The Future of Food Production
by Fred E. Foldvary, Senior Editor, 1 October 2012Thomas Malthus is best known for predicting food shortages two centuries ago. His thought was that food production increases arithmetically, such as increasing by one percent per year, while the population increases exponentially, such as doubling every 30 years. Wildlife produces many more offspring than can survive, and so too, human beings would reproduce up to the limit of subsistence.
Two developments prevented global famines in the past 200 years. First, the massive migration of people to the New World brought much additional land into cultivation. Secondly, technological progress has greatly increased crop yields. But now the territorial frontiers have closed, as most of the solid surface land suitable for cultivation has been taken. Food is grown in the ocean, but aquaculture has been limited to fish, seafood, and various algae, with quite limited output.
More food could be available, with the same cultivated land, with less waste. Much food rots or is eaten by pests in the less developed economies because of poor transportation and storage. In the developed economies, efficiency is already at a maximum, so greater production there depends on better technology.
Climate change is making the Malthusian outcome worse. The USA is suffering from the worst national drought since the 1930s. The price of corn and soybeans has soared to record heights in the commodity markets. A sixth of the corn crop has been destroyed, even while ethanol is legally required to take 40 percent of the feed corn. The high price of feed is reducing the supply of livestock, which will result in higher prices for meat.
It takes time for prices to cost-push to the final consumer goods, so we should expect retail prices for many food products to rise during the coming year. The drought is also making shallower the water heights in the major rivers, reducing the amounts carried in barges, and so the increased transportation costs will further add to the prices of foods.
Higher food prices will be more starkly felt in the lower-income areas of the world, especially if governments are no longer able to pay for food subsidies. Food crises, prevented in the past by more productive crops, could plague the developing world.
Climate change could possibly increase food production in the northern regions such as Siberia, but so far the global climate turbulence has brought droughts and floods. Better technology could rescue food production with hydroculture, growing plants in nutrient-rich water, and with genetic modification. But a problem with mass technological food production is the nutrient content, as man cannot live by calories alone, and artificial nutrients may not match the natural food nutrient complexity required for optimal health.
For the coming decade, food grown on the solid land surface will continue to dominate the output, and the gains from a more intense use of cultivated land will be captured by a higher rent and price of land. Even hydroponics requires favorable locations. Genetic modifications will increase the intensity of existing cultivated land. The burning of tropical forests would make climate change that much worse, which would then reduce rather than expand global food production. So it looks like those who will profit from both food shortages and food expansion will be the owners of the best farmland, along with the producers of inputs such as fertilizer and equipment.
A 26 June 2012 headline by the Reuters news agency proclaimed, “British farms a better bet than gold.” Data and analysis by Oxford Economics and the property consultant Savills forecast that the price of British farmland would rise more than other real estate and commodities such as oil. The rising prices of crops makes farmland rents rise, and higher rents are capitalized into higher land prices due to lower taxes on the value and income from farmland than from other assets.
The price of farmland has also been rising in U.S. farming states such as Kansas and Nebraska, in Western Canada, and other grain-growing territories. Speculators are exploiting the rising land values, as pension and hedge funds buy farmland or food-based derivatives such as ETFs, exchange-traded funds that are bought similar to company stocks. Speculators are buying into cutely named ETFs such as CORN, MOO, SOIL, and CROP (all very risky for amateurs!).
Why should speculators and farmland owners capture the gains from high food prices? Why not instead tap the rise in farmland rents for public revenue to reduce deficits and untax wages and enterprise? That is a question few are asking as candidates debate and run for office.
-- Fred Foldvary
Copyright 2010 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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