Food

John – since you’re not in the US, you presumably didn’t have to have food shortages brought to your attention by Fafblog:
http://fafblog.blogspot.com/2008/04/giblets-world-news-update.html

Do you know if we’re facing a genuine supply shortfall or a distribution problem? In Fafblog’s immortal words, How Fucked Are We?

The current food crisis should make subsidies for food-based biofuels politically and economically untenable

I hope you’re right, but there’s very little in the current U.S. election campaign to support that. The Iowa caucuses were only three months ago (yes, it seems much longer) and all the candidates expressed support for the corn ethanol program. Obama (a senator from a state that’s in the heart of corn and corn-ethanol country) is particularly bad on the issue:

http://obama.senate.gov/news/050316-senator_obama_praises_ethanol_/

But even McCain (who’d previously denounced corn-ethanol) flip-flopped in Iowa. Though while praising ethanol he still claims to oppose subsidies, so I guess that’s something.

But really, it’s just another farm subsidy — and what’s the record of doing away with harmful U.S. and European farm subsidies?

John- do you really think the $US will stop being _a_ reserve currency? Obviously it’s already stopped being _the_ reserve currency, but doesn’t it seem likely that there will be a rebound of some degree at least in the $US and a new equalibrium w/ multiple reserves (perhaps with the Euro as dominant, but not by much, I’d think, over all)? I don’t know much in this area but other options would be surprising to me. I’d love to hear more what you think and why.

Given the collective inanity, schadenfreude and right-wing tendencies of the US media, it’s only a matter of time before pundits, noting the increasing incidence of famine and food insecurity, claim “At least we halted the obesity epidemic.”

They forget that hungry people are a little unstable.

Comment #1 asked if there has been a big change in the amount of corn going into ethanol production.

There is a discussion of this over at Econbrowser. The short answer is that the USDA projects that 25% of 4Q07 production and 31% of 1Q08 production will be used for ethanol. They predict that the rapid upturn will saturate soon. The post gives references.

The source has a lot of interesting plots (did you know wheat consumption has exceeded production?).

There’s also the problem that many countries in the third world have long been dependent on food aid because their subsistence agriculture has been destroyed by the impact of global capitalism ,and farming replaced by export crops under pressure of IMF, World Bank etc.. Now food aid is becoming too expensive (WFP budgets, at least, are likely in dollars), and food imports by those countries themselves are becoming prohibitively expensive.

In addition, various countries (or parts thereof) had to block grain exports. The miracle of capitalism. It works really well, for rich people.

Producers plan to plant 86 million acres of corn this year. While 7.6 million acres less than 2007, this would still be the second-largest area since 1949.

Nationwide, soybean acreage is expected to jump 18 percent, to 74.8 million acres. This is an increase of 11.2 million acres from 2007 and is just 1 percent below 2006’s record high.

http://www.nass.usda.gov/Newsroom/2008/03_31_2008.asp

For 7 of the last 8 years, the world has consumed more wheat than was produced. The drought in Australia has cut down on production. Ukraine, another large producer isn’t producing as much as they used to. A virulent rust (a type of fungus) called UG99 is reducing wheat crop yields in Iraq, Iran, Pakistan and Afghanistan. Between IQ/IR and the ‘stans, this affects the region of the world where about 25% of the world’s wheat crop is grown. The infection is expected to reduce wheat yields by 80% over the next 2 years as there aren’t any commercial wheat strains (that I know of) resistant to UG99; further, not that many people in the region trust the US enough to purchase expensive hybrid seed. Most farmers in the region save some of the crop to use as seed the next year, and that can’t happen with hybrid seed. UG99 was first discovered in Africa and has been spreading. The spores would be indistinguishable from dirt and we have a lot of traffic going between the US and Iraq/Afghanistan. All it takes is one dirty boot to bring back enough of this rust to cripple US & Canadian wheat production.

http://en.wikipedia.org/wiki/Stem_rust

Many years ago, I acquired a copy of Altered Harvests, and one of the things that book made clear was our overwhelming dependence on a few main food sources, and how a few diseases caused major lifestyle changes around the world. The British coffee plantations were descendants of a single handful of seed. When disease wiped out the coffee plantations (but not the tea plantations), the public switched to tea. The potatoes in Ireland were all genetically similar to each other – a disease that affected one, affected all. In 1970, a corn blight wiped out about 20% of the US corn crop due to a dependence on one particular strain of corn that the seed growers were infatuated with. Any disease that could affect Texas Male Sterile Cytoplasm could affect 80% of the US corn crop at that time. And that was how the blight touched off marches and protests in DC by housewives and farmers that lead to our overdependence on price and crop supports for corn.

Omnivore’s Dilemma points out that the majority of food items in US markets are based on corn at some stage of the transition from raw materials to the grocery store.

The Basmati rice I purchase from the local middle eastern market has more than doubled in the last year. Of the three varieties of bread that I get at the local grocery store, 2 have been dropped and can now only be obtained at healthfood stores (for those who care, “Ezekial 4:9” and “Men’s Health”), and the other one has gone up 50% in the last year (Orowheat).

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.

You find it easy, now, to dismiss grain based bio-fuel as a “short term solution” and to rely instead on the promise of cellulosic bio-fuel. And yet, according the Stern review, which you consider credible expert assessment, half of the bio-fuel production in 2050 would be grown on dedicated cropland, requiring “10% of all arable land worldwide,” (box 9.5).

I watch the value of the dollar daily. The euro keeps going up, but the pound, the Swiss franc, the loonie seem to be tracking the dollar, so, apart from the euro, exchange rates don’t explain much.

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.

Haven’t they been moving in this direction since July 21, 2005? In fact Bloomberg today released an article to suggest they are actually planning (according the Deutsche Bank and Citigroup) to slow down the unpegging process to support its exporters.

Seconding ajay at #21; biofuels are part of the issue, but fuel costs generally is probably a bigger issue. Fertilizer has more than doubled in price in the last 5 years and is about 50% more this year than last, diesel fuel has tripled in price, natural gas has doubled–those are the biggest variable purchased inputs to grain production.

# 19 “Those are some big ifs”

What’s so iffy about it?

luis enrique (17.), I don’t think the problem is that structural adjustment and the cult of comparative advantage have reduced total world food production.

The problem is they have created dependence on import and aide and destroyed small subsistence farms, and that process can’t be reversed quickly – it’s not as simple as returning land to use in food production; certainly not as long as the governments in question abide by the investment protection treaties that are sold as “free trade” to workers and peasant everywhere.

Sortition, there’s a big difference between regarding an economic analysis as credible and agreeing with every point in it.

Fine. But you made no such reservations when we discussed the Stern Review last time.

Are there any other points in the Review that you disagree with? What are the points that you do find convincing?

you should learn to avoid the snarky “gotcha” tone that pervades many of your comments.

I do not believe I employ a “gotcha” tone, and I am not trying to score points. What I am trying to do is engage in a substantive discussion – and I believe I made a substantive point here, in support of my assertion in the thread I linked to that the Stern Review is rose-colored speculation rather than a scientific analysis.

Regarding biofuels from food crops, I’m all for ending the subsidy regime, but I think there’s an underlying technical virtue to crop-based fuel that shines through a lot of the logistical problems. I would definitely agree that the eventual use of switchgrass and the like will be a good thing, but I don’t think ethanol from corn is as bad as so many people seem to believe.

For one, corn is a pretty terrible food. It’s unhealthy for humans, it’s unhealthy for cows, and the current proliferation of corn in the US is arguably the single greatest contributor to our ongoing national health problems. I’d personally rather burn corn in my gas tank than drink it in my coke, and it has simply no business being in as many different foodstuffs as it is.

For another, growing our energy is pretty much the only tenable solution for renewable energy. The cost of full replacement of our fossil fuel energy from, say, solar panels is truly astronomical, not to mention the challenges associated with moving that much power around without debilitating losses. Wind energy is pretty cheap to implement, but strictly limited by global weather patterns. Nuclear energy is pretty great and can be made perfectly clean, if not perfectly safe, but it is not by any stretch renewable. Crop-derived energy is the cheapest, most thoroughly tested solution available right now.

There are a lot of problems associated with growing your energy, but a lot of them have very technically easy solutions. Tractors and shipping vehicles running on biodiesel solves a large portion of the petroleum-dependence problem, and organic and sustainable fertilizing methods solves the rest. Competition for farm land is definitely an issue, but as has been pointed out earlier, land use plans at least in the US have been centered around boosting crop prices and limiting production and a reversal in those policies would, I think, go a long way towards solving that problem.

Solar panels have almost 30% efficiency; biofuel less than 1%, not to mention pollution.

John Q. , is there a good paper yet sorting out , or at least discussing, the roles of oil price increase, biofuels, and increaded demands on rising food prices?

I’d really like to discuss one in my Env Econ class.

Matthew Kuzma, it appears to me that you have no idea whatsoever what the relative costs are of solar, wind and biofuels.

Am I correct?

The cost of full replacement of our fossil fuel energy from, say, solar panels is truly astronomical, not to mention the challenges associated with moving that much power around without debilitating losses.

This statement misses another potential benefit of solar – decentralized electricity generation. If you have more localized sources of electricity, you won’t need to invest as much in high capacity wires to move it around, large transformers, etc.

Secondly, what do you mean by “moving that much power around without debilitating losses”? If you mean actual electricity distribution, then we would have the same problem with any energy centralized energy source. If by “moving power around” you mean the production and distribution of solar panels, and whether they are energy-positive, then I will have to defer for now.

John,

I took a look at the post you linked to. Your approach is very different from that of Stern, but just as speculative. Your cost assessment relies on your guess for the price elasticity of fossil fuels. Your figure of 1-2 seems very optimistic. In the U.S. we have experienced over a five-fold increase in the price of oil and about four-fold increase in the price of gasoline in the last 10 years, and yet per-capita consumption of oil and gas have not changed much. Can you give your reasoning for your estimate?

luis enrique (31), I wasn’t expressing my view of the problem very well. If peasants own small plots of land and engage in subsistence farming, then they will eat as much of their product as they need for survival and traditionally, the community will create some reserves for bad years. The subsistence farmer doesn’t have to compete with the buying power of, say, meat eaters or drivers in the US.

Now the land is owned by agribusiness producing export crops. In the end, it doesn’t even matter if those crops are actually staples – the peasant-turned-slum dweller won’t be able to afford it.

The obvious solution would be land reform, but as the agribusiness investments are protected and the third world government can’t afford to piss of Western governments by simply nationalizing farmland, that won’t be easy.

The point being that international trade, while it may be make production more efficient, also creates distribution problems. (This isn’t new, read Mike Davis’ Late Victorian Holocausts which studies the way imperialism and market fetishism turned droughts into devastating famines in the late 19th century.)

@ 23/tom : from the william pfaff article i linked to in comment # 16:

The conventional explanations for the flare in prices are population growth, (misconceived) diversion of corn and soybeans to bio-fuel production, rising Asian and Middle Eastern demand for high-value foods, higher transport costs, and crop failures. Oddly little has been said about the role of speculation in the rise in commodity prices generally and specifically in food.

On the Chicago CME Group market, which deals in some 25 agricultural commodities – it is a merger of the former Chicago Mercantile Exchange and Chicago Board of Trade – the volume of contracts has increased by 20% since the start of the year and now has reached the level of a million contracts a day. This will soon exceed the rate of growth reached in all of 2007.

The hedge funds are now active in commodities and are playing the futures contracts, where upwards of 30 million tons of soybeans for future delivery are contracted for every day. They are also buying the companies that stock grains.

The argument sometimes is made that this speculation is unimportant because the futures speculators will never take delivery; but this is precisely the problem. It is why this speculation is highly destructive of the true market.

Futures purchases of agricultural commodities classically have been the means by which a limited number of traders stabilized future commodity prices and enabled farmers to finance themselves through future sales.

Speculative purchases have no other purpose than to make money for the speculators, who hold their contracts to drive up current prices with the intention not of selling the commodities on the real future market, but of unloading their holdings onto an artificially inflated market, at the expense of the ultimate consumer. Even the general public can now play the speculative game; most banks offer investment funds specializing in metals, oil, and more recently, food products.

It is why this speculation is highly destructive of the true market.

Yeah, I think I read something similar about the oil prices starting going up after a futures market for crude oil was created. But what’s the cause and what’s the effect here? Do prices go up because of the speculations or does the amount of speculations increase as the commodity becomes scarce? The latter seems like a better explanation, though, I suppose, futures markets don’t help either, creating, in effect, a middle-man (a monopoly, perhaps) between the producers and consumers.

Christian (46), thanks for the clarification. I’m still not sure I agree.

“Now the land is owned by agribusiness producing export crops. In the end, it doesn’t even matter if those crops are actually staples – the peasant-turned-slum dweller won’t be able to afford it.”

But the peasant-turned-slum dweller has to buy food somewhere, the problem being now that the prices have shot up. If those agribusinesses switch back to staples, it will matter, in so far as it bring prices down.

I’m not sure what land reforms you have in mind, but if it’s giving land back to small subsistence farmers, I’m not sure that’s the way to go. Paul Collier makes an argument for more agribusiness, not less, here .

a reduction in efficiency (which did happen in some places but was not the rule, I think)

An interesting issue here is, “efficient” in terms of what?

Subsistence farmers typically over-supply labor, relative to its cost as measured in the local wage (yes, family members can and do leave the farm to engage in wage labor, but the various costs associated with this mean that the opportunity cost of additional labor input to the farm is very low, even if not strictly zero.) This kind of labor-intensive agriculture often has per-acre yields above those of modern, capital-intensive agriculture.

When subsistence farmers are replaced by larger commercial farmers, yields may well drop as land and capital are substituted for labor. basically, you end up with a new equilibrium, which is more efficient with inputs measured at cost but may be more or less efficient in terms of yield.

Historically, this process has been essential to development because it frees up labor for more productive uses. But in countries with a labor surplus, there may be no alternative employment for the displaced farmers. In this case, the greater efficiency of the commercial farm is a mirage — it really just represents a shifting of the subsistence cots to other sectors.

This is the situation in much of the third world — perfectly “rational” market processes may replace traditional agriculture with a stable equilibrium where overall output is lower.

Lemuel, can you dig out a link, perhaps to a Prebisch paper, to where this idea is articulated? I had a bit of a google, but no luck.

“This kind of labor-intensive agriculture often has per-acre yields above those of modern, capital-intensive agriculture”

my instinctive reaction is to doubt that – but I don’t have data. Can you point me to any?

Lewis is who springs to mind when it comes to surplus labour – and he thought increasing agricultural efficiency was key to poverty reduction.

This is the thing that interests me though: “But in countries with a labor surplus, there may be no alternative employment for the displaced farmers.”

In what circumstances is there alternative employment for displaced workers, and how effective/realistic is the idea that increased efficiency reduces the real cost of food, and the income effect raises demand in other sectors? Do gains in agricultural efficiency require a (possibly state initiated) complimentary ‘pull’ from industrial development?