Food Price Crisis

"For all the economists and consumers who hope high food prices are temporary, here's one reason why they probably won't be: Farm costs are skyrocketing, making permanently higher prices essential for farmers to keep expanding production. ... In the American Midwest, land prices have jumped, along with the cost of energy and chemicals. ... The higher costs are transforming the economics of agriculture. Since some of the heftier outlays--like those for fuel--are expected to persist, farmers will need to command higher prices for their crops than they did a few years ago to maintain their profit margins. ... Rising costs 'are sweeping across the commodities complex, and agriculture can't escape it,' says Michael Lewis, global head of commodities research at Deutsche Bank in London. The upshot, he says, is 'a complete structural shift' in agricultural prices to a new, higher, level", WSJ, 14 April 2008.

"The upshot for Asian governments is increased social tensions in many countries where food shortages were unheard of until very recently. ... People have to eat, and if it costs them too much to eat, they will in turn demand to be paid more. This creates a vicious cycle of inflation that will eventually reduce the living standards of pretty much every second person in the region. ... Agricultural produce has been the source of much abuse by the Europeans, whose Common Agricultural Policy (CAP-surely an acronym that deserves an 'R' as it second letter) is uniquely responsible for keeping a billion people in dire poverty. ... Any European who talks about how much more civilized the continent has been relative to America's war-mongering clearly doesn't understand the horrific costs on poor farmers elsewhere in the world. Put simply, while it's easy to count America's war dead, perhaps in the hundreds of thousands, victims of European farm subsidies number in the hundreds of millions. ... There is another culprit here. ... the US dollar. More simply, the idiot central bankers of Asia who squander their responsibility at the altar of conformity by purchasing billions of dollars worth of useless financial assets have done their region a great disservice. The US dollar is too strong relative to inherent industrial and service sector advantages of the US economy today. Put differently, America's economy is far bigger than it deserves to be, thanks mainly to the unregulated appetite of Asian central bankers in accumulating US dollars and its overvalued counterparts such as the euro. ... The other side of this wealth transfer is that Asian currencies are stupidly cheap compared with the competititve advantages that have been heaped on the region for the past few decades. That in turn attunes an excessive number of factor inputs to the production of goods for the US consumer rather than serving domestic consumption. Looking through the economic make-up of most of the region, only Australia and India stand out as countries with a defensible mix of domestic consumption against goods produced for export", Chan Akya (CA) at http://www.atimes.com/, 18 April 2008.

"Energy Secretary Samuel Bodman said Friday that the growing emphasis on corn-based ethanol has contributed to higher food prices, and he said the nation should begin 'moving away gradually' from ethanol made from food such as corn. ... Bodman's remarks come as efforts to make motor-vehicle fuels from grains such as corn are coming under fire amid soaring world food prices and food riots in several countries. A U.N. report Tuesday called biofuels a 'crime against humanity'," WSJ, 19 April 2008.

"Mexicans feel the pain of record corn prices every day when they buy a staple of the national diet, the corn tortilla. Tortilla inflation has been severe enough to send citizens to the streets in protest. ... While corn farmers elsewhere welcome the surging prices, Mexican farmers are absorbing higher costs to feed corn to cattle, hogs and chickens. That means higher prices for milk, eggs and meat. ... 'The days of cheap food have ended,' said Juan Antonio Pedroza, president of a trade association of Mexican food producers. 'The social impact will be tremendous'," Houston Chronicle, 20 April 2008.

I agree with Lewis. I don't expect to see grain costs drop for years.

CA has this knocked. I remember when I was with "Big 8" about 18 months, a senior accountant referred to "Creatively Revised Accounting Principles", CRAP. We have CRAP all over. Where is this going? US living standards will fall relative to Asia and US imports of Asian goods will fall as measured US inflation rises. In 1896 William Jennings Bryan, at the Democratic Convention in Chicago said, "Having behind us the producing masses of this nation and the world, supported by the commerical interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind on a cross of gold". The Asian central bankers crucify their own people on a "cross of dollars".

Amazing, I agree with the UN about biofuels, even if I would not call them a "crime against humanity" as opposed to a blunder.

Is Pedroza ever right.