Tuesday, April 15, 2008

Food Prices and Government Policy

One of the cardinal rules for a politician, particularly those from Washington, is to know the price of milk and eggs in a town that you're speaking in. Well, those numbers have been rising.

AP: "The U.S. is wrestling with the worst food inflation in 17 years, and analysts expect new data due on Wednesday to show it's getting worse. That's putting the squeeze on poor families and forcing bakeries, bagel shops and delis to explain price increases to their customers.

U.S. food prices rose 4 percent in 2007, compared with an average 2.5 percent annual rise for the last 15 years... Eggs cost 25 percent more in February than they did a year ago, according to the USDA. Milk and other dairy products jumped 13 percent, chicken and other poultry nearly 7 percent."

How does this happen? For everything, there is a cause and then effect. So, the effect is obviously rising food prices. The Cause? - Most of our food is home grown, so the dollar weakening on the global scale has a minimal impact on food prices at home. - Speculators playing the market? Not so much. Speculators buy 'futures', meaning they pay a fixed rate some time down the road for a certain amount of wheat/corn/rice/soy/peanuts. So paying to much and then trying to make a profit upon delivery is inefficient and a loosing proposition.
Just the same, the farmer doesn't want to undersell himself, and so he looks at the coming markets and attempts to make a profit. It's been this way for years and years, and nothing has changed except the market for the product. So the speculator is not to blame.
- More demand? The 3 basic explanation for most price increases: Increased supply costs, Rising Demand, or Decreasing Availability. Growing costs have increased recently due to rising energy and water costs, coupled with Rising Demand and Decreasing Availability.

- Biofuels, Ethanol in particular. When Congress and W mandated a 500% increase in the use of biofuels, it was presented as a solution to a vastly overstated oil problem, a dream of growing all of our own fuel at home. No longer would ArcherDanielsMidland have sole control over the field, but soon Exxon Mobile Refineries would dot the landscape...
A couple of problems. Biofuels are inefficient compared to traditional gasoline, are difficult to transport, and only feasible in localized areas. They also require biomass, and the most readily available is that of Corn, Rice and Wheat. So, with they're fat government surplus checks in hand, the bio-manufacturers began buying massive quantities of food for the purpose of fuel. Seeing this and a rising demand for a product, the farmers jumped on board, and now 20% 0f corn acreage is devoted to ethanol. Thus, the price of corn in particular has risen, affecting everything from cows to chickens to pigs to turkeys, and a wide variety of livestock in between.
So how did this get started? Liberal, Socialism mandates from the Feds. Thank you W.

Why else is their rising demand? The world is flat in an information
sense, but is still opening up in a physical sense. As more and more products are shipped to more people and an ever rising population, the demand rises. China and India are the two most populous nations, and they are steadily rising in level of income and in imported material. This is also contributory to rising oil prices.

Still, this is marginal news for us. We'll grumble and then go have a bar-b-q. Or whatever it is you do in your neck of the woods.

"U.S. households still spend a smaller chunk of their expenses for foods than in any other country -- 7.2 percent in 2006, according to the USDA. By contrast, the figure was 22 percent in Poland and more than 40 percent in Egypt and Vietnam.

In Bangladesh, economists estimate 30 million of the country's 150 million people could be going hungry. Haiti's prime minister was ousted over the weekend following food riots there."

The rest of the world? Not so lucky. Once again, we can point to government interference in a market as the cause of many of these ills.

Restrictions on the amount of oil available, in the form or drilling moratorium and refusal to allow new Refineries in the US has all lead to expensive gasoline.

Mandates on Biofuels, a 500% increase, due to
fears of global warming and oil dependency.

Those two causes are killing people abroad, while the elite liberals of the ivory towers sit complacent and congratulate themselves on a job well done, ignoring the real world consequences of Marxism.


SolaMeanie said...

When will we learn?

In the meantime, Brazil gets a huge new potential oil find right off her coast. Maybe we should send some of our envirowackos down there.

FAICA Soldier said...

And unfortunately crops take time to cultivate and grow. It is crazy that we ever run into this problem since the supply of farmers is more than the demand for farmers we shouldn't really have to worry about the supply of food lagging too far behind the supply of food. There is an issue nested in the speculation process when the government pays people not to grow crops so the prices hold there value. Well the values are holding now. So IF we even start trying to produce more, it still takes a lot of time to get everything moving to the point where grocery store prices are affected.

I also sympathize with the idea that we are still so much better off than other countries as far as food % of income, but we should be leading by example. You are dead on the government interference is fueling this. We have 300 other countries to use as examples of how interference is never a long-lasting solution.

Daniel said...

Food is costing more because the dollar is weak, which makes oil cost more to import, which makes gas/diesel cost more, which makes planting/harvesting/transportation of grains, corn, etc cost more, which makes feed cost more, which it more expensive to raise animals for dairy products, nice tasty beef products, and things like that. Now in addition, it costs more to transport to get them processed/butchered, and it costs more to ship to your friendly neighborhood grocery store.

Hope you didn’t get hopelessly lost in my ‘explanation’.

Dyspraxic Fundamentalist said...

More Genetically Modified crops please.

Gino said...

why dont i hear the left crying out 'no blood for oil'?

isnt that whats been traded?

Jeana said...

cool potato, in a kind of scary way. I definately wouldn't want to meet at the back of the bottom shelf in our pantry.

Palm boy said...

Joel, that Brazil find is pretty big news. But we've got our own oil out there in the OCS... :D

Aaron, I agree. Paying farmers to not grow only hurts society.
And may those 300 other countries enjoy themselves. :D

Daniel, the dollar is weak, and it does have an effect. Still, most of our food is home grown, so a rise in the price of gas is the only outside force effecting the actual production and delivery of goods. It's not like we're shipping in these things from India.

Matt, those are going to be particularly effective in regarding to making ethanol more effective.

Gino, 'blood for oil' seems a little out of place in a food discussion...

Jeana, I wholeheartedly agree.

SolaMeanie said...

Now we hear news of food rationing in some parts of the United States. In my mind, that is criminal. What on earth is going on here???

Palm boy said...

Sola, it's a rationing enforced by the companies, not the government.

I'll look it up though.