Is this the end of cheap food?

The Guardian reports that food prices are rising, which is coming as a surprise to "UK shoppers aged under 50 [who] have so far never experienced food-price inflation.

The article cites four reasons for the price increase:

1. Oil prices: "$100 a barrel means food that is four-times as expensive to plant, irrigate, harvest and transport as it was six years ago. Some commodities brokers are now betting on oil going to $200 a barrel within a decade."

2. Climate: "drought, hurricanes and floods around the world last year made for terrible harvests - from Australia to the Caribbean and the United Kingdom."

3. Market speculation and use of crops for fuel: "Since George Bush announced a rush to corn-based ethanol it's done well for American corn farmers - 20 per cent of whose harvest, subsidised by the government, went into fuel tanks rather than flour mills this year."

4. Economic boom in China and India: "Around the world, and through history, people have eaten more meat as they have become richer. This is called the nutrition transition and it's now happening, very quickly, in the two most populous nations on the planet."

Jacques Diouf, head of the UN's Food and Agriculture Organisation, spoke recently of a 'very serious crisis' brought about by the rise in food prices and the rise in the oil price. Various global economic bodies are forecasting rises of between 10 per cent and 50 per cent over the next decade.
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  1. A lot of the common bulk preservatives and ingredients for processed food are exclusively made now in China because of their ability to grind the price down cheaper and cheaper and export without quality restriction.

    This issue (on npr a big back) would make a great additional bullet item or two perhaps.

  2. “$100 a barrel means food that is four-times as expensive to plant, irrigate, harvest and transport as it was six years ago”

    Assuming they’re using $25/barrel six years ago, the real conclusion to draw is that mathematics and critical thinking are in short supply.

    Unless 100% (the entire) cost of planting, irrigating, harvesting, and transporting is fuel (and not just refined fuel – we’re talking crude oil), a 4x increase in crude oil would result in nothing remotely close to a 4x increase in any of those costs.

    This gets so tiresome – like the idiots who say that when oil is twice as expensive as it is now, a loaf of bread will also be twice as expensive. Know what the only thing is that will be twice as expensive? OIL.

  3. Maybe the Government could stop subsidizing farmers now?

    And stop paying them NOT to plant?

    And get the sugar and tobacco companies off the dole?

  4. Produce prices in the US have been astronomical for about two years now. I can buy top quality meat for less than many fruits and vegetables. I’ve been under the assumption that the increase in destructive hurricanes and other harsh weather were to blame. Which, of course, takes you back to oil again.

  5. Various global economic bodies are forecasting rises of between 10 per cent and 50 per cent over the next decade.

    These numbers don’t mean much without context. How much did food (and non-food) prices rise over the past decades?

    This Inflation Calculator claims inflation rose 28% from 1996-2006 and 41% from 1986-1996. So maybe “only” a 10% increase in food prices is a good thing?

    Environmentalists should be loving this because it will make locally-grown food that doesn’t use petroleum-based fertilizers more price-competitive.

    (And hardcore environmentalists might enjoy the population reduction.)

  6. Modern agriculture is the process where we use land to convert oil into food. We hit peak oil last year so you can forget about ever seeing 25$ a barrel oil again.

    Take away the oil and you take away the food.

  7. I agree with ME1K on this one. It is not necessarily the price of oil that is going to determine food prices, and it will not be cast into a linear relationship. I would submit that it is market forces that determines the cost of food. And when oil gets to be too expensive for everyone, then we will get serious about using natural gas instead. China will have an impact, that can not be forgotten. And it is important to have the quality of food they export to us fall under the same regulations that we use.
    The thing that determines where food prices orbit is not oil, but the farm bill, an artificial government subsidy. That’s the thing we need to be taking a close look at.

  8. Ah… to use the soon-to-be over-used metaphor of the day…China has a big,long straw and they’re gonna use it to drink our milk-shake!

  9. The Economist had a couple of articles about this issue a few weeks ago. Interesting read. I thought it addressed well how to deal with the problem of high food prices, but didn’t really talk at all about the possibility of an actual worldwide food shortage, which seems a distinct possibility to me.

  10. Rising fuel prices don’t affect all food prices equally.

    If you’re eating vegetables or fruits out of season that are shipped up from Chile, the fuel cost is higher than if you’re eating vegetables that were grown nearby.

    Conventional farming requires more oil to produce the fertilizers than organic farming (though the organic farmer does need fuel to run the farm equipment).

    So industrial agriculture might see bigger price increases than sustainable agriculture. If more people then shift to the latter, that’s a bit of a silver lining.

  11. Yes to Joe.

    Even in the Chilean fruit example, much less than 100% of the retail cost is due to crude oil (or even fuel in general). Something far south of 50% even in the worst case scenario – if we just assume 50% of that cost was oil, then quadrupling the cost of oil means the cost of the fruit goes up about 2x. Most people never get past the illogic of “oil goes up by 4 times, so everything else gets 4 times as expensive too”.

  12. I’ve been skipping the middleman for about four months now, and living directly of of one quart per week of Mobil 1 Extended Performance 10W-30.

    So far so good!

  13. Higher food prices will lead to less obesity.

    Cutting health care costs.

    Lowering taxes.

    Increasing economic production.

    Spurring technological changes to reduce carbon emissions.

    It’s all good.

  14. semi related…
    I had sticker shock this weekend when I went to purchase a 20oz bottle of soda… $1.60 at my local convenience store! Wasn’t it not too long ago that a 20oz bottle was only $1.05? Ugh.. I feel so old now… “I remember when soda was only a nickel” :)

  15. I’m all for rising food prices. That will push us (as someone else pointed out) to local food again, which we can have better control of, and which will nurture our own local economies, and will give rise to regional variation again, and will help the environment. Also, um, it’s FOOD. It’s the most important thing in the world, and we’ve somehow made it an afterthought and taken it for granted. It’s all good.

  16. here’s a quote for you

    “Some 38 million people in America are considered “food insecure” — they have trouble finding the money to keep food on the table.”

  17. And to make it all especially worthwhile, the results of a study have come back saying that switching to grain based fuels is likely to accelerate global warming. I’ve forgotten all the factors cited, but one, for example, is that countries are eradicating much of what’s left of their rain forests to plant the grains they now know the rich “green” countries want to buy.

    It’s all about letting the free markets do their thing for the simultaneous enrichment of the rich and the betterment of humankind. It’s only by continuing to stick to the Greed Principal that the earth won’t get eaten like a cookie but shall flourish as never before.

    At least I know that’s how the song goes, although it’s a hard one to sing on key.

  18. #6 : “Peak oil was last year”?? [citation needed]

    The only way we will know peak oil has occurred is in retrospect years later.

  19. @18 wrote

    “Food has been artificially cheap for a long time. I suspect reality is slowly creeping up.”

    Yes and no. Consider also that it is a lot harder in the food commodity market to react quickly to unexpected increases in demand. I suspect we’ll see increases for the next 2-3 years as producers respond to the increase in demand by increasing production (which is already happening, just not fast enough), and then around 2010 you’ll see a glut of food and a crash in prices.

    Every 8 or 9 years there’s an increase in food prices and people start wringing their hands about global starvation and ridiculously high food prices, but a market correction inevitably occurs.

    That said, gov’t action that distorts the corn market by encouraging its use for fuel is as boneheaded stupid an action as I can think of.

  20. Sorry #15 rising food prices will not lead to lower rates of obesity. Being “Fat” will become a thing of status. There are groups that already purchase many items just to look wealthy, why not kill others to become obese?

  21. #21 phreatic

    I did my own calculation using based on rate of consumption and amount of recoverable oil using publicly available figures. Could be wrong but I think I’m in the right ballpark, sometime between now and 2010.

    I think that people tend to get caught up in details and miss the overall picture. It really doesn’t matter if there is a direct linear relationship between the price of oil and the cost of food or not. All you need to understand is that we have a large complicated system surrounding the food production chain. Kick out the support columns holding it up and it fails catastrophically. Just like the electrical grid system failed catastrophically a few years ago. A few powerlines went down and took out almost the entire east coast with them.

  22. I don’t know that higher food prices will necessarily lead to lower obesity and healthier people. More likely, I think, is that industrial food producers who make crappy food now will throw in more additives, more filler, process it more, so that cheap food gets worse, leading to higher rates of obesity and health problems, especially among the poor and uninsured who rely on cheap food. An already broken healthcare system (at least in the US) is strained even further then, effecting all kinds of things.

  23. Oil companies are directing their capital investments and estimating reserves on the assumption that oil will have a long-term price of less than $50 a barrel. Tell me what you know about the oil supply that the oil companies don’t, and I’ll listen to claims that oil prices are an artifact of something more permanent than a bubble.

  24. Maybe the Government could stop subsidizing farmers now?

    And stop paying them NOT to plant?

    And get the sugar and tobacco companies off the dole?

    I thought the above comment bore repeating.

    Also, isn’t food one of the last trickle-down stages for observing inflation? At least in the USA, there’s a runaway inflation problem exacerbated by military Keynesianism upon a foundation of normative monetary policy.

  25. We could alleviate the oil problem to some degree by shifting to Mobil 1 synthetic oil. I’m not sure just what it’s made from, but since it’s synthetic, maybe they make it from dryer lint and left-over beer and soda from recycled aluminum cans.

  26. I’m not going to get involved in the oil prices=food prices discussion, but I will note one stat from the article quoted that rings more than true:
    “Some commodities brokers are now betting on oil going to $200 a barrel within a decade.”
    IANACB, but I’d say their bet is a pretty safe one. I would be very, very surprised if oil didn’t reach $200 a barrel within 5 years, in fact, much less in a decade.
    And I have no idea what that means for food prices.

  27. Come on, #28. EVERYONE knows that Mobil 1 is made from the piss of a red Pegasus!

    /EVERYONE knows that! :D

  28. This gets so tiresome – like the idiots who say that when oil is twice as expensive as it is now, a loaf of bread will also be twice as expensive. Know what the only thing is that will be twice as expensive? OIL.
    ———–

    Ahem, as someone who was an Econ minor, I promise you that many items double in price merely because there’s a perception that the doubled price is fair. In other words our pizza place charged a gas price fee for the first few months of increased prices, we paid it because we knew gas got expensive, gas prices didn’t go down, but they dropped the extra fee. Explain that one except through plain old supply and demand.

  29. Even in the Chilean fruit example, much less than 100% of the retail cost is due to crude oil (or even fuel in general). Something far south of 50% even in the worst case scenario – if we just assume 50% of that cost was oil, then quadrupling the cost of oil means the cost of the fruit goes up about 2x. Most people never get past the illogic of “oil goes up by 4 times, so everything else gets 4 times as expensive too”.

    ——–

    What is the relationship between production cost and consumer cost and is there one other than consumer perception of a fair price?

    Hint, your theory is incorrect, there is no relationship.

  30. I’d noticed food prices going up for quite a while now. I can’t afford things I used to take for granted, like good cheese. I can afford processed crap, but I don’t want to eat it.

    When you’re broke, and I’ve spent some time really broke, it is very hard to eat well. When you are broke, you work long hours and you come home tired. So you tend to eat more junk, which is much cheaper than actual food food. I have to drive out of my way to go to the local market that has good veggies, and I do. But even then there are plenty of foods I now count as luxuries.

    One month, when I was really broke, I was just toasting corn tortillas over the gas stove for breakfast and putting a tiny bit of butter on them. Then I read about protests in Mexico because tortillas were too expensive because the corn was earmarked for fuel. So we can drive our stupid Humvees to the mall and back and not modify our lazy, bloated and ultimately soul-crushing lives. How f****d is that?

  31. “”Some commodities brokers are now betting on oil going to $200 a barrel within a decade.”
    IANACB, but I’d say their bet is a pretty safe one. I would be very, very surprised if oil didn’t reach $200 a barrel within 5 years, in fact, much less in a decade.
    And I have no idea what that means for food prices.”

    I’d say that’s a very risky bet and will richly reward those investors planning on $200/barrel oil if that should come true (assuming, we’re not talking about entirely inflationary changes in the nominal price of oil).

  32. “This gets so tiresome – like the idiots who say that when oil is twice as expensive as it is now, a loaf of bread will also be twice as expensive. Know what the only thing is that will be twice as expensive? OIL.”

    Nevermind that the article never even suggests this – they’re talking about a doubling in oil prices, as only one of four factors in increasing food price, all leading to a price increase of 50 percent or less.

    Even so – food could get less than twice as expensive, or it could get more than twice as expensive.

    As oil prices increase, that’s not just an increased input cost – it’s also a whole new source of demand. If ethanol or some other biofuel becomes a major source of fuel (a disastrously bad idea, but it’s not like that ever stopped the energy companies), then we’ll be trying to outbid Exxon for cropland at the grocery store. Do you care to take bets on what effect that will have?

  33. “I shall now therefore humbly propose my own thoughts, which I hope will not be liable to the least objection.

    I have been assured by a very knowing American of my acquaintance in London, that a young healthy child well nursed, is, at a year old, a most delicious nourishing and wholesome food, whether stewed, roasted, baked, or boiled; and I make no doubt that it will equally serve in a fricasie, or a ragoust.”

  34. Those over 50 may remember when much of our food came from guns and gardens. If you can hunt and/or gather, it’s usually a good idea to do so. Gardening saves money, is a relaxing activity, and if you plant enough of your yard, you may qualify for a tax break. Some municipalities allow you to raise chickens or goats even if you live in a neighborhood. Of course if you’d rather eat other people, that’s your business.

  35. Foraging, hunting, gardening are all time intensive as well as seasonal sensitive activities that does not make it practical for the majority. But maybe the small farm will become a noble occupation again as the corporate ones struggle. Wait, I forget, corporate farms will drive the small ones out of business. Oh well!

  36. I’m curious just what the people who say the price of energy contributes only a small percentage to the price of food think the rest of the price of the food amounts to?

    What do you think that avocado or head of corn is made of?

    There are four basic component prices of anything. Energy, Labour, land, and raw materials. The avocado doesn’t have much copper, silver, etc in it (though it might have salt, potassium, etc). And I assure you the third-world labour isn’t getting 50% of the retail purchase price…

    When you’re talking about computers or buildings or so on then there are other raw materials which factor into it. But when you’re talking about food they’re relatively insignificant. The lion’s share of the inputs is energy.

  37. A couple of points:

    Victory gardens. They’re going to be necessary, including in *your* backyard.

    I agree that the Farm Bill deserves close attention in the near future. Unfortunately, like so many other government creations, farm policy is pretty much fubar at this point. It subsidizes corporate farms, penalizes small family farms that want to do business locally, and it preferences the production of corn over any other crop. Thus the proliferation of HFCS, many other corn derivatives, feedlot meat, and ethanol. Only rarely is there enough awareness and concern about issues affecting the sources of our food. (Witness the recent defeat of a big ag agenda to outlaw milk labels that state the cows were *not* treated with hormones or antibiotics in Pennsylvania, the 6th most productive dairy state in the US. This was only averted through consumer outcry, and it barely made the local news.)

    U.N. Special Reporter and leading food advocate, Jean Ziegler has called the production of biofuels a “crime against humanity.” The EU is seriously reconsidering policies which have encouraged the production of fuel crops over food crops. While we enjoy our internet connections over a cup of joe and wring our hands about how expensive fresh vegetables flown in from the opposite hemisphere are getting, poor nations are going to starve. The extra demand on the corn markets created by ethanol has already driven up food prices on feedlot beef and pork in the US. If you’re reading this, you will probably be able to survive when a gallon of non-organic milk costs $10. Sure you’ll bitch about it, but you’ll find the money somewhere. Others won’t be so lucky. We’ll blithely congratulate ourselves on filling our hummers with “green” fuel, unconcerned about who goes hungry for it.

    I’m all for not subsidizing big ag, and a sensible farm policy. But I cringe whenever I hear someone rail against farm subsidies. I urge you to get involved by actually meeting some small farmers. Find out what their real struggles are. Look at how they live. Do they look rich to you? Are they being fairly compensated for the work they do and the product they supply to everyone who eats? How is the NAIS (another idiotic “national security” measure) going to affect them if it passes? Find out for yourself what’s going on in your own area and ask yourself what the government should be encouraging or discouraging. Ask yourself where your food comes from.

    Finally: No farms, no beer.

  38. OH. . . there’s plenty of cheap food to be found in most major cities: pigeons, rats, squirrels, alligators (in the sewers).

  39. hey, I used quotation marks.

    It’s actually a wonderful little piece, everyone should re-read it now and again. Ahh, people could really use language back then.

  40. “Foraging, hunting, gardening are all time intensive as well as seasonal sensitive activities that does not make it practical for the majority.”

    I disagree. $10 worth of seeds kept me in spinach, chard, lettuce and mustard greens for several months. The initial investment of time was approximately one day, total. I built raised beds, but apartment dwellers can use flower boxes and pots. 15 minutes watering every day (let the sprinkler run while I made coffee).

    I have 4 hens who are good layers and take only as much time as any other pet.

    I don’t hunt, but I occasionally exchange stuff for fish my friend has caught, or pheasant from my dad.

    And I live in a dense urban neighbourhood (North Portland).

    Totatlly doable.

  41. every bit helps. Until they come to arrest you for not RFID chipping your chickens.

    Seriously now folks, every bit does help. People who produce their own food waste less too.

    With another Great Depression around the corner,we all will become good at it (again).What are we going to call it though? The Dirty Thirties had a ring, …… ???

  42. With increasing prices across the board a woman who choses to stay home will become worth her her weight in gold. Maybe the days of children coming home to a mother who takes pride in her home and family will return! We have such a family. I take pride in cooking from scratch, planning thrifty,healthy and tastey recipies and making our house a home. We have a garden and chickens. I have learned to can and bake bread from scratch. I minimize trips to the store and our family gets its entertainment from things that are free ie trips to the parks and beach and family sports and other activities.
    I’ll bet making these choices pays off more then if I was to drive to work each day, pay for daycare, sport new work clothes and rely on my lunch and a latte as a pick me up. How has the feminist movement and the move to push women out of the home and in to the work force really helped us; financially or emotionally?

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