Bloomberg
10-03-07
Neo-Malthusians Worry About Food Supply Again: Caroline Baum
By Caroline Baum
Oct. 3 (Bloomberg) -- Some bad ideas refuse to die a quiet death. Instead they
come back to haunt us at a different time, in a different place or in a slightly
different format.
Take, for example, the notion that the world population will outrun the food
supply. That prediction, along with the ``cure'' (population control), gained
currency with Thomas Malthus in the late 18th century; was revitalized with the
1968 publication of ``The Population Bomb,'' by biologist Paul Ehrlich, predicting
famine and death on an unprecedented scale; reappeared, courtesy of the Club
of Rome, in the 1972 book, ``Limits to Growth;'' and garnered renewed media
attention in 1980, when economist Julian Simon challenged Ehrlich on his
prediction of massive shortages of natural resources (Simon won), before landing
on today's doorstep with the huge rally in grain prices.
On cue, the headlines are once again warning of dire consequences from rising
food prices and low grain stockpiles.
Why is this sort of Malthusian gloom and doom so appealing to so many? You
don't have to be a farmer or an agricultural economist to raise an eyebrow over
predictions of chronic crop shortages. While weather may affect crop yields from
one season to the next, shortages tend to give way to surpluses, as higher prices
induce producers to increase their output. And somehow man, through his
eternal inventiveness, always finds a way to produce more with less.
That said, consumers are currently paying higher prices for food. The price of
food and beverages rose 4.2 percent in the 12 months ended August, led by a 12
percent jump in dairy items, according to the consumer price index. The
wholesale price of crude foodstuffs, including grains and livestock that have not
been processed, is up almost 24 percent in that same time frame. An index of
spot foodstuffs, including wheat, corn, hogs and soybean oil, is up 22 percent in
the year ended Sept. 28.
Empty Table?
For some reason, folks think agriculture is exempt from the basic law of supply
and demand.
``We are not suddenly going to run out of food,'' says Michael Swanson, senior
agricultural economist at Wells Fargo & Co. in Minneapolis. ``There will be a
supply response.''
Already U.S. farmers have planted 93 million acres of corn this year compared
with 78 million acres in 2006 in response to increased demand in the production
of ethanol, a gasoline additive and substitute fuel. Swanson calls the increase
``unprecedented.''
``It's the biggest increase, and the largest acreage dedicated to corn since World
War II, when the corn yield, or bushel per acre, was one-quarter what it is today,''
he says.
Corn prices are up 35 percent in the past year (they doubled from September
2006 to February 2007), hitting a high of $4.50 a bushel before retreating to
$3.49 yesterday.
Enter Ethanol
The Energy Policy Act of 2005 required refiners to almost double ethanol use by
2012, sweetening the deal with a 51-cent per gallon excise tax exemption.
Ethanol became the primary additive in gasoline.
If the price is right -- if ethanol is cheap relative to gasoline -- it can double as a
substitute fuel. Because it's lighter than gasoline, and fuel is sold by volume,
ethanol ``has to be discounted to make it as good a fuel for consumers,''
Swanson says. ``High corn prices are killing ethanol profitability.''
Ethanol prices are down almost 40 percent since the start of the year as new
supply coming online has overwhelmed ``the infrastructure to move it,'' says
Robert Wisner, professor of agricultural economics at Iowa State University
in Ames. ``Ethanol needs specialized rail cars.''
There's a Season
Crop shortages can't be resolved with the snap of one's fingers. There's a
season for sowing and a season for reaping. Adverse weather conditions
affected the grain-growing regions of the U.S., Australia, Europe and parts of the
former Soviet Union, causing wheat prices to skyrocket. The price of a bushel of
wheat has more than doubled in the past year, hitting a record $9.62 a bushel
last week.
If wheat prices stay high, ``other crops, such as wheat and soybeans, will be
trying to buy back the acreage lost to corn,'' Wisner says.
Wheat futures prices are anticipating a drop in prices in the coming year.
Put aside the romance associated with tilling the land, and farmers are no
different from other businessmen. They want to make a profit. Give them an
incentive in the form of higher crop prices, and they'll jump on it.
Farmers aren't content with the same output per acre year after year. Through a
combination of better seed, better chemicals and improved farming practices,
``supply has been able to meet demand,'' Swanson says.
Precision Agriculture
In 1970, the corn yield was 72.4 bushels per harvested acre, according to Keith
Collins, chief economist at the U.S. Department of Agriculture. Thirty years later,
that same acre was yielding twice as much. The estimated crop yield for this year
is 155.8 bushels per harvested acre, according to the USDA.
And that's before the introduction of some ``remarkable technology coming down
the pipeline,'' including a Global Positioning System (GPS) for precision
agriculture, Swanson says.
The application of satellite positioning and navigation systems will enable farmers
to better manage their land. It's being described as the next evolution in
agriculture, promising increased productivity and reduced production costs.
It sounds pretty impressive. Which makes you wonder why there are so many
folks willing, at the slightest provocation, to take the other side of that bet.
To contact the writer of this column: Caroline Baum in New York at
cabaum@bloomberg.net .