Hunger for oil could mean hunger for real?
Posted
Oct 03 2008, 01:24 PM
by
Todd Harrison
Rating:
As the specter of bailouts upon bailouts looms, it's become clear that the U.S. government may be pushing us -- wittingly or unwittingly -- toward hyperinflation. I'm writing today, with no small degree of concern, to suggest that there will be non-economic consequences to hyperinflation which no one is yet considering - and these consequences are far more dire.
In a true hyperinflationary situation, food is very quickly going to become a high-demand asset. Indeed, if hyperinflation hits the U.S., the primary concern won't be food inflation but rather food availability.
To understand why, it's important to grasp that the American system of food production and distribution is unlike any other in human history. Starting in the 1950s (and accelerating rapidly in the '70s and '80s), food production in the U.S. left behind the model used by every human civilization since people first settled together in Babylon: Namely, grow the food where the people live.
As a result of this transformation, total per capita food supply (including fruits, vegetables and meat) grew by almost 15% from 1970 to 2006. Shipping distances for agricultural commodities also exploded. Today, a piece of produce consumed in the US today travels , on average, more than 1500 miles before reaching the kitchen table -- a number that represents a 20% increase in the past 2 decades alone.
Additionally, more and more components of our food (yes, our food has components) are being imported from overseas. Everything -- from soybeans to blueberries to the synthetic vitamins sprayed on your morning cereal -- is rolling into this country on planes and boats and trucks.
The reasons for this monumental transformation are pretty straightforward. Refrigeration improvements and the advent of the national highway system, along with abundant cheap oil, made trucking crates of vegetables across the country not only feasible but profitable. Americans, after all, love economies of scale, and we're very good at creating them. The rise of imported food is simply the natural progression of this trend.
The problem that this presents for us as we face an uncertain economic future, however, is that this particular economy of scale is hugely dependent on abundant cheap oil.
It's almost impossible to overstate the dependence of American industrial agriculture on oil. These centralized farms use huge quantities of machinery to spread extraordinary amounts of energy-intensive fertilizers over land that has been largely exhausted of its natural fertility.
Without synthetic fertilizers, most of the land currently under heavy production in this country would be far, far less productive. When the same crops are grown and grown again and grown again on the same land, that land becomes depleted of all the nutrients required by the crop in question. This fact alone is disconcerting; but, unfortunately, there is more to consider.
As food comes out of the ground, the raw produce is trucked, flown or floated to processing plants where it again consumes huge amounts of energy. Consider for one moment, if you will, the ubiquitous mini-carrot. There is no such thing in nature as a mini-carrot. There are baby carrots, to be sure, but they are generally long and scrawny and about as appealing-looking as are people of the same relative shape - which to say, not very.
So what is a mini-carrot? It's a regular old workaday carrot that's been lathed down to size "mini." Imagine how many millions of mini-carrots are consumed a day in this country. Now imagine the amount of energy it takes to lathe them down into that oh-so-convenient size -- the one that you, hopped up on six Grey Goose martinis, can still manipulate into the onion dip (processed, most likely, from Chinese onions).
Once the processing of those mini-carrots (or cereal bars or pre-washed lettuce mix or strawberry yogurt) is completed, the resulting food product is then packaged (more energy, more oil), trucked to a distribution center and then trucked again to your local Stop-n-Shop. These last legs of the journey also consume a good deal of fuel and are often handled by the very same independent truckers and freight lines that were in big trouble this spring as oil hit $150.
If our wishbone world breaks violently towards hyperinflation (a very big if, to be sure), the long chain that connects agricultural output to the American kitchen table will be put under extreme stress - and this is a system that, like the current financial system, has never been subjected to any real stress. (Again, it's only been around for a few decades.) Given this, it's highly likely that, in the case of a sudden collapse of the dollar, particularly against the Asian currencies, the food system as a whole in this country will be compromised.
Let me be very clear about this. Independent of every other link in the chain, if diesel fuel skyrockets to $30 ($40, $50?) a gallon, no one short of the US military will be trucking crates of lettuce from California to New York. And you can be sure, there hasn't been more than a token amount of lettuce grown within 50 miles of New York City for decades. The same goes for carrots and beans and chicken and steaks and just about every other food product you might regularly purchase at the supermarket.
I realize that this sounds like tinfoil-hat kind of stuff - but then, if you'd walked into any bar in lower Manhattan (or Capitol Hill, for that matter) last year and announced that Fannie, Freddie, AIG, Lehman, Merrill Lynch, Bear Stearns, WaMu and Wachovia would all be gone before the end of September, you'd likely have drawn more than just skeptical looks.
Personally, I still find myself more in the deflation camp, but -- given the enormity of what hyperinflation could mean in this country -- I'm unwilling to ignore the possibility altogether. Gold and Aussie dollars may look great now, but a couple jars of peanut butter will likely be worth far more should hyperinflation come to pass.
Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was and Op-Ed written by Minyanville reader Minyan Alex.
Related Articles:
Snowball From Hell
The Age of Austerity
A Newer Deal for the Economy
