Well in fairness there are nine emerging Asian countries with some form of link on their currency with the US dollor, and while the try to keep their exchange rate in someway pegged they are loosing their monetary policy to the United States, or certainly have less control as they would have hoped, while the US is continuing with its extremely loose policy,… now however this may not be connected with rising food price’s as you correctly point out, there is rising demand from emerging markets, while supply has been hampered, so supply and demand are more then likely the key driver alright.
Well, nobody is forcing the Chinese or other countries to peg their currencies. It’s like Uncle Ben said yesterday: other countries can (and probably should) run their own monetary policies, it’s just that they decided that a dollar peg was more important. With the US consumer in deleveraging hell for a while, the value of pegging a currency to the dollar is coming into question. But floating exchange rates are usually better, unless you have out-of-control fiscal and monetary authorities who can’t be trusted to run a sensible policy. One could turn around and say “but hey, the US is printing up so much money, how could this be considered a trustworthy authority,” and it is true that these are unprecedented actions in normal times. But this is like blaming the repairman for a large repair bill when the real problem was that one didn’t take care of things properly before they broke.
bchadwick Wrote: ------------------------------------------------------- > Sure, all that money printing is making food > prices higher IN THE US. There’s little doubt of > that. But it’s US consumers (and countries with > dollar-pegged currencies) that are facing it. > Global food prices are almost certainly being > driven by demand increases (wealth and changing > diets among Chinese, Indians, Brazilians, etc.) > and supply decreases (floods, freezes, heat waves, > etc) around the world. I haven’t disagreed with that at all. I said in my first post that global demand was a large factor. I don’t happen to agree that everything is so black and white though. It’s not a shotgun approach to analysis to believe there’s more than one factor causing price movements. I tend to take the common sense approach to things. Global demand has pretty much always risen, albeit at a historically more gradual pace; while commodity prices have trended lower. But all of the sudden, beginning in 2010 the world woke up and realized there are 7 billion people on Earth and they all need food/clothing causing a 50-100% increase in nearly all major commodities! Wow, that’s some excellent analysis. If that’s truly the case, all that tells me is commodity analysts, prior to 2010, were completely misguided. It seems much more likely there have been other, major factors at work.
Well, historical food supply and demand is complicated. The distribution of global purchasing power is changing, both among and within countries. The supply of arable land is increasingly limited. Nonetheless, there are a number of technological improvements that have increased the productivity of existing land, particularly since the industrial revolution, including combine harvesters, pesticides, fertilizers, selective breeding, genetic engineering, hydroponics, antibiotics, etc. that improve production. Over time you find that different factors limit the availability of food. Available land, the use of land for othe purposes (like city growth, or the preservation of wilderness) is one. The availability of fertilizers etc. is another. Transportation networks is another. The use of land for other cash crops (cotton, timber, etc.) is another. So the supply of food has not simply been growing over time… it grows in fits and starts. The growth and change in consumption is probably easier to project than the growth and change in supply, because it is based on demographics. Between about 1750 and today, we’ve been able to intensify agriculture and bring more land into production fairly easily. Now we are running into limits on available land, conservation needs, and the energy requirements of using fertilizers, pesticides, and tractors, as well as the transportation networks for shifting food around the world. So all this suggests that food prices will continue to be highly volatile, but the trend is likely to be demand growing faster than supply for quite some time; at least until there is a major new technological innovation that allows for a big jump in agricultural productivity. Green revolution techniques still have a fair way to disseminate in the developing world, but the energy footprint that comes along with these techniques will be more restrictive than it has been in the past (until a more reliable renewable energy source can be harnessed).
verticle farms is the answer!
i do think sweeptheleg has a point but it hasn’t been articulated well. if QE2 and other monetary stimulus is doing anything, it is providing a wealth effect, not just in the US, but globally. of course i have no proof of this, but it is kind of assumed… from my understanding (i.e. reading the Economist), Chinese and Indian house prices are still appreciating/holding steady. Chinese and Indian stock markets are not doing horribly and employment looks healthy in both countries. the effect of increasing wealth for the low-middle to upper-middle has dramatic effects on food demand. that combined with: points that bchad is making, like that fact that many farmers haven’t been using commercial fertilizers in the same way they were used in 2007 and 2008 due to the high cost of using said fertilizers, and on-going, though not particularly material credit issues. both combine to create a slight imbalance between supply and demand and that slight imbalance in a very sensitive and well-balanced food market/distribution system, creates major food inflation in areas where demand is growing and supply is short. it is also important to remember that food often has high tariffs and trade barriers attached making the global supply-demand balance less important and the country-specific supply-demand balance the key. as fuel costs rise, it will be difficult to justify sending a US grown vegetable to China where purchasing power is less than a 10th of an American. western countries (Canada, US specifically) aren’t experiencing material food inflation because we can supply our own population many times over whereas many Asian countries are just meeting food demand and rely on heavy commercial fertilizer use to keep up with surges in demand. use of expensive fertilizers helps meet demand, but increases the cost of production, especially when most of that fertilizer has to be shipped from Russia or Canada and costs plenty just to get it there. that increases the cost of production but reduces the utility/cost of a loaf of bread, hopefully enough to free up some real disposable income.