Neo-Malthusians worry about food supply again

Neo-Malthusians worry about food supply again
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First Published: Thu, Oct 04 2007. 01 19 AM IST

Grain Economics: Caroline Baum
Grain Economics: Caroline Baum
Updated: Thu, Oct 04 2007. 01 19 AM IST
Some bad ideas refuse to die a quiet death. Instead they come back to haunt us at a different time, in a different place or in a slightly different format.
Grain Economics: Caroline Baum
Take, for example, the notion that the world population will outrun the food supply. That prediction, along with the “cure” (population control), gained currency with Thomas Malthus in the late 18th century; was revitalized with the 1968 publication of The Population Bomb, by biologist Paul Ehrlich, predicting famine and death on an unprecedented scale; reappeared, courtesy of the Club of Rome, in the 1972 book, Limits to Growth; and garnered renewed media attention in 1980, when economist Julian Simon challenged Ehrlich on his prediction of massive shortages of natural resources (Simon won), before landing on today’s doorstep with the huge rally in grain prices.
On cue, the headlines are once again warning of dire consequences from rising food prices and low grain stockpiles.
Why is this sort of Malthusian gloom and doom so appealing to so many? You don’t have to be a farmer or an agricultural economist to raise an eyebrow over predictions of chronic crop shortages. While weather may affect crop yields from one season to the next, shortages tend to give way to surpluses, as higher prices induce producers to increase their output. And somehow man, through his eternal inventiveness, always finds a way to produce more with less.
That said, consumers are currently paying higher prices for food. In the US, the price of food and beverages rose 4.2% in the 12 months ended August, led by a 12% jump in dairy items, according to the consumer price index. The wholesale price of crude foodstuffs, including grains and livestock that have not been processed, is up almost 24% in that same time frame. An index of spot foodstuffs, including wheat, corn, hogs and soybean oil, is up 22% in the year ended 28 September.
Empty table?
For some reason, folks think agriculture is exempt from the basic law of supply and demand. “We are not suddenly going to run out of food,” says Michael Swanson, senior agricultural economist at Wells Fargo & Co. in Minneapolis. “There will be a supply response.”
Already US farmers have planted 93 million acres of corn this year compared with 78 million acres in 2006 in response to increased demand in the production of ethanol, a gasoline additive and substitute fuel. Swanson calls the increase “unprecedented”. He says “it’s the biggest increase, and the largest acreage dedicated to corn since World War II, when the corn yield, or bushel per acre, was one-quarter what it is today.”
Enter ethanol
The Energy Policy Act of 2005 required refiners to almost double ethanol use by 2012, sweetening the deal with a 51 cent (Rs20.3) per gallon excise tax exemption. Ethanol became the primary additive in petrol.
If the price is right—if ethanol is cheap relative to petrol—it can double as a substitute fuel. Because it’s lighter than petrol, and fuel is sold by volume, ethanol “has to be discounted to make it as good a fuel for consumers”, Swanson says. “High corn prices are killing ethanol profitability.”
Ethanol prices are down almost 40% since the start of the year as new supply coming online has overwhelmed “the infrastructure to move it”, says Robert Wisner, professor of agricultural economics at Iowa State University in Ames. “Ethanol needs specialized rail cars.”
Crop shortages can’t be resolved with the snap of one’s fingers. There’s a season for sowing and a season for reaping. Adverse weather conditions affected the grain-growing regions of the US, Australia, Europe and parts of the former Soviet Union, causing wheat prices to skyrocket. The price of a bushel of wheat has more than doubled in the past year, hitting a record $9.62 a bushel last week. If wheat prices stay high, “other crops, such as wheat and soybeans, will be trying to buy back the acreage lost to corn”, Wisner says.
Wheat futures prices may in the coming year. Put aside the romance associated with tilling the land, and farmers are no different from other businessmen. They want to make a profit. Give them an incentive in the form of higher crop prices, and they’ll jump on it.
Farmers aren’t content with the same output per acre year after year. Through a combination of better seed, better chemicals and improved farming practices, “supply has been able to meet demand”, Swanson says.
In 1970, the corn yield was 72.4 bushels per harvested acre, according to Keith Collins, chief economist at the US Department of Agriculture (USDA). Thirty years later, that same acre was yielding twice as much. The estimated crop yield for this year is 155.8 bushels per harvested acre, according to the USDA. And that’s before the introduction of some “remarkable technology coming down the pipeline”, including a Global Positioning System for precision agriculture, Swanson says.
The application of satellite positioning and navigation systems will enable farmers to better manage their land. It’s being described as the next evolution in agriculture, promising increased productivity and reduced production costs.
It sounds pretty impressive. Which makes you wonder why there are so many folks willing, at the slightest provocation, to take the other side of that bet.
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First Published: Thu, Oct 04 2007. 01 19 AM IST