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  agricultural capacity and the price of food

  Global grain carry over from crop year to crop year have not been very large in recent years and have been declining. Your assertion that there is plenty of food assumes that we can use the agricultural area of the 1980s  with the crop yields per acre of the 1990s.  This may not be the case.

  Australia's rice production was curtailed by drought and production is contingent on weather.  California's rice production is contingent on the Delta Smelt. There has been some fungus on the rise in Africa and a crop in Bangladesh was wiped out by a typhoon.  And the rice eating population has ben growing. Each of these is a minor issue.  However, the sum of these points is that there is very little rice in the bottom of the global rice barrel.

  Food prices went up because we could see the bottom of the grain bins. There is food in the markets because it is too expensive for many people to eat.  It is being saved for the rich.

  Until recently, rice has been plentiful and very cheap.  In China, a good deal of rice paddy land has been developed for industrial purposes. The transaction cost of returning this land to rice would be very high. If we want more rice to support a larger rice eating population, the logical source is to improve the productivity of India. However, we have been working on that since the Green Revolution, and  on a per acre basis, India's production is only ~60% of China's or 50% of the US.  However, China and the US use a good deal more oil in their rice production than India does. As the price of oil rises, the price of Chinese and US rice will rise faster than the cost of Indian rice.  That may not be a model that we want.

  Recently, the global wheat carryover was minimal due to extended crop failures in Australia as a result of drought. With a month of rain they have declared the drought over and predict bumper crops.  I think it is a bit early to be guessing about crops that have not been planted yet. Given http://www.drought.unl.edu/dm/monitor.html, I would not even want to guess On the North American 2008 wheat crop.  China is growing wheat with irrigation from deep wells.  Given the current trend in the price of oil, what do you think the price of that wheat is going to be?

  My points are that we have taken a good deal of land out of agricultural production, and the transaction costs of growing food on that land will be higher than non-farmers understand.

  The cost of irrigation water and oil is going up. The cost of agricultural inputs including fertilizer, and pesticides go up as an exponential factor of the price of oil.  We have been eating cheap oil as cheap food. Our measures of agricultural capacity date from the days of cheap oil. Farming is a gamble. With expensive oil, the farmer's "anti" goes up.  In which case the farmer may withdraw the resources from production.  The "capacity" may still be there, but not be in service. As we learned in China and California, agricultural resources not in service tend to be developed for other industrial use, and are unlikely to come back into agricultural service.

  As always, weather and climate can fool the best of farmers.  With global warming, weather and climate are just harder to predict.  If you get the wrong weather, it does not matter what your agricultural capacity is, you are not going to get a crop.  With global warming, it is likely that more crops will be lost to weather. This is a loss in agricultural capacity.

  There is a difference between theoretical capacity and actual production. There is a difference between resources that can produce food that is price competitive in the current market and resources that can produce a profitable product at a much higher price.  The latter are not really part of current capacity.
  

  Aaron Lewis

  On A gap between rich and poor makes free markets fail posted 1 year, 6 months ago 34 Responses