Thursday, July 26, 2007

Where's the doomslayer when you need him? 

A writer in Africa declares the world must say goodbye to cheap food.
The price of corn (maize) has doubled in a year, and wheat futures are at their highest in a decade. The food price index in India has risen 11 percent in one year, and in Mexico in January there were riots after the price of corn flour (used in making the staple food of the poor, tortillas) went up fourfold.

Even in the developed countries, food prices are going up, and they are not going to come down again. Cheap food lasted for only 50 years. Before the Second World War most families in the developed countries spent a third or more of their income on food (as the poor majority in developing countries still do). But after the war a series of radical changes, from mechanisation to the Green Revolution, raised agricultural productivity hugely and caused a long, steep fall in the real price of food.

For the global middle class, it was the Good Old Days, with food taking only a tenth of their income. It will probably be back up to a quarter within a decade, and it may go much higher than that, because we are entering a period when three separate factors are converging to drive food prices up.
Those factors are demand from population growth in Asia (and the Middle East, if you believe Mark Steyn), bio-fuels competing for arable land, and global warming. This reminds me of nothing so much as the days in the 1970s when the Club of Rome was declaring our imminent starvation. Luckily then we had Julian Simon:

Rising population did not mean less food, just the opposite: instead of skyrocketing as predicted by the Malthusian theory, food prices, relative to wages, had declined historically. In the United States, for example, between 1800 and 1980, the price of wheat plummeted while the population grew from 5 million to 226 million. Accord-ing to Malthus, all those people should have been long dead, the country reduced to a handful of fur trappers on the brink of starvation. In fact, there was a booming and flourishing populace, one that was better-fed, taller, healthier, more disease-free, with far less infant mortality and longer life expectancy than ever before in human history. Obesity, not starvation, was the major American food problem in 1980. Those were the facts.

The price of corn on the futures market is currently about $3.50/bushel. Now that's well above these historical figures, but when adjusted for the effect of inflation these rates are not that far above the 1995 levels. And that's not even the current price. Just like Simon, you could go look it up, or you can just sit and write and worry.

Your call.