Should We Say ‘Goodbye’ to Cheap Food?

I was standing in line at the grocery store earlier this evening when I saw a copy of The Economist on the rack in the checkout lane. The cover story titled The End of Cheap Food caught my eye. It made me sad because I hate paying high prices for food. LOL! The article is an interesting read because it lays out the reasons why food is getting more expensive and why it’s likely to stay this way for a while. The main reasons for the rather large increase in food prices mentioned are:

  • China and India becoming wealthier nations. As wealthier nations, they are consuming more meat, which requires more grain to raise the animals.
  • America’s obsession with Ethanol is causing more farmers to grow corn, which comes at the expense of other crops. Less of the other crops means their prices rise. See how this all works together?

If you have a few minutes, I urge you to read the article. Read it and be prepared to spend more of your hard-earned dollars on food. Either that or consider allocating some of your money to a commodities fund like the iPath Dow Jones-AIG Agriculture Total Return Sub-Index ETN (JJA). Take a look at how it’s allocated:

iPath Dow Jones-AIG Agriculture Total Return Sub-Index ETN

With an expense ratio of .75%, it’s hardly cheap. I’m not recommending this particular ETN (it’s only been around since October 23, 2007), but it could be an interesting way to take advantage of the rising food prices.

18 thoughts on “Should We Say ‘Goodbye’ to Cheap Food?”

  1. Ethanol is liquid pork. If we actually cared about it as a replacement for oil, we’d import it from Brazil where it costs much less than it does in the US. Instead, we have steep tariffs on Brazilian ethanol and use the high price to line the pockets of Archer Daniels Midland and its pet Congresscritters.

  2. Don’t forget the inevitable economic progression. If farmers grow fewer soybeans and soybeans start paying a premium, farmers will increase their acreage of soybeans to get it. I grew up with farmers, and no one is more practical.

    There are other advantages to that for farmers. It takes a lot of energy to produce fertilizers containing nitrogen. As an aside, this is why high-nitrogen fertilizers are used to make ad hoc bombs, it contains a lot of energy. As energy gets more expensive, so will fertilizer. Soybeans trap nitrogen naturally and leave it in the soil, so you need less fertilizer for a subsequent year of corn…

  3. Well hopefully the ethanol nuts will see the light soon e.g. after they finish physics101 and learn about the law of energy conservation.

    Increasing grain costs should leverage up the cost of animal products. As far as I remember it take 15-20 grain calories to produce 1 meat calorie, so if the commodity itself starts becoming a more significant part of the cost equation, we might want to go vegetarian. Of course that would increase longevity, so we could be back to square one ;P

    Now consider water … and oil … and steel …

  4. I think prices might also rise here in the States as we see more state immigration crackdowns. Already, people are leaving en masse (article in portuguese – http://www.bbc.co.uk/portuguese/reporterbbc/story/2007/12/071217_pressmiamiheraldrw.shtml)because of state laws. I’m not here to get into an immigration discussion, but I think it will be interesting to see if our food prices also go up as a result of this, compounded with the ideas stated in the Economist article.

  5. Historically food has been right around the level of inflation, so IMO it’s questionable whether that’s a very good investment.

  6. Whether food is a good investment for the future or not, I don’t really know. However, it doesn’t sound right to say food prices rises with inflation because food & energy IS inflation. Hence the comparison is meaningless. That’s like saying heat & temperature goes up together.

    The proper comparison in this question is whether food (and thereby inflation) will grow faster than traditional investment avenues in our future. And if it does, what’s the consequences for the financial markets where you have the bulk of your investments.

  7. @JLP – Ethanol is indeed the answer. You just aren’t asking the right question. If 10% of my gas fillup comes from American corn, that means that 10% of my gas fillup is NOT coming from the Arab oil teat. In a perfect peaceful world, turning ethanol into gas is not worth the energy because it supposedly takes more energy to produce than it yields.

    On a world in which a large percentage of our oil comes from the war-torn middle east however, which coincidentally is the world in which we live, I think it makes a great deal of sense.

Comments are closed.