Carpe Diem: Wheat Prices Plunge By 70% in Three Months
"On a recent CD post "As Share of Disposable Income, Food Is Still Cheap," Machiavelli999 left a comment about the falling price of wheat. The graph above confirms his observation – spot wheat prices have actually fallen by almost 70% in the last three months from $9.36 per bushel in February to $5.54 per bushel in February, and prices are now at their lowest level in almost a year (since June 2007 when wheat was $5.34)."
Michael,
What is your point in presenting this statistic? It’s extremely anecdotal, and you do nothing to put in context or explain its significance.
Are you trying to say that there is not a problem with food prices around the world? I can give you a whole truckload of statistics to show that there is.
Hi Jim
Are you assuming that by pointing to this latest development that I’m suggesting everything is fine? I’ve never said or implied anything of the sort and I don’t know why one would draw that conclusion. I’m not sure what you mean by extremely anecdotal. Anecdotal of what?
Wheat is a major staple. The price has fallen dramatically. The article I linked earlier in the day shows that rise in the food price index has finally stalled. This hopefully signals that the rise in food commodities has topped out. We can hope. (I also think this guy is on to something. This guy as well.)
I’ve linked several articles over recent weeks related to the food crisis. This is just the latest development.
OK. I jumped the gun a little bit. I should have just said, “What’s your point?” and left it at that.
Truth be told, I have precious little time to spend surfing the Web. I can’t keep up with everything you write, much less everything you link to. I just pick up on random posts from time to time. If I had read your earlier posts on the world food situation, I obviously wouldn’t have said what I said. For part-time readers like me, it might be helpful to include a little bit of context with each post.
I have read the links you gave me, and they are very informative. But I can’t help but wonder: Are they all part of a subtle attempt to defend our current global economic system? Are they trying to tell us that, yes, there has been a crisis in food prices, but that things aren’t as bad as they seem (I’m thinking about the guy who points out that food costs in relation to total income have dropped since the 1930’s).
To me, who is admittedly an armchair economist, it appears that this food crisis points out some fundamental flaws in the way our economy works. What we’re seeing now with food riots in a number of countries and with record-breaking demand at food banks in the United States should be seen as symptoms of a sick system, or least a system that has some sick elements.
So my question to you, Michael, is this: Do you feel that this current crisis warrants some major changes in the way the world economy functions? Or have we been on the right track?
Jim wrote: Are they all part of a subtle attempt to defend our current global economic system?…it appears that this food crisis points out some fundamental flaws in the way our economy works.
Why? Based on what I’ve been able to glean from various global news sources, the current rise (and fall) in food prices has everything to do with supply and demand…which is as it should be. You’ll find the worst catastrophes, historically speaking, in countries where the marketplace isn’t allowed to work…because the market tends to be self-correcting, and systems that don’t allow the market to work create irreversible misery…Zimbabwe being the latest example of that sort of destructive hubris.
VanKaamper says:
“The current rise (and fall) in food prices has everything to do with supply and demand…which is as it should be.”
When people are going hungry, when there are food riots on the streets of multiple nations – all at the same time others are growing wealthy selling and investing in food and oil – everything is not “as it should be.”
What I think you meant is that the current situation is the natural result of the free market forces of supply and demand. If that is the case, then the logical conclusion has to be that there are some serious flaws in the way supply and demand works in the current global economy. Either that, or you don’t believe that the purpose of the economy is to provide for the basic needs of all people.
Jim, here are my thoughts.
First, I think it was economist Mark Perry who was probably pointing to the improvement in food prices. Thirty years ago in places like India household food costs made up 75% or more of annual expenditures. Today it is on average more like the 40% range and dropping (until this recent spike.) Increased food prices have less impact than the once did to a great many families around the world and a smaller percentage of households around the world are on the edge of starvation than ever before. This thirty year change happened during a time when the world population doubled. This is not enough. There are still 800 million to one billion people living on less than a dollar per day. But neither is this an insignificant achievement.
Second, related to the above we mustn’t get trapped into a parochialism of the present.
In looking at these issues we can’t just look at a point in time “snapshot” of the world condition at this split second in time. We need to see things in terms of the trajectory they are moving. Throughout human history until about the 1700s, life expectancy at birth was 20-30 years old. Since that time economically developed nations have achieved life expectancies approaching 80. Global life expectancy has reached 67 years and climbing (If not for the AIDS epidemic it would be much lower.) Infant mortality rates (children dying before first birthday) have dropped from a historical rate of about 250 out of 1,000 to 5-10 out of a 1,000 in developed nations and below 50 out of 1,000 in all but a handful of emerging nations and falling. All this happened while the population grew sixfold. (See here for more details.)
Third, economists use purchasing power parity (PPP) dollars to measure GDP over time across nations. This adjusts for inflation and currency fluctuations. It is estimated that at 10,000 B.C.E. that annual per capita GDP was $90. By 1750 C.E. it doubled to $180. Since then it has increased to more than $6,600. Again this was during a time when the population grew six fold. The percentage of people living on less than a dollar a day was estimated about 84% in 1820. It was 39% in 1970. Today it is about 17%. It is expected to be less than 10% by the middle of the next decade. (See here for more details. See here for more details on other changes.)
Fourth, no nation that has something approximating a market economy has experienced famine since the end of World War II. What is utterly astonishing about the most recent decades is the ever downward slide of food costs without rapid swings in prices. History the world over is an endless record wildly varying food prices until the late twentieth century. That is what makes this most recent spike so shocking.
With all that said we are still far from achieving adequate food sustenance for the entire planet. Should the world economic system change? Yes, I believe it should. It needs to change evermore toward what has been working and away from what has failed. Here are some places I would start.
First, end subsidies and tariffs that in the US and Europe that lock out food grown in developing nations. Europe also needs to relax its opposition to genetically modified crops.
Second, we need to end most government to government aid. Aid through this means usually just goes into the hands of powerful elites in emerging nations. Instead aid should go to NGO’s and organizations for specific projects with measurable results.
Third, developed nations need to stop requiring that emerging nations by food stuff from the developed nation making the loan. Instead, cash aid should be given so the emerging nation can purchase whatever it needs at the lowest price. Most developing nations, besides the US, have gone this direction. Bush wanted 25% of our aid to be made in the form of cash in the recent farm bill but congress has rejected even this much change.
Fourth, and this links a little with my second issue, we need to be supporting the development of property rights and rule of law in emerging nations. When people have clear title to their land and can be sure government will protect their ownership they tend to make investments in food production that leads to amazing productivity. The freedom to trade with others locally and globally must be protected. It is estimated that the worlds poor have $10 trillion in assets that nearly idle and of the books because their ownership is outside the formal sector.
Fifth, I think in some cases emerging nations should be allowed to raise protectionist barriers against certain staple foods or industries until they can develop a proficiency that makes them cost competitive with the world market. But they eye is get healthy enough to engage to free market competition.
Sixth, expanded aid in crop yield technology.
Seventh, end the production of corn ethanol.
Eighth, general economic development among the poor. The more economic prosperity there is, the smaller the portion of income and labor there is devoted to food. Thus when food price swings happen they have less impact. The most recent spikes are caused, I believe, by a perfect storm of increased food demand, ethanol production, negative real interest rates in the US, a shrinking number of price sensitive poor people in the world, instability, and in fuel commodities. Some of this will shake itself out in the market. Other issues (especially fuel) are a little more challenging.
These are some of the areas where I would start. And that’s my short answer! 🙂
Michael:
It has been interesting to read about the world food issues these past few months. One problem is China. The government there limits the price of rice internally at $350/ton (and limits exports), even though the world market is close to $1000/ton. Farmers find that, at $350/ton, and with fertilizer prices up, they don’t make enough money with rice to warrant planting all the fields. Here’s where the government exacerbates the problem with price controls. (http://www.atimes.com/atimes/China_Business/JE13Cb01.html)
Another story I saw was about white farmers from Zimbabwe who were offered fields in a section of Nigeria. Not only are their farms successful, but the local Nigerians are very happy because they are getting jobs on the farms and learning modern farm techniques. Win-win, the way it’s supposed to work. (http://www.csmonitor.com/2008/0502/p01s04-woaf.html)
Lastly, an interesting article from the NYT showing that just having better seeds is not enough without the training and culture change: http://www.nytimes.com/2007/10/10/world/africa/10rice.html?hp
By the way, the headline (and statistic in the post) is a bit misleading. It’s a 41% plunge rather than 70% plunge. Going up would be a 70% increase, but coming down is only a 41% plunge.
For example, if prices dropped from $100 to $50, it is a 50% decline, even though in the opposite direction it would be a 100% increase.
Easy mistake to make. It’s similar to the confustion people have over margin and mark-up.
Thanks for the great article links Rob. All very good points. I know that price interference of various types is going on in other countries but China is such a huge market.
As to the 70% drop, I think Perry is using $3.50 range as his base and the drop is a 70% drop from the $9.36 high toward the recent historical norm. He doesn’t say that but I think that is what he is getting at.
Jim said: When people are going hungry, when there are food riots on the streets of multiple nations – all at the same time others are growing wealthy selling and investing in food and oil – everything is not “as it should be.”
I think it would be fair to say that in this case things are not as we would like them to be. It’s a less than ideal situation.
I do not, however, agree with how you put it. It seems to me that you are using some kind of utopian criteria to fund a moral argument about the inadequacy of market economies. But the fact remains that even when viewed through that distorted lens, market economies (as Michael points out) have an undeniably better historical track record when it comes to improving quality of life around the world than do the centrally managed and socialized alternatives.
Again I’d cite the tragedy of Zimbabwe to you.
What I think you meant is that the current situation is the natural result of the free market forces of supply and demand.
No, that’s not what I meant. What I meant to convey is in a market economy prices inform us of the current value of a commodity. Rising values and falling values stimulate changes and shifts in production that are beneficial long term. Without prices as a result of market forces you wind up with famines and disasters that make the so-called food riots pale in comparison. As Michael pointed out in his post, by any historical standard, global food supplies are far better now than they have been in the past…thanks to market economies, property rights, and other economic liberties.
If that is the case, then the logical conclusion has to be that there are some serious flaws in the way supply and demand works in the current global economy.
I don’t see how this follows at all…logically.
Either that, or you don’t believe that the purpose of the economy is to provide for the basic needs of all people.
I don’t think that’s the purpose of an economy. A free market economy does, however, is the best means to make sure that everyone has an opportunity to meet their basic needs.
Regarding rice in Asia, the main reason, I believe, for the increased price of rice at this time is the growing affluence of Asian populations. Not only do more individuals have more money to spend on food, they’re also eating more meat than ever, which puts pressure on grain supplies. As is pointed out in another post, price controls in China are suppressing production (as price controls always do). The best thing to do is let the prices rise in order to create incentive for more production, more efficient production and distribution etc.
Latin America is experiencing a similar growth in affluence among the people there.
Food supplies have actually been rising…the issue is that demand has, in recent years, been rising faster…and the best response is a non-response. Allowing markets to function freely is the best course of action to make sure that food is being produced and distributed as efficiently as possible.
Utopia, however, will remain a forever elusive goal…until the heavens and the earth are under new management, of course.
We seem to have a fundamental disagreement which no amount of facts and figures will ever resolve.
I believe, on a theological basis, that the goal of our economy should be to ensure the basic physical needs of all the world’s people – not just to provide opportunities for this to happen. I believe I can make a strong Biblical argument for this position, starting with the Feeding of the 5000.
That being said, I am in no way a socialist. I understand that centralized economies have by and large been failures, and the free market has SO FAR been the best system for improving standards of living across the board.
But I do not think that the free market system as we know is the end all be all. Even the the most affluent free market societies have still been marked by poverty, violence, and some level of class stratification.
Something better than socialism and better than our current form of capitalism is out there. I happen to believe that it will come from some sort of grassroots movement that involves simpler living and a more compassionate and community-oriented approach to life. Such a movement is already taking root in many parts of the world.
Many people have a hard time comprehending such a movement, because it does not operate on the traditional categories of cut-throat competition, unabashed power, and undisciplined consumption and acquisition that we have grown accustomed to in the United States. And ironically, such a movement would be highly de-centralized, based chiefly on local and regional markets.
And although this is not a Utopian ideal, it is far removed from our current situation. Getting from here to there without causing a lot of undue suffering would have to be a very gradual movement, although it could be accelerated by threats such as climate change and nuclear proliferation.
Let me add in conclusion that this vision that I have clumsily sketched out here is closer to Adam Smith’s 18th century vision of free markets than is the corporate-dominated global system we now live under.
I could say a lot more, and I gladly will, but I must go to bed.
Jim, I don’t know that we are as far apart on many concerns as you may think. You wrote, “…the goal of our economy should be to ensure the basic physical needs of all the world’s people.” Let’s take that as a starting point. The next question is epistemological. How do we know there is a better system?
The libertarian mind tends to view market economies as working with near perfect efficiency. Therefore, little better could be hoped for. What is, is good. Meddling is almost certain to make things worse, not better.
The more left leaning mind views markets economies as seriously flawed, needing considerable intervention (the most extreme view being communism.) Therefore, we could achieve far better than we are. What is, is flawed. Failure to “meddle” in the markets will lead to greater harm than not acting.
My point is that there is considerable hubris in both positions. My position is that what is, is what is. From there we enter into a murky foggy landscape of imagining how things might work better. How do we precede?
I believe there is considerable wisdom accumulated in societal arrangements that emerge over time. Interrelated social realities are always far more complex than we realize. Radical swift and comprehensive changes are fraught with peril. Yet, as a Christian, I have the words of Isaiah 65 or Revelation 21-22 ringing in my ears. I know we are so far from shalom, which would include an economy where we meet “the basic physical needs of all the world’s people.” I also know that the collective wisdom built up over time is thoroughly entwined with human sinfulness. Furthermore, I know that sinfulness will always be part of the equation until the new creation. How much better can we hope for short of the new creation? If the answer is a great deal better, then why do you or I think we have found the silver bullet solution to economic issues that humanity has been blind to all throughout the millennia?
Hear these words from Isa 65:20 about redeemed Israel:
“No more shall there be in it an infant that lives but a few days, or an old person who does not live out a lifetime; for one who dies at a hundred years will be considered a youth, and one who falls short of a hundred will be considered accursed.” (NRSV)
I look to the historical record, as pointed out above. What has worked and not worked? We are living through a time of unprecedented and previously unimaginable expansion in worldwide prosperity. Far fewer infants live but a few days and life expectancy has advanced from less than thirty years worldwide to upwards of 70 in barely 200 years (a blink of the eye in human historical terms.) There is a greater and growing measure of shalom in the world in this regard. For the first time we’ve found a treatment that alleviates significant impacts of the sin disease and restores a measure of health.
When you characterize present food inequities and social unrest due to the latest fluctuations in the commodities markets as a definitive indictment of the entire economic system, what I hear is an indictment of an effective existing treatment for the disease’s impact because it has not cured the disease. Yet, you offer no cure or improved treatment regimen. I’m not going to condemn the AIDS cocktail therapy and work for its elimination because it doesn’t cure AIDS. I am going to look for improvements.
Markets work far better than many critics are willing to give them credit. The function far from perfect efficiency. The bread and butter of economics journals is case studies on the imperfections of markets. I agree with you about Adam Smith. If you read his Theory of Moral Sentiments along with Wealth of Nations (which is the way they were intended), then you realize that the highest virtue of all to Smith is benevolence. Yet, human nature being what it is, we can not reliably depend on benevolence for smoothly functioning and just societies. Thus, it is more prudent to have the butcher and baker see their self-interest related to our well-being rather than acting purely out of benevolence.
Market economies are a remarkable advancement. Market economies where virtues of mercy and benevolence are deeply engrained are even better.
Jim wrote: We seem to have a fundamental disagreement which no amount of facts and figures will ever resolve.
Well, speak for yourself please.
When it comes to evaluating the viability of different economic models, facts and figures are utterly indispensable, and my opinions and affirmations can certainly be swayed by good data. I think everyone’s should…otherwise we’re doomed to repeat the mistakes of history where people have let their ideology trump the historical data that shows us what works and what doesn’t.
I believe, on a theological basis, that the goal of our economy should be to ensure the basic physical needs of all the world’s people – not just to provide opportunities for this to happen. I believe I can make a strong Biblical argument for this position, starting with the Feeding of the 5000.
I’d be interested in seeing you flesh this out a bit, because I don’t see the Bible as providing any kind of mandate (at all) for an economy to supply people’s basic needs. It’s possible, though, that I’m misunderstanding your language.
I think that the story of the feeding of the 5000 actually teaches the opposite of what you claim. The purpose of that miracle wasn’t to establish a standard for governments and economies.
If you’ll recall what happened after that event, Jesus got angry because the crowd started following him around, not because they wanted more truth, but because they wanted another free lunch. This, I believe, identifies the fatal flaw in all economic plans that advocate someone getting something for nothing…human nature.
That being said, I am in no way a socialist. I understand that centralized economies have by and large been failures, and the free market has SO FAR been the best system for improving standards of living across the board.
Your language (which I may have misunderstood) makes me think you’re talking about some kind of socialized system where everyone has their basic needs “provided for”, as opposed to earned. Apologies if I’ve misunderstood you, but that’s my take.
But I do not think that the free market system as we know is the end all be all. Even the the most affluent free market societies have still been marked by poverty, violence, and some level of class stratification.
I think the free market system is (by far) the best system available for humanity (as it’s currently constituted) to generate prosperity for the greatest number of people. Nothing else has historically even come close, as per Michael’s comments above.
Second, you claim to not be a socialist, but you use the rhetoric of a neo-Marxist. Poverty, crime and stratification exist EVERYWHERE, in both free market and non-free market societies. The difference is that in a free market society the “poor” are affluent compared the poor in non-free market societies. And where is it written that class stratification is some kind of abomination? There will always be different levels in achievement and wealth based on people’s abilities, choices, and opportunities. And by far the best mobility in economic status can be achieved in a free market economy.
Jesus said the poor will always be with us…so we need to be realistic about how high we set the bar for our economies.
Something better than socialism and better than our current form of capitalism is out there.
What is it? Is this something real or is it just a fervent wish? Facts and figures, please. ;^)
I happen to believe that it will come from some sort of grassroots movement that involves simpler living and a more compassionate and community-oriented approach to life. Such a movement is already taking root in many parts of the world.
I’m actually all for this. I think it’s a fundamental mistake to ask “the economy” or government to be agents of charity to those truly in need (as opposed to those who chase a free lunch). Grassroots church, NGO, and other orgs that can put a face on charity and create efficiencies are great ideas…and some of them even work.
Many people have a hard time comprehending such a movement, because it does not operate on the traditional categories of cut-throat competition, unabashed power, and undisciplined consumption and acquisition that we have grown accustomed to in the United States.
You know, so much of your language is rather noticeably anti-capitalist, hence I remain a little skeptical about your denial of having socialist tendencies.
The fact is that the vast majority of participants in global free market capitalism that I know do not fit your stereotype…at all.
It think that the best solution is to leave the markets free and the capitalism relatively unfettered, so that grass roots organizations have the freedom and the abundance they need to actually make a difference.
Michael and VanSkaapmer,
I apologize, for I do not have enough time this week to properly engage this conversation. So let me highlight a few points I think I’m being misunderstood on:
(1) I am not anti-capitalist. I do have a strong distaste for the current form of global capitalism that is marked by ultra-large corporations and mass consumerism. A lot of my feelings are based on my work here in small-town South Carolina, where the economy has been devastated by outsourcing. True – there are places in the world that have it a lot worse – but I feel that you are diminishing the struggles and the suffering of the American poor by making that comparison too flippantly.
(2) I am in no way calling for a revolution or a sudden overhaul in our economic system or anything that drastic. Ideally, I would like to see a slow movement that comes from consumers and that moves our economy away from large corporations, over-consumption, environmental destruction, and excessive globalization. Such a shift might take 50 to 75 years or even more.
Trust me, you won’t find me at the next G8 Summit waving a protest banner and battling the tear gas. 🙂
But you will find we writing about and discusiing these things every chance I get. I see it as a struggle of ideas, and my hope is that the church can be a leader in the movement.
(3) Although there is no explicit plan for a national or worldwide economy in the Bible (did economics as a science even exist in Biblical times?), there most certainly is an implict economy. Now of course, the interpretation of this economy depends on the reader. A socialist will hightlight the passages from Acts where the disciples pool all their possessions. A free market propenent will point to some of Jesus’ parables (such as the Parable of the Talents). I tend to look toward stories such as the Rich Ruler in Luke 18 and Zacchaeus in Luke 19, as well as the many places where God proclaims favorable status on the poor (there’s the liberation theology influence :).
What is really cool about the Bible, though, is that there are also plenty of places all Christians can find common ground (such as the command to to love neighbor as self).
(4) As for the question of “How do I know there is a better system?” Let’s just call it faith. But not blind faith. I think the overall sweep of history shows that human economy has been steadily improving (in a “two steps forward, one step back” kind of way). It seems that every so often, something new, better, and unforeseen emerges.
For example, do you think people just a couple of centuries ago could have envisioned the global economy we have today? Anyway, I sure hope what we’ve got now is not the best it ever gets – even though it’s the best that we’ve got.
Thank Jim. I appreciate your comments. I also believe there are better economic ways to exist. I just believe that A) we often fail to appreciate how good things have gotten compared to what humanity has had to suffer with through most history and B) we overestimate our ability to implement positive change at the macro-level. It is the difference between thinking we can turn one big dial and fix thing versus realizing that making adjustments to lots of small dials is likely the more prudent approach. 🙂
I hear the concern about corporations and share it to a point. I would balance that concern with observation that large corporations are needed and legitimate. Each industry is different and the dynamics of an industry shapes the centralization of that industry. Thus, there are only a handful auto manufacturers with 90% of the market while there are a couple of chain hair styling firms with less than 10% of the market competing with thousands of small independent firms. In fact, emerging nations will not advance until they can develop strong corporate sectors.
Transnational corps need to be held accountable. It is interesting that the same technologies that have allowed so many of them to become transnational are also the same ones that make it harder and harder for them to hide injustices and misdeeds. The most effective tool in accountability for many of these corporations is exposure and much of that is happening. There should be more. But I really think transnational corps have unduly made the focus of attack for broader changes that they are only a piece of.
I sympathize with the job loss issue. It is one thing to say that unemployment is at a low 5% but when you are the one unemployed it is 100% unemployment. There are winners and losers in times of economic transition. There is no way around it. If you use protectionism to protect the jobs of folks in SC who have at least some measure of opportunity for retraining when they lose their jobs, you deny many more jobs to folks in say Bangladesh whose alternatives are not quite so rosy. By protecting jobs we can damage the poorest of the poor. Its messy.
I also hear the concern about consumerism. Yet I’m not sure about our strategy for combating it as Christians. As with any idolatry, people be consumerist because they are trying to fill a legitimate need for meaning and purpose in an illegitimate way. I think too much of the time we are haranguing about the idol and not communicating/displaying the alternative. As people have a compelling vision of who God is, attraction of consumerism fades.
I do appreciate your interactions, Jim!
A big part of the problem is the fact that churches often endorse/model consumerism. It’s not just a matter of presenting an alternative to mainstream society. It’s a matter of chipping away at generations of attitudes that have been internalized in the church.
As for alternatives, I’ve got a lot of ideas on that. I talk about them a lot on my blog. Here’s a sample:
http://disciplineforjustice.blogspot.com/2007/04/spiritual-discipline-giving-it-all-away.html
Thanks Jim!
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