A Global Need for Grain That Farms Can’t Fill

[chefencer]

This is the latest in a series of articles from different sources I have been seeing about the end of the era of cheap food and no, it's not particularly related to climate change...

http://www.nytimes.com/2008/03/09/bu...l?pagewanted=1

But the prices that have renewed Mr. Miller’s faith in farming are causing pain far and wide. A tailor in Lagos, Nigeria, named Abel Ojuku said recently that he had been forced to cut back on the bread he and his family love.

“If you wanted to buy three loaves, now you buy one,” Mr. Ojuku said.

Everywhere, 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.

Many factors are contributing to the rise, but the biggest is runaway demand. In recent years, the world’s developing countries have been growing about 7 percent a year, an unusually rapid rate by historical standards.

The high growth rate means hundreds of millions of people are, for the first time, getting access to the basics of life, including a better diet. That jump in demand is helping to drive up the prices of agricultural commodities.

Farmers the world over are producing flat-out. American agricultural exports are expected to increase 23 percent this year to $101 billion, a record. The world’s grain stockpiles have fallen to the lowest levels in decades.

[Gav]

it's not particularly related to climate change...

Actually it is - well it is if certain lobby groups have their way.

If you swap your crops from food use to fuel then you do nothing except drive up the price of grain.

Who's for another gallon of BioDiesel for dinner?

While we're on the subject...

If you also switch from high yield agri' farming methods to lower yield (but arguably better for the environment) "less intensive"* ones then grain becomes scarcer and the price of grain goes up.

Not only that but if you limit the area available to farming then of course you will eventually reach the level of maximum yield... and the price of grain goes up.

If you eat more food than you actually need, and that food requires crops, then demand will remain high, looking back at the previous sentences well, the price of grain goes up.

I am not advocating cutting down every last green area on Earth. I am merely pointing out that this is: a complex issue, that there's more to it than is initially apparent and that fluff pieces in newspapers that seem to have a tenuous grasp of reality don't help.

* I despise the term "organic" in this context.

[Inquartata]

And then there are the market-distorting effects of government interferences such as subsidies and price floors, not only for grains themselves but for the uses for it, such as beef cattle and fuels.

And waste. There's an awful lot of waste.

[the maple epee]

The increase in ethanol production is driving grain prices absolutely through the roof, and the dairy industry is definitely feeling it, especially since the c/wt price isn't rising to match the production costs.

The current U.S. food production system is not sustainable, especially if fuel becomes scarcer. Food production will have to shift to a smaller, more local scale.

[Beloit Fencer of Old]

Food production will have to shift to a smaller, more local scale.

Curious statement. My background is in economics, and yours is farming. I'm smart enough to know, however, that I cannot simply dismiss your statement as the wishful thinking of a backwoods cowjack. You have knowledge and experience that I don't. Therefore, I want to hear more on your theory regarding Diseconomies of Scale in Food Productivity. Or, whatever it is you backwoods cowjacks would call it.

[chefencer]

I guess he means we better start working on our backyard gardens...
which I imagine could become more popular if the current rate of inflation on food continues for another couple of years.

I just had a wonder if there might at least be a reduction in farming subsidies (discounting ethanol, of course...) since farmers now have an opportunity to make money actually growing something.

[Beloit Fencer of Old]

I just had a wonder if there might at least be a reduction in farming subsidies (discounting ethanol, of course...) since farmers now have an opportunity to make money actually growing something.

Farming subsidies are one of the most idiotic inventions in the universe.

[Phaeton]

Farming subsidies are one of the most idiotic inventions in the universe.

Especially if you're not trying to avoid overproduction and overall economic weakness and instability like in the late 19th century.

Many agricultural goods don't keep. Farm subsidies were invented for a reason and did a lot, and still do a lot, of good to the American economy. It's not the existence of farm subsidies people should worry about, but finding an effective amount.

As an aside:
Why do we, being silly Americans, get the idea that ethanol from corn is a good idea? The Brazilians (correct me if I'm wrong) are using Sugar Cane...which is far more effective. Corns a staple food. A rise in the price of sugar wouldn't hurt the world's poor half as much, and would probably be more cost effective. It's a shame we can't grow it everywhere in the US...

[Beloit Fencer of Old]

Especially if you're not trying to avoid overproduction and overall economic weakness and instability like in the late 19th century.

Many agricultural goods don't keep. Farm subsidies were invented for a reason and did a lot, and still do a lot, of good to the American economy. It's not the existence of farm subsidies people should worry about, but finding an effective amount.

As an aside:
Why do we, being silly Americans, get the idea that ethanol from corn is a good idea? The Brazilians (correct me if I'm wrong) are using Sugar Cane...which is far more effective. Corns a staple food. A rise in the price of sugar wouldn't hurt the world's poor half as much, and would probably be more cost effective. It's a shame we can't grow it everywhere in the US...

Study some economics 101. Farm subsidies are stupid, and they hurt the economy.

[Inquartata]

Yes. Most governmental interferences with the market mechanism qualify as Bad Ideas...if they don't start out harmful, they end up that way.

[Phaeton]

Study some economics 101. Farm subsidies are stupid, and they hurt the economy.

Save me some time and give me an explanation. Farm subsidies at some point of time, at least in my understanding, they were useful, at least to temporarily combat bouts of overproduction.

Maybe they don't work permanently, but it seems like they could have efficacy, at least as a temporary measure.

[Inquartata]

Throwing an earthen dam across a fast-flowing ditch stops the water temporarily, too. What happens in the long run?

[Capt. Slo-mo]

The dam breaks, releasing a flash flood of ethanol into the grocery store, washing away all the $3.50 boxes of cereal, and depositing $8.00 boxes of corn flakes in their place?

[Gav]

Throwing an earthen dam across a fast-flowing ditch stops the water temporarily, too. What happens in the long run?

You build better flood defences.

[Epee_Pox]

Save me some time and give me an explanation.

Corn is a commodity. Buyers treat corn from farmer A to be equivalent to corn from farmer B.

To make more money, one does not grow better corn, but instead must grow more of it.

Every corn farmer knows that. And grows as much as he can. He then sells it to the local grain elevator for the going rate.

Basic supply-and-demand caused the prices to go down as more was being grown.

One would think that lower commodity prices force producers to grow less of the stuff. Nope. That's not how people think. Farmers wound up growing more and more, to make up with volume for the falling prices.

Several decades ago, because of this exact phenomenon, more corn was being grown than the market wanted. After a freefall, corn prices hit zero.

The government stepped in with farm subsidies, having the taxpayer make up the difference between an ideal corn price and the market corn price.

As a result, there was no longer any market pressure to stop growing the darn stuff. Corn quickly became the dominant crop of the American farmer.

The American farmer became even more efficient at growing corn, and grows way more than the market wants. Government subsidies support this overproduction, which has to go somewhere. Buyers gotta do something with it. Hence the ethanol lobby and the corn-intensive food processing industry.

The result of the corn subsidy became dire. Farmers became reliant on a single monolithic crop, which they must produce more and more of to remain solvent. The family farm goes extinct as assembly-line efficiency and economics of scale become paramount. The environment suffers heavily as farmers burn through their topsoil with insane amounts of artificial fertilizer instead of crop rotation. Sustainable practices were abandoned in the race to the bottom. Dirt-cheap corn became the dominant feed for livestock genetically unsuited to consume it. Environmentally-unfriendly ethanol became a populist favorite, to prop up the commodity prices. The taxpayers paid and continue to pay heavily for all this. The only beneficiaries were the handful of giant agrobusinesses who got the benefit of artificially-cheap prices.

Take away farm subsidies, and farmers who grow too much either go broke and exit the market, or get smart and produce less to make more. The pressure to focus on corn to the exclusion of other crops would be dramatically reduced, and the environment would benefit. The taxpayer wouldn't be paying twice for the same corn.

Okay, class, that's the bell. I want your homework on my desk before you leave.

[Beloit Fencer of Old]

Corn is a commodity. Buyers treat corn from farmer A to be equivalent to corn from farmer B.

*snip*

Okay, class, that's the bell. I want your homework on my desk before you leave.

Thanks, Pox. I started to answer the question, and after about an hour of typing realized that it's hard to not go into too much detail. You did a good job.

Should we upload some graphs depicting supply and demand in a perfect competition and then show what happens to it when we begin to monkey with it?

[Capt. Slo-mo]

True Story:

In high school, back in the '70s, right after the Russian Wheat debacle, the prices for wheat plummeted, to where most of our western Kansas farmers were paying more per bushel to grow the wheat than they were getting paid.

Family farmer classmate of mine: "We lost money this harvest because the cost of production was more than we got per bushel. If the price doesn't go up next year, we'll have to plant twice as much just to make it up!"

Cue sound of me slapping my forehead in statistical disbelief...

[Capt. Slo-mo]

True story:

I just realized how long ago high school was.

I'm gonna need a moment here....

[Beloit Fencer of Old]

True Story:

In high school, back in the '70s, right after the Russian Wheat debacle, the prices for wheat plummeted, to where most of our western Kansas farmers were paying more per bushel to grow the wheat than they were getting paid.

Family farmer classmate of mine: "We lost money this harvest because the cost of production was more than we got per bushel. If the price doesn't go up next year, we'll have to plant twice as much just to make it up!"

Cue sound of me slapping my forehead in statistical disbelief...

Holy crap. I genuinely believe that economics should be a requirement to graduate from high school. Every day, we are immersed in the economy. And yet, one can even become President of the US with nary a clue as to what the Laffer Curve is. ** 300 fnetters scamper to wikipedia... **

[chefencer]

** 300 fnetters scamper to wikipedia... **

Haha! I think 300 viewers is probably a bit overstated for the politics forum...


Everybody left out the fact that now that we've got corn In Everything We Eat the food industry is not in a very agile position to adapt to higher corn prices other than passing that right along to the consumer. Said consumer probably doesn't understand how the ethanol that we're already paying taxes for, increases the cost we pay at the pump and at the grocery store.

I know I get a little nervous when I'm reading my vendors' market reports and they say things like "nobody really knows why chicken prices have remained so high, but the trend is likely to continue."