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Should We Say ‘Goodbye’ to Cheap Food?

By JLP | December 20, 2007

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:

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.

Topics: Investing | 18 Comments »


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

  1. Tim Says:
    December 21st, 2007 at 1:48 am

    I love pie charts because they remind me of food (e.g. pie and cheese).

  2. Foobarista Says:
    December 21st, 2007 at 3:18 am

    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.

  3. Sick of Debt Says:
    December 21st, 2007 at 6:31 am

    Let’s not forget the farm subsides that pay farmers not to grow.

  4. JLP Says:
    December 21st, 2007 at 7:39 am

    Sick of Debt,

    Yes, the article mentions that.

  5. Don Says:
    December 21st, 2007 at 8:13 am

    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…

  6. Lazy Man Says:
    December 21st, 2007 at 9:10 am

    It feels like I said goodbye to cheap a year ago. It’s getting harder and harder to find good deals.

  7. Early Retirement Extreme Says:
    December 21st, 2007 at 11:02 am

    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 …

  8. Brooke Says:
    December 21st, 2007 at 11:30 am

    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.

  9. Andy Says:
    December 21st, 2007 at 4:33 pm

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

  10. Ryan S. Says:
    December 23rd, 2007 at 11:57 am

    What’s unfortunate is that ethanol, while it does have its positive properties, is really not very efficient and is really not going to be able to do much as far as making a dent in our fuel consumption.
    -
    Ryan
    http://uncommon-cents.net/

  11. JLP Says:
    December 23rd, 2007 at 12:07 pm

    Ryan,

    I agree. Ethanol is NOT the answer!

  12. » Roundup: Sea Bass Isn’t Tilapia! on Blueprint for Financial Prosperity Says:
    December 23rd, 2007 at 8:45 pm

    [...] JLP says we should say goodbye to cheap food. [...]

  13. Daily Roundup: Christmas Eve Edition ∞ Get Rich Slowly Says:
    December 24th, 2007 at 11:55 am

    [...] Finally, JLP at All Financial Matters asks should we say good-bye to cheap food? He discusses a recent article in The Economist about global pressures that may lead to higher costs at the grocery store. There are a lot of things to think about here, including our dependency on processed foods. If anything, this makes me even more eager for me and Kris to grow as much of our own food as possible. This is very interesting stuff. [...]

  14. MossySF Says:
    December 24th, 2007 at 2:05 pm

    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.

  15. jm Says:
    December 26th, 2007 at 8:57 pm

    @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.

  16. Daily Roundup: Christmas Eve Edition Says:
    January 4th, 2008 at 9:13 am

    [...] Finally, JLP at All Financial Matters asks should we say good-bye to cheap food? He discusses a recent article in The Economist about global pressures that may lead to higher costs at the grocery store. There are a lot of things to think about here, including our dependency on processed foods. If anything, this makes me even more eager for me and Kris to grow as much of our own food as possible. This is very interesting stuff. [...]

  17. Question of the Weekend - Groceries—� AllFinancialMatters Says:
    January 12th, 2008 at 1:31 pm

    [...] This really shouldn’t be a big surprise to anyone. I highlighted a story from The Economist a couple weeks ago that talked about the end of cheap food. This brings me to this weekend’s question(s): [...]

  18. Petrol Leaf Blower : Says:
    October 31st, 2010 at 2:37 am

    there are lots of cheap foods on the market that taste like crap but there are good quality ones too ;;

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