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Generational Dynamics Web Log for 7-Nov-07
UN expert calls biofuels a "crime against humanity"

Web Log - November, 2007

UN expert calls biofuels a "crime against humanity"

Separately, Oxfam says that biofuels won't work, and they "trample" poor people.

He's called by the title, "The UN Special Rapporteur on the right to food." And he's commenting on the meteoric rise in the price of wheat this year, as well as similar increases in other food prices.

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Food Prices
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UN World Food Program to institute food rationing: Surging food prices are causing food riots around the world.... (26-Feb-08)

Wheat price rises blocked by commodities market price increase limits: American wheat stockpiles are lowest since just after World War II.... (9-Feb-08)

Wheat prices surge above $10 per bushel, sparking little concern: World food stocks dwindling rapidly, according to the UN.... (23-Dec-07)

UN expert calls biofuels a "crime against humanity": Separately, Oxfam says that biofuels won't work, and they "trample" poor people.... (7-Nov-07)

United Nations warns of social unrest as food prices continue meteoric climb: With world wheat prices now up 60% since January, countries are panicking... (08-Sep-07)

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According to Jean Ziegler, the rising prices of food prices are making it impossible for poor countries to import enough food for their people:

"It is a crime against humanity to convert agricultural productive soil into soil which produces food stuff that will be burned into biofuel."

Ziegler argued that biofuels will only lead to further hunger in a world where an estimated 854 million people (1 out of 6) already suffer from the scourge; 100,000 people die from hunger or its immediate consequences every day; and every five seconds, a child dies from hunger.

All of this takes place, he added, in a world that already produces enough food to feed every child, woman and man and could feed 12 billion people, double the current world population, according to the UN Food and Agriculture Organisation (FAO).

"All causes of hunger are man-made, it's a problem of access, not overpopulation or underproduction, and can be changed by human decision," he stated.

A lot of this is just plain silly, and he's contradicting himself. Worldwide, about 2% of the available crop land is used for biofuels today. If there's enough food to feed double the current world population, then what difference would it make to have a small fraction of food production diverted to biofuels? If there's enough food to feed double the current population, then why is anyone starving? If the only problem was access, then why not just fix the access problem, and stop worrying about biofuels?

I'll answer all these questions in the section below on "The Law of Diminishing Returns," but first let's take a look at what's happening:

Spiking food prices are affecting lives around the world. In Botswana, for example, food prices are soaring for the usual reasons, and also because of high transportation costs from South African suppliers.
One store manager says that he doesn't make a profit from selling bread. "This is a commodity we are selling at loss price. We felt our customers could go hungry if everything had to be this expensive and decided to sell bread at a loss price. But, ingredients of bread such as yeast, sugar and salt have been increased. We are just helping our customers."

Meat consumption is surging in developing economies. <font face=Arial size=-2>(Source: WSJ)</font>

Meat consumption is surging in developing economies. (Source: WSJ)

Dietary habits are changing dramatically in developing countries, according to a report by Credit Suisse Group. In particular, meat consumption is increasing rapidly, straining agricultural production.

In a return to Soviet-style economic controls, Russia has imposed price controls on food prices. It's thought that this is being done because Russians will be voting for a new parliament on December 2 and a successor to President Putin on March 2.

Recently, China price controls on gasoline, so that food producers won't pass the increased cost of gasoline on to their customers in the form of higher food prices. However, serious fuel shortages have forced them to reverse that decision and raise fuel prices.

Price controls in Zimbabwe have caused panic buying of food, to the extent that the shelves are empty.

Panic buying of food in Nigeria has caused grain prices to double.

Price controls and panic buying are only going to make the problem worse on a worldwide basis, as panic buying in one place tends to create greater shortages in other places. As things stand, rising food prices are causing social unrest in poor countries around the world, according to United Nations warnings.

The Law of Diminishing Returns

What I mainly want to focus on in this article is the question that always comes up when the topic of food prices and food scarcity comes up:

"If there's more than enough food in the world to feed twice the world's population, then why are people starving?"

I specifically want to discuss how the Law of Diminishing Returns applies to this question, but first, let's look at some obvious things:

If there's more than enough food for everyone, then the real problem is moving the food from places where it's plentiful to places where it's scarce.

Therefore, the only issue is money. Anyone who has enough money can obtain food for himself by paying to get it, if he has enough money to do so.

Availability of food requires many intermediate steps and many additional resources besides planting and growing: harvesting, preparation, packaging, refrigeration, transportation, local distribution.

Therefore, even if there's enough food to feed the world in the world, it still remains to be shown that the there are enough of these additional resources to feed the world.

So the issue isn't the amount of FOOD, it's the amount of OTHER RESOURCES that are keeping the world from being fed.

So we have a situation which can be described as follows: You have a process that requires multiple resources to produce an output. You want to add resources in order to produce a greater output, but you can only add certain types of resources.

Here's what the Law of Diminishing Returns says:

Suppose you have a process that requires resources A, B, C, D, ... and produces an output X.
(For example, suppose that you have a carpenter, a plumber, and an electrician building houses.)

Suppose that you add more A to the process, to produce a greater output, but don't add other resources.
(In the example, you add a carpenter to get two carpenters, working with one plumber and one electrician. They can build more houses in the same amount of time than they could with just one carpenter.)

Then you can get greater returns (more output) by adding more and more of resource A, but each time that you add another unit of resource A, the additional return (output) diminishes.
(In the example, the third carpenter provides less additional return than the second, the fourth provides less than the third, and so forth. By the time you have 20 carpenters, but still only one plumber and one electrician, you're just wasting resources, since you have the carpenters sitting around, waiting for the plumber and electrician to catch up.)

In other examples, you have a manufacturing process that uses both machines and manual labor. You can add more people, but each new person results in less return (output) than the previous person you added.

Farming is a perfect application to discuss with respect to the Law of Diminishing Returns, because you're usually talking about a fixed amount of farmland.

If you want to grow more food on the same amount of farmland, you can use more fertilizer, more insecticide and more herbicide. In fact, that's what was done in the "Green Revolution" of the 1960s and beyond. The first time that fertilizers, insecticides and herbicides were used in India and other places, they produced spectacular results in terms of increased output. But then the use of these ingredients was increased on a given acreage of farmland, and each increase produced diminishing benefits and output. After a while, use of additional fertilizers, insecticides and herbicides actually became counterproductive, since runoffs tended to cause pollution.

The "Law of Escalating Prices"

The "Law of Escalating Prices" is not an officially recognized law, but it's my name for another way of looking at the Law of Diminishing Returns.

If you add resources to a process, but only increase the output a little, then the costs per unit of output are going to increase.

For example, in the example of the multiple carpenters working with a single plumber and electrician, all those carpenters have to be paid, even when they're sitting around waiting for the electrician and plumber to catch up, and those costs go into the final cost of the houses being built.

In the case of adding fertilizers, insecticides and herbicides to the farmland, the costs of those items go into the cost of growing the food.

Feeding the world

Now let's tackle the problem we're really interested in: If there's enough food in the world to feed twice the population, then how do we feed the world?

For all practical purposes, the amount of farmland in the world, and hence the amount of food, is fixed. (It's actually growing gradually, but for this discussion that's not important.)

But in order to get the food where it's needed, then you need to spend a number of additional resources as listed previously, including harvesting, preparation, packaging, refrigeration, transportation, local distribution.

By the "Law of Escalating Prices," also known as the Law of Diminishing Returns, these additional resources are going to add to the cost of the food.

And that shouldn't be surprising. As world population increases, it becomes more and more expensive to ship food into densely populated megacities. Just imagine one resource -- refrigerated trucks. Those are very expensive items, and more and more of them are needed in order to distribute food locally within these megacities. Who's going to pay for those trucks? Whoever does is going to add the cost of those trucks into the price of the food.

Shipping food from, say, South America to, say, Africa or southeast Asia, obviously incurs shipping costs, and by the Law of Escalating Prices, those costs increase per unit of food.

Thus, the increases in food prices we've seen since 2000 can be attributed to the Law of Diminishing Returns. And as "returns" have kept diminishing as resources are added, the food prices have been increasing very sharply since 2005, and even more sharply in 2007.

We can show this very dramatically by means of the following graph:

Shipping costs and soybean prices from 2001 to the present

Shipping costs and soybean prices from 2001 to the present

This graph illustrates how the price of shipping and the price of soybeans have increased in tandem.

I wrote about the Baltic Dry Index in 2005, and how it had been increasing at that time because of the demand for imported goods into China.

The graph above does not prove that the increased cost of soybeans is caused by the increased cost of shipping from the Law of Diminishing Returns, but it provides dramatic support.

In fact, it illustrates a larger picture. Because it takes so long to build a new ship, the number of ships has also been fairly constant, just like the amount of food in the world. The increased demand for shipping, especially from China, has pushed up the cost of shipping for ALL goods, not just food.

Generational view of food scarcity and famine

The recent crisis in Pakistan has called attention the problems of the entire Indian subcontinent, especially the genocidal bloodbath that occurred in 1947 with Partition and the independence of India and Pakistan, when Britain relinquished control of the Indian subcontinent.

That wasn't the only memorable disaster that happened to the Indian subcontinent during World War II. The following is a description of the Bengal (eastern India) famine of 1943:

"The world's worst recorded food disaster happened in 1943 in British-ruled India. Known as the Bengal Famine, an estimated four million people died of hunger that year alone in eastern India (that included today's Bangladesh). The initial theory put forward to 'explain' that catastrophe was that there as an acute shortfall in food production in the area. However, Indian economist Amartya Sen (recipient of the Nobel Prize for Economics, 1998) has established that while food shortage was a contributor to the problem, a more potent factor was the result of hysteria related to World War II which made food supply a low priority for the British rulers. The hysteria was further exploited by Indian traders who hoarded food in order to sell at higher prices.

Nevertheless, when the British left India four years later in 1947, India continued to be haunted by memories of the Bengal Famine. It was therefore natural that food security was a paramount item on free India's agenda. This awareness led, on one hand, to the Green Revolution in India and, on the other, legislative measures to ensure that businessmen would never again be able to hoard food for reasons of profit."

This essay, which was written recently, goes on to describe the successes and problems of the Green Revolution.

I want to call your attention particularly to one of the essay's conclusions:

"Nothing like the Bengal Famine can happen in India again. But it is disturbing to note that even today, there are places like Kalahandi (in India's eastern state of Orissa) where famine-like conditions have been existing for many years and where some starvation deaths have also been reported. Of course, this is due to reasons other than availability of food in India, but the very fact that some people are still starving in India (whatever the reason may be), brings into question whether the Green Revolution has failed in its overall social objectives though it has been a resounding success in terms of agricultural production."

This paragraph is so much an emblem of our times:

The writer is (presumably) too young to have any personal memory of the Bengal famine, and claims that it can't ever happen again.

And yet, people are dying from starvation in parts of India today.

And what's the problem? The Green Revolution has "failed in its overall social objectives"!!!!!

Social objectives, political objectives. Nothing else matters to these people.

There are many reasons why the price of foods is going up: increased demand, dietary changes in developing nations, use of biofuels, and the Law of Diminishing Returns are major reasons. Failure of "social objectives" is not on the list of reasons, or if it is, it's pretty far down.

Overlaying all this is a generational lack of purpose. Maybe it might be possible to feed everyone today with the food available. But that would require a worldwide determination to do so.

The people who survived WW II spent their lives traumatized by it, and determined that nothing like that should ever happen again, especially to their children. Now those survivors are gone, and their children are the leaders, and they're completely oblivious to what's going on.

If you had to pick one word to characterize today's generations of leaders, a good choice would be "oblivious." They're oblivious about the growing dangers of starvation of huge masses of people in the world. They're oblivious about the dangers of abuse of debt and credit, and about the dangers of the many stock market bubbles today -- they've learned nothing from the dot-com bubble of the late 1990s, or the housing bubble of the last five years. They're oblivious about the danger of world war in the near future, as illustrated by the nonsense we're hearing from politicians and reporters about the current crisis in Pakistan.

Food prices have been increasing faster than inflation since 2000, and have been surging quickly since 2004. This year they've grown faster than ever. The world appears to have crossed some "tipping point," where food prices are simply out of control. Almost everyone is completely oblivious to what's going on, preferring instead to worry about Britney or spew fatuous political nonsense. This won't last forever. (7-Nov-07) Permanent Link
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