Nine Meals Between Mankind and Anarchy

It is hard for anyone to not be affected by the current forces of inflation.

You see it at the gas pump.

It is everywhere you look at the grocery store.

Inflation in food prices in the Consumer Price Index for February was +7.9%.

It was 2% a year ago and for most of the previous five years.

We have not seen anything like this in the United States in over 40 years.

Global food price inflation is even worse.

The United Nation's Food Price Index soared 13% in just one month---February to March.

Year over year the UN's food price index is up 34% since last March.

This UN FAO chart shows how prices are trending in 2022 compared to the previous three years.

Source: https://www.fao.org/worldfoodsituation/foodpricesindex/en/

Price pressures are strongest with Vegetable Oils (+23% in the last month) and Cereals (+17%).

Source: https://www.fao.org/worldfoodsituation/foodpricesindex/en/

You can see from this chart that for most of the last 60 years the food price index in real terms had been trending down due to increasing agricultural productivity and increasing food supplies despite an increasing global population.

Source: https://www.fao.org/worldfoodsituation/foodpricesindex/en/

In real terms. food cost less at the beginning of 2021 than it did in 1961 despite the fact that the world's population had increased from 3 billion to 8 billion human beings.

Food is now more expensive in real terms than it has been in the last 60 years.

My concern is that it is going to get much worse.

All of the cost inputs involved in agricultural production are soaring---labor, diesel fuel, fertilizer, herbicides, etc. 

The food prices we are seeing right now for the most part do not reflect these higher agricultural input costs. That will be reflected in this year's crop season.

Look at a few price charts around the globe on agricultural inputs.

European wholesale diesel prices.

Fertilizer Price Index.

Prices are generally three times higher than last year.

That is IF the farmer could even get their order fulfilled this year.

Source: https://doomberg.substack.com/p/farmers-on-the-brink?s=w

US Tampa Ammonia spot price.

Ammonia is a key ingredient in many fertilizers.

Source: https://twitter.com/DoombergT/status/1508734561030656004

Glyphosate is a key ingredient in many herbicides that are used in agriculture.

Source: https://doomberg.substack.com/p/farmers-on-the-brink?s=w

If you want to take a deeper dive into all of the cost pressures currently confronting the farmer I recommend reading this Substack article "Farmers on the Brink" that I pulled the commodity charts from.

What many don't realize is that almost all of the critical inputs in farming (excluding labor and seeds) are dependent on oil and gas. 

The author of "Farmers on the Brink" doesn't mince any words. He believes we are on the brink of global famine.

We believe we are at the onset of a global famine of historic proportions. In a staggering defiance of logic, many US politicians are still attacking the lifeblood of our own energy production infrastructure, looking to score political points against “the other team,” blaming price-taking producers of global commodities for gouging, threatening producers of energy with windfall profits taxes, resisting calls to remove bureaucratic hurdles to new production, and refusing to open an introductory physics textbook to help guide them through the suite of policy choices that require true leadership to get right. They remain stuck in an endless loop of platitudes, blamestorming, corruption, and ignorance.

The United States will undoubtedly fare better than the rest of the world if global food supplies are threatened. It has been blessed with the most productive agricultural sector in the world.

However, the "age of plenty" that most of us have enjoyed our entire lives might soon lead to "days of parsimony".

How could this happen?

Many want to blame the pandemic.

Keep in mind that Covid did not cause this.

It was the reaction of our public officials to Covid that did it

It did not have to be this way. That should be evident by now in looking at our experience over the last two years.

That was then followed in the United States by a new President and majority party in Congress with a foolhardy policy to attack and undermine our energy production infrastructure that is the most critical underpinning of our economy. 

Yes, some of what we are seeing right now is the market's reaction to the Russian invasion of Ukraine.

However, I warned last Fall in a blog post titled "Abundance and Scarcity" that significant food price increases were on the horizon well before Putin ever massed troops on Ukraine's border.

If you think food prices are already high right now we may not have seen anything yet.

The prices we are seeing now do not have the full effect of the increases in oil and gas costs fully baked in.

Even more concerning looking to the next crop season, is what is going on in the fertilizer market. Costs have exploded for this agriculture critical item.

However, my concerns extend beyond price. There are questions of whether farmers will even be able to obtain the fertilizer supply they need for the coming growing season.

If that is the case, the abundance we have become accustomed to may be threatened. Could we begin to see food scarcity?

This would have been unthinkable a year ago. It no longer is. 

This would not result from natural forces like climate or Covid. This would be largely attributable to political policy decisions. Cancelling pipelines. Limiting oil and gas exploration. Badgering oil and gas executives. Raising royalty rates on federal lands. To use a sports term, it is an unforced error.

At times like this it may be important to keep this quote in my mind.

"There are only nine meals between mankind and anarchy."

                                -Alfred Henry Lewis, 1906 

Human beings get very angry when they are hungry.

We are already starting to see this in various parts of the world.

In the last week there have been riots in Peru, Pakistan and Sri Lanka over inflation and food shortages.

Source: https://www.cnn.com/2022/04/09/business/food-fuel-prices-political-instability/index.html

Unrest in Sri Lanka, Pakistan and Peru over the past week highlights the risks. In Sri Lanka, protests have erupted over shortages of gas and other basic goods. Double-digit inflation in Pakistan has eroded support for Prime Minister Imran Khan, forcing him from office. At least six people have died in recent anti-government protests in Peru sparked by rising fuel prices. But political conflict isn’t expected to be limited to these countries.

“I don’t think people have felt the full impact of rising prices just yet,” said Hamish Kinnear, a Middle East and North Africa analyst at Verisk Maplecroft, a global risk consultancy.

There have also been riots in Shanghai, China as people revolt against the Covid lockdowns and food shortages.

Source: https://www.dailymail.co.uk/news/article-10702811/Shanghai-residents-revolt-Zero-Covid-lockdown-Videos-shows-mobs-looting-stores-urgent-food.html

The 26 million people under lockdown in Shanghai have continued to complain about food shortages due to a lack of couriers to carry out deliveries and uncertainty about when lockdown curbs may end. 

And desperate residents looted emergency food supply points last night according to videos shared on, and swiftly deleted from, Chinese state-censored site Weibo. 

The videos also showed crowds of Shanghai residents storming stores for undelivered food parcels.

If people are willing to riot in China, which monitors almost every move their people make with cameras, drones and facial recognition software knowing they might be immediately transported to a prison with no hope of ever seeing daylight again, you know it is very, very bad. 

Of course, each of these events threatens further chain reactions. 

It seems to already be happening across China as others see what is going on in Shanghai.

Source: https://www.scmp.com/news/china/science/article/3173762/shanghai-covid-lockdown-spurs-race-stockpile-food-across-china?utm_content=article&utm_medium=Social&utm_source=Twitter#Echobox=1649594220-1

I fear we have not seen anything yet.

Remember the quote above as events unfold.

"There are only nine meal between mankind and anarchy."

We may find out how true that is in 2022.