As a general rule, the most successful man in life is the man who has the best information
If you look at the many charts and read many of the articles being published today you couldn't be faulted for thinking the rise in food prices is a fairly recent phenomena.
Commodity Food Price Index Monthly Price, indexmundi.com
The Food and Agriculture Organization (FAO) of the United Nations publishes the FAO Food Price Index, a measure of the monthly change in international prices of a basket of food commodities.
In 2002 FAO's Food Price Index stood at 89.6, in May of 2014 it's at 207.8. In 2002 meat was 89.9, dairy 80.9 and cereals 93.7. In May 2014 the three individual index's stood at:
- Meat 189.1
- Dairy 238.9
- Cereals 204.4
The International Monetary Fund (IMF) recently published its Index of Primary Commodity Prices.
The reality is food has been soaring in price for decades. Look at this eye popping chart from the St. Louis Fed.
The next time you are in the supermarket play this game - compare today's prices for the following items to 1970's prices:
- Apples - .15lb
- Ham - $2.29lb
- Campbells Tomato Soup - .10
- Crest Toothpaste - .77
- Folgers Coffee - $1.90lb
- Turkey - .43lb
- Ground Round - .79lb
- Potatoes - .98 for 10lb
- Large Eggs - .59 dozen
- Pork Chops - .59lb
- Sliced bread - .16 loaf
- Sugar - .39 5lb
- Rump Roast - $1.69lb
- Bacon - $1.29lb
Experts and industry insiders often agree about some of the basic underlying causes of the recent jump in prices - drought, disease, climate change, loss of arable land and soaring input costs, such as diesel and fertilizers. It's pretty obvious they all have an impact on the price of what eventually reach's your supermarket shelves.
But most pundits don't get it, fortunately we at ahead of the herd do - in the agricultural industry today, as it has been for the past 70 some years, it's all about supply and demand.
And supply isn't keeping up with demand. Food prices have been on an upwards march for a very long time. That's what happens when demand outpaces supply.
Why is demand outpacing supply?
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Growing global population - The global population is increasing by over 75 million people a year. Impacts from weather and natural disasters will ebb and flow but population growth is a constant driver of demand.
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Climbing the protein ladder - Many people in emerging/developing economies have increasing discretionary income, they are becoming richer. As income increases people move up the protein ladder, from staples such as rice they climb the ladder and demand more protein in the form of meat and dairy.
Food prices will have to climb ever higher over the coming decades as billions more people are born further increasing demand and stretching the Earth's limited resources.
By 2050, the world's population is expected to reach around nine billion - maximum projections range up to 10.6 billion. By the mid 2060s it's possible that as many as 11.4 billion people will inhabit this planet.
The term Green Revolution refers to a series of research, development, and technology transfers (the shift to high-yielding rice, wheat and corn varieties that are dependent on irrigation and heavy fertilization) that happened between the 1940s and the late 1960s.
The initiatives involved:
- Development of high yielding varieties of cereal grains
- Expansion of irrigation infrastructure
- Modernization of management techniques
- Mechanization
- Distribution of hybridized seeds, synthetic fertilizers, and pesticides to farmers
All these new technologies increased global agriculture production with the full effects starting to be felt in the 1960s.
The Green Revolution's use of hybrid seeds, irrigation, chemical fertilizers, pesticides, fossil fuels, farm machinery, and high-tech growing and processing systems combined to greatly increase agriculture yields. The Green Revolution is responsible for feeding billions - and likely enabling the birth of billions more people.
"When wheat is ripening properly, when the wind is blowing across the field, you can hear the beards of the wheat rubbing together. They sound like the pine needles in a forest. It is a sweet, whispering music that once you hear, you never forget."
~ Norman Borlaug, father of the Green Revolution
Cereal production more than doubled in developing nations - yields of rice, maize, and wheat increased steadily. Between 1950 and 1984 world grain production increased by over 250% - and the world added a couple more billion people to the dinner table.
Many experts believe technological advancements in agriculture, energy & water use, manufacturing, disease control, fertilizers, information management and transportation will always keep crop production ahead of the population growth curve.
That's a lot to ask as over the next fifty years we add another 4 billion people to the world's population. Global demand for food will increase almost 70% if population growth predictions are correct.
What many of these 'experts' don't get is the Green Revolution's reality. It wasn't about the fertilizers, pesticides or irrigation etc. These were all secondary players, add on technologies or basically derivatives to the main technology - dwarfing. By breeding plants to invest less energy in producing stems more energy goes to grain.
"In 1953, Dr. Borlaug began working with a wheat strain containing an unusual gene. It had the effect of shrinking the wheat plant, creating a stubby, compact variety. Yet crucially, the seed heads did not shrink, meaning a small plant could still produce a large amount of wheat.
Dr. Borlaug and his team transferred the gene into tropical wheats. When high fertilizer levels were applied to these new "semidwarf" plants, the results were nothing short of astonishing.
The plants would produce enormous heads of grain, yet their stiff, short bodies could support the weight without falling over. On the same amount of land, wheat output could be tripled or quadrupled. Later, the idea was applied to rice, the staple crop for nearly half the world's population, with yields jumping several-fold compared with some traditional varieties.
This strange principle of increasing yields by shrinking plants was the central insight of the Green Revolution, and its impact was enormous."
~ Justin Gillis, Norman Borlaug, Plant Scientist Who Fought Famine, Dies at 95
Conclusion
Well, we've been there done that dwarfing thing. So what's next? What's going to save us this time round the mulberry bush? Nada, zilch, nothing, zip. We'll have to keep dumping fertilizer on a decreasing arable land base while trying to increase irrigation using our rapidly depleting fresh water aquifers. All the while staring at the effects of climate change, rising transport costs and increasing geo-political risks.
Already over one billion people, or a seventh of the world's population, goes to bed hungry each night.
Somewhere in the world someone starves to death every 3.6 seconds - most of the names on starvation's role call are children under the age of five.
Rising agricultural yields have always outpaced population growth, perhaps today that is no longer the case. 'Been there, done that' should be on all our radar screens. It's definitely on mine. Is it on yours?
If not, maybe it should be.
