Is The Era of Cheap Food Over? James Dunn Pennsylvania State University

Introduction Has food been cheap? Why? Was it a conscious plan? Why is it more expensive now? Is this temporary or permanent? Why?

Source: Economic Report of the President

Source: USDA

Source: Bureau of Labor Statistics

Food away from home continues to increase in importance Source: USDA

Has Food Been Cheap? Real incomes have risen, but food prices have been steady Real farm prices are down Some products (chicken, milk) are cheaper We have decreased portion of spending on food while eating more further processed food and more meals away from home

Why is food cheaper? Technological advances, especially at farm level Educated and innovative farmers Business climate

Source: USDA

Chicken Production Efficiency YearMarket Age (Days) Market Wt. (lbs. Live) Lbs. Feed/lb. meat Source: National Chicken Council

Educated and Innovative Farmers Formal education Extension, farm publications, other training Amish farmers with 30,000 lbs. of milk/cow Horse drawn no-till planters The number of farms drops steadily Those operating today survived against tough competition

Business climate Relatively easy to expand Few government restrictions on what farmer can do Relatively low taxes Available credit at reasonable rates Innovative input businesses

Was this a Conscious Plan? No Land-grant system designed to advance agriculture Goal not cheap food, but progress Cheap food the inevitable result

Why is food more expensive now? China, India, and ethanol China and India demanding more of everything –Fuel –Fertilizer –Feed –Concrete –Steel Ethanol pushed up corn prices and everything else

Is this temporary or permanent? Will prosperity in India and China continue to grow? Will production keep up with population growth? Can third world afford to pay? Will bio-fuels splurge end?

Will incomes in India and China continue to grow? Big markets 2.5 bil. people Lots of very poor people – poor are multiplying fastest – especially in India Low wages Agriculture advancing rapidly Are there jobs in cities if people leave countryside? Government pretty corrupt

Will production keep up with world population growth? 6.8 bil. February 2010, 1.17% in growth in 2008 Africa – about 1 bil. – very poor, AIDS, wars, bad government –Zimbabwe Latin America 570 mil. – very poor, bad government Asia – 4 bil. – mostly poor, bad government Europe – 730 mil. and losing population North America – 440 mil. slow growth

Agriculture Productivity growing faster than population Productivity growth spreading worldwide Coelli and Rao estimate world annual growth in agricultural productivity from 1980 to 2000 to be “2.1%, with efficiency change (or catch-up) contributing 0.9% per year and technical change providing the other 1.2%. (p. 133)” Food should be able to keep up Four Horsemen of the Apocalypse – kill population off – disease, war, famine, pestilence

Can third world afford to pay? No, probably not Fastest growth in poorest countries Generally countries with worst governments – Myanmar! Doubling of food prices increases the share of food in income from 10% to 10.6% in rich countries- from 50% to 61% in poor countries ( Ron Trostle, Economic Research Service, USDA)

Will bio-fuels splurge end? It already is Realizing that you can’t get something for nothing must eventually become obvious The ethanol industry is really struggling Bio-diesel is also, but to a lesser degree Cellulosic is not coming along fast Where will the feedstocks be grown

Bio-Diesel production (mil. gal.) YearProductionYearproduction Source: National Biodiesel Board

Will real food prices fall again? Yes! Newer seeds – stacked genetics – 7 stack More investment – fertilizer plants, etc. Less bio-fuels Agriculture responds pretty fast Consumers adjust “I have infinite confidence in the ability of the American farmer to overproduce”