Mass Starvation in a World of Plenty

Source: http://jtcontracelsum.blogspot.com/2008/04/mass-starvation-in-world-of-plenty.html

There's a Rampaging Green Elephant in the Room and It's Man Made

There is no shortage of food in the world—only bad policies and governance. Can this really be true? After all, hunger is now on the rise again. Central Africa, for example, is a region where more than one third of people are hungry—that is, they do not get sufficient food. In India and Bolivia between a third and a fifth of the population do not get adequate food—they are malnourished.

Yet, last year saw a record world cereal harvest. Rising food prices will stimulate new investment and even greater production in the future. So, the experts say, there is no shortage of food in the world. (The Economist, 28th March, 2008). But global food prices are telling a very different story—and prices rarely lie.

Food, like any other tradeable good or service, is subject to the normal cyclical market forces of supply and demand. For the past five years, world food stocks have been decreasing, even while production has increased. Why? Well, demand has also increased—and it has increased more quickly than supply. There have been two long term reasons for this.

The first is the gradual, steady rise in world population. While overall population growth has slowed since the mid last century, it is still “ticking over”. The US Census Bureau projects that at current growth rates world population will have doubled by 2050. More mouths to feed mean inevitably a growing demand for food.

The second factor is rising living standards, particularly throughout Asia and the Middle East. As living standards rise, the “first” thing people do is eat more food. The second thing they do is change what they eat. They move from a cereal or starch based diet to a higher protein (Western) diet.

These two factors have led to demand outstripping supply over the past five years. More mouths to feed, and more food being eaten per mouth, as it were. When this happens we can expect the normal market, cyclical market response. Prices rise, leading to a short term lessening of demand. But, a second factor normally comes into play—namely, higher prices lead to greater profits for food producers, which incentivises them to invest more, to produce more—which eventually leads to greater supply. Eventually, of course, the market settles down to a general equilibrium point.

The food aid people tell us that this normal market mechanism appears to be working, and that the supply of food—as measured by the amount of grown—is rising in response to the higher prices. So, we should expect that food prices will eventually peak and track down again. Right? Well, no—at least not anytime soon.

Why? As we have described, the food market was at the critical point of a cyclical re-adjustment. Food stocks were falling, demand was rising, and prices were trending upwards. Farmers got busier and supply started to react, trending upwards. Then came the rogue element. It entered the arena right at the critical moment. This rogue element dislocated the food market, moving what would have been a normal (and gradual) market adjustment of demand, supply, and price to a situation of severe dislocation, which can only be described as a global food shock—as far as we know, the first in human history.

In the past, severe dislocations to the world food markets have occurred due to extreme weather—and they have been relatively short lived. Not this time. Western governments, particularly the EU, the US and Canada have now adopted the view that the world was getting warmer primarily because fossil fuels were being burnt. The world, if it were to be saved, had to move radically and quickly to renewable fuel sources. The age of biofuel had come.

The effect of this has been to turn vast swathes of grain producing land into production hubs for the raw material to produce ethanol. The most commonly used raw material is corn. Consequently, a huge amount of grain has been suddenly removed from the world's food supply. So the world food aid people are right: more food crops are being produced than ever before—and there is theoretically no shortage. That is only half right. Yes, food crops are being grown, but it is being diverted away into ethanol production. Food is no longer food; it is fuel.

At a time when global food supply and demand were tightly stretched anyway, suddenly the world food market has been distorted by a giant politician-cum-green monkey wrench. The result: huge market dislocation and a global food shock.

The relatively recent US Energy Bill legislated a target of producing 20% of fuel via ethanol within fifteen years. To achieve this, it provided a federal subsidy for the production of ethanol, which in turn meant that ethanol plants could pay higher prices for corn. So the price of corn shot up from $2 a bushel to over $6.

There are currently 134 ethanol refineries in the US. There are another 77 presently under construction. In just one year, demand for corn from ethanol distilleries jumped from 54 million tons in 2006 to 81 million tons in 2007. This more than doubled the annual growth in world demand for grain. But, even more insidiously, it removed this amount of grain out of the world food supply chain. This will not abate—it will get worse. It is expected that ethanol production will consume 28% of US grain production in 2008. But this only represents 3 percent of current US gasoline needs. And it will not stop there. We are on a mission to save the planet. Remember the US has legislatively mandated 20% of US gasoline to come from ethanol by 2020's—and that's just a short twelve years away, in case you need reminding.

Add to this situation a further element in the equation: the amount of global arable land able to produce food is pretty much fixed. Most of the arable land in the world is already in food production. So farmers can't simply head to the hills and produce more food. Arable land is now a scarce global resource.

Well, I hear you say, that's no problem. I don't like cornbread, and I can pass on tortillas. Sorry, four realities make it a problem—a problem that everyone in New Zealand is noticing right now—and we are hardly to be considered vulnerable.



1.The global price of other grains also shoots up, because other grains are suddenly subject to double the normal annual increase in demand. If people can't get corn, they move to rice or soy beans or substitute some other grain. Unexpected rapid increases in demand create severe shortages, leading to sharp price rises. If people in New Zealand are complaining that they can no longer afford food, how do you think millions and millions of people who were already hungry or malnourished are faring? Famine, disease, starvation and death is facing them. And there is no end in sight.

2.Corn is most commonly used in the US to feed chickens and cattle. This is normal in northern hemisphere, colder climate farming regions. With huge rises in the corn price due to the ethanol behemoth “confiscating” food supplies, the prices of eggs, chicken, beef and other grain-fed proteins is rising rapidly.

3.This has produced transfer-demand to other proteins. Hence global prices have begun to rise drastically for dairy products, fish and meat. Demand has transferred across, prices are rising.

4.The price of every food group is consequently rising. This is unprecedented. Normally, when the supply of one food type (rice, or corn) falls leading to price rises, demand substitutes across to other foods, leading to an eventual downward adjustment in the price of that initial food, as the original demand pressure eases. But the world is faced now with price rises in all food types across the board. This is why it is accurate to characterise what is now occurring as a global food shock.


And the reason? It is the ethanol elephant coming into the room. As we noted above world food demand was already rising, stocks were falling. The market was already under pressure. Yet, markets are remarkably robust and there was every reason to have expected that gradually supply, demand, and prices would have adjusted in an orderly and productive fashion. But not this time. The global food market has been dislocated beyond comparison. Into the already tight food supply and demand matrix has come the ethanol elephant and it smashing everything in the room.

So, let's look at the data. According to Lester R Brown of the Earth Policy Institute:


“The World Bank reports that for each 1 percent rise in food prices, caloric intake among the poor drops 0.5 percent. Millions of those living on the lower rungs of the global economic ladder, people who are barely hanging on, will lose their grip and begin to fall off.

“Projections by Professors . . . of the University of Minnesota four years ago showed the number of hungry and malnourished people decreasing from over 800 million to 625 million by 2025. But in early 2007 their update of these projections, taking into account the biofuel effect on world food prices, showed the number of hungry people climbing to 1.2 billion by 2025. That climb is already underway.

“Since the budgets of international food agencies are set well in advance, a rise in food price shrinks food assistance. The UN World Food Programme (WFP), which is now supplying emergency food aid to 37 countries, is cutting shipments as prices soar. The WFP reports that 18,000 children are dying each day from hunger and related illnesses.”


Now, let us be clear. This situation—which will cause people to starve and others to slip into malnutrition leading to sickness, diseases, and death—is a man-made disaster. It has been caused by the folly of mankind—in particular, a knee jerk reaction to a purported threat to the planet and mankind from global warming. It will turn out that the “cure” to what we believe is a fabricated fantastical problem will be far worse and far more damaging than the original imagined malady. Count every child lost, every person slipping into the degradation of poverty and malnutrition and think of Al Gore and his blasted, benighted, demonic Inconvenient Truth.

Give me global warming any day, even if it were true. At least no-one dies from global warming. At least people would have time to adjust. But as a consequence of the megalomaniac madness of modern governments, determined to tilt at climate windmills, all the while slyly seeking party electoral advantage at the expense of genuine needs of their people, human beings can, and are most certainly, dying. But who cares about the poor and wretched of the earth when there is money to be made, elections to be won, and Nobel gongs to be awarded.

Next time you consume a piece of now very (and soon to be more) expensive cheese, think about how our western governments, the EU, Canada, the US, Australia, New Zealand, not to speak of the UN, and all the vested interests that circle around, dancing their dervishes to line their tawdry pockets, have combined to act in a way that is likely to cause the death of millions and millions of people. Hiroshima will be a mere side show. The Holocaust will have nothing on this baby. Stalin will be a mere babe in arms in comparison. We may well see the mass kulakisation of the third world on a grand scale. And, oh, let's not forget—to assuage starvation widespread cannibal activity returned amongst the Kulaks, as Stalin strove mightily to save the world for dialectical materialism. But at least it was all in a good cause. Worth the price, I'd say.

Let's hear it for our wonderful Athenian nobles and overlords. Let's put our bloodied hands together and honour them as they deserve.

Posted by John Tertullian and Contra Celsum at 10:32
Labels: Agriculture, Biofuels, Climate Change, Disease, Epidemics, Famine, Food, Global Warming, Starvation
3 comments:
Anonymous said...
Some questions on my mind:

If biofuel production were discontinued tomorrow, then wouldn't conventional oil consumption and demand increase proportionately? If effect, what we didn't use in ethanol we'd have to make up for in imported oil.

But Lester Brown said that oil prices directly affect the price of food for many reasons: fertilizer, insecticides, farm machinery, transportation, packaging, etc. I believe he said that 80% of the cost of food is related to these after charges and those all need oil byproducts.

By that reasoning, if oil prices go up due to increased demand, then food prices will also go up.

My question is whether anyone has done a comparison of the effects on food prices from either scenario? Without that it would be hard to say that food prices would go down "absolutely" if biofuels were no longer produced. It would seem that they would but you can't alter a massive agricultural system based on gut feelings.

I'm also curious exactly how many gallons of oil are replaced by biofuels (factoring in lower octane rating.) Doesn't biofuel production help keep the cost of imported oil down when the primary users - developed countries - produce their own oil substitute?


Lee J.

3 April 2008 16:08
John Tertullian said...
Hi
Thanks for your comments. Some thoughts:
1. Biofuels only account currently for 3% of US gasoline consumption, so discontinuing the programme will have a negligible effect upon demand for oil and therefore its price. But while the current contribution to energy made by biofuels is negligible, the present effect on food supplies is enormous.
2. You are right, there is now a link between cereals and the cost of energy. Thanks to the biofuel programme, food is now being classed as an energy commodity. But--and here is the iniquity in the current approach--people can make adjustments to their energy consumption patterns without threatening their lives. I can survive without oil; I cannot live without food. The former is a threat to my lifestyle, the latter to my life. The biofuel programme has transmitted what is essentially a concern over western lifestyles to one of a dire threat to life for millions of people.
3. It is primarily in the West that the cost of food comprises significant manufacturing overheads (packaging, warehousing, distribution, etc). Hence, although the price of raw cereals has risen by double or even treble in the last year, the cost of manufactured foods using those cereals in the West has increased by a much lower proportion. But in poor malnourished areas the base cost of the cereal represents a much, much larger proportion of the cost. So for these poor, the price of food is doubling and trebling. Add to this the fact that for these people food costs represent most of their daily expense. It is a vice from which they cannot escape.
4. Can the US biofuels programme be stopped? Probably not. There is too much political and financial capital invested in it. And the consequent suffering is predominantly outside the US, not within it. One thing that could be done, however, is reduce the taxpayer subsidy for ethanol; the industry would shrink rapidly if that were to happen. Its economics do not stack up without this artificial, political prop.
5. As we pointed out, food prices were rising anyway. Biofuel has made them rise far further than they would have. You cannot put such a huge demand increase into the market, representing twice the annual global increase in world food demand, without creating a massive distortion to the market. Take the distortion away, and let the market do its work. It will adjust as it always has done--with a minimum of dislocation and suffering.
JT

4 April 2008 09:12
Anonymous said...
Thanks JT for your valuable comments. If, as you say, the net effect on oil prices with ethanol production is "negligable," then things will eventually have to change.

Speaking of "distortion" of the market (#5), I've also noticed recently a lot of food protectionism (if that's the correct term) happening everywhere. Many of the world's largest grain producers are blocking exports and the news stories make it seem more dangerous to food prices and supply than anything else right now.

Countries like Indonesia (world's third-largest rice producer,) China, India, Vietnam, Egypt, and Argentina, among others, are blockading exports! If that doesn't distort the food market, nothing will. In my opinion, it could lead to hoarding, smuggling, black-markets, price rises, more global shortages, economic warfare, and other deformities caused by protectionism. Famine has also been used a weapon of war in the past.

This all seems quite serious.

Lee