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In 1798 32
year-old British economist Malthus anonymously published “An Essay on
the Principle of Population” and in it he argued that human
population’s increase geometrically (1, 2, 4, 16 etc.) while their food
supply can only increase arithmetically (1, 2, 3, 4 etc.). Since food is
obviously necessary for us to survive, unchecked population growth in any one
area or involving the whole planet would lead to individual pockets of
humanity starving or even mass worldwide starvation.
"The
power of population is indefinitely greater than the power in the earth to
produce subsistence for man". Thomas Robert Malthus
Malthusian
pessimism has long been criticized by doubters believing technological
advancements in:
- Agriculture
- Energy
- Water use
- Manufacturing
- Disease control
- Fertilizers
- Information management
- Transportation
would keep crop
production ahead of the population growth curve.
Enter the Black
Swans
The Black Swan
Theory or "Theory of Black Swan Events" was developed by Nassim
Nicholas Taleb to explain: 1) the disproportionate role of high-impact, hard
to predict, and rare events that are beyond the realm of normal expectations
in history, science, finance and technology, 2) the non-computability of the
probability of the consequential rare events using scientific methods (owing
to their very nature of small probabilities) and 3) the psychological biases
that make people individually and collectively blind to uncertainty and
unaware of the massive role of the rare event in historical affairs. Black
Swan Theory refers to unexpected events of large magnitude and consequence
and their dominant role in history. Such events, considered extreme outliers,
collectively play vastly larger roles than regular occurrences. Wikipedia
A "perfect
storm" of circumstances is setting the stage for possible massive food
price increases, food riots, supply chain disruptions, country versus country
water disputes and increasing numbers of hungry people.
Consider:
- Record
setting droughts and worldwide abnormal weather
- Exploding
populations and eastern diets shifting to a western style one
- Worldwide crop failures
- Diminishing world food stocks
- Income deflation
- Flooding
- Freak cold snaps
- Aquifers are
being depleted faster than natural refreshment rates
- Farmers
ability to buy seeds and fertilizers was hampered during the financial
crisis by a lack of credit – this limited production and then low
prices towards the end of 2008 discouraged the planting of new crops in
2009
- Relocation
of produce for energy production - corn for ethanol
- Desertification
- new deserts are growing at a rate of 51,800 square kilometers per
year. As an example Nigeria (Africa’s most populous country) is
losing almost 900,000 acres of cropland per year to desertification
because of increased livestock foraging and human needs
Harvests around
the world are going to be smaller, the world’s food inventories are
going to be lower while at the same time global demand for basic food staples
- and simultaneously a richer diet containing more meat - is at an all time
high and growing.
The U.N. calls
the global food crisis a "silent tsunami.”
So just how bad
are things around the world?
Saudi Arabia was
once the world's eighth largest wheat grower but are phasing out grain
production by the year 2016. The Saudis feared an embargo on grain after the
1972 oil embargo so they decided to grow their own. They farmed the desert
and today have almost pumped their aquifer dry.
 
Past
growth in agricultural production was fueled in part by expanding irrigation
“We are
entering a new food era, one marked by higher food prices, rapidly growing
numbers of hungry people, and an intensifying competition for land and water
resources that has now crossed national boundaries as food-importing
countries try to buy or lease vast tracts of land in other countries.”
Lester Brown, Earth Policy Institute
Almost biblical
like droughts in Kazakhstan, Ukraine and Russia which also had to deal with
brutal, massive wildfires - firefighters in Russia were battling 520 separate
wheat field fires spanning over 700 miles in area.
Pakistan lost
most of its stored grain in its recent flood disaster.
India has
suffered its worst drought in 37 years - total rainfall is 23 percent below
average. India’s monsoon rains are extremely important to the
countries farmers because almost 70 percent of India's farms are not
irrigated and depend on rainfall during the monsoon season.
Food prices are
rising around 15% a year in India, Nepal, Latin America and China.
Corn is at its
highest price in two years because of a wetter than expected US harvest and
freezing weather in China and Canada. US corn prices broke through the
$5-a-bushel level for the first time since September 2008.
Agriculture assistance
today is 3.5 percent of overall U.S. development aid - down from 18 percent
in 1979.
Emergency food
aid is needed now to prevent famine in Niger, Mali, Chad, Burkina Faso,
Mauritania, and northern Nigeria.
The drought in
East Africa is in its fifth year, 23 million Africans in that region are on
the verge of starvation.
The U.N. Food and
Agriculture Organization (FAO) recently cut its 2010 global wheat forecast by
4 percent.
The FAO projects
average wheat and coarse grain prices to increase 15-40% over the next ten
years. Vegetable oil prices are expected to increase more than 40%, with
dairy prices increasing 16-45%.
By 2050 the FAO
says a 70% increase in food production will be required to keep pace with
projected population growth. Already, according to the FAO, more than one
billion people go to bed hungry every night.
Australia is
being called the new "dust bowl" the country’s drought is so
bad.
Russia, the
world's fourth largest wheat producer, has imposed an export ban on grain
that will stay in place till after the 2011 harvest. The ban is forcing
importers in the Middle East and North Africa to turn to Europe and the US
for supplies.
Germany could
become reliant on wheat imports for the first time in 10 years. The winter
wheat harvest will be 9% lower this year than last forcing Germany to import
grain from France and the US.
White sugar is
climbing in price because of speculation that India, Pakistan and other
importers will purchase more as a supply deficit looms.
The FAO Food
Price Index (FFPI) averaged 176 points in August 2010, up 5 percent, from
July. The FFPI stands at its highest level since September 2008.
Global
food prices are growing at a rate that rivals some of the worst months
of 2008 – but still down 38 percent from their peak in June 2008
Meat prices have
risen because a drop in production coincided with rising demand from China.
In August the FAO's meat price index climbed 16% yoy.
Lamb prices are
at a 37-year high, pork and poultry are also priced higher.
Last week, the
FAO called an emergency meeting for 24th September to discuss the current
food crisis – just two short years after the last food crisis. The
emergency meeting is being seen by many as a warning that there may yet be
another food crisis looming.
As in 2008,
rocketing prices are the result of rising demand and supply shortages caused
by freak weather and poor harvests (Export bans in some 38 countries during
the price crisis in 2007-2008 caused a dramatic drop in cereal stocks).
“If no
decisive action is taken, the prices of key food commodities are likely to be
50 to 100 per cent higher by 2020 than they were at the turn of the millennium.
This would dramatically increase the level of hunger and malnutrition, around
the world.” Harald von Witzke, president, Humboldt Forum for Food
and Agriculture
Conclusion
If a person was
so inclined they could bury their head in the sand and write off all of
the above as nothing more than temporary conditions impacting world food
supply.
That might not be
a prudent move.
Western consumers
are, for all intent and purposes, totally dependent on retail food stores for
their subsistence. Yet these stores have only 2 - 3 days of inventory on hand
at any one time. If any kind of a short term crisis hits, let alone a massive
disruption in the food supply chain, stockpiling and hoarding will quickly empty
store shelves.
Too much Doom and
Gloom? Perhaps, but given all of the above two things are abundantly clear to
this author - firstly the era of cheap food is over and secondly a serious
disruption in the food supply chain - one lasting longer than a couple of
days - to a grocery store near you might become more than a temporary minor
inconvenience.
Are agricultural
commodities and your local grocers supply chain on your radar screen?
If not, maybe
they should be.
Richard Mills
Aheadoftheherd.com
Richard is host of www.aheadoftheherd.com and invests in the
junior resource sector. His articles have been published on over 60 websites
including - Wall Street Journal, 24hGold, Kitco, USAToday, Safehaven,
SeekingAlpha, The Gold/Energy Reports, Gold-Eagle and Financial Sense. If
you're interested in learning more about specific junior gold/silver stocks
and the junior resource market in general please come and visit his site at
www.aheadoftheherd.com
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