The Agriculture Bomb
What The Hells Going On With My Bananas ?

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Money And Markets
Wednesday, September 10, 2008
Your Best Source For The Unbiased Market Commentary You Won't Get From Wall Street

The Agriculture Bomb
by
Sean Brodrick

Commodity prices have pulled back sharply, enough for some market watchers to pronounce the commodity bull "dead." I'll take that bet, because I think we're just seeing a correction in a long-term bull market. What's more, when the next commodity price squeeze comes, it might not be from a sector you'd expect, like energy or metals. It might be food.

I probably don't have to tell you about rising food prices. In the U.S., the cost of groceries rose at an annualized 8.4% rate in July (the latest data available). If you think falling commodity prices means that your grocery bill will be going down soon, think again. Rising food prices tend to be "sticky" — and now we have the added factor that, thanks to globalization, a family in Shanghai is willing to buy your Sunday dinner before you have a chance to cook it.

Food has something in common with energy — they're both commodities that you use up. And they're both worth fighting over.

F-O-O-D is a Fighting Word

Australian researchers say that 60% of all conflicts in the past 18 years have been driven, at their core, by disputes stemming from a scarcity of food, land or water. And by the 2020s, regional food shortages could trigger hundreds of millions of new refugees and leave no country on Earth unaffected.

You think America would be safe from that? After all, we are the world's breadbasket, producing over 400 million metric tonnes of grain in the last harvest year. Our biggest competitor, China, produces only two-thirds as much as we do.

And in America, food is so plentiful it's dirt-cheap, even with recent inflation. U.S. consumers spend roughly 15% of every dollar on food. In China, 30% of consumer income is spent on food. In India, it's closer to 35% or even 40%. And these are relatively "rich" countries.

In poorer nations, 80% of consumer income goes to food. According to the World Bank, just over 1 billion people live on one dollar or less per day. And there are millions upon millions of people who are literally being priced out of the food market right now.

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