Tuesday, February 12, 2008

The end of cheap food?

On the NPR call-in show "On Point" today, the topic was increasing
food prices. Host Tom Ashbrook had an agricultural economist on,
talking about the factors that are driving up food prices. In his
intro, Ashbrook talked about the rising theft of pigs in China,
tortilla riots in Mexico, and increased milk prices here in the US.
As possible causes, he mentioned the ethanol boom, and said - among
other things - that "farmers are sitting pretty on high prices."

Well Tom, let me give you an idea of what "sitting pretty" looks like
to this American farmer. It looks like all the small dairy farms in
my neck of the woods have been run out of business or gobbled up by
larger neighbors. Those larger neighbors are pulling in record
amounts of money for their milk this year - two years ago, the prices
were at an all time low. And despite the fact that prices are now at
historic highs, most of them aren't making very much more money than
they do when milk prices are "normal," because the cost of grain to
feed the cows, fuel to plant and harvest hay and other fodder and the
fertilizer to grow it have all skyrocketed in the last few years.

In the fall of 2004, I could buy a 21-ton tractor-trailer load of
shelled corn delivered to my farm (then located in Amherst, Mass.)
for $2,520, or $120/ton. Today, that same delivery would cost me
$4,095, or $195/ton. So in three years, the cost of corn delivered to
a farm in central New England has increased 60 percent, or 20 percent
per year at a time when the general inflation rate has been about 3
percent. Those damn Iowa farmers must be making a killing, right?

Nope. They're not the ones making it. Food and Water Watch Policy
Analyst Patrick Woodall points out these facts. "In 1980, the
farmgate price for corn was $2.70 and a new Ford Mustang cost about
$6,000. Today, the base model Mustang runs about $19,000 and corn is
selling for as much as $3.70 - meaning the price of Mustangs more
than tripled and the price of corn increased by a little more than a
third," said Woodall.

See Food and Water Watch's press release for further analysis of the lack of relationship between historical
corn prices and the prices of consumer goods, including groceries.

So who is making the money? Where's it going? What's driving the cost
of food through the roof? Well, we might consider looking at Exxon
Mobil's record year that just went into the books.

Exxon Mobil's record profits

That's right. The folks who brought you the Valdez earned a record 40
billion, 610 million dollars last year. In round figures.
$40,610,000,000. That's a net profit of $3,219.34 per second, 24
hours a day, seven days a week, 365 days a year.

To be honest, I think that pretty much ends the mystery of where our
food dollar is going. Over the years, partly because of government
planning and partly because of simple economics, the US and to a
lesser extent the world's food system has become concentrated. We
have a corn belt, which is widely known and recognized. But we also
have a dairy belt, a wheat belt, a beef belt, a sugar belt, a cotton
belt - you name, we've got a belt for it. Production of agricultural
products is concentrated in specific parts of the country where they
grow best, can be processed easily, or simply because there weren't
enough people around to object (note the concentration of beef
feedlots in the rural west).

The whole system is based on transporting commodities from where they
are grown to where they are needed - either for direct consumption or
for processing into other products.

In real terms, the farmer who grew that corn I bought in 2004 and the
one growing it today were paid about the same amount for their
efforts. After all, farm gate prices aren't what really matters: farm
profit is. The increases in cost incurred at my farm, and the
increase at the farm gate, are nearly all due to the increased cost
of energy.

Energy is expended to plow the land for the corn. Energy is expended
to fertilize the ground (commercial fertilizer is, essentially, a
petrochemical). Energy is expended to harvest, and dry the corn. Then
it's loaded into rail cars, which expend energy transporting it to
New England, where a grain company loads it into trucks and expends
energy getting it to the farm where it's loaded into my bin.

At every turn, Exxon Mobil and the other oil companies are making
record profits. No one else along the chain of custody is getting
rich, let me assure you.

So, what sitting pretty looks like to this farmer is pretty much what
it looks like to the soccer mom filling up her minivan or the road
warrior pumping gas into his SUV: shoveling dollars into the coffers
of oil companies.

What can be done? I can only really think of one thing. We have to
get used to paying what it really costs to get our food grown,
processed, and delivered to us. That might mean that suddenly the
small-scale production of grains, considered inefficient in the days
when a gallon of diesel cost less than $1, will suddenly start to
look more and more efficient. It won't make Vermont wheat any less
expensive, but perhaps it will be competitive with the $10/bu wheat
in Kansas that then has to make a 2,000 mile trip to Vermont.

It almost certainly means that there will be less and less grain-fed
meat around. Lambs, being a relatively poor converter of grain to
flesh when compared with pigs or poultry, will be one of the first
food animals to stop making a trip to the feedlot.

For the take of an industry watcher who has seldom been far off the
mark, see Stan Potratz's column. He's
predicting that more and more lambs will be marketed directly off
grass. This will take a new kind of sheep. The animals at the core of
the sheep industry have been selected as a means of adding value to
grain for so many years that they have become poor converters of
forage. Fortunately, the sheep industry has seen very little the sort
of vertical integration that has made pork and poultry production so
"efficient," so the right kinds of sheep are out there. But they are
in short supply.

Anyway, Tom Ashbook, none of us farmers are "sitting pretty" on our
high prices. If we even actually have them. We're struggling to get
by as usual, paying big money to big companies for things that we
must have in order to put food on your table.

You're welcome, by the way.

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