Has cheap food “jumped the shark”? Is it gone forever? Or is “forever” a relative term only to last for a year or two? Or is the concept of “cheap food” only an illusion taken for granted by our greater society? In 2008 and beyond farmers will surely be answering those questions.
Price wise we are in some uncharted territory. For those of you holding out for $20 soybeans, hang on. My DTN colleague Elaine Kub calculated (in her column “the Kub’s Den:Breaking Records”) the inflation-adjusted futures price all time high of soybeans back in 1973 was more than $32 per bushel. So in a way $20 doesn’t even cut it. Of course when it comes to price rationing in this present environment you really have to think what that really means.
Key in that thought process is understanding the changes in global food demand. Key in that debate is understanding global geography. Key in that debate is having an appreciation for the cultural differences worldwide. Putting that all together and you have world hungry for food grains, which increasingly is being diverted to the production of biofuel.
It is forming the crux of the debate in 2008 of the food versus fuel debate. Keep in mind I’m a believer of the biofuel revolution and what it has meant to North American agriculture. In my mind the uproar among the food chattering class of the world has a lot more to do with the days gone by of cheap grain and a food world, which took advantage of it.
It is true. The world became very used to cheap grain. Our Americans friends had set up a subsidy system, which effectively subsidized US grain growers at the expense of just about any other grain producers in this world. The North American livestock industry benefited from this. However, when biofuel came into the mix, the whole cheap food/grain turnip wagon got upset. Now, many grain users are scrambling to pass on those costs to the consumer.
As DTN subscribers, you know the rest of the story. However, as I said earlier increased global food demand is weighing in too. In many ways it’s like the lost big brother. Seeing increased global food demand at a time when grain industrial use is rising is gravy to grain and oilseed producers.
For instance many of you have read the arguments from me before about our Asian friends and their changing tastes. For instance the theory goes as their incomes rise, so do their demand for meat and protein. Part of the theory espoused by economists is as incomes rise from $2/day to $10/day, people demand more dairy, fruits, edible oils, meats and processed food. The bottom line is as we head into 2008 we’re seeing the manifestation of that in spades. The food rubber is hitting the road. New price levels in our basic commodities are one result of that showing up on Canadian farms.
Some of you might be thinking this new pent up agricultural demand from Asia is an illusion. Some of you might muse it may disappear just as soon as it arrived. I know skepticism can be a growth industry in agriculture but this time my friends its real. What China has done to its economy in 30 years it took the Europeans 100 years. We are here now and the increased food demand from places like China and its neighbours will continue to affect markets not only this year but into the next decade as well.
For those of us involved in agriculture this is like a self-fulfilled prophesy. Back in the day we could see it coming. The problem was it wasn’t coming fast enough. However, our non-farm society didn’t see it coming, partly because anything to do with agriculture is off their radar screen. That’s a major reason why now you see such hue and cry about food inflation. Increased global food demand plus biofuel have raised prices. For greater society it’s been the great “snookering”. As society ignored agriculture the ground shifted underneath them. Farmers are and will continue to be the big winners in this new agricultural world.
Nonetheless, it’s never so simple. We might be the big winners but greater society is squealing. It will be a tussle because Chinese food prices are high too. However, there population is much nearer to the farm. With their increased income, many are happy just to have food in the grocery store. In the developed world cheap food had been taken for granted as if it was society’s right. There are many within our Canadian political culture that still believes that. That’s one reason biofuel (aside from being a major oil exporting nation) doesn’t have the same cachet in Ottawa like it has in American political circles.
For some folks seeing is believing. That’s one reason I’ve always said I’d like to charter a plane and take all my readers to Asia to see what I’ve seen. I’ve been there three times and every time I go, incomes have risen. It’s obvious and what is also obvious is it’s affecting their food choices, which is helping driving agricultural demand.
What’s next? Well, the food demand economists say this “global food demand” will double by 2050. However, sitting here in 2008 I don’t think most of us care. Sure, a stray North Korean nuke could mess things up. Asia can be complicated. However, when it comes to global food demand for the immediate future, they are leading the way. Canadian agriculture will benefit.