The Real Crisis That Will Soon Hit the US
Forget stocks, the real crisis is coming… and it’s
Indeed, it first hit in 2008 though it
was almost entirely off the radar of the American public. While all eyes were
glued to the carnage in the stock market and brokerage account balances, a far
more serious crisis began to unfold rocking 30 countries around the globe.
I’m talking about food shortages.
Aside from a few rice shortages that were
induced by export restrictions in Asia, food received little or no coverage
from the financial media in 2008. Yet, food shortages started riots in over 30
countries worldwide. In Egypt people were actually stabbing each other while
standing in line for bread.
We’re now seeing the second round of this
disaster occurring in Egypt and other Arab countries today. Thanks to the Fed’s
funny money policies, food prices have hit records. And even the
Fed’s phony measures show that vegetable prices are up 13%!
The developed world, most notably the US,
has been relatively immune to these developments… so far. But for much of the
developing world, in which food and basic expenses consumer 50% of incomes, any
rise in food prices can have catastrophic consequences.
And that’s not to say that food shortages
can’t hit the developed world either.
According to Mark McLoran of Agro-Terra, the Earth’s population is
currently growing by 70-80 million people per year. Between 2000 and 2012, the
earth’s population will jump from six billion to seven billion. We’re expected
to add another billion people by 2024. So demanding for food is growing… and
it’s growing fast.
However, supply is falling. Up until the
1960s, mankind dealt with increased food demand by increasing farmland.
However, starting in the ‘60s we began trying to meet demand by increasing
yield via fertilizers, irrigation, and better seed. It worked for a while
(McLoran notes that between 1975 and 1986 yields for wheat and rice rose 32%
and 51% respectively).
However, in the last two decades, these
techniques have stopped producing increased yields due to their deleterious
effects: you can’t spray fertilizer and irrigate fields ad infinitum without
damaging the land, which reduces yields. McLoran points out that from 1970 to
1990, global average aggregate yield grew by 2.2% a year. It has since declined
to only 1.1% a year. And it’s expected to fall even further this decade.
Thus, since the ‘60s we’ve added roughly
three billion people to the planet. But we’ve actually seen a decrease in food
output. Indeed, worldwide arable land per person has essentially halved from
0.42 hectares per person in 1961 to 0.23 hectares per person in 2002.
It’s also worth noting that diets have
changed dramatically in the last 30 years.
For example, in 1985 the average Chinese
consumer ate 44 pounds of meat per year. Today, it’s more than doubled to 110
pounds. That in of itself is impressive, but when you consider that it takes 17
pounds of grain to generate one pound of beef, you begin to see how grain
demand can rise exponentially to population growth with even modest changes to
Make no mistake, agriculture is at the
beginning of a major multi-year bull market. We’ve got rapidly growing demand,
reduced production, and decade low inventories.
This is an absolute recipe for disaster.
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