Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at thinking, intelligent individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

12 June 2008

U.S. is to Food as OPEC is to Oil

The United States is in many respects to food production similar to OPEC with respect to oil production. The U.S. has a huge impact on the world price of food and affects prices in good part with Federal government mandates and price controls largely dictated by the huge Farm Bill passed recently and its predecessors. As a result, the U.S. government and many state governments also act in constraint of trade in food in many profound ways. When we pass a NOPEC bill in Congress which allows lawsuits against OPEC for their acts in constraint of oil trade and for conspiring to affect the cost of oil in the U.S., we are acting rather hypocritically. The OPEC nations might say that if we want to play that game, they can play it also. A lawsuit now has been initiated against OPEC in response to their constraint of the oil trade. Might OPEC nations respond with laws against the restraint of trade in food and follow-up with lawsuits of their own?

I am not suggesting that what OPEC is doing in the oil markets is wise or that it is moral. But, their restrictions on oil production are not different than our own refusal to explore and develop many of our suspected oil resources. As we will discuss here, we also have a huge impact on world food prices and we clearly manipulate those in many ways which also have nothing to do with the free market. As we complain about the sharp price increases in oil, much of the rest of the world is complaining about the great cost increases in food. We should allow the free market to develop our oil resources and we should allow it to control food production also.

Thomas Barnett wrote an interesting commentary published on 11 June 2008 in the Washington Times, entitled "U.S. edge in global food trade." On the Scripps Howard News Service it is entitled "U.S. sits pretty in global food trade network." Barnett only mentions concerns with the hypocrisy of our food manipulation policies in passing. The point of this article is that he is proud that we are as dominant as we are in the food production business. I am also proud of that and we should have enough self-confidence to allow the free market to prevail. Barnett says, "When the professional fearmongers try to scare you with America's 'oil addiction,' remember this: If the world's got us over the barrel on energy, we've got the world over a bread basket." Here are some of the interesting facts that Barnett notes:

  • North America exports 105 million metric tons, the former Soviet Union nations export 21 million, South America 18 million, and Australia/New Zealand 9 million metric tons. Of this the North American share is 68%.
  • The net importing regions are: North Africa and the Middle East import 58 million metric tons, Asia imports 47 million, sub-Saharan Africa 17 million, and Europe 12 million metric tons.
  • North America imports half its oil, while the Middle East imports three-quarters of its food.
Barnett also discusses how global warming will help North America produce more food and cause people to use less energy, which will hurt OPEC. Since I do not think the global warming scare will last as people become more aware of how flimsy the arguments for it are and because a productive world will continue to have a great deal of use for oil, I am not too interested in Barnett's arguments here. But, it is clear that the demand for food is such that more farmland is being put back into production. He notes that Dakota farmers are presently tilling fields that have laid fallow for decades and that land speculators are counting on increased production in Russia, Ukraine, and Kazakhstan. He also notes that the Chinese are running around the world buying up arable land in other countries.

He notes that food is about 0.1 to 0.2 of a household's spending in industrialized nations, but is as much as 0.8 of household spending in developing nations. Today, only 7% of rice is traded globally and 12% of corn is traded. He believes these percentages will increase and that the global food trade network will become as important as the global energy trade network. Rather than moan so much about the cost of oil, we should produce more food for export. Of course, we should also produce more oil and gas as well.

2 comments:

dbrutus said...

I'm very bullish that the food and energy markets are now linked. There is now exactly zero reason to continue to raise food prices in order to guarantee supply because any production that is not needed for current consumption can simply be converted to energy feedstock. Farmers are thus guaranteed a market for their crops in ways that they never have in the past.

As this realization hits the electorate, I think that farm subsidies will fall and agriculture will thrive in their new status of suppliers to two disparate markets.

Charles R. Anderson said...

Thanks for your comment. It is true that with additional markets, farmers should find less and less trouble in selling their crops. The fact that many Chinese and Indian buyers can afford to eat better is one such important additional market also. Unfortunately, the biofuels market is heavily subsidized and really does not address the principle energy need, which is to produce a significant addition to our energy needs. But, the combination of many worldwide more affluent food consumers and whatever energy production may develop, certainly does argue strongly against continuing food subsidies. Farmers should continue to prosper without them.

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When I first heard discussions that the Democrats might solve their Florida and Michigan primary dilemma by counting each vote as half a vote, I too thought that it would be wonderful if they settled on 3/5ths a vote, or 3/5th representation!