Friday, April 8, 2011

A Comment About the Lower Food Price Index

What a difference a couple of months makes. During the past 24 hours "everybody" is reporting the food price index drop, the first in eight months, from the monthly FAO report. There has been much fear-mongering from the media over the past six months about the world running out of food. Perhaps, so much so, that the general public accepts this as a given. Furthermore, some have assumed that the Russian wheat crop failure and other events last year were a sure sign that climate change was destroying agricultural production rapidly, though the Russian crop failure had other causes according to NASA.

If one has gone beyond the headlines, the FAO reports were not really that alarming since the high prices were coming from sugar and oils and corn use being diverted to ethanol causing the coarse grains index to rise. Most importantly, rice and wheat supplies have looked adequate.

This month, according to the FAO food price index report, stocks-to-use ratios of world cereals, wheat, and rice all went up since a month ago. Coarse grains remained unchanged. There are even rumblings of wheat supplies surpassing expectations which will lead to lower wheat prices, in spite of the U.S. harvest being poor this season. Let's face it, we are still the world's grain producer powerhouse, but we have some growing global competition.

It is tough overcoming common prevailing wisdom, or myth-busting of the media, but I continue to sense that we have growing global grain production beyond what is necessary to feed the growing populations, along with advancements in addressing the real problems of feeding people, that is storage and distribution with waste reduction.

This is why I have gone from being certain that the ethanol program would be discontinued on moral grounds of contributing to global high food prices, to thinking today's farmers couldn't tolerate the loss of ethanol's grain price support which it now affords the agricultural system. In the mean time, it is supplying 10% of our liquid fuels, something that is becoming embedded into our transportation system.

So, I will reiterate my recent statement:
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.
Of course, I might be wrong.
K. McDonald

1 comment:

  1. "In the mean time, it is supplying 10% of our liquid fuels"

    10%? It appears to be about 10% of gasoline by volume now, but there are other liquid fuels and by energy content it's a bit less. And some of the energy inputs to corn ethanol that leave it barely better than break-even EROI are liquid fuels, so more like 3-4% net would be my guess.

    I'll agree that the chances are good that we're not really at the point of permanent food shortages yet, but trends are not so good and it seems more likely than not we'll be there by the end of this decade. As you say it'll be a surprise if we're not. Call them out for fear-mongering, sure, but a bit of fear seems warranted and is probably for the best if it leads to some effort to address those food security issues you list.