The new food pessimism

by on May 15, 2010 at 2:33 pm in Economics | Permalink

This LRB article by Jeremy Harding articulates an increasing fear that food markets will not operate smoothly over the next decade or two.  He gives some major reasons (only partially reproduced here) to be pessimistic:

The first is the nature and extent of population growth: we are six billion now and by 2030 we’ll be eight billion…

The second is ‘the nutrition transition’: generations that once lived on grains, pulses and legumes have been replaced by more prosperous people with a taste for meat and dairy. Crops like maize which once fed many of us directly now feed fewer of us indirectly, via a costly diversion from which they emerge in the value-added form of meat. Global production of food – all food – will have to increase by 50 per cent over the next 20 years to cater for two billion extra people and cope with the rising demand for meat.

The third factor is energy: the industrial production of food is sure to become more expensive as fuel costs rise. It takes 160 litres of oil to produce a tonne of maize in the US; natural gas accounts for at least three-quarters of the cost of making nitrogen fertiliser; freight, too, depends on fuel.

Land is the fourth. The amount of the world’s land given over to agriculture continues to grow (in the UK, roughly 70 per cent of land is agricultural), but in per capita terms it’s shrinking. As with oil, it’s possible to envisage ‘peak food’ (the point of maximum production, followed by decline), ‘peak phosphorus’, i.e. the high point in the use of phosphate fertiliser (one estimate puts it at 2035), and, as the FAO suggests in its diplomatic way, ‘peak land’: the point at which the total area of the world’s most productive land begins to diminish (soil exhaustion, climate change) and marginal land comes up for reassessment.

[Fifth] Alternative fuels are reducing the amount of land available for growing food.

The Julian Simon-savvy crowd that reads MR might not be so impressed, but I wouldn't write off these worries so quickly.  On the list, #1 and #2 do not impress me per se, but they do require that market mechanisms of adjustment be allowed to operate.  Note that agriculture and land markets are highly regulated around the world and that you don't have to read this as a story of market failure.  As for #3, most energy is mispriced today.  Keeping it cheap means growing pressure on that externality, while taxing it means a solid whack to a lot of food markets.  #5 stems from bad government policies.  Another problem, mentioned later by Harding, is that very often water for agriculture is subsidized and unsustainably so.  Keeping water cheap means growing pressure on that externality, while removing the subsidies (which I favor) means a solid whack to a lot of food markets, at least in the short run.  The world as a whole is consuming its capital of aquifers and the like and engaging in short-term thinking by refusing to let the price of water rise as it ought to.  Internalizing all the relevant externalities, and increasing sustainable long-run production, would in fact mean big "tax" hikes on growing food today.

There is also a critical scale at which fertilizer run-off and erosion externalities start to matter at a level beyond which we are accustomed to seeing.

I believe these factors mean a stronger case for agricultural free trade, rather than "localism," yet at the same time removing the subsidies for sprawl.  Yet so far the people worried most about these issues are often the ones with the least economically informed answers.  It would be a mistake to, say, mock Paul Ehrlich's earlier doom-saying predictions and ignore these problems altogether.

1 Aleksander Hansen May 15, 2010 at 2:45 pm

It would be interesting to hear you elaborate slightly on what you mean by point #3, that “most energy is mispriced today.” Are you referring to the subsidies and taxes that impede the markets ability to allocate resources efficiently? If not, do tell.

“[…]industrial production of food is sure to become more expensive as fuel costs rise.” From a static ceteris parbius perspective that is true, however, looking at the record of history the cost of food production had declined, not risen – despite that the world’s population has grown significantly. There is little reason to believe that the technological developments and increased productivity that made this possible will magically cease.

2 Tomasz Wegrzanowski May 15, 2010 at 3:17 pm

You’re saying that as if it was a bad thing. Recommended calorie intake: ~2250 kcal/day. Actual global average calorie intake: ~2800 kcal/day and increasing.

We eat on average 25% more than is best for us.

If everyone reduced their food consumption to doctors’ recommended number of calories, we could feed 8 billions easily, and be much healthier overall.

3 RH May 15, 2010 at 3:26 pm

We could grow on multiple storeys, lit by lamps. Put solar collectors on top of that if you wish.
We need elements C, H, N and P as inputs. C, H, and N are available in sufficient quantities in the atmosphere, and can be collected with enough energy. I don’t know about P, but I assume it doesn’t get magically “lost” in production and may in principle be recyclable.
At the end of the day, we only need energy. Lots of it. That’s all. Hello, Julian Simon.

4 afinetheorem May 15, 2010 at 3:36 pm

This is a bit strange. Just using current technology, we can easily double world food production from the present. Look at IRRI rice production data, for instance. Japan and China produce >6 tons/hectare, most middle-income countries produce around 3, and particularly poor countries even lower. This data is *after* massive global work on increasing rice production in the third world; many crops have even more room to grow, no pun intended. In the third world, even today, the overwhelming majority of farming is done inefficiently on very small plots, and this will also come to an end. Surely new crop technology will continue to come on board at the upper end as well. If anything, I could believe that meat/fish prices will increase in the future, but even there, “lab meat” and farmed fish provide some level of respite.

5 William May 15, 2010 at 3:58 pm

I’m not an economist. Can anyone explain free-market fixes to “fertilizer run-off and erosion externalities”? I’m a bit of a skeptic.

You should be, and you should be skeptical of the thoughtless knee-jerk “Malthus + Ehrlich, therefore, all is well” answers that are already coming in. Thumbs up to Tyler for not succumbing.

6 liberalarts May 15, 2010 at 5:12 pm

“Market” solutions to fertilizer runoff would be to add a tax to each pound of fertilizer that reflects the incremental damage caused by the runoff of that pound of fertilizer, assuming the optimal quantity of on-farm runoff management. That optimal on-farm runoff management (shallow tilling, riparian buffers, etc.) would either need to be mandated, or regulators would have to scale the tax rate on the fertilizer inputs inversely to the quality of the farm management. Then, the incremental damage from the fertilizer would be born by the farmer, and he would only use it for production that generates value equal to or higher than the damage he is causing, which he has to pay for in the price of his fertilizer. So, that involves a lot of government management, but it does ultimately channel costs into market prices for fertilizer and ultimately grains.

There is no such thing as a “free market” solution to widespread run-off, at least not a realistic one. Actually, “free market” solutions only work for small scale externality problems, like neighbors squabbling over fencing or visual pollutions.

7 Doc Merlin May 15, 2010 at 5:23 pm

‘The amount of the world’s land given over to agriculture continues to grow (in the UK, roughly 70 per cent of land is agricultural), but in per capita terms it’s shrinking. ‘

This is expected if efficiency is increasing!

8 Lord May 15, 2010 at 5:58 pm

Actually I would say 2 and 3 are diametrically opposed. Higher energy prices will mean higher food prices which will limit how affordable meat will be.

9 8 May 15, 2010 at 7:44 pm

George Soros, Jim Rogers and Marc Faber are three of the most prominent investors who are buying up farmland. Jim Rogers frequently tells the host of financial programs that people should quit finance and become farmers.

It’s safer to bet on Julian Simon when pessimism is high. While he’s right in the long-run, it doesn’t mean there won’t be a painful intermediate period. For instance, food costs have plummeted as a percentage of GDP. They could easily double and not cause any hunger problems in the West. But how do indebted Western governments deal with it? Maybe people won’t starve, but they may be broke and unemployed.

On the flip side, high food prices are positive for U.S. trade. Overall it’s bad news for the economy, but if you’re a farmer, your protected industry will become even more politically important. Any chance that political power will be able to maintain low water costs? Wealthy powerful farmers. Got fertile land?

10 jorod May 15, 2010 at 8:44 pm

I hope you are not making an argument to keep subsidizing less efficient producers. God help us.

I think everyone overestimates how much food people actually need to live a healthy life.

Suggest Simon’s paper on population growth. As nation’s become more wealthy and better educated, reproduction rates fall, assuming a free market economy.

Fertilizer is not bad. People just use too much.

11 Doc Merlin May 15, 2010 at 9:11 pm

@Tom T.
“Aren’t we currently paying American farmers NOT to produce food? Presumably if we wanted to encourage the growing of more food, we could stop doing that”

Thats a step.

Also, a significant percent (its more than a third if i recall) of the US is owned by the federal government. If we needed more food, the state could begin selling that land. I really don’t see a coming food shortage that isn’t politically caused, in our near future.

12 Steve May 15, 2010 at 9:41 pm

8 billion people by 2030? Where does that come from?

We may have developed a taste for meat and dairy but we can go back. That addresses the land issue also. Plants eaten by humans will feed more than plants fed to animals that humans eat. I have heard up to 10-times more but I have never pinned down this estimate.

I am always struck by U.S. poverty stories on the news in that there is often an angle of “We’re eating nothing but rice and beans,” when that is much healthier than what they were eating before.

13 mulp May 16, 2010 at 1:36 am

Also, a significant percent (its more than a third if i recall) of the US is owned by the federal government.

Wrong. It is about 20% owned by the people, but little of can be used to produce food. All the good land was redistributed, the wealth of the original land owners spread around by the Federal government. The last of the land the government spread around was the plains that in the late 20s and 30s blew away to dust the east coast.

And climate change has reduced the water used to water the desert, and the aquifers are falling rapidly as the million year old reservoirs are being mined rapidly.

Of course, the US can do what it did in its first century: go to war and annex the rest of Canada and the rest of Mexico, and then spread the wealth.

14 mulp May 16, 2010 at 3:50 am

To the comments of the sort “the solution is easy….” means there are lots of dumb people out there who might as well be burning twenty dollar bills.

So, since you are so smart, why don’t you get rich by producing twice as much as all those idiots who are producing half as much as you can easily produce because you are so smart.

15 Oz Ozzie May 16, 2010 at 5:20 am

The water on your property is not yours to use as you will, as is the air, since both are just in transit – shared with the commons

I am generally in favor of letting the markets sort these things out – and in the big picture, they always do – governmental interference can only hold back the dam for so long. The problem with the market when it comes to food vs hunger is that food consumption is not very elastic, and hunger/greed causes an asymmetric response. One way the market can resolve the food vs hunger problem is to reduce the number of people in the market. For me, this is not an acceptable outcome, however it happens, so I think we need to hold back the dam as long as we can.

16 Duracomm May 16, 2010 at 6:20 am

From the article,

Cue the role for government. Broad agreement about the precarious future of food in the UK is a more attractive prompt for anyone in Westminster than melting polar ice, and politicians clearly feel there’s a point in trying to protect Britain from a breakdown in food supply (a far more remote possibility in France and the US, where old statist habits persist).

The problem is government policy is the primary driver of current ag production patterns that the sustainable / local/ flavor of the day / activists dislike.

So now we are in another round of the infinite loop of trying to develop “new and improved” government policies to fix the problems the old government policies caused.

Sorry, I’m not buying and that dog will not hunt.

If you want to have any hope of “fixing” agriculture the first step has to be massively reducing the role of government in agriculture.

Agriculture may not change much if government subsidies are removed. But I guarantee it will change not one little bit as long as the government stays entangled in agriculture.

One important potential side benefit of less government involvement in agriculture is that ag land will become cheaper. Cheaper land means that people can afford to experiment with new production practices.

More importantly it makes it easier for new producers, with new ideas, and new production practices to get involved in agriculture.

17 James Giese May 16, 2010 at 10:16 am

Another major reason for pessimism: climate change

18 ray l love May 16, 2010 at 12:20 pm

The 18th century agricultural reformer ‘Jethro Tull’ warned long ago that farm machinery would cause compaction problems. His solution though, not plowing on the same path, was only a short-term fix. The planet’s best soils have now had heavy machinery driven over the same surfaces on ever changing schemes for a long enough period of time that more than half of the global land surface that is highly fertile (more than half of the 3%), is classified as ‘at risk’. Some of this soil at risk is so, due to erosion, although compaction is the one related cause of erosion that is the most problematic in terms of soil loss because compacted soil does not allow water to penetrate deeply enough. Although, modern farming equipment can be programed to confine vehicles to specific paths, season after season…but, this diminishes the total amount of land that can be cultivated. And the simple truth is that unless the current trends of soil degradation are reversed, or unless marginal soils are improved upon, it is very unlikely that food security levels might meet the needs of 8 billion people in 2030. ‘No-till’ farming will minimize compaction problems going forward, but the fact that machinery has been compressing our best soils for decades, and for centuries, is already done. But… the soil conditioner that has been around for hundreds of years:’terra preta’ (biochar), or something similar, does seem very probably to be a karmic solution. (‘Karmic’ because the European explorers who first discovered ‘magic soil’ ignored what may turn-out to be the most important discovery ever made… while they were searching for a “barbarous relic” (gold). History exposes human folly once again, yet, humans are still much more interested in gold than they are in ‘soil’). So… whether we can meet the nutritional requirements of mankind, a task which has eluded our best efforts so far… in the future ???

19 lxm May 16, 2010 at 4:57 pm

Can we feed 8 billion? And if we can at what cost?

There’s lots of information about the current wave of extinctions in the world. Here’s one sample:

I don’t believe human life should be bought at the cost of other life.

I would rather have a few billion less humans and flourishing coral reefs.

many disagree.

20 steve May 16, 2010 at 6:57 pm

“The Julian Simon-savvy crowd that reads MR might not be so impressed”

the particular 10-year period of the Ehrlich-Simon bet, Simon won of course. But if you look at every possible 10-year period since they made the bet, Simon would have lost the majority of them. 70% of them IIRC.

In other words, Simon was lucky that time, in the general case he was wrong.

21 Bob Knaus May 16, 2010 at 8:36 pm

Beezer – because organic farming is a great way to raise high value vegetables for the elite, but a very poor way to raise commodity crops for the masses.

I think organic farming is a fine way to make a living, just as I think producing hand-written Buddhist prayer books is a fine way to make a living.

IMHO, these are self-evident truths. Others may dissent.

22 doctorpat May 16, 2010 at 11:19 pm

As Doc Merlin put it: I really don’t see a coming food shortage that isn’t politically caused, in our near future. but this doesn’t mean it isn’t a really and pressing danger.

Biofuel promotion and GMO suppression being obvious examples.

But, now that the space launch technology crowd is starting to conclude that getting into space with a really big cannon isn’t such a silly idea after all, I’m reminded of another idea that Jules Verne had: how about we look at direct synthesis of food from coal/natural gas etc.

We already synthesize alcohol (it’s the cheapest way to do so, providing no politicians in the area have been bribed by any corn/sugar cane growers). Simple sugars can’t be too tricky. Even if nobody will eat coal-bread (as Jules predicted in his book) we can at least feed the farm animals, and voila! Tasty meat.

23 Earl Cannonbear May 18, 2010 at 11:43 pm

I for one believe there are far too many humanoids on earth. A drastic reduction in the number of useless eaters would be a blessing.

24 MiniME February 23, 2011 at 10:43 am

I think if we stay sain with our eating habbits everything is going to be okay.I don’t know about you but I have friends who started as a hobby taking natural proteins and things like that but he’s gone to the extreme.And that is not good.Eat normal and everything is going to be ok

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