Food fights, price bets, and the difference between linear and exponential trends

Dot Earth just did a nice piece on my recurring focus:  Food commodity prices.  I found it from a link via Paul Krugman.

The long trend down in commodity prices has come about through tremendous, technology-induced growth in crop yields.

What is often overlooked, however, is that that yield growth, while impressive, has been linear.  Demand growth, in contrast, has been exponential, or at least rapidly accelerating.  For the last 70 years, the rate of yield growth has generally exceeded the rate of demand growth.  But that accelerating demand growth has now caught up and surpassed yield growth.  And so now prices are rising, not falling.

So, it's just not enough to point to historically falling prices and say that's going to continue.  Show me how yield growth is going to start accelerating like demand growth.  Show me how we're really going to do that and deal the detrimental effects of climate change.

The more I look at the specifics, the more I think progressively higher commodity prices are in our future.

Prospects of higher prices will surely induce greater efforts at innovation and land expansion.  But we've already tapped the low hanging fruit.  I'm an economist and I think supply curves slope up.  Prices are going to rise.

Comments

  1. Michael,

    I have read Smil’s book, “Feeding the World.” At least to me, he makes some really thoughtful and compelling arguments about our ability to feed ourselves. The chapter on China as a test case is persuasive. He makes similar arguments in his comments to Revkin. Also, in the Revkin column his comments seemed to make more sense to me than Brown’s. What exactly do we mean by feeding ourselves? Smil’s different diets are telling. Do we mean getting 3,000 kcal/day or do we mean (from Smil)…”3,500-3,700 kcal/day, eating too much animal protein, wasting 35-40% of all food, living record life spans” Smil seems to be not just “doom and gloom” but a thoughtful review of the data.

    I don’t know what Smil is saying about climate change and its effect on crop production now, but in the “Feeding the World” book, he seems to make the case that climate change effects would be manageable. (It has been a while, since I read the book so I would have to go back and check….) Anyway, I am not so sanguine about the ability to adapt crop production.

    Michael…great stuff, I like your bold statements.

    By the way, we have some great review papers coming in Agronomy Journal on climate change and crop and range-land production. I will give you a heads up when they get published.

    Regards,

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  2. Thanks James. Yes, I'm interested in what the agronomists are doing. Actually, I'm scheming with a colleague about putting together a mini joint workshop between statistical/economist types like me and agronomists and crop modelers. We need to interact more closely. I'm sure there are gains from trade here.

    I think it's clear that what we choose to eat has a big influence on how many are able to eat. Economics tells us a lot about consumption choices, which are sensitive to price and income. It's the income effect, combined the massive inequality, that worries me somewhat. When people get wealthy enough they eat a lot more meat, which helps accelerate demand growth, which drives up prices, which makes it hard for the poorest people to eat.

    I don't believe feeding the world would be a problem at all if all nations were industrialized and growing. So, one might say it's a poverty problem caused by backward governments and institutions, not a food production problem. I'm sympathetic to that view. But I'm also sympathetic to the idea that a lot of the improvements that have taken place in the poorest countries has been due to cheap food.

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  3. Thanks for the provocative post. I'll make two challenges, one on the supply side and one on the demand side.

    On the supply side, one potential source of low-hanging fruit is yields in developing countries (esp. South Asia and Sub-Saharan Africa). Many countries have yields at 10-20% of Western yields, despite comparable agronomic conditions, due to lack of fertilizer, seed, irrigation, access to markets, etc. Not easy to unlock this potential, but it could be done without any new technological breakthroughs, and it could drive substantial growth in average world yields.

    I also appreciate Smil - he's a very creative and unorthodox thinker who adds a lot to the debate. His arguments in the post you linked are basically demand side arguments (reduced waste, reduced consumption by Western countries). Even without major behavior change, though, I don't buy without further scrutiny the assertion that demand will continue to grow exponentially if world population levels out around 9 billion. If you run the numbers, it's hard for rising consumption per person to outweigh slowing population growth.

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  4. R: You may have a point. It's true that demand growth will start slowing down at some point, and I haven't done enough of the math to have a decent sense of when that will be. But I have made calculations that show the growth rate in demand--which appears to be following a steady trend up--recently passed the growth rate in yield. Also, on a global scale, yield growth appears to be declining slightly, not increasing. I'll try to post pictures of this at some point. So I do think we are on the brink of a changing regime that will logically lead to rising prices, at least for awhile.

    Now, rising prices need not foretell doom. In fact, rising energy prices hardly worry me at all, except that they may slow recovery from the Great Recession. But with massive income inequality and extremely inelastic demand, I just don't see the kind of substitution Smil is talking about taking place any time soon. It would take massive change in preferences, not just the usual economic price response. Maybe that's what the 'local food' movement will do. I don't know.

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