Sunday, March 9, 2008

Farmers are having a good time

Everywhere, the cost of food is rising sharply. Whether the world is in for a long period of continued increases has become one of the most urgent issues in economics.

Many factors are contributing to the rise, but the biggest is runaway demand. In recent years, the world’s developing countries have been growing about 7 percent a year, an unusually rapid rate by historical standards.

The high growth rate means hundreds of millions of people are, for the first time, getting access to the basics of life, including a better diet. That jump in demand is helping to drive up the prices of agricultural commodities.

Farmers the world over are producing flat-out. American agricultural exports are expected to increase 23 percent this year to $101 billion, a record. The world’s grain stockpiles have fallen to the lowest levels in decades.

Everyone wants to eat like an American on this globe,” said Daniel W. Basse of the AgResource Company, a Chicago consultancy. “But if they do, we’re going to need another two or three globes to grow it all.”

In contrast to a run-up in the 1990s, investors this time are betting — as they buy and sell contracts for future delivery of food commodities — that scarcity and high prices will last for years.

If that comes to pass, it is likely to present big problems in managing the American economy. Rising food prices in the United States are already helping to fuel inflation reminiscent of the 1970s.

And the increases could become an even bigger problem overseas. The increases that have already occurred are depriving poor people of food, setting off social unrest and even spurring riots in some countries.

In the long run, the food supply could grow. More land may be pulled into production, and outdated farming methods in some countries may be upgraded. Moreover, rising prices could force more people to cut back. The big question is whether such changes will be enough to bring supply and demand into better balance.

“People are trying to figure out, is this a new era?” said Joseph Glauber, chief economist for the United States Department of Agriculture. “Are prices going to be high forever?”

At a moment when much of the country is contemplating recession, farmers are flourishing. The Agriculture Department forecasts that farm income this year will be 50 percent greater than the average of the last 10 years. The flood of money into American agriculture is leading to rising land values and a renewed sense of optimism in rural America.

“All of a sudden farmers are more in control, which is a weird position for them,” said Brian Sorenson of the Northern Crops Institute in Fargo, N.D. “Everyone’s knocking at their door, saying, ‘Grow this, grow that.’ ”

Mr. Miller’s family has worked the Great Plains for more than a century. One afternoon early last month, he turned on the computer in his combination office and laundry room to see what commodity prices were up to.

“Oh, my goodness, look at that,” Mr. Miller said. Barley was $6.40 a bushel, approaching a price that would tempt him to plant more. Soybeans were $12.79 a bushel, up from $8.50 in August.

The frozen earth outside was only a few weeks from coming to life, but Mr. Miller was happily uncertain about what to plant. Last year, the decision was easy for Mr. Miller and everyone else: prices of corn were high because of new government mandates for production of ethanol, a motor fuel. This year, so many crops look like good bets, and there is so little land on which to plant them.

“I’m debating between spring wheat, durum wheat, canola, malting barley, confection sunflowers, oil sunflowers, soybeans, flax and corn,” Mr. Miller said.

The biggest blemish on this winter of joy is that farmers’ own costs are rising rapidly. Expenses for the diesel fuel used to run tractors and combines and for the fertilizer essential to modern agriculture have soared. Mr. Miller does not just want high prices; he needs them to pay his bills.

Until recently, he could expect around $3 a bushel for his wheat — far less than his parents and grandparents received, when inflation is taken into account. Consumption in the United States was dropping as Americans shunned carbohydrates. The export market, while healthy, faced competition.

Now prices have more than tripled, partly because of a drought in Australia and bad harvests elsewhere and also because of unslaked global demand for crackers, bread and noodles. In seven of the last eight years, world wheat consumption has outpaced production. Stockpiles are at their lowest point in decades.

Around the world, wheat is becoming a precious commodity. In Pakistan, thousands of paramilitary troops have been deployed since January to guard trucks carrying wheat and flour. Malaysia, trying to keep its commodities at home, has made it a crime to export flour and other products without a license. Consumer groups in Italy staged a widely publicized (if also widely disregarded) one-day pasta strike last fall.

In the United States, the price of dry pasta has risen 20 percent since October, according to government data. Flour is up 19 percent since last summer. Over all, food and beverage prices are rising 4 percent a year, the fastest pace in nearly two decades.

The American Bakers Association last month took the radical step of suggesting that American exports be curtailed to keep wheat at home, though the group later backed off.

-A Global Need for Grain That Farms Can’t Fill

1 comment:

Maynard said...

Oh the wisdom of the economist:
Compare:
(1) "
“Everyone wants to eat like an American on this globe,” said Daniel W. Basse of the AgResource Company, a Chicago consultancy. “But if they do, we’re going to need another two or three globes to grow it all.”

with
(2)"
In the long run, the food supply could grow. More land may be pulled into production, and outdated farming methods in some countries may be upgraded. Moreover, rising prices could force more people to cut back. The big question is whether such changes will be enough to bring supply and demand into better balance.
"

Right. we're going to grow on extra land from those additional two to three earths? We're going to replace outdated farming methods with oil-intensive methods using oil we import from Pluto?

More to the point, I'd like to ask: how the fsck did you economists think this was going to play out? Ever since Ehrlich hit you upside the head in the early 70's, this has been inevitable, and your answer has been "the market will provide". Well, the markte is finally providing --- the good times that were sustained by cheap oil and ever increasing immiseration are over and the market response is --- higher priced food. How, exactly, is this a win for you and a point against Ehrlich? What do we think the end point of ever higher food prices will be?