I was invited to participate in a discussion precipitated by Andrew Revkin for the NYT's Dot Earth today, so I am posting my response to the group, below. The question was to react to Tom Vilsack's Op-Ed article in yesterday's Financial Times, "How to Avoid a Global Food Price Crisis" and to comment on the value of stocks-to-use ratios as a measure of food security.
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Although I don't want to oversimplify the complex factors involved on the subject of global food security, there is a useful tool that is helpful in roughly assessing the food supply, and that is the stocks to use ratio. For those unfamiliar with the term, this ratio measures "excess of supply against demand" or "the level of carryover stock for any given commodity as a percentage of the total use of the commodity." The level at which this ratio results in concern and price increases varies by commodity. Corn and soybeans tolerate a lower excess supply before concern results, for example.
Using this measure, we see that rice, which was at a very comfortable supply level last year, is in even greater supply now, with a stocks to use level of 29.9 as compared to 24.9 in 2007/2008. The latest information on wheat is looking better, given some good weather luck in the FSU this season. According to the FAO, "World wheat production in 2011 will rise 3.4% to 676.0m tonnes, thanks to a 'favourable outlook' presented by higher sowings and more benign weather." The wheat stocks to use is at 28.5, as compared to 22.4 in 2007/2008. These are the two most important commodities for use as human food and supply looks nonalarmist for each, barring weather or other catastrophe.
It was evident in Vilsack's Op-Ed for the Financial Times that his goal is to carry out Obama's desire to increase the U.S.'s agricultural exports while downplaying the role that the U.S. ethanol policy plays on global food security. The coarse grains shortage we are experiencing is most entirely due to corn ethanol policy in the U.S., not a production problem. Last year, 15% of global corn production went to produce ethanol in the U.S. High corn prices result in higher meat, dairy, wheat, and soy for consumers.
The U.S. seems to be embracing ethanol and DDGS export markets, so it is possible that this irrational policy will continue ...until it can't. Higher fuel costs weigh twice as heavily on corn than on soybean production, and less yet, for wheat production. As fuel costs go up, and they will, we will grow less corn and graduate toward crops and livestock methods that use lower energy inputs. In the mean time, instead of expecting the policy to be discontinued, expect policy changes that will do a better job at hiding ethanol price supports, and a possible cap on production near today's level.
As I see food insecure nations buying up farmland across the globe in rapidly increasing amounts, I see the desire to bring a large number of new acres into production along with plans to build the necessary infrastructure required. Tractor and equipment sales are strong, storage facilities are increasing in Saudi Arabia and other food insecure nations, and irrigation methods requiring less water are being promoted. Rapid seed technology advancements are on the horizon for boosting both security of crop production and food nutrition.
Brazil, a net food importer in the 70's has become the world's third largest agricultural exporter today. The FAO expects Brazil's output to increase as much as 40% this decade, which could more than meet increased global agricultural demand requirements. Lester Brown may have to wait another decade, yet, for his predictions to come true. On the other hand, if we have rapidly increasing extreme weather events due to climate change, oil supply disruptions and/or ever higher energy prices, poor government policy choices, ongoing economic meltdowns causing political unrest and food inflation, they might come true much sooner.
I'd like to think that it is very possible that the biggest surprise of this current decade is that we will continue to have overproduction of agricultural commodities while making strides to solve food security issues of storage, transport, distribution, waste reduction, and affordability. My top concerns on the horizon are the oil supply, weather, and tenuous macroeconomic conditions. I am cynical about human nature when it comes to prospects for soil and biodiversity preservation, as well as climate change mitigations.
K. McDonald
Although I don't want to oversimplify the complex factors involved on the subject of global food security, there is a useful tool that is helpful in roughly assessing the food supply, and that is the stocks to use ratio. For those unfamiliar with the term, this ratio measures "excess of supply against demand" or "the level of carryover stock for any given commodity as a percentage of the total use of the commodity." The level at which this ratio results in concern and price increases varies by commodity. Corn and soybeans tolerate a lower excess supply before concern results, for example.
Using this measure, we see that rice, which was at a very comfortable supply level last year, is in even greater supply now, with a stocks to use level of 29.9 as compared to 24.9 in 2007/2008. The latest information on wheat is looking better, given some good weather luck in the FSU this season. According to the FAO, "World wheat production in 2011 will rise 3.4% to 676.0m tonnes, thanks to a 'favourable outlook' presented by higher sowings and more benign weather." The wheat stocks to use is at 28.5, as compared to 22.4 in 2007/2008. These are the two most important commodities for use as human food and supply looks nonalarmist for each, barring weather or other catastrophe.
It was evident in Vilsack's Op-Ed for the Financial Times that his goal is to carry out Obama's desire to increase the U.S.'s agricultural exports while downplaying the role that the U.S. ethanol policy plays on global food security. The coarse grains shortage we are experiencing is most entirely due to corn ethanol policy in the U.S., not a production problem. Last year, 15% of global corn production went to produce ethanol in the U.S. High corn prices result in higher meat, dairy, wheat, and soy for consumers.
The U.S. seems to be embracing ethanol and DDGS export markets, so it is possible that this irrational policy will continue ...until it can't. Higher fuel costs weigh twice as heavily on corn than on soybean production, and less yet, for wheat production. As fuel costs go up, and they will, we will grow less corn and graduate toward crops and livestock methods that use lower energy inputs. In the mean time, instead of expecting the policy to be discontinued, expect policy changes that will do a better job at hiding ethanol price supports, and a possible cap on production near today's level.
As I see food insecure nations buying up farmland across the globe in rapidly increasing amounts, I see the desire to bring a large number of new acres into production along with plans to build the necessary infrastructure required. Tractor and equipment sales are strong, storage facilities are increasing in Saudi Arabia and other food insecure nations, and irrigation methods requiring less water are being promoted. Rapid seed technology advancements are on the horizon for boosting both security of crop production and food nutrition.
Brazil, a net food importer in the 70's has become the world's third largest agricultural exporter today. The FAO expects Brazil's output to increase as much as 40% this decade, which could more than meet increased global agricultural demand requirements. Lester Brown may have to wait another decade, yet, for his predictions to come true. On the other hand, if we have rapidly increasing extreme weather events due to climate change, oil supply disruptions and/or ever higher energy prices, poor government policy choices, ongoing economic meltdowns causing political unrest and food inflation, they might come true much sooner.
I'd like to think that it is very possible that the biggest surprise of this current decade is that we will continue to have overproduction of agricultural commodities while making strides to solve food security issues of storage, transport, distribution, waste reduction, and affordability. My top concerns on the horizon are the oil supply, weather, and tenuous macroeconomic conditions. I am cynical about human nature when it comes to prospects for soil and biodiversity preservation, as well as climate change mitigations.
K. McDonald