Nudging the Limits to Growth

There are several reasons cited for the recent worldwide spike in food costs which has seen the per ton price of rice nearly triple, with other grains amongst nearly all foodstuffs also seeing steep rises. However, one cause, which I consider the most important, is not mentioned very often, and especially not in the corporate media.

A combination of factors has brought world rice stocks down to a 30 year low. On the demand side the primary reason has to be laid to rising population.

We can not possibly continue to add people indefinitely to a finite world without repercussions. The idea that we and our consumption can grow indefinitely and unrestrainedly never did make an iota of sense: Now that we are bumping up against the limits of the world’s capacities only the most ludicrously out of touch can not see the great danger humanity faces.

Of course, it isn’t just our increasing numbers, but also the desire on the part of rising classes of people in parts of the developing world - in China primarily but the trend is also being seen in India and several other countries - who are using their rising incomes to eat more meat. In our world of mostly grain fed animals – there’s nowhere near enough grazing land for the world’s livestock – that is a serious drain on grain stocks: it takes 7 kilos of grain to produce one kilo of beef.

The other major factor feeding demand is diversion of cropland to grow biofuels. Biofuels make sense in certain special and limited circumstances but can never make a meaningful contribution to a developed country’s liquid fuel needs. The one third of America’s corn crop that is devoted to ethanol produces a few insignificant percentage points of its needs. Moreover, much of that corn is in irrigated fields, with the water coming from aquifers that are being depleted at a fast rate. Most harmful to the cause of corn ethanol is that, when all inputs are considered, it does not save energy or reduce greenhouse gases. The industry would not survive in the US without government subsidies.

In contrast, biofuels might make some sense here in Cambodia, which has a relatively small and mostly low income population - so that demand is very light – in a very watery – ground water is only a few meters below the surface - and fertile country. Cambodia now exports two million tons of rice of a total crop of eight million tons but could easily double or even triple production with irrigation - most paddy land now yields one crop per year but could produce three. Moreover, sugar cane, grown in tropical climates, is much more efficient at producing ethanol than corn. Cambodia has another advantage in this matter; since so much of its farming is done through manual labor rather than machinery biofuel production would be a net energy gain instead of a loss.

There are other places in the world like Cambodia where food production could be substantially increased, but in a world of rising population and aspirations, this can only be a stop-gap measure. Moreover, increased production in some areas is being offset by climate-change-caused reduced production in others, so will not likely relieve demand pressure. An additional not insignificant factor is the relentless conversion of cropland for development – in many parts of the world protecting farmland receives low priority.

Most problematically, increased food production presumes access to necessary fertilizers and brings the world hard up against another related limit to growth. “Green Revolution” yields require heavy applications of nitrogen, potassium and phosphorus. Commercial nitrogen fertilizer is made from natural gas, which along with crude oil is in short supply and rocketing upward in price. The other two are minerals with world supplies being depleted at a fast clip.

As a result of increased demand some types of fertilizers have tripled in price recently. In fact, increased cost of fertilizer along with the rising cost of fuel needed to run farm equipment and transport food to market are the only legitimate factors in the current rise in food prices, and then probably account for no more than 10% to 20% of the recent spike.

All that said, there is no shortage of grain in the world. Supplies may be tight, but there’s still enough to feed everybody. What then is responsible for a tripling of the price of rice in the past few months?

Prices are out of control because of inflation frenzy and its extreme manifestation, speculation. If, as a seller of a commodity, you believe prices are going to rise, you can jump the gun; that is, raise your prices pre-emptively, so to speak. If your customers complain, you’ve got a good excuse, What can I do? Everything’s going up. If you are an end consumer in the same economy, you’ll hoard; buy as much as you can in anticipation of further price rises. If you are a middleman, you’d be smart to hold back supplies for the same reason. Both, unfortunately feed the frenzy and become self-fulfilling prophecy; supplies tighten and put further pressure on prices.

Then there’s speculation. If you’re a gazillionaire or are otherwise charged with handling gazillionaire money, you don’t what to do with the oodles of cash you are swimming in. Economic policy over the last few decades has transferred large sums of money from the lower classes into your deep and overflowing pockets. The amounts are so vast there just aren’t enough places to make it work for you. So what better ‘investment opportunity’ than commodities in short supply; like oil or fertilizer or rice? Why not ride the inflation frenzy and pocket some more oodles to add to your heavily laden stash? You can’t be responsible for the hundred million people who’ll go hungry because they can no longer afford to eat just because you played the commodities market and came out with an extra few million bucks. Or can you?

Or can you? In America today income disparity is higher than at any time since 1929. This did not happen by accident, but through a concerted effort on the part of the wealthy for a greater stake in the economy. There are always high sounding rationales that can be used to justify that course of action – a rising tide lifts all boats, etc. – but in truth, it’s bad for everyone except those at the very top of the income heap. Wide income disparity isn’t just an ethical problem, one of fairness, but a drag on the entire society.

I don’t mean to imply that speculation is the sole culprit in the recent spectacular rises in food commodities, but when hundreds of billions of dollars get thrown into food markets to take advantage of fears of shortage, it can have a devastating effect. If luxury goods or other types of discretionary spending were impacted, then who cares, let the market do its thing. But when the survival of large numbers of people is at stake then it’s clear that fundamental changes need to be made to the very infrastructure of the world’s economy as it relates to food.

Basic sustenance needs to be taken out of the category of ‘investment opportunities’. I’m not sure how that would look, though I’m sure it could be done… at least in theory. In the current world, real changes that would impact the power of the superwealthy are unimaginable. When you have the US congress - run by the Democratic Party no less, a party that occasionally pretends to stand up for the ‘people’ - giving massive tax breaks, aka corporate welfare, to fabulously profitable oil companies, you know adapting the world economic order to keep people alive rather than hedge funds profitable is in the realm of pure fantasy.

Too bad, because there’ll be hell to pay for putting profit before humanity.