Monday, April 28, 2008

Food Prices and Eating Mud

When buying some groceries the other day, I looked around and felt overwhelmed by the prices. 4.75 for a loaf of bread. Now keep in mind this was whole wheat bread but still, not too long ago that was half the price. The price of this staple of society has become so inflated that I cannot imagine how some people survive. I commented on this to the cashier; “can’t believe the price of bread these days.”

He agreed, “It’s not just bread,” he said, “but milk, eggs, everything. It all has to do with the price of gas. Makes me want to live the hippy lifestyle of growing my own food.”
This got me thinking. In politics and psycho-therapy it is called “behavior modification” basically, in legislation, creating laws or influencing economic trends that will change the practices of the citizenry. In Ireland, for example, they placed a fee (about 50 cents in US currency) per plastic bag. In a few years there was a 90% reduction in use. If I was more of an Orwellian- conspiracy theorist thinker I would say that there was some green and hippy friendly person out there manipulating prices, but it is much more than that.

In just this past year that have been significant changes. Everything has been increasing in price and here, in America, we will still be able to be fed well, a larger portion of us, and in the immediate this is not so much a disaster, but more of a concern. But what about other countries? There has been limitless discussion on this issue, it is happening worldwide , there are nations rioting over food, and where they can’t find proper food, they improvise. In Haiti they are even eating mud.

The clerk hit the nail on the head; part of the reason for the soaring food prices is the rising cost of oil and gas. Everything needs to be transported, so as gas rises, so does the cost to ship food, which causes an increase in the overall costs, but it is not just that.

Other causes include, crop loss, increase cost of water, increased cost of fertilizers, and increase food consumption in developing countries. Some even say that financialization, or investment, has been a major cause of the price increase since “prices are no longer set by supply, demand and climate.” When investment enters into the situation, the price determinants are varied by speculation and fear, fear that crops will fail, fear that products will not be used, it is a fear and speculation based system, like gambling. With any market that is dependent on factors ranging from weather to water to transportation and marketing there are always gambles, but it just seems that the system is strange. The majority of prices of food are post-farm prices; transportation, processing, marketing, transportation again and farmers, by law can’t set their own prices. An interesting historical tid-bit, the Russian Communist regime fell because of bread. Bread was the main staple in Russia (as it has become in most westernized countries). The USSR would buy wheat from farmers at market price; the government would pay for transportation to the granaries and mills to grind the wheat into flour. The government would then pay for transportation of the wheat to bakers, pay the bakers market cost to bake the bread and then sell it to the citizenry at about a 10th of market cost. So let’s say that the total cost for the USSR, per loaf of bread, was about 2 rubles total, and they were selling it at a price of .20 rubles. That is a net loss of 1.80 ruble per loaf. Now multiply that by about 293 million people per year buying bread and that is a huge loss. Economic subsidies for food may not work very well, and yes, I know that is an extreme example but it is still an example of a Nation going bankrupt trying to feed its populous. But it seems strange that Farmer’s keep getting more and more funding at a time of record profit for the Farm industry.

There is one big word that affects both food and oil and that is Ethanol. For those that don’t know, Ethanol is a fuel that is usually, in the United States at least, derived from corn. There are huge government subsidies for American farmers who grow corn for this product (keep in mind that corn used to make ethanol cannot be used as foodstuffs after the process) even though it is by far not the most effective when it comes to energy production. This is found from a comparison of the energy used to make ethanol compared to the energy that ethanol can produce. Other sources for ethanol are much more efficient such as tobacco (20 percent more efficient than corn ethanol) and soy which is more efficient and can be used instead to make biofuels from the oils and still leave the soy starches and proteins for consumption – not impacting the food markets in a negative way. But there is still a large push for Corn Based Ethanol that is not for this article but for some much later on. The major point here is that there have been studies that show that increased Ethanol production could cause huge problems with the local watershed and that those crops could be put to better use to feed the population or for more efficient bio-fuel crops. So there have been some efforts to offset the cost of oil with ethanol (which can be used in cars, but those efforts have been going on since the 70s and new improvements have been made.

Subsidies have always been a hotbutton issue, in fact US farm subsidies, not just in ethanol but other areas affect global food prices and there could be a "looming food shortage" if we don't make a change.

Some say that the increased concentration upon Bio-fuels for crops has increased the price of foodstuffs. The logic there is that when you take away a portion of the supply, the price will go up. This may be true, but the fact of the matter is that there is not enough of a concentration to really negatively impact the food market. I have looked for studies on this and I have yet to find anything substantial, if you find something, please let me know.

What are the solutions to these problems? How can we fix global food prices? There are a few. Some say that this is a natural spike in the food market; that as a result of economic trends in the world that cyclical and repeating that “this too shall pass.” As a Keynesian I tend to agree to a point; there are peaks and troughs in prices and economies but the general trend is that prices are going to rise and the dollar will become worth less and less unless we change the system, the system will perpetuate itself towards insanity.

One big problem that has no easy solution is oil. The world, for many reasons, need to get off the oil standard. I have said it before and I will say it again; oil is the black blood of the world, it has it’s slick fingers in everything and until we get a better method of doing things, including transportation and heating, we will continue to face rising costs, dependency on foreign markets (that can change at a moment’s whim being decided upon by OPEC ) and increased foreign conflicts. Anyone looking at the world today can see that there is a huge push towards green-tech. We are trying to get off of oil, but it is going to take a long time and we will be rung for every penny we can. We need to redirect oil subsidies to food and renewable energy, that is the simple truth, why are we investing in a flailing system that destroys our economy with its rising costs, destroys our environment and takes money away from more worth-while issues?

Preemptive measures need to be taken, not just on oil and food prices but on water. The price of water, something every living thing in the world needs to survive is dramatically increasing. While there are new technologies that are allowing for cheaper potable water production (thank you Colbert Report) it is still a looming problem in many countries. In fact there are even speculations that future wars will be fought over water, remember Tank Girl? That Malcolm McDowel movie may not be that far off. This is really just something to think about. I once argued with a representative of the Israeli conflict that a huge answer for peace in that region would be to have a Palestinian owned and operated Desalinization plant right on the Mediterranean; it would cause jobs, increased cash flow, water independence and a sense of pride for that area. Water is life and future wars may be fought over it, they have in the past and probably will in the future.

Communization. When I say commune, I don’t necessarily mean communistic or socialistic societies. I mean more of local communities depending more on themselves and providing more for themselves; local farms, family gardens, community gardens. My ideal world is made up of communities of about 200 people working with each other and interacting with other micro-communities. Eventually I will write a thesis on this but that will take a while. And it is always nice to see other people, like this Mr. Barner person, agreeing with me even if there are many detractors. It comes down to, are we really living in a free trade environment? Is free trade the answer?

One thing that we must remember, as Americans, is that we are different. We are a land of plenty compared to other countries, if we need food, there will always be some available, unless a natural or economic disaster occurs. So buck up, it may be pricey, but at least it isn’t mud.

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