Export bans, increasing protectionism major reason for food inflation

protectionism wall

protectionism wall

“Zoellick said he expects food prices to continue to rise, and that export bans and weather disruptions are partly to blame.” He also said global food prices have hit “dangerous levels” that could contribute to political instability, push millions of people into poverty and raise the cost of groceries.

After watching the quality of food deteriorate, thanks to the political preoccupation with ‘cheap food’ and globalized trade, we would say that food security and protection should be one of the most important priorities for government. How did so much melamine and lead creep into products from China? When food is tested for crude protein content, it turns out that melamine can mimic crude protein — it’s a matter of deception. How many salmonella ‘scares’ have eventuated from massive farming operations where standards are lax to nil? The American government has stepped away from food testing and monitoring, and it is all too evident. We should not be demanding cheap food, we should be demanding nutritious fresh food, preferably grown locally. Why shouldn’t we support our own farmers when we are forced to support politicians who produce — what? I am perplexed by the pursuit of ‘cheap food’ when politicians do not insist on ‘cheaper politicians’. If the lowest price is the law, as “Wal-Martians” insist, then we must see a commensurate drop in the price of politicians. Everything must be cheaper, not just food which actually sustains us. There is something very wrong with American politicians.

Rather than failing to protect these basic foods, it is long past time that we started to re-protect basic things that Americans can no longer even do, and regain those abilities for ourselves. Globalization is a house of cards waiting to fall. If we expect to have a country, we have got to be self-sufficient, at least in the basics. It’s a security issue, a health issue, a labour issue, an environmental issue, and a soreignty issue. We’d also like to point out that farmers already make almost no money and cheaper food is not necessarily a good thing for the system.

Fifty years ago we spent 24% of our income on food. Now we spend 9%. That’s mostly because of subsidies and the supposed cost effectiveness of factory farming. I know that those economics does not take into account the externalities, such as the anti-biotic resistant bugs that are evolving in our farms, long term soil erosion, mass food contamination and the resulting health care costs. We’ll see where it all goes though.

Russian wheat exportation banned

The USDA’s Aug. 12 World Agricultural Supply and Demand Estimates report the ending stocks of grain is enough to meet 72 days of consumption, which is moving uncomfortably close to the 64 days of carryover stocks in 2007 that caused the large spike in world food prices. Source: Agweekly (2)

The drought in Russia this year could cause the grain harvest to drop to 65 million tons or less, compared to last year’s 94 million tons. A similar situation exists in the Ukraine.

The problem of declining grain reserves is also the result of farm land being switched to grow corn and other crops for use as bio fuels. in essence we are prepared to convert part of the world’s food supply so that we can fuel our cars. This is the result of poor public policy regarding the energy efficiency of many plants used for bio fuels.

The price of gasoline is just one cost input in the price of a loaf of bread, so one would expect bread to rise in price as the cost of fertilizer rises, the price to manufacture tractors and combines rises, as the cost to run the farm machinery rises, as it costs more to transport the grain to the flour mills, as it costs more to run the flour mill & bakery, and as it costs more to distribute the bread to the local store, etc.

But ultimately the cost of bread will also reflect the cost of labor and disposable incomes as well that will affect the farmer’s, flour mill and the baker’s profit margins, if they cannot pass along all their cost increases to the final end consumer.

Generally, in the short-term producers will continue to operate, so long as their variable costs are covered, but in the long-term they also have to cover their fixed costs as well as their cost of capital in order to survive. So there could be a timing gap between a rise in the price of gasoline and an increase is the cost of bread.

Food inflation explained in practical terms

Economist Peter Schiff discusses inflation, particularly food price inflation is becoming a concern for people all over the world. Inflation is here, and the first place that you would expect to see it is in commodities. When the Fed prints money in order to buy treasuries, it expands the money supply and causes inflation.

When economies are growing, you would typically expect deflation, at least if you measure it by prices. More production and more goods puts downward pressure on prices.

When you go to the grocery store and pay more for food, when you go to the gas station and pay more for gas – you are paying for your share of the stimulus.

Ultimately, interest rates are going to rise in the United States, whether the Fed wants them to or not. The Chinese will need to unlink their currency from ours. When they do, their standard of living will rise. They probably want to do this as quickly as possible, but they aren’t because they want to maximize their ability to get rid of all the dollars that they have. Unfortunately, Peter Schiff economist says that as the Chinese get a stronger currency, more purchasing power, and a higher standard of living, the opposite will be true in the United States.



(2) Russian drought brings call for world grain reserve and end to ethanol subsidies

2 thoughts on “Export bans, increasing protectionism major reason for food inflation”

  1. Much has been written about food inflation and the pain this has caused the average American family This hardship is also felt much more personally in countries such as drought stricken Africa. We’ve all seen the riots in Egypt as the government there lifts it’s subsidies of wheat and other staples. But I can’t but stop and wonder how easy it would be for Americans to begin an age old tradition of “putting up” canned foods the way our grandparents once did. Consider that 3 dollar loaf of bread in your shopping cart. About 40 cents worth of flour goes into making it. And a family tradition can be created by canning our own fruits & vegatables. And it’s not that difficult. Once that idea sinks in, how far can the family garden concept be? Give it a try—it’s so much fun—————–

  2. I think Americans have to get over the fact the 1950’s conditions will never come back, I loved that old-school America of common sense & frugality and optimism.
    The Baby-Boomer 1968 generation destroyed all of that with their angry cynicism and drug abuse, along with the likes of know-it-all types like Milton Friedman & Lerner. Americans turned from self-supporting,independent producers to consumer slaves , Americans lost all of their independent survival skills left to them by the Native Indians & European pioneers.
    America has to go back to the old days for tips to ensure future survival, the rot started in the 1950’s, read the books by Vance Packard, they may be dated now, but the rot was setting in then. Also watch the old episodes of Mad Men, you could see America was becoming more consumeristic then. There’s nothing wrong with traditonal-protectionist captilism, this current style of unregulated capitalism has crashed like Soviet Russian communism, if America wants to become great again, it has to go back to the past.

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