Albert Edwards is worried about cereal.
Specifically, whether you’ll be able to afford it going forward.
I jest. Humor is a prerequisite for covering Albert’s weekly missives, so I feel somehow derelict in my editorial duties if I don’t give him and readers an opportunity to chuckle at the outset.
That said, the subject of this week’s piece from Edwards — food scarcity — is anything but funny, and kudos to Albert for drawing attention to it.
Earlier this month, the United Nations’ food agency said food prices rose a sixth month, with the index touching the highest in nearly a half-dozen years.
The Food and Agriculture Organization’s gauge tracks monthly changes in cereals, oilseeds, dairy products, meat and sugar. As you can see from the figure (above), it’s rising pretty sharply.
For those interested in the specifics, the price of vegetable oil exploded nearly 15% higher, a move apparently attributable to palm oil. The index for cereal jumped 2.5% sequentially, and was up 20% YoY.
You’ll note that the last big surge came around a decade ago, and Edwards reminds you that if you wanted to (and he wants to) you could blame the Fed for the surge and, indirectly, for the Arab Spring.
“Many economists believe the Fed’s QE2 was the primary cause for the 2010-11 bubble in food prices which contributed to the social unrest and ensuing revolutions in many Arab countries,” Edwards said Thursday. (For what it’s worth, Ben Bernanke pseudo-famously denied the Fed was responsible for surging food prices at the time.)
Edwards went on to say that “while most economists’ attention is now focused on the impact of the Fed’s QE on buoyant equity and industrial commodity prices, we should also watch the unfolding surge in food prices very closely — and with trepidation.”
I won’t argue that. If easy monetary policy in the US does drive up commodity prices as part of a pro-cyclical trade, it will be important to monitor the effects of that, especially vis-à-vis countries where the populace is both poor and starving, related phenomena which could be exacerbated in the event the price of food continues on an upward trajectory.
Notably, November’s rise in the index mentioned above was the largest since 2012.
Edwards made a critical point in his piece. Thanks in part to the pandemic, food insecurity isn’t just a frontier economy issue.
“Even in the richest country in the world, food poverty has become a real problem during this pandemic,” he remarked, adding that “with people already angry about rising inequality, a surge in global food prices could easily trigger social unrest – everywhere.”
Yes, indeed it could. And that’s just another manifestation of the dynamics discussed in these pages on too many occasions to count over the past nine months.
In the US context, for example, the pandemic not only laid bare the fragility of the world’s largest economy, but also exposed the overlapping nature of the myriad inequities endemic to American society.
Needless to say, no family should experience food insecurity in the US, the richest country in the history of the world. And yet, over the summer, the Census Bureau’s “experimental” Household Pulse Survey showed tens of millions of Americans didn’t have enough to eat.
Pictures and videos from across the country continued to depict lines at food banks as Congress struggled to pass a new virus relief package.
Of course, as Edwards also noted Thursday, “commodities have been in a secular bear market for a long while now.”
Some believe the transition to the kind of monetary-fiscal “partnerships” seen across developed economies in the wake of the pandemic could bolster commodities going forward, especially if the global vaccination push is successful in restoring economic activity. Lingering disruptions in supply chains could conceivably add to upward price pressure on some goods.
“As industrial commodities break upwards fueled by the cyclical recovery and extremely loose monetary policies worldwide, keep a very close eye as to whether we see a repeat of the 2010/11 surge in food prices,” Albert went on to say, before cautioning that “on the 10th anniversary of the start of the Arab Spring, and with poverty having already been made much worse by the pandemic, another food price bubble could well be the straw to break the very angry camel’s back.”
But this looks like a substantial inflation issue?? Shouldn’t that show up somewhere in the CPI??
Depends, the CPI is sort of weird in that to the best of my understanding it doesn’t use a fixed basket of goods but rather attempts to swap around goods to predict substitutions people will make. Maybe beef, pork, chicken, turkey, eggs and fish all went up in price but tofu is still reasonable so therefore if everyone bought tofu at current prices then no inflation so CPI is flat. I doubt if it factors in what tofu would cost in the event all the excess demand actually moved there.
I watched a CNN story about the long lines for food handouts. There were a lot of expensive looking vehicles in those lineups. That could be an expansive story in and of itself.
It’s what we’ve been brainwashed to do: jumbo mortgages on McMansions we don’t need, leases on trucks and automobiles we can’t afford. Turn on the TV and check out the ads. “Look what daddy brought home for Christmas, kids. Two gigantic Lexuses (Lexi?)!!”
There are rising signs that global economies could go south very quickly. Besides all the developed countries’ machinations to fight an economic downturn, let’s not forget there are a handful of countries who would love to see it all collapse and are certainly working nefariously to make it happen. If we’ve learned anything in the 21st century, it’s that it can unravel in the blink of an eye. For instance, how extensive is the recently discovered Russian hack. I suspect even our cyber experts don’t know, and how many more are there yet to be discovered. The cold war has started again and our adversaries have won at least a couple of rounds over the last 4 years while our king has knowingly or not played into their hands. Russia has infiltrated much of our government and the Chinese economy (if you can believe the data) seems to be recovering much better from the pandemic than the West. And that whole trade deficit fight with them seems to be going very much in their favor, meanwhile the current administration is focused on trashing as much of government as they can before they have to be dragged out because that’s who they have always been.
It’s always struck me that food security has never really been that much of a priority in the US. The main food bank in my metro area has set major distribution records this year. Food stamps have been attacked for many years as a waste of money. When China changed its economy after the revolution, the highest priority in the first several five year plans was to make sure everyone had food. Starving people can’t create a developed economy. I have never seen anything like that in the US. Besides food stamps we set up much of our solution around school-based distribution but that doesn’t do anything for adults, weekends and other “cracks in the system. So tens of millions don’t get enough to eat. Part of the reason is that many of us collectively find solace in the idea that people without enough to eat are somehow all lazy losers anyway and their hunger is their fault so we aren’t responsible for their problem. All this in a nation whose politicians, at least, like to characterize as “Christian.” Our priorities with grain aren’t aimed at feeding ourselves. Rather they lie with supporting exports that enrich our farmers. Somewhat ironic given that one of the hidden areas of food poverty is rural America. We should be ashamed. For those who might think this is just talk on my part this year I donated two months of my base income to food banks, three times what I spent on my own food.