Everyone Wants to Eat Like Americans

Fascinating article in today’s NYT: A Global Need for Grain That Farms Can’t Fill

wheat-1.jpgEverywhere, the cost of food is rising sharply. Whether the world is in for a long period of continued increases has become one of the most urgent issues in economics.

“Everyone wants to eat like an American on this globe,” said Daniel W. Basse of the AgResource Company, a Chicago consultancy. “But if they do, we’re going to need another two or three globes to grow it all.”

Around the world, wheat is becoming a precious commodity. In Pakistan, thousands of paramilitary troops have been deployed since January to guard trucks carrying wheat and flour. Malaysia, trying to keep its commodities at home, has made it a crime to export flour and other products without a license. Consumer groups in Italy staged a widely publicized (if also widely disregarded) one-day pasta strike last fall.

What’s going on here is really simple: as incomes and standards of living rise all across the world, people want to eat more. Farmers cannot keep up with all of this demand so prices are rising rapidly.

With inflation in the news every day, now would be a good time to read David Hacket Fisher’s The Great Wave. Or check out my review of the book here.

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6 Responses to Everyone Wants to Eat Like Americans

  1. dave says:

    Well what is the reason for the rise in food in the US?

    Obviously I’m not certain but I’m sure food prices have risen more so since we started filling our gas tanks with it, than poorer countries eating more…..

  2. Steven says:

    In my opinion, commodities prices are rising because of demand from trading, not from rise of living standards.

    The reason why the Fed keeps on lowering rates despite the whole “fear” of inflation is because inflation as of now is caused by rising prices in commodities driven by demand due to the down turn in the equity market. I agree with the Fed’s rationale that if they lower interest rate to jump start the market and restore confidence/solve the credit crisis, investors will hop back on and drive demand away from commodities thus lowering the prices thus reducing/containing inflation.

  3. Will says:

    Steven — While I agree that “hot money” is playing a role in the increase of commodity prices, I do not think it is the most important factor.

    Just look at the chart I included with this post, it shows demand for physical wheat, not wheat futures. As you can see, demand/consumption has been rising continuously over the past decades. In the last few years, farmers have been unable to keep up.

    Rising standards of living directly correlate to increased food consumption, especially protein. This explains the major increase in pork and poultry prices in China.

    Not to sound too “Malthusian”, but the planet cannot handle it if everyone ate as much as Americans do. We are seeing a global resource grab for all kinds of commodities as China and the rest of Asia rapidly improve their standard of living. China has 4x as many people as the United States but only 1/4 as much arable land.

    Good thing food isn’t measured in the core CPI!

  4. Steven says:

    Will –

    While I agree with you that standard of living is rising throughout the world, I disagree that the price increase is due to the rise in standard of living.

    Take the Dow Jones AIG Commodity Index for example. If I was to take a simple return calculation for the period starting 1992 – 2000, it is a measly 2%. This indicates that in the 8 years from 1992 – 2000, prices of commodity haven’t increased at all. But the global standard of living in that 8 years time have increased more than 2% according to the HDI Index at http://hdr.undp.org/external/flash/hdi_map/

    Now if I was to take the period 2000 – 2008, the index has increased by almost 100%. This rise in price isn’t driven by the increase of standard of living but rather the improvement in technology allowing ease of trading commodities.

    That’s not to say that the rate of consumption in the world isn’t greater than what we are producing. But the rise of prices in commodities, in my opinion, is driven more due to trading than demand of the physical goods.

  5. Will says:

    Steven

    Perhaps it is a question of what came first: the chicken or the egg? Did trading technology improve because commodities were rising? Or, did the improved technology lead to more investor interest and thus led to bull market in commodities?

    Either way, I think the question misses the point. All of the relevant supply and demand data points show that demand is outpacing supply in nearly all commodity markets. It is a fundamental law of economics that when demand for a good increases, its price increases based on the elasticity of the supply curve. In other words, once the low-hanging fruit is picked, it’s a lot harder to get additional fruit off the tree.

    Take a look at crude oil for a simple case in point. Demand for oil has risen dramatically in the past decade; if producers had found large oil fields in accessible locations, perhaps prices wouldn’t have risen. Alas, the opposite has happened. The easy-to-extract oil has already been pumped. Incremental supply increases are coming from oil sands, shale rock and deep water fields. All of these methods are incredibly expensive and are only economically viable when the price of oil is high.

    A similar phenomenon is happening in global food production. In order to meet growing demand for food, farmers are turning to dubious methods of production. (See my post on agricultural sustainability: https://willrwright.wordpress.com/2007/12/20/how-sustainable-are-current-food-production-methods/)

  6. […] Everyone Wants to Eat Like Americans […]

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