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Combat Rising Food Prices

By Bryan Perry

The prices of just about all foods and beverages have risen since last year. It seems to me that every time my wife asks me to swing by the supermarket and pick up "a few things," I end up spending almost as much money as if we had gone out to dinner. It's alarming, and there are few viable solutions at hand.

But, let's get beyond my reaction to higher food prices for a moment, and see what some of the world organizations that monitor and compile information have to say about the current situation.

World Need

A major report issued in May warned that high global food prices are a new "fact of life," and one we had better adjust to. The report cited changing diets, urbanization, rising populations and economic growth as the forces driving demand in developing countries.

The Organization for Economic Cooperation and Development (OECD) and the U.N. Food and Agriculture Organization both said in a report on the global agriculture outlook for the next 10 years that the cost to feed a family will be much higher in the future.

The study was published against a backdrop of protests over food price spikes in Asia, Africa and the Caribbean. OECD Chief Economist Angel Gurria added: "The way to address rising food prices is not through protectionism but to open up agricultural markets."

Today, developing countries are still importing about 80% of their foodstuffs to meet demand and, as a result, many nations have imposed export controls. In Yokohama, Japan, the head of the U.N. World Food Program, Josette Sheeran, urged "all nations to allow us to purchase food, even if they have controls for humanitarian purposes, and this is very critical."

The two bodies warned that food subsidies and trade protection were not the answer, saying that high prices might even be part of the solution by stimulating neglected investment in agriculture in poor countries. The report warned that rising prices had endangered the U.N. Millennium Development goal of eradicating hunger and it was strongly skeptical about the benefits of agriculture-based biofuels, which have contributed to higher costs.

The report further pointed to "adverse weather conditions in major grain-producing regions of the world, with spillover effects on crops and livestock that compete for the same land." Comparing average prices for 2008-2017 to 1998-2007, it said the cost of beef and pork could be 20% higher, wheat, maize and skim milk powder 40%-60% higher, butter and oilseeds more than 60% higher, and vegetable oils more than 80% higher.

The bottom line, according to the World Health Organization, is that food supplies need to increase by 30% during the next 20 years in order for prices not to spiral out of control, beyond the current upward pace.

Folks, that's both compelling and alarming, and we get the dire message.

The Growth of Agriculture

The current shortages in major crops are only going to worsen unless crop plantings are greatly increased. Planting more corn, wheat, soybeans and other vital food commodities is the only way out of the widespread and rising food shortage. That's the mantra of experts in the agriculture industry, and that's why I'd recommend investors put capital into the sector.

Corn has also received a lot of attention lately because of its direct relationship to ethanol. Clearly, the argument that corn prices are sky-high because of the rise in ethanol production has its merits, but the proponents of ethanol use say that corn grown for the dinner table and feed corn used for cattle and ethanol are completely different crops, and that the price increases aren't a result of rising ethanol demand.

They're right in that they are different crops, but both are experiencing shortages relative to demand, so playing the blame game at this time is a mute point. We simply need to plant more corn.

Investable Agriculture

The reason I've shared this debate, and my take on these issues with you, is that it's all about how much future farm land is going to be dedicated to new plantings, so farmers can combat world hunger and serve the needs and interests of the biofuel industry, the beef industry and the U.S. food industry. With more land planted, the demand for increased supplies of seeds, crop nutrients and fertilizers will continue to experience robust growth, and this presents you with many investable opportunities. Focus on that demand curve and benefit from it.

Bryan Perry is Editor of The 25% Cash Machine.

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