The rising cost of food worldwide is more complex than portrayed in recent articles in The New York Times and the Washington Post.
Like a magician revealing his secrets, the once-invisible farm and food system is drawing scrutiny from the media, policymakers, and the public as we realize how intertwined our farm and food system is with the energy sector and global markets.
But how did we get here? How did our modern, abundant, and affordable food system run aground? In a sector that is global in reach, absolutely essential (we must eat, after all), and includes the politics of saving family farms and ending hunger, there is no simple, singular answer. A lot of it has to do with economics and politics. Most of it has to do with what goes into making a box of cereal, and why we even have boxed cereal.
North America has long been the breadbasket of the world -- so much so that bountiful grain surpluses lead business to find innovative alternative markets for those surpluses.
Quaker Oats and cornflakes were early ways to get Americans to consume more grains in the late 1800s. But people can only eat so much in a day, and storing cereal grains for long periods of time depresses crop prices. Over the last 30 years, once-low-value grain surpluses have found several new uses: livestock feed, sweetener (i.e., high-fructose corn syrup), raw material for plastic, and feedstock for fuel in the form of ethanol.
It is one of the ironies of the agricultural sector that developing new uses for a surplus can generate more demand for a product, but so it is.
As the ethanol market took off, the price for corn rose. Farmers switched to growing more corn, decreasing the acres planted in soy, wheat, and other grains. The resulting scarcity of those grains drove up their prices.
It is true that demand for grains in ethanol production has diverted surpluses to energy use. In one report by an industry group, oil has a greater impact on food prices -- by a factor of 2 to 1 -- than ethanol. The real catch-22 though is that two primary ingredients of our economy, food and fuel, are linked together.
When oil prices rise, the cost of inputs used in modern agriculture -- fertilizer, pesticides, diesel fuel -- increase on-farm production costs. In the U.S., farm costs range from 3 percent of the price for a box of cornflakes to 52 percent of the price for a dozen eggs.
Additionally, when oil prices rise, what economists call the "food marketing bill" -- the part of the food price that farmers don't get -- increases at every stage of processing, boxing and bottling, and shipping, as each relies upon oil and other energy inputs.
In a market where oil is no longer a cheap input, should we still adopt business models which produce and distribute our food in the energy-inefficient way we do?
And don't forget that free market proponents have long argued for making agriculture a more market-based sector. The ethanol market has single-handedly reduced government expenditures on farm subsidy programs by a projected $15 billion over the next five years. The market approach is not wrong, but is it the right approach to ensure that no one goes hungry?
Farm subsidies have been singled out as the culprit for many of our farm and food policy woes. Crude as these policy instruments may be to an economist, we still need public policies to address agriculture's unique problems including droughts, a boom and bust market cycle, soil erosion that depletes the future productive capacity of the land, and a guaranteed supply of food production to feed the hungry. Yet are these policy tools still meeting the needs of the farmers and the demands of the public?
Congress is about to pass a farm bill that is a revision of laws dating back to the late 1930s. For a policy process which rewards incremental and not structural change, it is not a bad bill. Food stamp benefits will now keep pace with inflation. Farmers will have more options to steward the land. Spending on farm subsidies will decrease, saving taxpayer money. But is this the bill we want, the bill we really need to address food and energy adjustments looming on the horizon?
Today's crises illustrate just how precarious, critical, and invisible our farm and food system is to us. Unanticipated three generations ago was the role oil-based inputs would play in food production and distribution. Unanticipated was the possibility of a new, high-value market for agricultural surpluses, like ethanol.
The problem is the politics of the farm and food system only considers the grains in the cereal box, not how the box got in our cupboard, let alone the other foods in the kitchen. We need a transformative approach to farm and food politics, not only for the U.S., but for the world.
We should not scrap our existing policies, but we should be flexible enough to modify them using lessons we have gleaned from their long history. We need to engage new partners in the 2012 farm bill.
We need to think beyond the cereal box, as a public, as consumers, as farmers, as interest group leaders and policymakers, and revamp our farm and food system so we as Americans and denizens of the world can trust in its stability and integrity.
Mark Warner (D-Va.)
Can EPA regulations on CO2 be blocked?
Roger Wicker (R-Miss.)
Comments
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JMG Posted 4:25 pm
24 Apr 2008
Corporate farmers care little or nothing for the use to which their crop is put -- their job is to minimize the costs of the inputs and maximize the return on sales, ignoring the long-term health of the soil (which is artificially juiced with petrofertilizers).
So they pit the stomachs against the fuel tanks and chase the subsidies, which they feed back to Congress to ensure further subsidies, an unholy alliance that is starving people to death. That's what farm policy is to day.
Save your community: Cut greenhouse gas emissions 5% per year.
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amazingdrx Posted 4:31 pm
24 Apr 2008
Was that an ethanol industry group or an agribizz industry group?
Is that for processed food? Ethanol would seem to be the major cause of commodity grain price rise.
Natural gas prices effect fertilizer, but why did ammonia prices rise so fast? Corn for ethanol increased ammonia fertilizer demand. That in turn made natural gas rise. Now ammonia is shipped on tankers from Russia, where it is made from their cheaper natural gas.
Do chemicals (herbicides, pesticides) rising in cost because of higher oil really constitute a large enough portion of farm costs to account for a 2 to 1 ratio? That is doubtfull. These are value added petroleum products, unlike gasoline or diesel, their price is not as greatly effected by the price of the oil feedstock.
And those who are rioting because they are about to starve, eat commodity grain. They grind and cook it themselves, no oil input needed.
For them it really is food or biofuel. The biofuel for our gas guzzlers, they can't afford cars.
I suspect industry self serving it's own interests might have contributed to that finding of a 2 to 1 ratio. People are rioting because of ethanol. You said it yourself, we are the bread (grain) basket.
Your Farm and Food Policy Project looks great Alan. I would like to see if you have considered farm biogas, wind, and solar energy projects in farm policy?
Ag and energy policy seems to be coming together. Why can't our farms get the cash we are now sending offshore to buy oil by going to a renewable smart grid charging plugin hybrid vehicles? Farm biogas, unlike ethanol, really does vastly reduce GHG.
It also provides organic fertilizer from the biodigestion of manure and biomass crop waste. Saving huge costs and GHG from the use of ammonia and mined fertilizer.
Manure and fertilizer run off releases huge amounts of methane, a 21 times worse GHG than cO2. Biodigestion and organic fertilizer prevents that run off.
In Sweden they are powering trains with methane, the energy ingredient in biogas. Trains are 8 times more efficient in moving freight than oil powered trucks.
Farmers could get energy income, providing us all with power, and subsidies could be greatly reduced that way as fertilizer costs came down. Tractors can run on biogas too.
I would like to see subsidies diverted from energy status quo industries like coal, nuclear, and ethanol to provide direct per kwh subsidies to farmers who invest in farm biogas power generation, wind farms, and solar power.
A tax neutral farm/energy policy. That would provide stable, storable biogas power to backup a renewable smart grid. The power we need is there. And it will vastly reduce GHG. And revive the farm and manufacturing sector economies.
http://amazngdrx.blogharbor.com/blog
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Ron Steenblik Posted 4:49 pm
24 Apr 2008
And don't forget that free-market proponents have long argued for making agriculture a more market-based sector. The ethanol market has single-handedly reduced government expenditures on farm subsidy programs by a projected $15 billion over the next five years. The market approach is not wrong, but is it the right approach to ensure that no one goes hungry?
First of all, no ... and I mean zero ... "free-market proponent" (I assume that is short-hand for "liberal economist") that I know, and I know plenty, has ever supported the creation of a subsidized and mandated market for fuel ethanol.
Second, the rising prices of grains and oilseeds -- which the biofuels industry wants to take credit for, but at the same time deny that it is having ANY discernable impact on food prices -- has indeed, for the moment, reduced those crop subsidies that are triggered by low prices. But what is forgotten in the equation is how much is being paid out in subsidies to biofuels, which the noted energy-subsidy analyst, Doug Koplow has estimated were already in the neighbourhood of $8 billion per year in 2007, and with further expansion of output could amount to $92 billion over the seven-year, 2006-2012 period.
Finally, Hunt's comment that, "The market approach is not wrong, but is it the right approach to ensure that no one goes hungry?", is an intriguing one, given that, with the exception of New Zealand, "the market approach" has been as alien to farm policy in the industrialized economies (and most developing economies) as a walrus in Kansas.
These are only my personal opinions.
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ahunt Posted 12:15 am
25 Apr 2008
Also, the key thing to remember here is that on average, a farmer selling into a commodity market retains only 19 cents per retail food dollar. Rising corn prices, especially for sectors which use corn for animal feed, like livestock and dairy (note: cows are ruminants and evolved eating grass), will have the highest direct impacts from ethanol. But the other 81 cents of the retail food dollar comes from food
distribution and marketing costs. At least 18 cents of those food distribution and marketing costs (about equal to the farmer's share), will have direct energy costs from energy, transportation, packaging, and overhead.
USDA has a two minute video on the topic.
This is not a new trend, but why we notice this now is because the demand for grains for ethanol has finally translated into food inflation especially in sectors using corn for feed, and the price of oil has increased at the same time.
While I too may question the RFA's exact findings, the much more important issue is that nearly 20% of the price of food is susceptible to energy price spikes. That is not a very sustainable, nor equitable system.
-Alan Hunt
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amazingdrx Posted 12:25 am
25 Apr 2008
This is an emergency, a starvation emergency and a GHG emergency. Ethanol farming must stop.
It's not just a question of "sustainability", whatever that very vague term might mean.
http://amazngdrx.blogharbor.com/blog
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Ron Steenblik Posted 12:37 am
25 Apr 2008
In poor countries, where the people tend to eat products that are much less processed (corn meal, bread, rice), the basic price of the commodity accounts for a much higher share of the food item purchased by final consumers. And the share of food in their budget is typically 50% or more, not 10% like it is (on average) in the United States.
These are only my personal opinions.
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amazingdrx Posted 1:19 am
25 Apr 2008
For them it's food or fuel farming. These food riots and mass starvation tell us that the poorest of the poor are losing the "free" market battle.
Gas guzzler agribizz industries are winning.
http://amazngdrx.blogharbor.com/blog
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Ron Steenblik Posted 1:32 am
25 Apr 2008
Please see my comment over on Tom Philpott's article, "Please, sir, I want some GMOs".
These are only my personal opinions.
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Jason D Scorse Posted 5:04 am
25 Apr 2008
I teach environmental economics and blog at http://www.voicesofreason.info.
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Biodiversivist Posted 1:16 am
26 Apr 2008
It is always good to provide links for readers to give them the confidence that your quoted numbers are valid. If that projection does not account for the blenders credit, then we would subtract from that figure the $18 billion ethanol blenders will get in direct subsidies in the next five years, not counting the various state subsidies. I'm assuming it doesn't because you didn't say otherwise and didn't provide a link.
There are markets for cell phones, Priuses, computers, you name it because consumers want them and producers compete among themselves to meet that demand. This use of the word "market" when talking about ethanol subsidies is actually quite misleading. It has become a euphemism for mandate.
There is a market "mandate" for it. The government has mandated its use and pays blenders 51 cents a gallon to put it in the gas that consumers have no option but to buy back, having already subsidized it with their tax dollars.
Other than a handful of patriots who have been convinced that they are enhancing national security by increasing our fuel supply a percent or two, very few would want ethanol.
Here is consumer reports evaluation of this fuel.
I realize your post was about food, but we also need to keep in mind the impact found in the most recent studies on green house gases these crops are having via carbon sink displacement and nitrogen oxide emissions.
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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amazingdrx Posted 11:20 am
26 Apr 2008
It's in that vein. A rich one, mining the irony of modern mass delusion.
http://amazngdrx.blogharbor.com/blog
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Biodiversivist Posted 3:05 pm
26 Apr 2008
Thanks for the link to that paper commissioned by that industry group (The Renewable Fuels Association).
The study assumed a $1 increase in a gallon of gas and a $1 increase in a bushel of corn. The study was framed in such a way as to show oil having a bigger impact than corn.
They didn't account for the fact that the price of corn has increased much faster than the price of oil in the last year. Although it is true that gas has increased $1 per gallon from one year ago, corn has increased $2.5 per bushel in that same time frame (presently selling for $6 a bushel).. I reframed the study to show that because corn has increased in price so much faster than oil, that it has had a bigger impact than oil.
From the study:
0.6 %to 0.9 %increase in food costs caused by oil price increase of $1. Average =0.75%
0.3 % increase in food price caused by an increase of $1 in bushel of corn.
If you assume that the present food spike is the result of price increases seen in the last year or so:
Actual increase in price of oil from one year ago = $1
Actual increase in bushel of corn = $3.5
0.3% x 3.5 = 1.05%
So, now instead of "oil has a greater impact on food prices -- by a factor of 2 to 1" you have corn making 1.4 times more impact than oil.
There are many ways to bias a study. I'm not insinuating that this researcher lied. I'm pointing out how easy it is to reframe data to reflect either an intentional or subconscious bias. Bias is inherent in all studies and that is what the scientific method is all about. This paper just got its first critique.
Quoting a study commissioned by an organization that butters its bread with ethanol is tantamount to quoting a study commissioned by a coal company that denies global warming.
The paper was written by this guy, who works for this company. Anyone can hire this company's experts to write papers for them, and trust me, if the papers you write don't support your clients, you won't be writing any more papers for them:
John [Urbanchuk] has extensive experience in agriculture and the biofuels industry. He provides clients with expert economic analysis to support a wide range of agriculture and renewable fuels policy issues. He also has conducted economic feasibility studies and prepared business plans for organizations interested in building and investing in ethanol and biodiesel plants, and in providing independent analysis to support due diligence investigations for lenders. Some of his clients include the Renewable Fuels Association, National Corn Growers Association, American Soybean Association, and United Soybean Board; the National Biodiesel Board; the Canadian Renewable Fuels Association; Congressional Budget Office, the Farm Credit Council, the Energy Information Administration, and the Association of Washington Business.
The Philosophy of the Renewable Fuels Association:
Organized in 1981, RFA serves as the voice of the ethanol industry, providing advocacy, authoritative analysis, and important industry data to its members, Congress, federal and state government agencies, strategic partners, the media and other opinion-leader audiences.
The RFA is governed by a Board of Directors comprised of a representative from each producer member. The Board meets several times a year to set Association policy. RFA producer members represent 90% of U.S. ethanol production.
Objectives:
Promote federal, state and local government policies, programs and initiatives that encourage expanded ethanol use.
Provide technically accurate and timely information to auto manufacturers and technicians, the media, policy makers, marketers and refiners, and the general public.
Participate in educational activities to increase public awareness regarding renewable fuels and the positive contribution they make to American energy independence, the
economy and the environment.
Sources:
http://www1.pressdemocrat.com/article/20080404/WIRE/80404 ... ...corn at 6% bushel
http://www.farmpolicy.com/wp-content/uploads/2007/01/ed-a ... ...corn price graph
http://www.eia.doe.gov/oil_gas/petroleum/data_publication ... ...gas price graph
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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