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?
- 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.
- 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.
Richard
(Rick) Mills
Richard lives with his family on a 160 acre ranch in northern British Columbia. He invests in the resource and biotechnology/pharmaceutical sectors and is the owner of Aheadoftheherd.com. His articles have been published on over 400 websites, including:
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