Great Depression Online Archive Issue:

Global Food Price Inflation

Great Depression Online
Long Beach, CA
January 29, 2008

Inside This Issue You Will Discover…

*** Costly Food
*** Alternative Farm Subsidies
*** Hoarding, Smuggling, and Riots
*** And More

Costly Food

There are some things you can do without.  And there are some things you can’t.  There are wants.  And there are needs.

There are plasma TVs, Coach Purses, and steak dinners.  And there is clean water and basic food elements like cooking oil.  And when inflation takes hold of basic needs, those living at the lower margin get squeezed.

“From India to Indiana, shortages and soaring prices for palm oil, soybean oil and many other types of vegetable oils are the latest, most striking example of a developing global problem: costly food,” reports Keith Bradsher for the New York Times on January 19, 2008.

“The food price index of the Food and Agriculture Organization of the United Nations, based on export prices for 60 internationally traded foodstuffs, climbed 37 percent last year.  That was on top of a 14 percent increase in 2006, and the trend has accelerated this winter.”

Is it a simple supply and demand problem, we wondered?  Is this something that will work itself out after a few food harvests?  What could be different about this market dynamic?

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We didn’t have to read much further for our answer…

“A startling change is unfolding in the world’s food markets.  Soaring fuel prices have altered the equation for growing food and transporting it across the globe.  Huge demand for biofuels has created tension between using land to produce fuel and using it for food.”

Alternative Farm Subsidies

We’ve always found it interesting how everything in an economy is somehow interconnected and forever changing.  Now, at this juncture, we find that energy costs are inversely correlated with food supply.

“American farmers have been planting more corn and less soy because demand for corn-based ethanol has pushed up corn prices.  American soybean acreage plunged 19 percent last year, producing a drop in soybean oil output and inventories.”

Alas, the highly intensive production of corn based ethanol is a highly intensive charade.  We support the development of alternative energy and the reduction of dependence on foreign oil for practical reasons.  We desire development of alternative energies – like cold fusion and geothermal resources – that actually promise energy.

The grand fraud of corn ethanol is that it consumes about as much energy as it provides – just to produce it.  Thus, corn based ethanol is really more of an alternative farm subsidy than an alternative energy.

Hoarding, Smuggling, and Riots

Plus it furthers the food price inflation trend…

“There may be worse inflation to come.  Food experts say steep increases in commodities prices have not fully made their way to street stalls in the developing world or supermarkets in the West”

And you can always count on governments, and their usual gimmicks of price controls and food subsidies, to make a bad situation worse – resulting in hoarding…smuggling…and riots…

“Governments in many poor countries have tried to respond by stepping up food subsidies, imposing or tightening price controls, restricting exports and cutting food import duties.

“These temporary measures are already breaking down.  Across Southeast Asia, for example, families have been hoarding palm oil.  Smugglers have been bidding up prices as they move the oil from more subsidized markets, like Malaysia’s, to less subsidized markets, like Singapore’s.

“No category of food prices has risen as quickly this winter as the so-called edible oils – with sometimes tragic results.  When a Carrefour store in Chongqing China, announced a limited-time cooking oil promotion in November, a stampede of would-be buyers left 3 people dead and 31 injured.”

Could such an uprising for cooking oil happen in the U.S.? 

If our current inflation escalates to hyperinflation and the essentials become scarce – it’s more than certain.

For now, we’re optimistic that food supply will catch up with demand faster than the rate of dollar inflation…and before we find ourselves in the midst of a fatal stampede for cooking oil.

In the meantime, expect to pay higher prices at the grocery store.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  An agricultural commodity ETF may just be your answer to food price inflation.  While your grocery bills may go up, your investment returns will too.  Learn more about investing in ETFs here: ETF Authority.

 

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