March, 2011

Fruits of Thought

Food Prices At Core Of Middle East Unrest

We had Paul Revere and Lexington and Concord and the “shot heard ‘round the world.” One day in the history of the Arab world, the story that may be told might be of 26-year-old Mohamed Bouazizi, a Tunisian produce vendor, whose cart was seized by the police because he allegedly couldn’t afford the bribes they demanded. Bouazizi, we are told, despairing at the impossibility of the situation of a poor man in a corrupt country, doused himself with lighter fluid, lit a match and set not only his own body aflame — he died two weeks later — but set aflame protests in Tunisia that took down long-time Tunisian dictator, Zine El-Abidine. The protests spread to Egypt, Bahrain, Libya and other places.

The issue of food prices seems to pop up everywhere in these protests. In Egypt, many experts point to the fact that wheat prices have doubled this year, and that this poor country is the world’s largest importer of wheat. These experts sometimes blame Ben Bernanke, Chairman of the Federal Reserve, for the unrest, pointing out that he has inflated the dollar and that commodities are priced in dollars, making it even more difficult for countries to buy items such as wheat.

This is probably just a smidgen of the story. In addition to weather problems in Russia, Australia and other production centers, the rising powers of Asia have reached levels of affluence where there is little flexibility in how they buy commodities such as wheat. In other words, these countries are rich enough that if wheat is expensive, they will just pay more, and consumption does not dramatically drop. The elasticity of demand for food drops as it accounts for a smaller portion of consumer expenditures.

In a place like Egypt, where much of the population spends more than 50 percent of disposable income on food, price increases lead to destitution quickly. Although it is rarely the destitute that protest, it is, instead, those who thought they had opportunities and see them slipping away.

Americans may not always realize how lucky they are. The latest, 2009 statistics demonstrate that consumers spent 5.5 percent of their disposable income — that is income after taxes — on food to consume at home. They spent another 3.9 percent on food away from home. So, all in all, Americans spend only 9.4 percent of their disposable income on food. Because these numbers include restaurants and prepared foods, much of this money is spent on “atmospherics” and convenience. The hard-core food budget is far less. The price of commodities, such as wheat, can double and barely dent the budget for most American consumers.

The percentage Americans spend on food has also been dropping steadily. In 1960, it was 17.5 percent of disposable income; in 1970, it was 13.9 percent; and now we are at 9.4 percent. Continuing this trend in the United States and exporting it to places such as Egypt won’t be easy.

For the most part, the relative cost of food doesn’t really have that much to do with the food industry. Yes, Egyptian wheat farmers are less than half as productive as U.S. farmers and less than a quarter as productive as U.S. wheat farmers working on irrigated land. But the big reason why food costs so little in the United States is not that our production methods produce food so inexpensively; it is that our incomes are so high.

This is why advocates for local or for small-scale can argue with a straight face that U.S. food prices are too low. They mean that we are sufficiently rich that we can elect to support other values with our money. Of course, whether people actually want to support the values that these advocates proffer is very much an open question.

Prosperity in the world depends on many things, including changing cultures of corruption and building secure property rights to encourage savings and investment. The food industry does have a part to play, though, and we shouldn’t assume that our low-cost food supply is guaranteed forever.

In fact, an anti-technology bent, opposing genetically modified foods and endorsing food production based on aesthetic values such as local and small-scale can pose great problems down the road.

We need to remember when we promote organic items and things of that sort, we are promoting an option for affluent people — we are not propagating a serious response to the world’s need for food. In fact, many of the limitations on food production in poor countries around the world are caused because land reform laws have kept average farm size too small-scale, because they don’t use synthetic fertilizers, and they reject GMOs out of ignorance and fear.

What the future holds for the Middle East is unknown. Almost half the women in Egypt are illiterate. Rumors that the Israelis have planted sharks in the Red Sea are widely accepted as facts. It is hard to imagine a Jeffersonian democracy quickly rising from the ashes of the revolution. We can only wish the people in these countries well.

We can also set an example by rejecting anti-scientific approaches to food projection and by recognizing the great blessing inexpensive food is for the people of the world — ourselves included.           pb