This page has been archived and commenting is disabled.
Why Are Food Prices So High?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Regardless of what we eat, we're actually eating oil.
Anyone who buys their own groceries (as opposed to having a full-time cook handle such mundane chores) knows that the cost of basic foods keeps rising, despite the official claims that inflation is essentially near-zero.
Common-sense causes include severe weather and droughts than reduce crop yields, rising demand from the increasingly wealthy global middle class and money printing, which devalues the purchasing power of income.
While these factors undoubtedly influence the cost of food, it turns out that food moves in virtual lockstep with the one master commodity in an industrialized global economy: oil. Courtesy of our friends at Market Daily Briefing, here is a chart of a basket of basic foodstuffs and Brent Crude Oil:
In other words, regardless of what we eat, we're actually eating oil. Not directly, of course, but indirectly, as the global production of tradable foods relies on mechanized farming, fertilizers derived from fossil fuel feedstocks, transport of the harvest to processing plants and from there, to final customers.
Even more indirectly, it took enormous quantities of fossil-fuel energy to construct the aircraft that fly delicacies halfway around the world, the ships that carry cacao beans and grain, the trucks that transport produce and the roads that enable fast, reliable delivery of perishables.
Though many observers see money-printing as the master narrative of the global economy, we don't see much correlation between the Fed's ballooning balance sheet and food/oil. If money-printing alone controlled oil (and thus food), prices of oil/food should have soared as the flood of QE3 (and other central bank orgies of credit-money creation) washed into the global economy from late 2012.
Instead, oil/food have traced out a wedge: prices have remained in a relatively narrow trading range during the orgy of money-printing.
While money creation is one influence on commodity prices, supply and demand matter, too; in that sense, money printing only matters if it pushes demand higher while constricting supply.
Other observers use gold as the "you can't print this" metric of price. In other words, rather than price grain in dollars, yuan, yen or euros, we calculate the cost of grain in ounces of gold.
The gold/food ratio is around the level it reached in 2009 after spiking in 2008.
This tells us food is cheap when priced in gold compared to 2002, but it's more expensive (priced in gold) than it was at gold's peak in 2012.
In effect, the influences of monetary inflation and supply/demand show up in food via the price of oil. Until we stop eating oil (10 calories of fossil fuels are consumed to put one calorie of food on the table), oil is the master commodity in the cost of food.
»
- 24297 reads
- Printer-friendly version
- Send to friend
- advertisements -
Industrialized agriculture cannot be sustained and eventually nature will win. Insects attack these large farms in droves because the operation is not compatable with oh, lets say, a desert (Looking at you, El Centro) so even more money and fuel needs to be used in order to produce the same amount of food. We have to localize our food plain and simple, and we cannot continue to expand our towns and cities outward -that will destroy fertile ground that could be used to feed a population. When the oil goes dry there will be famine and disease that will kill billions unless we decentralize our food supply and create community gardens.
We cannot afford to divide ourselves into ideological camps like Libertarian or Socialist any longer; which only serves to make our tyrannical government stronger. We need to unite communities and make them sustainable and in tune with our biomes.
"When the oil goes dry there will be famine and disease that will kill billions unless we decentralize our food supply and create community gardens."
It will and we won't.
Survival will vary family to family, community to community, region to region.
I see a bad moon a rising....
Those of you who think the future is bleak should do a little research on the Alaskan Pyramid. It is only bleak to the extent free energy sources are suppressed. I am fairly optimistic believing that mankind will ascend and do away with it's overlords.
Keep telling my nephew to buy a farm. Population shows no sign of going down, land prices are at most stable locally (not dropping after a huge run up in the late 90s/200o's)... energy will not drop much, if anything ever again... food/land is where there will always be money.
If you are a farmer in Iowa say...and you need more land to use your new John Deere Tractor than can handle 1000 acres easily and cost $300,000.00...and add in the accessories that it needs for planting...spraying for bugs and bad things...cultivating, and harvesting..which usually is another $300,000 machine...and all the smaller tractors and trailers that a farm needs...then add in the rush of the last two years for farm land that was selling for $2,000 and acre a few years ago is now $12,000 an acre....thow in a drought or to much rain as we have today...and feed for cattle goes thru the roof....so they sell off the cattle..and then the herd is so small that supply is constrained...add in more EPA rules and regulations....fertilizer that is made out of petroleum products....and just the general diesel costs...and that is why we have expensive food..mas o menos
I was just thinking the other day in the grocery store how high prices have gotten, and thinking they were approaching levels I last saw -- in 2008. It's nice to see that in graph form, as it matches what my wallet is seeing. The author is way off base insertng a gold ratio here. It might be effective in a non-manipulated market, but you cannot say that food is cheap in relation to gold when food is at very high levels and gold prices are near multi year lows. All you can conclude is that gold SHOULD be much higher given the price of food and oil.
I have read all rhe comments and I am more enlightened than reading the article.
My own two cents worth if contribution is that we are witnessing three strange phenomena that previous generations did not to any significant degree participate in.
The first is the large degree of food wastage.
The second is the massive consumption of hollow calories.
The third is over consumption in any form.
I am therefore wondering to what extent these factors also play their role in food inflation.
All three of those are linked to culture; which extends into how we produce and consume our food. Many people want things easy, fast, and plentiful and the large food corporations are more than happy to give it to them. This leads to food waste, diminished quality of foods and introduction to diseases such as e-coli, and obesity caused by as you mention hollow calories.
So it's really the culture that is the source of all our issues, those three points you mention are merely symptoms.
You nailed it.
Cheap american food has been subsidized by the US government since Franklin Roosevelt. We are dependent on cheap food. Remember that food inflation also effects the amount of food available to government provided EBT or SNAP card users. The biggest cry for immigration government given amnesty is for cheap workers to pick our vegetables. Fat unhealthy people need more government provided medical care. And on and on.
<<< Because inflation is way high (we know why)
<<< Just coincidence, nothing to see here.
If I read your first chart correctly, food price index has actually decreased by approximately 20% since 2010. If all you use the chart for is to look for correlations between food and oil you might have a point, but I'd say the results of the individual chart on FPO Total Index invalidates you from using it for anything. Food is going up, your chart doesn't show this, and it is likely going up as a result of more than oil price and monetary inflation. Corporations sell the bulk of the food that I eat, from the producer to the grocer. And they are in desperate need to keep profits rising, and I suspect a price rise (either by charging more or decreasing packaging size and charging the same) is a large part of any profit rise today (aside from creative book-keeping). I realize it uses energy to produce food (not to make fertilizer, however, that's mined separately), but following your logic the price of everything should track oil because everything needs energy to produce it and to ship it. Touch too generalized for me ....
Additionally, there is a lot of information about US printing causing terrific inflation in third-world nation food prices (Arab Spring et al.). We had incredible oil price rises 2006 to 2008 without the riots and upheavals seen across the world today due to rising food prices. Is it related now but not so much then?
Normally you research things better, CHS. This article is largely a host of suspected correlations, that as any statistician knows does not mean anything about causation.
What you talkin' 'bout willis? Chinese food is dirt cheap. You should buy all your food from China.
We need more oil.Ive got a brilliant idea. Lets microfrac the earth we live on in a few hundred million places and see how the planet reacts. Oh and all that oil. I wonder if scientist will eventually figure out that it functions as a lubrication that keeps things from shuddereing all at once. No? A simple science experiment. Remove the oil drain plug from your cars engine while its running and then get in and hold it to the floor.
The 1860s farmhouse that my mom grew up in was set up (in the basement) to burn coal for heat. Trains used to run on coal. Any type of thing you can run on oil, you can run (directly or indirectly) on coal. It will be dirty, your lungs will give out, you'll have to go back to doing "spring cleaning," your streams will be polluted, but there is no shortage of coal. And that is what people will do!!! Look at what they do with food - they go for the cheap crud that isn't good for them, because it is cheap. We will do that with energy. Germany has recently greatly increased their use of coal (fortunately they have good scrubbers for the sulphur). It isn't "oil or nothing"; it is oil or dirty coal. If you think global warming is an issue, well, sorry, coal will make it a done deal.
There is no capital left for making the transition you imagine. The fleet of 18-wheelers bringing hogs to market and corn products to WalMart are never going to run on coal. Just not happening. And our (ageing and neglected) rail infrastructure has not kept up with urban trends, the places you can go by train don't matter to anything, and we're not going to lay a lot of iron now to change that nor are we going to scrap 400,000 diesel-electric train engines to built twice that many coal-powered steam engines. Maybe in your imagination we'll do that but nobody is going to spend one thin dime on the project, ever.
We used wood energy to mine coal. Then we used coal energy to get at oil. Then we used coal and oil energy both to get at tight oil.
There is nothing after oil. Not even coal, which today is surface mined using gigantic heavy equipment that before the age of oil would have seemed like the stuff of fantasy.
We lived the way we did back in 1860 with maybe 1 billion people in the entire world, most of those working on productive farms to feed themselves nicely. We'll go back to that way of life and we'll also go back to 1 billion humans -- and we might make the journey over the span of a single generation -- but it's not going to be pretty on the way and if we overshoot on the way down any worse than we overshot on the way up then "zero" isn't too low a number of those left. If you just cannot imagine that then think back to all the other obvious shit you could not imagine but which turned out to be spot-on true, and come back and tell me what you still cannot now imagine. Because I can imagine it just fine thanks.
Genetically modified crops cant call the helper insects anymore, their cell communication is destroyed. You need lots of pestizides. GMCrops got more and more expensive. But you cant go back to normal crops, your field is destroyed. "well done" for big money, but not the future. Crops is used as fuel now. Drive a big car and starve to death.
interested in other ways? read the http://www.unep.org/dewa/agassessment/reports/IAASTD/EN/Agriculture%20at...
Food prices are high because... it's tradition!!