Feeling Robbed By Your Local Grocery Store?

Have you been feeling robbed......

Still, there is a problem with food prices right now. They are going up, and going up quite a bit. One reason for this is the switch to biofuels

One among many including higher gas prices, higher demand for grains due to increasing population and increasing wealth in countries like India and China*, etc.

Think of it this way. Suppose you consume two goods, bread and apples. There is a third product, mangoes, but they are very expensive, and very few of them are consumed. Now the government comes along and forces everyone to consume 3x the number of mangoes as before. What happens?

To make the analogy more apt:
Suppose the government subsidizes apples, so they are the most commonly eaten. There are two other products that were not subsidized at nearly as high a level and farmers were just beginning to learn how to farm them efficiently, mangoes and papayas. Further suppose that mangoes and papayas held a greater promise to feed people over the long term and when farmed properly were better for you. Now the government increases the subsidies to mango and papaya farmers (but still far less than it subsidized the production of bread and apples) and mandates that all mixed fruit sales contain a small percentage of mangoes and papayas.
The transition costs could be high, some farmers would not farm them properly (limiting or eliminating their potential benefits), and some would point to these failings and say that mangoes and papayas are a terrible idea and we are not ready for tropical fruits. Others would suggest that that subsidies and mandate quotas only be recognized for properly grown fruit rather than give up on the whole venture.

An alternative would be to eliminate all fossil fuel subsidies and tax the pollution caused by fossil fuels so that the user actually pays the real extraction and environmental costs. This could go a long way to leveling the playing field for 'alternative' energies. This would be a much more painful solution as fossil fuel prices would jump in price from their artificially low current levels.

* families are able to eat more and are increasingly eating meat (not nearly as efficient at turning grain calories into human mass).

For around four years now they have been trying to scare people with a mutant bird flu pandemic crisis, the West Nile virus panic and who knows what all. Nothing much has ever come of it.

Total production hasn't fallen so it's not a supply bottleneck per se. Demand has risen so that's a good place to look. But one of the reasons that demand is rising is that too many major consumers (including us) subsidize oil consumption. China and Pakistan, for example, both sell gas below world prices

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Actually, Dave world consumption of oil is falling, if marginally. Which, given it's long upward spiral is in itself, telling.

It's to the point in this country where as of today, we have more crude stockpiled, even exclusive of the reserve, than we have had in the last 15 years. We also have more distilates, such as gasoline, than we have had for the same period... 15 years. Laws of supply and demand don't sound like they're in full play, here, to me.

And as an aside, to give some perspetive on this topic, I touched on the bit with trade deficit with with Canada and Mexico, a couple days ago. The Democrats like to claim that NAFTA has us coming out on the short side of a huge trade imbalance with those two contries. The article I did was an answerback to John Engler of the WSJ who wrote:

There is no question that the imbalance of trade within Nafta has soared since 2000. That deficit has almost doubled to nearly $140 billion in 2007, from $77 billion in 2000. But the deficit in manufactured goods did not displace U.S. factory production.

What the antitrade advocates have been hiding from the candidates (or maybe don’t know themselves) is that almost all of the increase in our Nafta deficit since 2000 has been in increased U.S. imports of energy from Canada and Mexico. In fact, $58 billion of the $62 billion increase in our Nafta deficit has been in energy imports. That’s 95% of the total increase.

That perspective should giev you a rough idea how much oil can affect the fincials of everything else.

Now, about Soros and his buying and selling... has anyone looked at that, I wonder?

The forced march to their use has impacted the availability and price of food across the board.

Farmers are foregoing payments to keep land out of tillage for wildlife habitat, instead they are plowing and planting this once unworked land to take advantage of the high prices for corn, etc.

Reports are that now that food is scarce, resistance to GM crops is dropping across the world.

And let's not forget that all that ethanol moves primarily by truck to mixing points, where petroleum moves by pipe over the long distances.

I think there are several possible culprits including

- oil prices
- increasing demand
- bad trade policies
- bad agricultural policies
- use of food crops for biofuels
- the Fed

James Hamilton seems to think that the Fed is a major culprit. I have my doubts.

Producing all commodities seems to be highly dependent on oil so oil prices look to be the major culprit. But why are oil prices rising?

Total production hasn't fallen so it's not a supply bottleneck per se. Demand has risen so that's a good place to look. But one of the reasons that demand is rising is that too many major consumers (including us) subsidize oil consumption. China and Pakistan, for example, both sell gas below world prices.