|
|
Musings Report #33 8-13-16 Our Fragile Food System
You are receiving this email because you are one of the 500+ subscribers/major contributors to www.oftwominds.com.
For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Our Fragile Food System
Back in Musings 29, Globalization's Few Winners and Many Losers, I discussed the Tyranny of Price: the belief that price is the only arbiter of value, and that price tells us everything we need to know about things and markets.
I suggested this was false: price only gives us a very limited amount of information, and therefore basing decisions on price is a dangerous strategy.
Longtime correspondent Bart D. lives and works in Australia (affectionately known as Oz)--specifically, in the agricultural sector in the state of South Australia. Longtime readers know Bart is an avid gardener as well.
We traded emails about the Tyranny of Price and I want to share his commentary:
"The tyranny of price not only results in a deluge of products of inferior quality that hurts us financially. The bigger issue in my mind is that we have created a global ‘landfill economy’ that is stripping the natural resource base to the bone and creating pollution on a scale that our increasingly resource constrained future economies will find difficult or impossible to ameliorate. We can recover from economic damage caused by financial shenanigans relatively easily once the decision has been made to do so. But damage to the natural resource base that we all depend on may be impossible to overcome. That damage cannot be quickly fixed by tweaking legislation and financial systems.
On a related theme:
I think I can now see actual effects of climate change on the ground where I live. Recently we had both the coldest winter day (first frost I’ve seen in my 12 years living in my current home) and warmest winter day (practically a summer day) in the same week in mid-winter. This weirdness, if it continues (let alone gets worse), has an immense capacity to crimp food production. Most people don’t appreciate that it takes six months to grow a wheat crop and only a single extreme weather day to wipe out a large part of its yield potential. In my part of the world, a single night of frost at the wrong time can reduce hundreds of thousands of acres from 2 ton yield per acre to just a few hundred pounds per acre. A few hot windy days can cut it in half. As can a week of wet weather during summer harvest. We are seeing an increase in all these types of events in the grain growing region where I live."
This vulnerability to extremes of weather is a profound reality that few grasp. A single hard frost can decimate grapes and a host of other fruits, and drought can devastate any crop that is not irrigated. Hail, unrelenting rain and wind can decimate yields as well.
In effect, the global abundance of food depends on the rarity of weather extremes. If weather extremes become more common, it will follow like night follows day that agricultural yields will plummet accordingly.
Few people expect anything other than a permanent stable abundance of grains and other foodstuffs. The idea that multiple failures in multiple crops could make basic foods scarce is not even considered a possibility.
Returning to the Tyranny of Price: how accurately does the market price in the decline in food's nutritional value as the soils are depleted? How accurately does the market price in the future health costs of polluted water and soil? How accurately does the market price the consequences of rapidly dropping water tables and the draining of aquifers? Does price reflect the danger of key glaciers that provide water for millions of people melting away?
The answer is the market ignores all these critical factors. They are not factored into the market price at all, because the market only prices in supply and demand in the present. Nothing else is counted or calculated.
While we're discussing the potential collapse of global food surpluses, let's also mention urbanization/ suburbanization and the rapid aging of the world's farmers. Prime agricultural land has been paved over for decades, and some day we may regret this staggering loss of deep soil to suburban sprawl.
The average age of farmers in Japan is over 60, and it's over 55 in the US. The work is hard, risky and demands large investments of capital and time, and so relatively few young people are willing to do this work. In China, an entire generation of elderly people do the physically punishing work of farming while their children work in the cities.
We take it for granted that somebody will do the heavy lifting of growing our food, regardless of the difficulties. But suppose an entire generation of elderly farmers retire all at once? This isn't as farfetched as you might imagine.
The only way aging farmers can be replaced by young people is if prices for agricultural products skyrocket to the point that they exceed the financial rewards of working in cities by a significant margin.
Let's suppose extremes of weather decimate yields globally for a few years in a row. What happens to prices of basic foods? They skyrocket, of course, pricing out the poor. The poor then demand subsidized food, and fearful governments either supply the subsidized food or they risk outright rebellion from hungry desperate people.
In a real global food crisis, there won't be enough to go around. Those nation-states with surpluses to sell will be able to dictate whatever terms they choose, as I discuss in Friday's blog post: The Ultimate Long Game: Autarky and Resilience.
The potential for a global food crisis is heightened by the confidence that such a crisis could not happen in the era of modern high-yield agriculture. But as Bart observes, a scarcity of food cannot be fixed by printing more money or issuing more cheap credit: it's a real-world crisis that cannot solved by financial legerdemain.
Summary of the Blog This Past Week
The Ultimate Long Game: Autarky and Resilience 8/12/16
The Mainstream Has Failed 8/11/16
The More the Establishment Freaks Out Over Trump, the More Attractive He Becomes 8/10/16
Could the Deep State Be Sabotaging Hillary? 8/9/16
If "Everybody Knows the Economy's Doing Better," What Is That Information Worth? 8/8/16
Best Thing That Happened To Me This Week
Homemade apple-ohelo berry pie!
Market Musings: Checking in on the US Dollar
It's been a few months since I looked at a chart of the US Dollar, which remains of key interest due to its power to crush US corporate profits earned overseas and its role in oil (oil is typically priced in USD).
If the USD soars, emerging markets typically tank because those markets typically borrow capital in USD and have to make payments in USD. As the dollar rises, local currencies are devalued, and it becomes much more costly to repay loans issued in USD.
The USD has drifted inside a channel between 93 and 101 for 18 months. This is roughly 10% of its value.
Note that the USD drifted for an equivalent period before suddenly being repriced 20% in 8 months.
This suggests another 20% repricing is on the horizon, if not in 2016 then in the 1st half of 2017. Dollar Bulls like me expect the next move to be up another 20% to the 120 level as global finance deteriorates further. Dollar Bears see the USD dropping 20% back to the 80 level, though their reasons for this happening aren't clear to me.
Why would the USD lose 20% of its value as the flight to safety gathers momentum?
From Left Field
Neat interactive global map of shipping (via Maoxian) -- note the unique "island" around the Midway/Hawaiian islands marine sanctuary--
in the menu bar, select show: routes
in the menu bar, select colours: ship type
2016 Will End With Economic Instability And A Trump Presidency -- thesis: Powers That Be let Trump win, then blame him for the collapse of the financial system Ponzi scheme...
The Value of Settlement Finality -- wonky post on the value of bitcoin and the blockchain...
A massive new study debunks a widespread theory for Donald Trump’s success
Explaining Nationalist Political Views: The Case of Donald Trump (via Maoxian)
MEET THE CALIFORNIA COUPLE WHO USES MORE WATER THAN EVERY HOME IN LOS ANGELES COMBINED
How megafarmers Lynda and Stewart Resnick built their billion-dollar empire
Chinese Tech Firms Forced to Choose Market: Home or Everywhere Else
How Much TV Is Too Much TV? (via GFB)
The City: London and the Global Power of Finance -- how the UK and the US extract their pound of flesh from the rest of the world by dominating the financial flows that make international trade possible.
400-year-old Greenland shark is the oldest vertebrate animal
Shark, which would have reached sexual maturity at around 150 years, sets new record for longevity as biologists finally develop method to determine age
With new water generators, Carrollton startup can unlock the ocean above your head ( via Chad D.)
10,000 Photos from the Apollo Moon Mission (via Drew S.)
"Knowledge is power, and knowledge shared is power lost." (unattributed)
Thanks for reading--
charles |
|
|
|
|
|
