May 5th, 2008

Money

More on food prices

Who benefits from soaring commodity prices? (The Economist)

You'd think, with everyone paying more for food all over the world, all that money would have to go somewhere. Well, it was not the farmers, it seems. Rather the cost goes on to natural resources and energy (which still to a large extent means oil, but anything that can make electricity rides the rising tide). Also various minerals are rapidly growing more expensive.

I consider this good news. There are a lot of alternative energy sources that have simply not been viable without huge subsidies. If oil prices remain high for several years, we should see an explosion of solar, wind and wave power. Not to mention nuclear power, which takes a long time to set up but is quite reliable once running. Using oil to produce fertilizer is bordering on blashpemy. It is not like that animals will go back into the oil wells and die again. Oil is a finite resource and there are uses of it that will be hard to replace. Making fertilizer is not one of them. Any electricity does the trick.

In the long run, we have to separate the food prices that stem from energy cost from those that stem from limited arable land. This is trickier to get around, but there is a lot of land that is "marginal". If people could afford to pay more for food, this land would be cultivated.

The problem is not that food prices are too high. The problem is that the poor are too poor. The only long-term solution to this is for them to do something useful that they will get paid for. These days, this requires more than getting up in the morning and wanting to work. It is a rather huge project to make a person employable. But I don't need to tell that to you guys.