Why are food prices rising so fast?

[Atash Hagmahani]

This editorial touches some key points, so I thought worth posting:

Other items have had their packages reduced in size in order to hide the price increases. But with millions of American families just barely scraping by as it is, what is going to happen if food prices keep rising this rapidly?

The food prices are especially painful if you are trying to eat healthy. Most of the low price stuff in the grocery stores is garbage. Eating the "typical American diet" is a highway to cancer, heart disease and diabetes.

But if you try to stick to food that is "healthy" or "organic" you can blow through hundreds of dollars in a heartbeat. In fact, the reality is that tens of millions of American families have now essentially been priced out of a healthy diet.

Substitution. Wholesome real food is being replaced by fractionated commodities. For example I will only buy real fruit or vegetable juice, but it's getting harder and harder to find, being replaced by blatantly artificial products with deceptive packaging and wording.

This gets back to the question of the Labor Department statistics being skewed by overemphasizing quality improvements and ignoring quality reductions.

    Corn futures advanced 77 percent in the past 12 months in Chicago trading, a global benchmark, rice gained 39 percent and sugar jumped 64 percent. There will be shortages in corn, wheat, soybeans, coffee and cocoa this year or next, according to Utrecht, Netherlands-based Rabobank Groep. Prices also rose after droughts and floods from Australia to Canada ruined crops last year. European farmers are now contending with their driest growing season in more than three decades.

Even before this recent spike in food prices the world was struggling to get enough food to everybody. It has been estimated that somewhere in the world someone starves to death every 3.6 seconds, and 75 percent of those are children under the age of five.

So what is going to happen if food prices keep on rising at the current pace?

That is a very good question.

We really are starting to move into unprecedented territory. Nobody is quite sure what is going to happen next.

How sure do we need to be? He's simply reluctant to plainly state the facts. Obviously the pace of starvation is going to pick up dramatically. It can not be avoiding; the system is crashing. We'll have to wait until it reaches a new equilibrium on its own before we can do much about it.

So why is all of this happening?

Well, a lot of people are blaming the Federal Reserve. All of the "quantitative easing" that the Fed has done has flooded the financial markets with money. All of that money had to go somewhere. Much of it has pumped up the prices of hard assets such as oil, gold and agricultural commodities.

But it is not just the Fed that is to blame. The truth is that central banks all over the world have been recklessly printing money.

When the amount of money in an economy goes up, the purchasing value of all existing money goes down. In the United States, that means that your dollars will not go as far as they did before.

True, but he missed something:

The credit expansion resulted in a de facto subsidy of food commodities. When big agribusiness is borrowing huge amounts of money to expand operations, it keeps food prices low.

TOO LOW! THEY PUT SMALL FARMERS, WITH LACK OF ACCESS TO UNSECURED FINANCE, OUT OF BUSINESS!! Or at least starved them!

Now that credit is CONTRACTING, big agribusiness had to scale back their operations. There goes the de facto subsidy. Not at all surprising that commodities are soaring; it makes perfect sense!!

But it is not just monetary policy that is affecting food prices. In 2010 and 2011 we have seen an unprecedented wave of natural disasters and crazy weather.

Which more people could have seen coming were it not for the "global warming" hoax. We were blessed with many decades of relatively warm, stable weather, that based on the historical record, could not have lasted forever. Now we're in one of those big solar minimums, and it's causing havoc with low temperatures and disrupted rainfall dispersal patterns (too much or too little, depending where you are).

In addition, U.S. economic policies are also playing a role. At this point, almost a third of all corn grown in the United States is used for fuel. This is putting a lot of stress on the price of corn.

Don't call it a policy; call it what it is: a politically-motivated subsidy and moral hazard. Last I heard the figure was 40% which is a crime against the starving of the world. Not to mention the taxpayer!!

Also, there are some long-term trends that are not in our favor. For example, the systematic depletion of the Ogallala Aquifer could eventually turn "America's Breadbasket" back into the "Dust Bowl". If you have not heard of this problem I would encourage you to do some research on it.

We've heard. Go back to dryland farming methods in use as late as the 1930s, and switch corn out from the dry end of the corn belt and switch in sorghum. It's not as thirsty. That's why they grow it in Sudan and the Middle East, not to mention parts of India too dry for rice and too hot for wheat.

So what is going to happen if the economy gets even worse?

What is going to happen if there really is a major food crisis in this country someday?

SAY IT. You're not doing anyone a favor beating around the bush. Starvation. I have been guessing it will start with those segments of the poor not connected with the social welfare system. I think it will hit the elderly poor due to the declining value of social security payments relative to prices. As the man said, food prices are rising but they claim inflation is low; that means the COLAs are low too.

A lot of folks will end up elderly poor, who now live well, due to lack of private savings. The lucky ones will have kids and grandkids who in theory COULD take them in, but I am already shocked by typical levels of elder abandonment in the USA. It's nothing personal; they just tune out the fact that their aging parents/grandparents aren't making it on their own. The popular media keeps their attention off of the fact. 

I have a feeling eventually poverty and starvation could start swallowing up people who ARE in the social welfare system, when "the checks start bouncing". Federal default.

I suspect too that many young people will be trapped, when they lose their jobs due to a declining economy, and have no help at all. No one to turn to.

[Mike]

To fight rising food prices I have been buying in bulk.  But even there, prices are going up.

I priced a 55 pound bag of powdered milk at $112 in March.  Then April 25 I decided that nonfat dry milk would also be one of the things I bought in bulk, lo and behold the price had increased to $143.  I just paid it, because "powdered milk is one of the things I buy in bulk.

Rising food prices are the result of many things: bad weather, QE2, peak oil, and speculation.  It is hard to figure out which affect rising prices the most.  But I have a feeling that peak oil and bad weather are the most important contributors to higher prices.

[Atash Hagmahani]

Well, one of the reasons weather is having so much impact is because the system has been pushing productivity over reliability. Globalization means that you concentrate all production to where it is cheapest. That means that wheat production was pushed further north, high altitudes, drier climates, etc. Concentrating so much production of durum wheat into a single state, North Dakota, means that when that state had weather problems, it dramatically reduced production.

Weather problems are not only normal, but historically we have had much worse. In 1816, New England was blanketed with heavy snow in June. That was probably the result of the combined influence of the Dalton Solar Minimum and the gigantic eruption of Mt. Tambora in Indonesia. I am extremely concerned that we may be in for another era of reduced solar activity. This time, a huge fraction of our crops are heat-loving crops like corn and soy.

Another variable is rising demand. Production was pushed to its limits, but there are no limits to demand. The system "trumped" Malthus for many decades, but in the end Malthus wins.

[Mike]

The system "trumped" Malthus for many decades, but in the end Malthus wins.

Yes, Malthus wins in the end.  It would sure be nice to win one more trick before the end.

[Dame]

Some of the commentary on Tunisia in the past few months has pointed out that the better educated the women are the lower the birth rate.

[Atash Hagmahani]

Some of the commentary on Tunisia in the past few months has pointed out that the better educated the women are the lower the birth rate.

That's a problem itself insofar as education tends to correlate to economic prosperity: birth rates are decoupled, and almost negatively correlated to, ability to provide for the resulting offspring. 

Whenever people used to criticize us for having too many offspring, I used to point out that it makes more sense for people who can provide for all of their needs--including emotional--to have them, than people who can't.

[The Future]

In addition, U.S. economic policies are also playing a role. At this point, almost a third of all corn grown in the United States is used for fuel. This is putting a lot of stress on the price of corn.

Don't call it a policy; call it what it is: a politically-motivated subsidy and moral hazard. Last I heard the figure was 40% which is a crime against the starving of the world. Not to mention the taxpayer!!

I say and I say again, only 8% of all corn grown in America has traditionally be used to feed people.  Actually only 4% if you don't count high fructose corn syrup as a "food".  88% is used to feed animals and does so with great inefficiency.  The food vs. fuel argument is deception, a red herring, and keeps people distracted from the ridiculousness of the food chain inefficiency.

Make zero ethanol from corn and those folks without food would still be without food.

[Mike]

I say and I say again, only 8% of all corn grown in America has traditionally be used to feed people.  Actually only 4% if you don't count high fructose corn syrup as a "food".  88% is used to feed animals and does so with great inefficiency.  The food vs. fuel argument is deception, a red herring, and keeps people distracted from the ridiculousness of the food chain inefficiency.

Make zero ethanol from corn and those folks without food would still be without food.

Comment: I always enjoy posts that legitimately challenge what I've believed.  I'm going to be thinking about this for quite a while.

[The Future]

To be sure, I am NOT saying subsidies are a good idea nor that corn to ethanol is either (there are much better crops).  But the data has been available for years showing that the vast majority of corn feeds animals (who btw can't properly digest it as they were largely designed to eat grasses).  If that corn were fed to people, about 10 times more people could be fed than from the beef, chicken etc raised on the corn.  Most of the energy in the corn becomes more poop and flatulence while we are told folks are starving.

Raising prices "because" of corn to ethanol is a joke but it sure sounds good on the nightly news.

[darwinslair]

they raise ethanol corn around here.  Since they suddenly eliminated the subsidy for ethanol, and did it after the corn was planted, I am curious what that is going to do.  Ethanol corn is a group of specific types which are not considered suitable even for animal consumption.  They are GMO and designed specifically for the requirements of the equipment developed for the industry here.

Feed corn is another GMO type of corn grown for the animal industry and is no longer considered a human consumption crop.

The cheapest way to raise cattle really is to grass raise them.  There is little to no disease issues and the feed just grows.  The issue is what happens when you get more for the corn you can raise (after expenses) on pastureland than you can get for beef raised on pasture.  The ethanol subsidy here destroyed the incentive to pasture cattle.  If you were going to raise cattle, for a while at least, it has made sense to feed them corn and soy, either directly or the byproducts of those two things being made into other things, and pay extra medical to keep your cattle alive until slaughter time.

Getting rid of the subsidies hopefully will return some of the land to sustainable pasture instead of deadzone monocropping.

Tom

[Dame]

And the beef being fed these GMO's is just awful. 

[The Future]

...and the people being fed the GMO beef is even worse.  And the 90% of the people not fed veggies so the 10% can get fed beef, well what word can one say for that...

[Dame]

We live in a region where some of the land is extremely sandy and dry.  It grows good low density graze but beyond that it will erode. The world has large acreages of this sort of land.  There is not enough rainfall to support trees/shrubs.

Growing veggies is very labour/water intensive.  Growing beef (particularly grass fed) is low labour and they do their own water delivery.

Few people are willing or possibly even able to grow enough veggies to feed themselves and their dependents with a hoe.  In a temperate climate I cannot see growing enough beans/squash etc to offset meat,  dairy and large scale production grains plus processing and storage.  How would one put up enough storage food to offset a crop failure?

[The Future]

I'm with you on the use of marginal lands for grazing Dame.  However, I would venture to say, the feedstock being grown to feed the hundreds of thousands of cattle slaughtered each day are not being grown on marginal lands.  They are on prime land.  And the corn/soy being grown could be the type used to feed 10X more people regardless.  It seems we have the reverse of what is needed: marginal amounts of meat raising (excuse the pun) and extensive amounts of veggies and fruits.  Intelligent age old fruit and veggie cultivation mixes species, uses perennials as much as possible and performs higher (yields) with less effort.  500 lbs of apples is a lot easier to produce than 500 lbs of potato.  The effort thus is much less than the common approach...on much less acreage....of course with location, climate, varieties having their own influence.  All else being equal, veggies beat meat every time, especially the larger the animals get.

[Dame]

   500 lbs of potatoes are a lot easier hereabouts; at least for the first 10-20 years.  Apple trees need at least 3 years of somewhat hospitable conditions to establish.  Then they need a few years to mature.  And that is if they do not contact fire blight, or get eaten by rabbits/deer/moose/elk/pigs/cattle in the winter.  None of the forgoing are interested in potatoes. 

We are currently taking a year off before we try for our 4th round of getting an established apple tree or two.  And once again the potatoes are doing well. 

And, then there is the double duty of growing both until one actually has an apple crop.  We have a neighbor who started a cherry orchard about 10 years and a couple million dollars ago.  He may get his first crop this year. 

After the fires a few years ago it will be awhile before Greece has replaced the olive trees with more producing olive trees.  Same with the reported miles and miles of dead almond trees in California and offdalip's reported miles and miles of derelict orange groves in Florida.