Running Out of Planet to Exploit [New York Time]
The first is that it’s mainly speculation — that investors, looking for high returns at a time of low interest rates, have piled into commodity futures, driving up prices. On this view, someday soon the bubble will burst and high resource prices will go the way of Pets.com.
The second view is that soaring resource prices do, in fact, have a basis in fundamentals — especially rapidly growing demand from newly meat-eating, car-driving Chinese — but that given time we’ll drill more wells, plant more acres, and increased supply will push prices right back down again.
The third view is that the era of cheap resources is over for good — that we’re running out of oil, running out of land to expand food production and generally running out of planet to exploit.
Krugman is somewhere between 2 and 3. I am probably nearer 2 with a little bit of 1 and 3 thrown in.
The Telegraph examine the issue of food prices in a 3 page article.
Food shortages: how will we feed the world? [Telegraph]
A global food shortage threatens the lives of millions. Charles Clover reports on the possible solutions to the crisis
The era of cheap food is over. In Britain, a standard white loaf costs more than £1, grocery bills are driving up inflation and land prices are going through the roof. But steep rises in the price of staples such as wheat and rice are having an even bigger impact on poor countries.
The World Bank now believes that some 33 countries are in danger of being destabilised by food price inflation, while Ban Ki-Moon, the UN secretary-general, said that higher food prices risked wiping out progress towards reducing poverty and could harm global growth and security.
Why has this happened so quickly? Can science and technology get us out of the hole we appear to be in.
WHAT CAUSED THE PRICE RISES?
Bob Watson, the chief scientist at the Department for the Environment, Food and Rural Affairs, puts the rise in the price of commodity crops such as wheat down to a number of factors: higher demand for grain to feed livestock in China, where increasing affluence means more people want to eat meat; drought in Australia for three years, meaning it has had to import wheat; market jitters brought on by the sight of several countries stopping exporting grain; speculators seeing a chance to make money; and, of course, the sudden extra demand for food crops such as maize for use in biofuels, in both Europe and the United States.
As a supporter of 2 and someone who has seen the vast waste attached to the EU agricultural subsidies there is no doubt that Europe can increase supply on a vast scale. Huge areas of set aside can be utilised. The only problem is the time lag. The increased profits from rising prices will soon bring in additional producers.
Meanwhile the riots will continue and lives will be lost. A simple case of market failure hitting the headlines.
As for the oil price - that is another long story.