Thursday, January 13, 2011

"Food chain gentrification"

Dept of "what oft was thought, but ne'er so well expressed" --
[E]ating meat is an extremely inefficient way of turning vegetation into food. If everyone gave up meat—or even just ate pork instead of beef—we’d have a big grain glut. The issue, of course, is that people don’t want to give up meat. On the contrary, as the world gets richer people are shifting toward incorporating more meat into their diets. That, in turn, creates a kind of food chain gentrification problem for those individuals who aren’t, personally, getting richer since it pushes up the price of grain.

(Matt Yglesias.) Which reminds me: when we colonize the rest of the known universe, will it tend to consist of desolate central planets surrounded by affluent satellites?


Grobstein said...

Doesn't it actually push down the prices of grains, because of economies?

I mean if you think of meat-eating as a short-term shock, then it raises the price of grain. But producers increase capacity in response.

Over the long run, even as people have used more and more food less and less efficiently, I think calories have continued to get cheaper.

Zed said...

Well, that's assuming there's scope for large increases in supply, which is true -- if at all -- only in the long run. And there are probably fundamental limits anyway. (I don't think much more can be done with subsistence farmers in Asia at present...) In the long run we're all dead.

Grobstein said...

There certainly are hard constraints, but they only matter insofar as we push up against them. Anyway, I think the food-price trend is downwards; if so, then in this particular long run we seem to be alive.

(Increases in capacity are "long-run" effects, but so are the wealth effects that lead to higher meat consumption, I should think.)

Zed said...

There's a natural explanation for a transient _decline_ in food prices in terms of the lag between farmers getting more efficient (leading to more supply) and changing to wealthier lifestyles (leading to more demand). We're still within a generation or two of (say) the green revolution in S/SE Asia... So one should be skeptical about extrapolated trends. It should also be kept in mind that the increases in supply and demand might be unrelated; consider a world in which (a) we were up against hard constraints, (b) the internet existed. It is not crazy to suppose that this would lead to a large rise in meat-eating among elites worldwide, which would lead to gentrification...

That said I don't know or care much about this sort of issue, and just posted this because the analogy seemed felicitous.

Jonathan Borowsky said...

So, the real price of wheat has been falling slowly over the last century, though rising slowly over the last decade.

I took average U.S. price of wheat in June from the USDA wheat yearbook tables and divided by the CPI from the corresponding month. The real price of wheat is 31% higher in June 2010 than June 2000. However the series is very volatile from decade to decade and I'm not sure it would be reasonable to say that there is an "upward trend" in wheat prices.

Since 1914 real wheat prices have declined about 77%.

Note that regardless of economies or diseconomies of scale wheat prices will probably fall over time because farming technology improves over time.

Economy-of-scale arguments are sort of implausible for a good which is easy to transport and can be traded quite freely. You'd have to believe that the efficient firm size was large compared to world demand , which I don't find plausible.

Increasing production of wheat and soybeans means bringing additional land under cultivation. The marginal land is of lower quality (most of the best agricultural land in the world is in Northern U.S., and is already under intensive cultivation). Thus there would be diseconomies of scale for these goods. An unexpected increase in demand would tend to drive up the long-term price, all things being equal.

The long term price of grain would move depending on whether demand grows faster or slower than technology.

Zed said...

I'm inclined to agree w/ all of that ("inclined" b'se I haven't checked the facts) except for grain being a good that's easy to transport. As the fraction of demand that's from the third world increases, the usual issues w/ seasonal roads, bandits, etc. are likely to be exacerbated. This might also affect trade albeit to a lesser extent. I don't see that this affects the plausibility of the economies of scale argument much, though.