Prediction of Food Riots Next Year

Thomas Lord

Wed Nov 26 20:02:05 -0800 2008

manage

Food demand is extremely elastic for any given crop.

-t

demand

zogger

Thu Nov 27 07:05:21 -0800 2008

manage

Demand for say rice across all of asia is elastic, or unelastic and goes up with the population? Wheat products in the US? Coffee all over? Bananas in Africa? Corn in Mexico? Beef in Argentina? Potatoes and Cabbage in Russia? Global population is now over 6 billion, within one generation more it could hit 8-9 billion, my overall assessment is demand for food products will be going one way, and that is up. Very temporary up and down spikes in this or that barely qualify as elastic, except for short range and highly speculative contract investors purposes. And then the next point is allowing farmers to go broke based on fulfilling the profit wishes of this tiny percentage of humans compared to the overall population of food eating humans is nuts. This analyst sort of agrees in a way, he is predicting national protectionism in order to help insure various nations internal food supply plus maintaining their ag base, the real ag base, not the few dudes sitting in offices and on the trading floor "ag base". But what might happen then is nations who didn't do that previously and are now stuck on being forced to import simple basic food, but won't be able to pay for it, from increased production costs and speculator driven price increases (a prediction for next year, not right today obviously) will be seeing shortages and riots over that. I agree with him, and why he thinks that way. It's a freaking vicious cycle of massive gouging both ends of the food chain, producers and consumers, all the time, no matter which way prices go, to insure trader's profits.

The *theory* of commodities trading has a little merit to it, I'll grant that, the practice of it as it evolved to today leaves a lot to be desired. Just like the *theory* of hedged derivatives contracts sounds nice as a way to share risk and minimize exposure, but because the bulk of those contracts, like 98%, are OTC unregulated, and are created and traded based on ludicrous levels of leveraging, that all these huge banks went so far into la-la land that they stopped being any sort of "real", there's just no way all these contracts out there, at many times total planetary gross production level can be fulfilled, hence all the emergency bailouts. They stopped trusting each other because all of them realized they were trading puffed up BS to each other.

They started (one big example) with the premise that one mortgage contract sold at unsustainable and stupid and dubious figures could somehow be transferred into literally 20 sets of huge profits upstream. Slice/dice/repackage/trade upstream and sideways, do it again, and somehow they were always going to go up. Nuts. 10 guys starting out at yardsales in one neighborhood and taking the same used lawnmower that doesn't even run at 50 bucks and selling it in bits and pieces to each other all day long and all winding up rich at the end of the day. nuts. The scale is different, the technique and theory isn't.

Now we are stuck with bailing that mess out. I would prefer a global jubilee and tell all them gents who now lost out on some ludicrous expected megaprofit in the trillions to go stand in line at the unemployment office (that's the best case for them, I think jail is a much better option under RICO for everyone else, get them people AWAY from the economy). But now the same dudes and their drinking guild buddies are still "in charge" of the money creation, interest setting, "official economic and trading policy" sphere in government. Oh ya, THAT is gonna work. We see the old crew we have now and the announced "new crew" coming in-zero change. Same gang members. They aren't changing a single thing that is wrong with the way they do things, with the whole stupid system itself, nor all these fatcats who have been doing it, just playing musical chairs with the names and job titles and telling everyone else they are now in "debt" to them and backing up that claim by it being force of law.

demand

Thomas Lord

Thu Nov 27 09:45:02 -0800 2008

manage

That there are likely to be (more) food riots is, in part, a result of the elasticity of food demand. "Desire" is not "demand" and economic demand for food is elastic, yes, even to the point of costing lives.

Think of aids drugs around the world. The desire for them continues to grow but demand is highly sensitive to price. When the price is too high, demand is much less than desire -- and people die.

Food is like that, too, but food is also very elastic in less drastic circumstances because even people getting enough to eat vary what they eat and how much based on prices. For example, people are buying less meat in some areas.

Now the question arises of how to rationally allocate resources for food production. Producing, processing, and moving a crop to market takes capital formation up front and the market for that capital is competitive. How are you going to organize that capital formation? Either you let markets do it -- and here we are -- or, what, are you going to go all Soviet style?

If you want to fix this from your end you "independent" farmers need to do what any technology company would do in similar circumstances:

When your product becomes a commodity you must either horizontally expand your range of products or vertically lay claim to more of your value chain. Ideally, you do both.

For example, you could collectivize to provide one another a form of insurance. Invite into your collective producers of a broad enough range of crops to provide a complete diet and do some profit sharing. That's the horizontal expansion and it reduces each of your individual risks to fluctuations in the relative prices of different crops.

That won't solve your problems itself, though. The entire "basket" your collective makes can tank leaving you sharing a 0 or negative profit.

Next, those collectives need to expand vertically. You hate the middle men so much? Then stop selling to them. You rent the warehouses and processing facilities. You hire the truckers. You sell to consumers. And while you're at it: redefine how people buy and sell food. Build a new and more sensible relationship between farmers and consumers -- one that works better for both groups.

Perhaps, as I've seen people do at a small scale, you start selling food mostly by subscription rather than as retail items. Perhaps you redefine what choice means in this context -- question the very form and function of the traditional grocery store.

If the current middle-men are truly jacking up consumer prices but adding nothing worth adding to the value chain -- just pocketing the money -- then that means a business opportunity exists to undercut them.

The lesson from the tech industry (e.g., the GNU/Linux vendors) is that when you've got a lead in producing an unprofitable but highly demanded commodity (like a GNU/Linux distribution) then you win by expanding horizontally (e.g., keep adding more and more specialized software to your basket) and vertically (e.g. get into the business of distributing the commodity direct to your customers) and selling related services (e.g. update subscriptions and support). Doing that, you undercut your middle-men-heavy competitors such as the value chains that start in Redmond and pass through systems vendors, or the value chains that used to pass through the (old) Sun.

The farmer's market movement is a small step in both directions. They don't quite involve profit collectivization but they do collectivize the risk of the rents for the retail space. They do attempt to vertically expand the farmer's business towards retail and redefine the relationship with the customer -- they just don't happen to do so terribly efficiently at the moment.

You face interesting social challenges and financial challenges. Socially, it's a tough sell to farmers to collectivize that way and its a tough sell to get consumers to change buying habits. Financially, you need to find lots of capital and a careful route of vertical expansion. Maybe Gates or Buffet or similar could become a friend to this idea.

There's precious little stopping it other than the scale of the problem. I don't see any major legislative obstacles though no doubt there will be some minor ones. When those come up (e.g., you can't qualify as an FDA-inspected packing plant for some dumb reason) then fight those individual battles, one by one, and fight to win.

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The mortgages and those middlemen...

You seem to misunderstand something important. The middlemen in that industry already got paid. If you just start canceling debts willy-nilly you will hurt lots of people but not them.

If you want to talk about jail time for fiduciaries up and down those chains well, sure! But that's nearly nothing to do with debt cancellation.

As for the bail-out "not changing a thing" I think that's pretty far off the mark. With the big firms exiting the investment banking business and the general political climate what it is, look for a reinstatement of Glass-Steagall, for example. That would make it possible to respond to suddenly insolvent investment banks by chuckling a bit and offering the fiduciaries of those firms what one fellow I like to read described as "...a lean-to in Georgia." Why such largesse? "They can be subpoenaed there".

-t