Food

The big increase in food prices over the last six months or so raises lots of issues, of which I’ll try to cover a few.

The first arises from the fact that prices for commodities, including oil as well as most ag commodities, are typically quoted in $US. In a situation where, for obvious reasons, the value of the $US is declining against all major currencies, this can be quite misleading. Measured against the euro, the currency of the world’s largest unified economy, the increase looks a lot less steep. The declining usefulness of the $US as a unit of account is another step in the process of transition away from a world in which the $US is a reserve currency. More on what will replace it soon, I hope.

In substantive terms, the increase in $US commodity prices is a big problem for the many Asian economies that have pursued some kind of peg to the $US as a means of maintaining export competitiveness. The adverse impact on domestic consumers is now becoming obvious, and the only solution is to abandon the dollar peg and allow an appreciation. China is already moving in this direction.

A second important point is the impact of demand from the biofuel sector, particularly for corn in the US. The idea of making biofuels from food crops was always problematic and the subsidy regime in the US makes it more so. The current food crisis should make subsidies for food-based biofuels politically and economically untenable, pushing the industry away from this easy short term solution and in the direction of sources such as switch grass, grown on marginal or non-arable land.

Finally, the biggest increases have been in wheat prices, reflecting the drought in Australia and in some other wheat producing countries (Kazakstan?). It seems likely, though it’s still impossible to prove, that human-induced climate change is increasing the frequency and severity of drought. So, it’s important not to regard climate change as a problem for the future. In all probability, adverse effects are already here.

85 thoughts on “Food

  1. Greg, the aggregate I was referring to was GDP, not population. My point was that a strategic plan needed to look at the nature of economic activity, not the gross value added in production.

    As a general point, your comments since you arrived have been quite aggressive in tone. Please try and avoid this in future.

  2. Price supports contribute in equal measure to trade barriers in the escalation of global food prices. This applies both to supports in developing countries and the EU/US.

    The EU/US policies however sustain the whole as a globally low productivity degenerate system. Their trade barrier policies restrict the flow of capital to more productive broad acre farming opportunities in other geographies (a well capitalised broad acre venture will be far more productive but lose out commercially to price/barrier supported competitors).

    As stated elsewhere in this blog, the Chinese and Indians have been successfully chipping away at productivity. Stalin’s purges of the unproductive peasants isn’t an option thank God. Both India and China have genuine reason to fear their peasants (Maoists in India and the peoples army in China being the peasants protector). At the time of Tianemen Square food price inflation had occured as a result of the removal of key agricultural price supports and the inefficient automatic guarantee of public sector cadre jobs to uni students had been announced. This has subsequently had a massive positive effect on the Chinese economy and agricultural productivity and the lives of the peasant farmers (even if so many of them have had to migrate to urban areas).

    But in so many areas of the world the price supported “market gardener” producer is the political problem. From Thailand, to Arkansas, to the fields of France, and to Africa. Managing the transition to well capitalised broad acre farming and balancing social cohesion with productivity is the issue rather than the totally discredited Malthusian hysteria that is rolled out by commodity speculators and EU environmental fraudsters.

    The environmental issues of inputs and global aggregate acreage have a life outside the main issue that affects productivity and food pricing. So too does the displacement issue of fuel where sugar cane and corn are have very different dynamics in factors relating to land use and productivity. And I think your previous blog correspondent is using very dodgy numbers trying to run down the Brazilian success in displacing oil with cane bio.

  3. Greg Wood wrote:

    “Presently the Sunshine Coast ‘economy’ is, as is the SEQ economy generally, pressing all of its eggs into the housing and bulk tourism baskets and consequently pushing for as many people as possible to arrive to float that boat. …”

    Thankfully, this fact has been recognised by some business leaders on the Sunshine Coast. This has been reported in the story Coast told to grow up and diversify by Bill Hoffman in the Sunshine Coast Daily News of 26 April 2008.

    A spokesman for Sunshine Coast Business Council called for “the growth of the knowledge, creative, research and innovation, manufacturing and other such skills-based industries will create a larger total economic base that is better positioned for the region’s social and economic future” in place of “reliance on the mainstays of tourism, retail and property development industries.”

    A serious omission,of course, was agriculture. At least it is a step in the right direction. This is unsurprisingly being resisted by the developers who are, for their part, determined to cram as many people as possible into SEQ without any regard for food security or other measures of sustainablility in the region.

    For further information, see Curbing growth ‘would cost jobs’ by Jane Gardner in the Sunshine Coast Daily News of 25 April 2008, Sunshine Coast plan to cap population on Radio National’s PM of 24 April 2008 and How to end the Queensland economy’s addiction to population growth?.

  4. According to the list below climate is playing a certain role in wheat shortages as JQ says.

    1. Canadian planting down 17 percent, the smallest crop since 1970, exports off 22 percent, hot/dry weather has affected yields.

    2. World ending stocks drop to 30-year low; export origin holdings down 40 percent.

    3. Australia stocks low, 2008 crop looking good.

    4. Argentine wheat crop is fully committed, government may restrict exports.

    5. Heavy rains deteriorate Western European crop quality, EU export taxes discussed.

    6. Drought hits Eastern Europe and Ukraine crops, weather damage in Russia, low stocks, export restrictions imposed.

    7. North African drought, Morocco crop down 76 percent, imports double to 3 million metric tons.

    8. Ocean freight transportation rates at record highs.

    9. U.S. winter wheat crop missed production expectations.

    10. Corn/wheat price spread at record level.

    Ref

    Nevertheless according to the “largest farmer” in the world, Nurlan Tleubayev, world wheat production has been stable for the last 15 years.

    Demand, however, has not been stable.

  5. Actually Ian, that’s understating it…between 2006/7 and 2007/8, total production went up by 2539 million bushels, but usage for corn ethanol went up by only 1083 million bushels. On that basis, it’s hard to see what could driven the price of corn up so high (from $3/bu to $4) in that particular period. What would also be an interesting figure is how much land was switched from growing crops (of any sort) for food to growing crops for ethanol.

  6. Wiz, yes but to be as fair as possible I included the 3009 projection which shows a net reduction in corn available for other uses due to the continuing increase in corn use for ethanol.

    As for what drove the corn price – environmentalists have been saying for years that we’re really effectively eating oil. Take a look at what happened to the oil price over that period.

    Oh and let’s not forget the decline in the US dollar which makes US corn more attractive to foreign buyers.

    As I understand, the corn ethanol program was largely introduced to make up for the old set-aside program which was incompatible with WTO rules. The set-aside program paid farmers to leave fields fallow so at least some of the additional acreage used for corn probablt came from that.

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