The Next Crisis Will Be Over Food
By Bill Bonner • February 25th, 2008 •
About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
The United States is now a net importer of food, we read recently. If we understand that correctly, there is no longer enough food Made in the USA to feed Americans' appetites. Colleague Dan Denning began a nervous discussion on the topic when he sent this article from the Financial Times, with its headline reading: "The next crisis will be over food"
From the article: "... what is really catching the attention of Goldman Sachs now is the outlook for agricultural prices. Or as Jeff Currie, head of commodities research at the US bank, says with disarming cheer: 'We think we could go into crisis mode in many commodities sectors in the next 12 to 18 months... and I would argue that agriculture is key here."
"Mr. Currie argues... if the world today was a rational economic place, then regions such as the Gulf which are food-constrained ought to be investing heavily in agriculture. And since the US is the world's biggest agricultural supplier, this implies that the Saudi Arabians, say, should be snapping up farms in Wisconsin - as America secures oil in the most efficient manner by sending teams of Texans to Riyadh.
"But in practice numerous investment controls prevent Saudi Arabians from buying Wisconsin farms and Americans owning Saudi oil wells. And these controls are not being dismantled now. On the contrary, mutual mistrust is now rising. Hence the fact that Gulf leaders are currently considering desalinating sea water to plant wheat in the desert - while the US and Europe are trying to turn corn into fuel.
"Such exercises might make sense in domestic political terms; but they are apt to be fiendishly expensive. Thus the upshot of this misallocation, Mr. Currie would argue, is even more inflation - even if the world does experience some form of growth slowdown.
"Now, for any investor who is long on commodities right now (and I would guess that club includes Goldman Sachs), such trends might seem to smack of good news. For anybody who is dirt poor in the developing world, however, the picture is disastrous.
"But leaving aside this very real human tragedy, what should also be crystal clear for investors is that this is not a picture that points to 21st-century capital markets progress; nor is it likely to breed stability in the medium term. Anyone who thinks this decade's problems start and end with credit, in other words, may yet receive a rude shock; sadly, we live in a world where soybeans may yet pack as painful a punch as subprime."
"The globalization of the food supply has been great," Dan continues. "3,000 mile chicken Caesar salads, as Jim Kunstler puts it. But just in time, calorie delivery is running straight into more conventional realities... like droughts... floods... and plain old high prices.
"I always thought the French position on retaining the ability to produce your own food was never fully discussed as a strategic choice. It is one thing to outsource your textile industry... or your industrial base... or your supply of oversize sweat pants.
"But outsourcing your supply of food and water... depending on unfriendly or unreliable trading partners to keep sending fresh fruit and poultry... or thinking the global system of trade will forever expand and never again contract... these are all dangerous assumptions that could leave you with an empty national stomach at night."
Our Daily Reckoning suggestion: plant a garden.
Bill BonnerThe Daily Reckoning Australia