Food, Water, Energy Shortages / Where Does Our Food Come From? – The End of Food
July 13, 2008
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RELATED TICKERS: PHO
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Food, Water, Energy Shortages is a topic that has been blogged about very often here at Caps. It is a very important topic and as with homebuilders, the collapse of financials, inflation, rising oil prices, etc. I believe it is a topic that really cannot be talked about enough. Many bloggers have discussed many of these topics in more detail (bellard, FourthAxis, TMFDeej, AnomaLee, camistocks, abitarecatania, etc.). What prompted this blog on my part was a radio interview I heard last weekend I heard on Bob Edwards Weekend. It was with Paul Roberts, author of The End of Food. I know, I know that is a very sensational book title. But the topic and how he articulated it was fascinating and not all doom-and-gloom.
Let me preempt by saying I have not read this book, or his other book The End of Oil. So perhaps he is more doom-and-gloom in his books than he is on the radio. But let me say that he makes several points about current trends and changing behavior before a major crisis occurs. And much of these echo the same points that many of our Caps bloggers have articulated.
For those of you who like Futurama, a Kif / Zapp Brannigan exchange is quite apt for the situation:
Kif Kroker: Captain, may I have a word with you?
Captain Zapp Brannigan: No.
Kif Kroker: It's an emergency, sir.
Captain Zapp Brannigan: Come back when it's a catastrophe.
… :)
Many of us have blogged about the state of emergency of the economy, the financial sector, about peak oil, and food and water shortages. And it doesn’t take a lot of imagination to see how these could turn into catastrophes. There are some catastrophes that are unavoidable because of the inaction occurred when something could be done about them. But food is a burgeoning emergency, and can be stopped before it becomes a catastrophe. That’s not to say that there are not horrific situations right now. There is starvation in Africa and Asia, where people cannot cope with the increasing food prices currently. However this is the tip of a possible iceberg in terms of truly global food shortages. We can see that the outcome if nothing is changed is so bad that the human race will have to do something about it.
I will include snippets of the interview (most of it will be paraphrased) which I will include as italics as well as some of my own commentary.
Food, Water, Energy Shortages
The first and most obvious reason for food shortages right now are because of corn ethanol. Corn ethanol is stupid. It is a complete boondoggle. It solves no energy problem as it costs just as much energy to create compared to what you get in the end. It diverts crops which should be grown for food to fuel production. This is creating / contributing to the global food shortage. It is just dumb on so many levels.
So that is one very large strain on world grain supply. But another that is large strain and one that is growing is the growing production and consumption of meat worldwide. Many have blogged about this in the past. FourthAxis has an awesome response on bellard's blog regarding increased consumption and the changing of eating habits a...... (see response 3). The bottom line is that much of the worlds population is now consuming more meat, and that meat requires a significant amount of grain.
Consider that 4 lb grain is required for 1 lb chicken and 20 lb grain for 1 lb beef
As soon as populations can afford to eat meat they do, this has always happened historically. Even countries that are supposedly philosophically inclined towards vegetarianism or partial vegetarian are now eating meat (some of China, India, Pacific coast of Asia, etc.). The author posits that these countries were not vegetarian at all, they were just too poor to afford meat for most of their history.
Some estimates suggest that the amount of meat that will be consumed a few decades from now will double globally. This would mean that approximately 1 billion tons of grains over current production. Think about this in the US, is it even possible to double the amount of farmland? How much deforestation would need to take place to accomplish this? What climate change situations will be induced by that much more forest area being lost?
And this does not apply to just grain. It applies to water as well. Consider that up to 1000 lb. of water is required to grow 1 lb of grain. And if a population starts eating more meat because they can afford it then a 4x-20x more water is required to grow the grain to feed the livestock than it would be to feed the population.
1/6 of the populations of India and China are being fed with water that is being unsustainably drawn. This mean that’s that aquafirs are being drawn deeper and deeper every year at the current demand.
Also keep in mind that agriculture is extremely energy intensive. It is intensive to grow. And since most of the grain is not grown near where it is consumed, it is very energy intensive to ship. Will we have enough oil and water to grow enough grain to create the meat to solve the world’s demand, if it grows at it current rate? What if the rate increases?
All of this also plays into the peak oil argument. Again, there are so many blogs on Caps about Peak Oil. My favorite is this one by rudolphsteiner. So I will not talk about it here. But consider the demand of the US for oil, the growing demand from China and India, and then increased demand from the world to grow more grain. With no appreciable supply increase, demand for oil is likely to rise in my opinion.
Where Does our Food Come From?
Technological advancements in the 18th century allowed us to secure our food production future. This was absolutely a blessing as was required to secure humanities nutritional future. Nutritional health ever since the dawn of humanity was always precarious. Large scale famines in the US significantly were significantly reduced. This allowed us to focus efforts on increasing output for export and for raising livestock. As this becomes a source of wealth in the 19th and 20th centuries, ways to increase this “output” was found. For example, feeding antibiotics to cattle. This increased production by 25% (less cattle dying, “healthier” cattle), it was essentially “free” meat. Crowding of animals in pens, etc.
It is unquestionable the industrialization of agriculture was a necessary step in the right direction. A couple of hundred years ago humanity “was always just one step ahead of starving”. Industrial agriculture for the sake of feeding the world is a good thing. And the author talks about how and why food subsidies came to be during the FDR era. There have always been market forces that guide farmers to plant certain crops. And when the demand changes the farmers can’t react fast enough. Farmers go out of business, then when their crops are needed in the future there is a shortage. So subsidies, when they were first implemented, were intended to intended to smooth out this volatility by paying farmers consistent prices and stockpiling grain when there was excess, and they did.
However, the system is now unbalanced. By 1980, 40% of world’s corn came from the US and 25% of that com comes from one state – Iowa. This is the epitome of large scale commercial agriculture. These operations are hugely efficient, with the best farmers, best breeders. But before 1980, Iowa had a very varied agricultural based. Lots of corn, but also other grain crops, chickens, pigs, etc. They were regionally agriculturally self-sufficient. But as the demand for corn/other grains increased and they way to achieve the profits for that demand were efficiency and streamlining, Iowa began to focus on corn above all else. Regions began to specialize. But these regions needs lots of oil to grow and also to ship. What happens when these low cost crops are no longer in demand? Is this a good solution? Would it be better to keep the industrial advantages to farming and still have high yield crops for export but also have diversity in these growing regions for regional self-sufficiency?
So there has been this trend to industrialize food production, some of it an unintentional consequence of farm subsidies. But there is also the trend of industrialization of food preparation. The author uses the story of Nestle as a great example of how food company’s “add value”. By adding value, companies make food easier to prepare, all the way from instant coffee to fully prepared frozen dinners. And because of the fact that food production is now streamlined, industrialized, and source from the lowest bidder, where is all the food coming from? What is its nutritional content? How has the processing affected the quality of the food?
The outsourcing of cooking by food companies by adding value. This started out as a huge a huge benefit, now it is questionable or even detrimental. In the 19th century a family spent 4 hours of food preparation per day. This was excessive and a huge burden. However today, many families spend about half an hour of food preparation per day. The pendulum has swung too far to the side of convenience.
High food prices, like high energy prices, are getting people to sit up and take notice that they don’t know anything about how their food is made or where it comes from.
Supermarkets follow the model: Low prices, low margins, high volume. From 1980s on the price pressures have been paramount in supermarket industry. This forced high efficiency on food manufactures. Food manufactures now find any way to increase efficiency: automation, illegal low-wage workers, and food sourcing. Food sourcing goes to the lowest cost bidder. What are the implications for the quality of this food?
Food Safety
Bacteria is able to exploit so much of the modern food system. Ecoli, salmonella are amazingly adaptive. Ecoli used just exist in the bovine gut, not really a problem. But it has adapted mostly because of the high corn diet that it is fed. Beef is moved rapidly to packing plants / slaugherhouses. This is a very fast-moving and complex system. All this beef from so many sources is combined and then sent out to fast food, supermarkets, spaghetti sauces, etc.
This rapidly dispersed model of food production has some very high costs for problems. Consider the Topps ground beef recall. This was such a large recall because they couldn’t say where the problem originated. The beef that was mixed and was distributed got out of hand so quickly that 21 million pounds was recalled. This bankrupted the company in 2007. So the price of failure in this current model of food distribution, where food from so many low cost sources in combined, packed and distributed so quickly, is potential bankruptcy. This is a heavy price, and one that may be considered acceptable at the current rate of problems. But there are more frequent food safety issues, not less. And with more food being demanded over the world, this seems like an unsustainable model.
Summary and Investment Ideas
Okay, there was a lot of information above and jumped around a bit. But I think it is enough to illustrate this theme: The industrialization of food, which started out as a huge benefit in the 19th century, has become a liability. Most of us does not know where our food comes from, what went into making it, or how to prepare our own food. From a social viewpoint, the culture of meat consumption has vast implications for the future of food production, as well as many safety concerns in this era of “everyday low prices”.
So I have some ideas for investments. Some are not “traditional investments” but will probably pay dividends that are more valuable Bank of America dividends (if they continue). I promise to not go on any diatribes.
-1. Plant a Garden
This is the single most important step in taking care of your food destiny. Everybody should grow at least some of their own food. Even if you live in an apartment building in the middle of the city, you can have a small container garden. Gardens give you self-sufficiency, adds to your well-being (it feels good to get your hands dirty), adds to your health, helps the planet (less food that has to be shipped from elsewhere, less oil). Abitarecatania has an awesome post on urban gardening here: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=54425&t=01007146184382914537
-2. Watch Food Network / Learn how to cook.
I understand most people don’t know how to cook. It can be daunting. Most people also don’t think they have the time. But even if you start out by not cooking every meal yourself, you will benefit from cooking at least some of your own meals. You will be healthier (you can buy better ingredients than what go into packaged food), you will be happier (cooking for yourself add to your self-sufficiency which is always a good thing :) ). And there are so many great resources on TV and the web for find easy and simple recipes. Grow your own tomatoes from your garden and cook a batch of Pasta Puttanesca!
-3. Locally grown food / Organic Food
Locally grown food is better because the food is local and does not have to be shipped from far away (less oil). Local farmers are going to grow smaller quantities and will probably be growing sustainably in the first place. But organic farmers definitely will. The food will taste better, be healthier for you, and be better for the environment. Join a food co-op. Visit your local farmers markets.
-4. Eat less meat
I realize this one is a tough sell. Let me first say that I am not a vegetarian. I just tend to eat meat very infrequently now. This is a choice that I made for many reasons. Having a more balanced diet is healthier. Lots of fruits and vegetables is good for you. Protein can be found from many sources besides meat (tofu/soy, eggs, nuts, beans, quinoa, whole grains, etc.). I also read so many articles about how animals are treated in the mainstream industrial agriculture machine, and this just my personal opinion, I really don’t like supporting that. And since organic grass-feed beef costs $30/lb, I tend not to eat it very often :) So I am not trying to lecture, please see that I am not coming from that angle, it just seems like our current system is so unsustainable in terms of food production that I want to find alternatives for myself and my family. And since the inefficiency of meat production with respect to grain requirements is part of that, I have made the choice to eat less of it. Again, this is a very personal choice, but I feel very good about it.
-5. Oil
Oil will continue to be a good investment. There has been a lot of talk about inflation and deflation, and what that will mean for oil prices. My belief is that the trend is increasing oil prices for the next several years. The USD continues to decline and has been declining for a variety of very obvious reasons over the past several years: money creation, liquidity pumping, US economy no longer production based, Fed is now backing loans to banks based on rapidly depreciating assets (housing), etc. And for many years before and even now the USD is still the world’s reserve currency. Oil is bought and sold in USD. Oil is the single biggest and most important commodity in the global economy. Even though the US is still by far the biggest consumer of oil, many other growing economies are competing for demand. China has still been propping up the dollar because they hold such a large inventory of dollars. They have also been increasing their demand for oil exponentially. China needs to grow as is using their glut of dollars to buy they world’s most important commodity. So what will happen to the price of oil in this scenario: The US prints money, Global demand continues to decrease, Global supply stays the same. Will oil price be deflationary or inflationary? Historically it is obviously inflationary. Just look at the price rise. But there have been predictions of demand destruction at $2 gas, $3 gas, $4 gas. I read a statistic (I don’t remember where) that the US demand at $4 gas is only 4% less than at the $2 level. That seems fairly inelastic to me. And so many other countries have a hoard of USD, probably very intelligently, saving that simply as an oil procurement fund. So if the US economy collapses (whether it be a severe recession or a depression), there will still be high demand for oil from these other economies for oil. The Fed will be printing even more money to make up for the credit collapse. And other countries will still have the USD-backed-oil-funds to buy more oil. The big assumption here is that even at this level supply-demand is relatively inelastic. This really does look to be the case. All of the contracts have to be filled at the end of the month, and the price keeps rising at this demand level. Unless there is a major decrease in global demand (seems unlikely to me) I find it a hard argument to accept that the price of oil goes down.
-6. Food
Right now with all the food shortages in Africa and Asia due to the food imbalance created by corn ethanol, the demand for food and the high price increases observed the past 2 years I believe will still continue. There are several ETFs that invest in Agriculture futures: DBA, MOO, COW, etc. but the one that I think is best-diversified is RJA.
-7. Water
Besides the reasons cited in this post, there are so many blogs that talk about water. Fresh water is the most important resource in the world, and its importance will be growing. Water stocks and ETF that play on this: PHO, FIW, VE, SBS, LAYN, MWA-B, ERII, etc.
Please feel free to comment!
References:
Interview took place on Bob Edwards Weekend – July 6
Here is the link to the interview archive http://www.bobedwards.info/ftopic757.html - the interview starts at 20:45
Bob Edwards Radio site for July - http://www.bobedwardsradio.com/bew-july-2008/
Paul Roberts site for The End of Food - http://www.theendoffood.com/
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