Food Price Increases

By now, most of the world has realized that food prices are increasing very quickly. This was a major potential issue which was first brought to my attention about three years ago (after reading books such as “Powerdown,” “The Party’s Over,” and “High Noon For Natural Gas”), so I touched on it briefly back then in my Blog and on my message boards. Usually, I focus on energy crisis issues, but the increase in food prices is of course directly related to the energy crisis in many ways. Prices weren’t rising a few years ago, when I started to learn about the issues, but the writing was very obviously on the wall.

First of all, it’s important to understand specifically why food prices are increasing so much today. The main three reasons are:
1. High demand for food grains which can be used to produce ethanol.
2. Five consecutive years of relatively poor crops on a global scale, which has reduced storage stocks.
3. We have reached a “tipping point” several years ago where supply of food grains is no longer able to increase at the same rate that demand is increasing, and technological improvements can no longer compensate.

Combined, these forces have led to a global supply/demand imbalance, which has reduced global stocks to the point where prices are rapidly rising as the marketplace tries to balance out supply and demand. This kind of “economic balancing act” is fine in an abstract sense when you’re talking about the price of mink coats or auto parts, but it has some pretty major implications when you’re talking about hundreds of millions of people eventually starving to death.

When talking about the high demand for food grains which can be used to produce ethanol, the root cause is the high price of fossil fuels. High crude oil prices lead to high transportation fuel prices. Many American states are imposing increasingly drastic regulations about the amount of ethanol that needs to be blended with transportation fuels, in order to lessen demand/reliance on oil, and reduce the cost. However, the consequential increased demand for ethanol means that the price of ethanol goes up. It’s still cost-effective to use ethanol in terms of reducing transportation costs, because gasoline & diesel are going up faster than ethanol, but the higher price for the ethanol component makes farmers want to produce grains for ethanol rather than for food. This is one major contributor to the global shortage of grains for foods. It’s too bad that the climate and ecosystem in North America wasn’t similar to that of Brazil, or else we’d be able to grow sugar cane effectively as the main ingredient for ethanol.

The poor global food crops for the last five years are basically related to weather. However, this just exaggerates the problem with the supply available. The population of Earth, and thus the demand for food, is increasing by a couple percentage points each year. Until about the middle of last year, there was a fair amount of surplus grain and rice in storage around the world. However, that was because five years ago, there was “a lot” of surplus. Every year since then, as demand grew, stocks have been depleted. This was all quite easy to forecast about three years ago, although the continued poor crops since then has made the problem explode even faster than many people (including myself) had expected. I originally figured that it would be at least the end of 2009 before stocks diminished enough that we reached the global “tipping point” and that prices would start to rise quickly. I was wrong. This past fall, I could buy a bag of flour for my restaurant for about $12.35. On my last food order, I had to pay over $28.00 for the same bag of flour. I’m glad we don’t sell a lot of pizzas. Rice is also rising in price extremely quickly – prices have gone up about 75% globally in the last three or four months (although this is related to conventional supply/demand issues and poor crops, not due to demand for ethanol).

Look at China as a specific (and significant) example. In the mid-1990’s, that country was blatantly warned (see Lester Brown’s book, “Who Will Feed China?”) not to become dependant on foreign grain imports. However, their harvests and storage levels continued to the peak year of 1998, but have then been falling every year since. Unfortunately though, their population has continued to increase, and so has soil erosion, water depletion, and urbanization. In 2003, alarms were raised as China’s national grain storage system became depleted to the point of having only two year’s supply of grain on hand. Since then, there have been annual shortfalls in production of more than twenty to thirty million tons per year. This is not good for the global picture.

Ultimately, food costs will continue to rise, and not just due to supply/demand issues. The larger (long-term) problem is that food production is tied closely to fossil fuels. We could get lucky and discover a major source of alternative energy, but I’m not putting any bets on it. It often takes fifty calories or more of fossil fuels to produce one calorie of table food that is consumed by humans. Essentially then, humans indirectly "eat oil" to feed ourselves. But now, think about the fact that the price of oil has tripled in the past three years. And the price of natural gas has more than doubled in less than a year. Gasoline and diesel are at all-time records. And then consider the following:

- The average piece of food consumed in North America travels 1500 miles before it is eaten. And you need fuel for the cars and trucks that move the food around, yet gas and diesel are climbing in price.
- The main reason why crop yields climbed so much during the 20th century was the introduction of fertilizers. A major component of fertilizer is the nitrogen that is produced through the consumption of natural gas. Natural gas has doubled in price and is becoming increasingly scarce. So not only has fertilizer become more expensive, it is continuing to become more expensive.
- Farms no longer rely predominantly on human labour inputs. Farming is done predominantly by machines, which consume yet more fuel (and additional oil for lubrication).
- Irrigation is becoming increasingly critical to maintain crop yield in many areas. It takes energy to perform irrigation, and even worse, long term water levels & aquifiers are becoming depleted, which is soon going to cause crop levels to decline rather than increase to meet the higher demand of the larger population.

The Earth’s population remained fairly stable for thousands of years, with only slow growth, and it was only when we discovered oil that the world population suddenly blossomed exponentially. Fossil fuels helped to make food production become incredibly easy. Eventually, oil and natural gas are going to cost ten times what they do now (even in inflation-adjusted dollars). When that time comes, and when fossil fuel reserves are a fraction of today’s level (probably less than forty years from now), the global population is probably going to have to shrink back to pre-industrial levels, ie. about a quarter of what it is today. To get there, we either need an immediate effective world-wide birth control program (impossible), a global pandemic that kills a significant fraction of the Earth’s population (possible), or we will see literally billions of people dying a slow death due to starvation. It may seem callous to say that so blatantly, but essentially, the Earth is like a giant petri dish. When a culture in a petri dish gets a major new source of food to consume, the population of the bacteria suddely skyrockets. And then, once the food source is used up, there is an equally sudden decrease in population as a significant portion of the bacteria die off to pre-food-source levels.

Some of the only answers to all of the problems that I’ve touched on above include:
- Massive birth control programs in almost every country around the globe.
- A complete change in the way that our food supply systems are organized, including a huge increase in “locally” grown food, and reduced fertilizer use.
- A major change in global diets: a major shift away from meats to vegetables would make an enormous difference, because animals consume such a large amount of plant matter and only provide a returned fraction of the calories in the form of meat.
- Major reductions in overall food intake levels for most levels of the social hierarchy.

Do any of these seem like easy or likely solutions? No. But over the next couple of decades, changes like these might be the only ways to prevent even greater suffering through global famine and wars for food, as unpalatable as they seem.

Think about that the next time you have a slice of pizza …