The same people who wanted you to use biofuels now are telling you they are bad. The worldwide shortage of food because of demand for a substitute leads to rising prices and, because in the short run you can't grow more rice, runs on rice supplies here and abroad.

I make part of my lecture on supply and demand a "second law of supply". Big shifts in supply or demand will lead to large initial changes in price. Elasticities are always greater in the long-run than the short, as some fixed prices become variable and some investment opportunities take time to build. When Ed Morrissey says,

Perhaps turning food into transportation fuel would make sense if massive amounts of grain spoiled every year from a lack of demand...

he's only half right. All surpluses are eliminated by falling prices, and all shortages are eliminated by rising prices, in a free market. The grain will spoil for one year, and then we grow less grain.

'Tis from this logic that the theory of cobweb cycles grew in the 1940s. Cobweb cycles make sense as a theory for the movement of corn prices if two conditions apply: There's a significant lag between the decision to produce and the delivery of the product (true for most agricultural products) and supply decisions are based on current prices. Of course, corn has a futures market. At the time of this writing, the spot price for corn was $5.77 but the price for delivery in December 08 is $6.07. That price is driving the decision to plant X acres as corn, valued in comparison to the prices of soybeans, wheat, and whatever else you might grow on that land. What happens after about June 15 to that market doesn't matter so much, as most corn is already in the ground by then in the Northern Hemisphere.

It is also interesting to note that, while the price of corn futures rises steadily, the price of ethanol futures declines as we go to more distant dates on the contract. The rising price of corn induces more corn into the market, which creates more ethanol and reduces its price. Prices adjust in the long run back towards the initial price. Far better than the Terror for allocating goods and services.

Ed continues:

Farmers love the higher prices that come from the new demand to fill gas tanks, but higher prices have consequences for poorer nations that have just begun to be felt. Morally speaking, shouldn’t we feed people before we feed cars?

Esther Duflo is also arguing that we need price insurance for the world's poor.

The traditional method used by developing country governments – maintaining large stockpiles of grain by buying when the price is low and selling when the price is high – has its share of problems. In India, it was said that at some point that there were enough bags of rice in those storage facilities to go to the moon and back. The losses in storage and to corruption were important. Alternatively, the governments can manipulate prices using taxes and subsidies. Or perhaps it is time to be creative and make the international financial services actually work for the poor: governments could provide price insurance for the poor (in the form of transfers to some when price are high, and others when price are low). Countries that are neither net sellers nor net buyers could do this internally, and countries that are either net sellers or net buyers should be able to sell this insurance on the world market.

But isn't this what speculators do? We have seen what public insurance in financial markets does: We get too-big-to-fail. We get political pressure overriding contracts and even the law, letting banks and brokerage houses skirt financial regulation because it would be too disruptive to let them fail. Should we trust those same mechanisms with our food?

Labels: economics, food

Hunger Stalks Millions of Poor Americans blares the headline in the Financial Times of London. The article itself, however, turns out to be a combination of rank speculation and advocacy journalism for more welfare spending, triggered by pending congressional consideration of the farm bill.

The real story behind the farm bill, of course, is this astonishing observation by Ronald Bailey:

The amount of food being burned because of government mandates and subsidies for biofuels would feed nearly 450 million people. [My paraphrase]

That’s right, folks. We could feed every person on the entire North American continent with the food we burn because of well-intentioned but foolish government intervention in agricultural markets.

Over at National Review Online, Deroy Murdock notes the resulting Global Food Riots: Made in Washington, DC occurring in such places as Haiti, Mexico, Egypt, Pakistan and the Ivory Coast. His excellent article pulls together a wide range of relevant factual information on the biofuels mess, linked to the sources.

Contrast the opening sentences of the FT story:

An escalating global food crisis could bring the problem of hunger home to the US and other developed countries. Millions of poor Americans risk going hungry if food prices continue to rise and food agencies struggle to cope with rising costs, dwindling resources and a huge increase in demand. Already more and more poor people in the US are turning to charity and government assistance as they struggle with rising food costs and soaring fuel bills.

The only factual information here is that the US has a social safety net, consisting of a variety of government programs and private charities that help poor people with food, fuel bills and similar problems. Food prices are up, and the social safety net appears to be doing what it is supposed to do. The rest is speculation.

All of the remainder of the FT article consists of quotes from “campaigners” who seek “to broaden eligibility for food stamps and increase emergency food provision”: the California Women Infants and Children Program Association, the Food Research and Action Center, the Cleveland Food Bank, the Greater Chicago Food Depository, America’s Second Harvest, and Martha’s Table.

It is neither news nor interesting analyis that such organizations want more of our tax dollars devoted to their government rent-seeking activities.

We used to subscribe to the Financial Times, the Economist, Scientific American and National Geographic, all of which once consistently published excellent material with analysis based on well-sourced facts. We watched with dismay as each began to devote more and more of their limited resources to shallow advocacy pieces like this. We canceled our subscriptions, one by one, with regret.

Labels: economics, Energy, food, Media

My colleague Ming Lo has been posting while traveling to Hong Kong and Macau, and reports on a food court in HK:

Culture that represents modernity inspires people in the rest of the world to follow its path. Sadly, these disciples have often chosen to copy the superficial quality of the modern leaders. There may be twenty factors that contributed to the success of the United States. MTV and baggy pants are not one of them. To understand and to learn the true ingredients of success is hard. To buy the lifestyle of citizens of the modern world is relatively easy. Such is the unification of the low culture, an unnessary yet inevitable product of economic globalization.

The last frontier that is resisting this process is cuisine. History and geography has dictated what we prefer to put into our mouth. True, MacDonald and Pizza Hut have evaded much of the space in the second world (Europe) and the third world (the rest). But in most cases, they only add to the existing heterogeneity.

Today, in a upscaled mall in Tsim Sha Tsui, Hong Kong, I ate in a food court that featured Chinese, Japanese, Korean, Vietnamese and Italian cuisine. And mind you, this is not a unique phenomenon, not a single observation point. No matter how alike we dress, food is where people disagree.

I think there's less disagreement than Ming believes. As I mentioned in a comment, there are many kinds of such places around the world, often placed by emigres to these places (my favorite being the Vietnamese family who had fled to America, and then were lured by their daughter to set up a Viet-Thai restaurant in Budapest because they loved that city.) People don't disagree about food, they value heterogeneity.

Indeed, in travel and at home what we value is what we are served. Sometimes we want food fast, or we want to experience "typical American life". When I ate at a Pizza Hut in Cairo I would see many average Egyptians there. When I ate in the food court at the Hyatt, the Egyptians there were mostly of upper income levels. Prices matched this. When I travel in business or first class, the type of service I get from international airlines differs greatly from that which I get from local. American business flyers want space for their laptops; they work on the plane. So perhaps the quality of the service isn't that big a deal. When in Europe or particularly Asia, the travelers more often read and relax, so service quality has a higher value.
Markets are efficient at providing to each group that which they value more. Prices adjust -- I have always wanted to know on what price scale they measured these bundles of food eaten around the world -- and diets adapt. But we value means to extremes, and we value both heterogeneity and consistency. These are improved as we trade more.

Labels: economics, food, travel

Angus is really upset about Mike Huckabee's restaurant choices. What kind of guy wants to go Olive Garden or T.G.I.Friday's when he's eating in Manhattan on someone else's dime?

I can answer that: In my five years as a vegan who travels (in the first half of the nineties) I had a list in my head of restaurant chains and what they had that I could eat on my diet. Now I'm sure there are hundreds of restaurants that have better menus than the OG, but suppose I am sitting down to interview in one and scan the menu and find they do not have anything on it that is vegan. I am also trying to project myself in the interview as a guy who's a little aw-shucks, not pretentious, not a pain in the posterior. Do I want to take time reviewing some options the chef MIGHT cook for my fussy self?

Not that I'm a fan of the Huckster, but I can understand why he might look for a chain restaurant while traveling.

Labels: food, politics, travel

I recall (can't find the story right now) that there was once a poll in the new Russia of 1992 or 1993. The question was whether you would rather have shops with goods that you didn't have enough money to buy, or would rather have money but nothing in the shops to buy. Of course, the former won handily -- getting money was something you controlled, goods in the shops was something you had no control over.

Venezuelans are getting both and neither, simultaneously.

President Hugo Chavez's government is trying to cope with shortages of some foods, and the lines at state-run "Megamercal" street markets show many Venezuelans are willing to wait for hours to snap up a handful of products they seldom find in supermarkets.

"You have to get in line and you have to be lucky," said Maria Fernandez, a 64-year-old housewife who was trying to buy milk and chicken on Sunday.

The lines for basic foods at subsidized prices are paradoxical for an oil-rich nation that in many ways is a land of plenty. Shopping malls are bustling, new car sales are booming and privately owned supermarkets are stocked with American potato chips, French wines and Swiss Gruyere cheese.

Yet other foods covered by price controls — eggs, chicken — periodically are hard to find in supermarkets. Fresh milk has become a luxury, and even baby formula is scarcer nowadays.

The shortages are prompting some Venezuelans to question Chavez's economic policies while he campaigns for constitutional changes that, if approved in a Dec. 2 referendum, would let him run for re-election indefinitely.

Perhaps ol Hugo could look at what good price controls have done for Zimbabwe.

The government says it now has to import leg of pork "because local suppliers declined to participate." This is, they say, political. So too is starvation.

(h/t: Angus at KPC)

Labels: economics, food

This makes perfect sense to me:

According to Chinese Restaurant News, there are nearly 41,000 Chinese restaurants in the United States, three times the number of McDonalds franchise units, and more than the number of McDonald's, Wendy's and Burger King franchises combined!

If you run a franchised outfit, in order to make profits you have to limit entry. Franchisers will make money by providing exclusivity, so of course the number of Chinese restaurants will be larger.

Mrs. S and I were driving out to LA once, and laid up for the night at a half-decent hotel outside Ogalalla, NE. One of the tricks of traveling as vegetarians in America is to know where all the Indian and Chinese restaurants are. We ate at this place, which looked pretty iffy from the outside. I recall the food being only so-so, no better than most St. Cloud Chinese, but given the options in western Nebraska...

You wonder how that place ended up there.

Labels: economics, food, travel

Your Thanksgiving dinner:

The rising cost of oil and other utilities, combined with an explosion in the cost of corn feed, has increased the cost of raising a turkey by as much 35 percent and costing the industry more than a half-billion dollars.

Those increases haven't gone unnoticed in MetroWest.

"Oh, yeah, big time," Gerard Farms owner Mike Gerard said yesterday when asked if he has seen an increase in feed costs. "I'm paying 20 percent more for turkey this year than I paid last year."

Naturally, that increase has led to customers seeing higher prices.

Last year, Gerard said, the price of a roasted turkey with stuffing and gravy at the Framingham farm was $3.19 per pound. This year, it's jumped to $3.39. The price for fresh, uncooked turkey has increased even more, from $2.29 last year to $2.59 today.

For a 15-pound bird, which should serve about 10 people, that adds up to an increase of only between $3 to $4.50 a turkey.

...With many growers switching to the more profitable corn for ethanol, turkey farmers are trying to cope with a one-two punch of increasing corn prices and decreased soybean production.

According to some estimates, the higher prices translate to about an 8 cent increase per pound, per turkey, or about a 35 percent increase in the cost of raising just one bird.

The decline in soy production has also hurt us vegetarians. Tofurkey is made of course with soybeans, so that price is also rising. The roast itself was $10-$12 for a26 ounce piece with stuffing included five years ago. You seldom see them under $20 nowadays.

This just another part of what John LaPlante calls The Dark Side of Ethanol.

(h/t: Mark Perry, who suggests you hedge your food bill with ADM purchases.)

Labels: economics, food

Mark Steckbeck answers the reasons why restaurants play loud music and run the air conditioning down to 60 degrees.

A restaurant ties two goods together and then charges you one price. You pay for the food and they give you a free place to sit down and eat. (It makes you wonder where the D.O. J.'s Antitrust Division is since Microsoft.) The restaurant makes only so much money from each table of patrons and relies on continuous turnover to keep the money coming in.

So the goal of the restaurant is to make you just comfortable enough that you enjoy the restaurant but not enough to keep you hanging around.

This of course ties in to my Panera discussion from Wednesday -- where, I'm happy to report, the restaurant has gone back to discounting the coffee for those with travel mugs. The net price change for coffee, bagel and cream cheese with your own mug is now about 12% vs. 28% before.

Steckbeck suggests trying to prove his point by saying to the server who asks if you need anything else "Yes, some peace and quiet. We're going to visit awhile." My mother-in-law used to go out to Perkins with three other older women, buy coffee and a roll and have a long chat. The manager eventually brought out an egg timer. They never returned.

Labels: economics, food

I draw the line at popcorn.

A fondness for microwave buttered popcorn may have led a 53-year-old Colorado man to develop a serious lung condition that until now has been found only in people working in popcorn plants.

Lung specialists and even a top industry official say the case, the first of its kind, raises serious concerns about the safety of microwave butter-flavored popcorn. ...

Exposure to synthetic butter in food production and flavoring plants has been linked to hundreds of cases of workers whose lungs have been damaged or destroyed. Diacetyl is found naturally in milk, cheese, butter and other products.

Heated diacetyl becomes a vapor and, when inhaled over a long period of time, seems to lead the small airways in the lungs to become swollen and scarred. Sufferers can breathe in deeply, but they have difficulty exhaling. The severe form of the disease is called bronchiolitis obliterans or “popcorn workers’ lung,” which can be fatal.

Dr. Cecile Rose, director of the occupational disease clinical programs at National Jewish Medical and Research Center in Denver, said that she first saw the Colorado man in February after another doctor could not figure out what was causing his distress. Dr. Rose described the case in a recent letter to government agencies.

A furniture salesman, the man was becoming increasingly short of breath. He had never smoked and was overweight. His illness had been diagnosed as hypersensitivity pneumonitis, an inflammation of the lungs usually caused by chronic exposure to bacteria, mold or dust. Farmers and bird enthusiasts are frequent sufferers.

But nothing in the Colorado man’s history suggested that he was breathing in excessive amounts of mold or bird droppings, Dr. Rose said. She has consulted to flavorings manufacturers for years about “popcorn workers’ lung,” and said that something about the man’s tests appeared similar to those of the workers.

“I said to him, ‘This is a very weird question, but bear with me. But are you around a lot of popcorn?’ ” Dr. Rose asked. “His jaw dropped and he said, ‘How could you possibly know that about me? I am Mr. Popcorn. I love popcorn.’ ”

The man told Dr. Rose that he had eaten microwave popcorn at least twice a day for more than 10 years.

I was recently diagnosed with an ulcer in my esophagus, which has put me out of commission a few times from blogging or speaking, but has been treated well with medicine (so far). I have had to cut back to one of those mini-bags and move up my popcorn to earlier in the evening. But take it away from me, after I've consumed one (not two) bags at least as long as Mr. Popcorn here? I travel; I know how to sneak the stuff in my suitcase; I will not be denied.

Labels: food

Most economists wouldn't be by this story (from WSJ, subscribers' link)

While it's true that a frozen lasagna dish is usually faster to make than homemade lasagna, researchers from the University of California-Los Angeles wanted to find out how convenience foods are used in the real world. After they videotaped family cooking habits, the researchers saw that convenience foods weren't used as a time-saving substitute for the same dish made from scratch. Instead packaged foods offered a way for families to eat more elaborate meals than they would normally have time to prepare.

When families did cook from scratch, they ate simpler fare -- like one-pot meals or stir-fry. In the end, dinner took about a half-hour to an hour to prepare, whether it was made from scratch or with convenience foods, according to the research, which was published in the July issue of the British Food Journal and funded by the Alfred P. Sloan Foundation, a nonprofit group that funds science, economic and other research.

Says anthropology researcher Margaret Beck from the Center on Everyday Lives of Families at UCLA, "When people use convenience foods, they are ramping up expectations for how elaborate a dinner should be."

...The study showed that meals with little or no convenience foods took 26 to 93 minutes to prepare. Meals that used a lot of convenience foods took 25 to 73 minutes to prepare. While convenience foods were time-savers on very elaborate meals, overall, there was no statistically significant difference in total preparation time.

One difference that emerged was "hands on" time -- the amount of time people spent slicing, dicing and stirring foods. Using convenience foods shaved about 10 minutes of hands-on time, but it didn't make any difference in how quickly the food got to the table.

The anthropologists assume that what you want to consume is time or a particular dish. What you are really purchasing, though, is a meal and family time. A more elaborate meal allows more time to talk; it keeps the kids at the table. And ten minutes without hands on the food is ten minutes to talk, play with your children, start your email, or what have you.

There is no reason why convenience food should be a substitute rather than a complement to food prepared from scratch.

Labels: economics, food