Thursday, August 9, 2012

Food Prices

We’ve been talking about the disconnect between the realities of food production and the artificial understanding of agriculture held by most Americans. The fact that there’s a disconnect is in part understandable when you consider that fewer than two percent of the population feeds more than 100 percent of the population (don’t forget exports) and the vast majority – more than 98 percent – are two or more generations removed from the farm.

But being physically disconnected from agriculture isn’t the entire story. Education, media and entertainment paint a vastly skewed picture of the basic realities of the physical world, and a population that is increasingly urbanized and “connected” is in fact increasingly disconnected from reality. One might describe this phenomenon – where hundreds of millions of people blandly accept fiction as fact – as a mass delusion.

A few years ago a NASCAR driver attempted to win a race by charging into the final corner much too fast. He flew off the straightaway with excess speed and flashed by the race leader. But then physics took over, and his car slammed into the wall as he tried to corner. After the race he explained that he’d tried the maneuver on a video game and had been successful – the game allowed his virtual car to zip through the corner against the wall without damage and without paying the cost of transferring kinetic energy, or speed, into the heat energy produced by 3,500 lbs. of race car grinding against the Safer Barrier under centripetal force.

This was a reasonably experienced, successful driver. The point isn’t that he didn’t know what would happen – he did – but that he allowed himself to believe that the natural laws of physics just might prove to be malleable.

Unlike the driver, who had plenty of experience in the physical reality of hitting the wall, the majority of Americans have no experience with production agriculture, and increasingly, no experience of nature outside the artificial environment of cities and towns. Without experience – and like it or not, television and video games do not represent experience – these people are vulnerable to believing that reality is what the media, entertainment and education “experts” say it is, rather than what it is.

As I write this on July 17, the Washington Post (among others) is reporting that food prices are increasing because of the present drought across the Midwest and great Plains. The story in the Post is written with the certitude of an author who is describing factual reality.

But the drought is a recent phenomenon, while food prices have been rising since 2008, even though crop production as an aggregate has increased. So why isn’t the law of supply and demand driving food prices?

Firstly, and despite government and administration claims that the nation is “dong fine” economically, increased government spending has been directly driving inflation across the economic spectrum. The administration cherry-picks outlying data points and reports that there is no inflation, yet every food-buyer in the nation knows that food prices have been on the rise for years. The media have been largely silent on the subject until now, when they have a drought to blame it on, and can protect their precious narrative. But the fact remains that commodity prices contribute little to food costs, the bulk of which lie in processing and transportation. Nor do the relatively tiny drought-fueled market increases of today explain away the inflation of the last four-plus years.

Secondly, ever since the Renewable Fuels Standard became law, food prices have been decoupled from the agricultural market and coupled to energy the energy market. The driving force behind corn price increases has been ethanol, which has become the largest single user of corn. As corn goes, so do other food commodity prices.

Food cost inflation is directly linked to increased government spending and regulation. In attempting to force a fantasy ethos on reality, an adverse effect is created in the economy. Nature is unaffected; reality remains stubbornly real. Consumers pay the cost in increasing food prices and wonder why the fantasy of hope and change remains unrealized in the real world.

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