consequences less severe. In the end, a rational government should recognize that marijuana consumption, even with strict criteria applied, is not more than a minor offense.