The coming crisis and commodity boom

If there is a compelling reason to rethink farm subsidies - particularly direct payments that are distributed regardless of the market price of program crops - we can find it in reports of long term trends that suggest rising prices, riots over food in developing countries and potential food rationing in developed countries. We can also ask if these alarmist projections have any basis in fact. Here is a link to a story that looks at the convergence of China's move to improve their diet from grain to protein and the impact of biofuel demand on world grain stocks.
From the UK Telegraph story:

Malthus may have been right after all, though two centuries early and a crank. Mankind is outrunning its food supplies. Hunger - if not yet famine - is a looming danger for a long list of countries that are both poor and heavily reliant on farm imports, according to the Food Outlook of the UN Food and Agriculture Organisation (FAO).

TK: Solving political and governance problems in Afria would go a long way to improvement in agricultural performance in those countries.

The farm crunch has been creeping up on the world for 20 years. Food output has risen at 1.3pc a year: the number of mouths at 1.35pc.
What has abruptly changed is the twin revolution of biofuel politics and Asia's switch to an animal-protein diet. Together, they have shattered the fragile equilibrium.
The world's grocery bill has jumped 21pc this year to $745bn (£355bn), hence the food riots ripping through West Africa, Morocco, Yemen, Bengal, and Indonesia.

TK: Here is a report about riots in India, here is a report out of China that described the science when a Carrefour offered a limited time deal on cooking oil.

Three people were killed this month in China at a cooking oil stampede in Chongqing. Mexico has imposed a ceiling on corn prices to quell a tortilla revolt.
Russia has re-imposed a Soviet price freeze on bread, eggs, cheese, milk, sugar, and vegetable oil until January. Russian bread prices have doubled this year. Global wheat prices have surged from $3.75 a bushel to $8.26 since mid-2006.
The FAO says the food spike has a different feel from earlier cycles. "What distinguishes the current state of agricultural markets is the concurrence of the hike in world prices of, not just a selected few, but of nearly all, major food and feed commodities," it said.
"Rarely has the world felt such a widespread and commonly shared concern about food price inflation."
"There is a sense of panic," says Abdolreza Abbassian, head of the FAO's grains trading group. As so often these days, China is the swing player. It is replicating the switch to a diet of beef, pork, chicken, and fish that occurred in Taiwan and Japan when they became rich.
The US Department of Agriculture says the Taiwanese eat nine times as much animal protein as the Chinese.
Why does it matter? Because it takes 16lb or so of animal feed - mostly soya or corn - to produce a single pound of beef. It is considerably less for poultry. It takes 50 times as much water.
Until last year, China was able to grow enough grain to supply its ubiquitous poultry and fish farms. It has now become a net importer of corn for the first time in its modern history.
Urban sprawl across China's eastern seaboard is stealing most the fertile land, and the water tables of northern China are drying up. The same trends are under way in India, Vietnam, and much of emerging Asia.
Meanwhile, the Bush administration aims to supply 20pc of total US fuel needs from biofuels within a decade, up from 3.5pc today - a ploy to break dependence on oil demagogues and slash the trade deficit.
Credit Suisse says worldwide biofuel targets will take up 12pc of global arable and permanent cropland in 10 years, although new technology using the non-edible stalks will mitigate food displacement up to a point.

TK: Alarmists touting a no growth agenda have been wrong before but the convergence of ethanol and the improving Asian diet does suggest a golden age for grains over the next few decades. Given rising grain and food prices, there is all the more reason to rethink the largess of direct payments to U.S. program crop growers.