Minyan Op-Ed: Food for Thought
When people can't afford to eat, all hell breaks loose.
Editor's Note: Minyan Dan Conine is a Prototype Engineer and Experimental Farmer. He has experience in military aircraft, motorcycle, and agricultural equipment development.
Food issues are starting to gain interest in the general investing community. What was once relegated to the commodity trading halls and public television shows like "Market to Market" is now actually important to Wall Street. Let's look at a couple reasons why and see where the story leads us:
To understand how the cost of fuel has transformed the food business and will shape its future, let's turn to an iconic American story: the Beverly Hillbillies. Once upon a time, the majority of people in America lived in rural areas and grew most of their own necessities. If they were forunate enough to derive some extra income from selling an extra head of cattle, wool, or cotton, they purchased a few complementary items like flour grinding services, sugar, coffee, or guano for fertilizer.
As technology and urbanization increased, cities became more powerful in the eyes of business and government. Initially, cities grew through immigration from countries without available land to support comfortable living. Farm work wasn't performed by an unskilled -- and untrusted -- labor pool, so cities were the first refuge of both the unskilled laborers and the highly educated.
Eventually, the urban way of life became the norm and education, politics and business followed the middle of the popular and monetary Bell Curve, leading us to Homo Petroleumus: Cities need food delivered.
The concentration of people in urban centers creates a need for food logistics. These networks function best when they're controllable. Even if the system isn't entirely stable, transportation, easy cash flow and regulations for safety and competition make it manageable. These input forces maintain the food train from field to fork.
However, just as modern fly-by-wire fighter jets are uncontrollable without computers and unflyable without fuel, the current food system is becoming harder and harder to maintain. Government support is wavering and fuel costs are exploding.
As any military general will tell you, an army is only sustainable if you can feed it and control it. Our food system has been neglected by assuming it's a 'free' market with endlessly available natural capital at its disposal.
The bottom end of the production chain is probably the most neglected, as farming industrialization has created fewer hands and eyes to maintain the complexity of local ecosystems. As old school farming generations die off, knowledge about the climate and soil of particular places disappears. This loss of rural population created the need for a Department of Natural Resources. Every state now pays for the maintenance of wild plants, flowers, birds, and game that formerly lived in fencerows and wetlands. The latter were not tillable prior to the development of sophisticated drainage equipment and tracked tractors.
As the bottom end of the system gets squeezed, the less cash-efficient farms are purchased -- mergers and acquisitions don't just happen on The Street -- by the larger, cash-heavy operators or McMansion developers. As products became heavily specialized (corn, beans, wheat, dairy), the processors became more and more powerful to lobby for government programs to 'help' the 'struggling' farmers.
The value-added sector is today's business of food. Organic certification of food grown naturally -- within certain parameters -- provides the customer with assurances about their food. This is simply an extension of an era when consumers knew their food source personally.
Urban customers are losing faith in Food and Drug Administration safety regulations at the same time they're losing buying power to inflation. This is one more reason the system is becoming unstable. This increase in anxiety puts additional demands on governments. The media is hammering on the government to do something about tainted food while also complaining about the rising costs of food.
Higher costs for televisions or cars simply force consumers to delay purchases or forego the latest styles. Higher costs for food leads to political upheaval, every time.
Political upheavals are unprofitable over the long term. In the short term, high profits can be made speculating on disasters, droughts, or the next Farm Bill. Investors need to consider their personal goals in this situation, as well as the moral implications of where they invest.
Those seeking high returns often look to food processors, ethanol producers, transporters or advertisers. Growth in these industries, however, has its costs. If the government doubles its support payments to keep corn flowing to the ethanol plants, it will either raise taxes or take away programs that maintain stability somewhere else. The military, social security, police and other services are the usual suspects for budget cuts.
Investment in regional food systems that minimize the use of petroleum, repopulate rural areas and re-establish the value of sustainable systems may be a better moral investment, but also garners a lower rate of return. Not to mention the intangible return of avoiding the Mogambo raiding your house when you aren't home!
Long-term profitability of every economy depends on how its people are kept comfortable enough to remain calm and unarmed. That means food must be available to everyone. The policies of cheap food in the past are reflected in a recent Bizarro comic wherein a bum on the sidewalk is holding a sign that says, "Will vote against own interests for food, again."
Promoting cheap food is another policy resulting in low wages for workers. People will put up with paltry pay, wars, lies, and no air conditioning if they can buy the 'moochy' stuff they want and enough Cheetos to keep the rugrats sticky. Once the price of food exceeds wages, the government will have to do something. It doesn't have a choice.
One option is raising the minimum wage to match inflationary policies and fuel costs. Higher labor costs drag on the bottom lines of all the other businesses.
Since food calories produced in the current petroleum-based system take 10 times as many calories of energy to reach the table, chances are the government won't be able to lower food costs. Newer sustainable methods that reduce energy use just might be able to at least stabilize food costs over the very long term. The primary costs of conventional farming -- fuel and fertilizer -- are directly tied to oil and natural gas prices. The primary costs of organic growing -- labor and experience -- are not.
The United Nations recently released a study arguing organic farming can feed the world.
"My hope is that we can finally put a nail in the coffin of the idea that you can't produce enough food through organic agriculture," Perfecto said. In addition to equal or greater yields, the authors found that those yields could be accomplished using existing quantities of organic fertilizers, without putting more farmland into production."
Farming methods that reduce the use of petroleum for mass production of food will take time, but it can be done. Most farmers are applying those techniques as quickly as they can now that diesel is over 4 bucks a gallon. Natural growing, community supported agriculture, cooperatives, minimum till, composting, permaculture, and soil testing labs will all become key words to search for if you choose to invest in New Farming. I don't think Big Processing will survive the oil crisis untouched - once you're addicted to diet cola is tough to shake the habit.
In summation: investors can try to squeeze profits from advantageously positioned entrenched food corporations or strive for long-term profitability across a portfolio by contributing to stable, relocalized food webs. One company that does both is Whole Foods (WFMI). Just think of the money we could save on biology education if every child had a goat to raise and dissect.
Finally, there are all kinds of people on the 'net and in politics saying we need a Manhattan Project for 'x' - whether it's efficient cars, windmills, nuclear fusion, zero point energy, or to find the bodies of aliens at Los Alamos. We don't need such a policy for food. We simply need to put people we already have to work growing their own food. A Manhattan Project implies centralization, which is exactly what the world doesn't need right now.
Don't take my word for it. Mother Nature and lack of fuel will set the agenda, regardless of what we choose to do.
For those interested in a blast from the past on farm policy, check out The Country Gentleman from 1944 - The Key to Prosperity.
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