Rising Food Prices
Feeding the world today is a challenging task. Until quite recently, however, production seemed to be keeping pace with demand, and shortages were typically isolated in nature. The current situation represents a notable departure from this pattern, with shortages becoming more widespread and prices rising precipitously.
One of the leading reasons for rising prices and food shortages is increased demand. In short, the world’s population is growing so fast that food production channels are having difficulty keeping up. For decades, price increases were relatively low, with food prices increasing by an average of about 2.5% each year according to the US Department of Agriculture’s Economic Research Service. However, prices of some foodstuffs are now skyrocketing, causing problems in many areas of the world.
In fact, UN Secretary-General Ban Ki-moon has suggested that soaring prices have caused a global food crisis. Some countries facing high food costs and insufficient supplies have even experienced riots as people demanded more reasonable prices and greater availability of food staples. Rationing of rice and other grains is now occurring, even in several US chain stores. Numerous countries are even being forced to use some of their food stockpiles.
More than 35 countries, representing about 20% of the world’s nations, are now requiring assistance outside their borders. Because of these and others kinds of difficulties in numerous places around the world, President Bush and Congress are attempting to dramatically expand foreign food aid.
Several factors are at work in the current crisis situation. The cost of fertilizer is one issue affecting some countries normally capable of supplying adequate amounts of products for its citizens. As farmers around the world have expanded acreage for crops over the past five years, the increased need for fertilizer has outgrown production capabilities. Additionally, during this timeframe, various kinds of fertilizer have tripled in price, keeping some producers from purchasing all they needed and therefore affecting the overall supply.
The growing interest in ethanol is also taking a toll on the corn supply. Some estimates claim that up to 30% of America’s corn crop is already being used for fuel and not food, leaving less for human and animal consumption. Although it is not known how much this shift has impacted food prices, it appears to be substantial. With corn selling at such high prices, some farmers have increased their acreage and reduced the percentage normally used to grow wheat and other food grains.
The acreage allocated for planting wheat has declined each year since Congress passed legislation in 1996 allowing wheat growers to switch to other crops and still receive government subsidies,. With the cutback in wheat production, farmers have turned toward more profitable and less disease-prone crops including both corn and soybeans. Authorities estimate there is less wheat in grain bins across the country now than at the lows experienced during World War II.
While the US used to have sufficient farm capacity to cover cyclical shortfalls in production, with various subsidies being reduced or eliminated over the years, many farmers have found other uses for their extra land. The ability to ramp up production immediately is, thus, somewhat curtailed.
Additional factors causing food prices to escalate relate to poor weather in some parts of the US, such as floods and early frosts, which limited planting and harvesting. Additionally, the almost unprecedented gasoline and other energy prices have made it more costly to transport foodstuffs, thus adding to the cost for consumers. On top of those difficulties, speculative buying and investing in the futures market are also driving up prices.
Over the next couple of decades, the world’s population will likely climb by some 100 million people a year, with more than 9 out of every 10 additions expected to occur in developing countries. Many of these nations have more money now than in the past. As a result, the citizens of those countries can better afford to consume a more balanced diet, including meat. Of course, raising cattle for such consumption requires more corn and thus the price for the grain is driven upwards. The predicted future demand could likely take an even greater bite into supplies of various foodstuffs.
Increases in food prices of about 4%-5% are projected for 2008. Of course, that’s just the average overall jump. Already during the past year or so, certain foods have seen uncharacteristic spikes. Just take a look at many Americans’ breakfast tables: bacon and potatoes are up less than 5%, but milk is 23% higher, eggs have risen almost 35%, and flour has climbed 37%.
These circumstances, as well as various others, have had a ripple effect on food prices and caused them to climb. Generally, it can take up to three years for the amount supplied to increase sufficiently to meet the additional demand and cause prices to recede. Therefore, food production efforts need to be redoubled in both the US and abroad so that the burden of hunger around the world can be reduced as quickly as possible.
posted @ 08:07 PM CST [link]
Friday, May 23, 2008
Fruit of the Vine
Within the state’s massive agricultural sector, a specialty crop is bearing economic fruit. From meager beginnings decades ago, the wine industry in the Lone Star State has grown such that Texas is now the fifth-largest wine-producing state in the nation. There has also been renewed interest in grape growing, and the tourism associated with the industry generates a notable economic impact.
Grape growing is not new in Texas. It can be traced back to the early Spanish settlers who brought grapevine cuttings to the new world. While many of these grape species failed to thrive, wineries did not go completely out of existence, even during the Prohibition years. A world-renowned Texas horticulturist, Thomas Munson, developed hundreds of varieties of grapes specifically for the American south and southwest, and is credited with saving the world’s wine industry from the threat of phylloxera in the late nineteenth century (by grafting vines onto certain resistant rootstock from Texas!). In the 1970s, a group of researchers determined that the state’s climate and soils were perfect for grape growing, providing a further boost.
Standing out in the state’s ag sector is no small feat. Because of its vast size and available land for crop production, Texas is one of the most agriculturally diverse states in the US. From the Gulf Coast to the Panhandle, hundreds of thousands of workers are employed in the agriculture industry. The state’s nearly 230,000 farms, averaging more than 500 acres each, represents almost 11% of the total number of farms in the nation.
Almost 91% of the state’s total surface area is rural land; 18% of that is annually employed for crop production. Much of the remainder is utilized for purposes such as range or pasture. In 2007, after years of drought, agriculture production topped $100 billion in economic impact for the state for the first time. The previous high was in 2004 when the total contribution to the Texas economy was approximately $85 billion.
Although much of the recent increase in agriculture production is associated with crops used to produce biofuels, specialty and niche farming has expanded rapidly in recent years. One of the chief beneficiaries of this phenomenon has been the grape industry. While the increase in acreage singled out for grape growing continues to lag behind demand, the amount of additional land devoted to this crop in Texas this year is projected to be upwards of 15%, about the same as in 2007.
A decade ago, there were 27 wineries with 2,179 acres planted in grapes which produced 1.3 million gallons of wine. There are now over 155 wineries with more than 3,700 acres of grapes, and production has reached about 2 million gallons of wine per year.
These wineries generate a substantial amount of economic activity through their operations and sales. In addition, hundreds of thousands (already 800,000 several years ago) of wine tourists visit the state annually. Each spends almost $1,000 per trip, one fourth on wine-specific activities.
The attractiveness of wine production in Texas has expanded to such an extent that earlier this month, the Texas Department of Agriculture (TDA) made $1.6 million in grants available for education and research projects focusing on grape growing and winemaking. When marketing, promotion, management, and production programs are taken into consideration, the state has provided more than $4.5 million to support and expand the Texas wine industry, which has now reached billion-dollar status.
With an ongoing escalation in wine tourism and the opening of new markets inside and outside of Texas, grape and wine production will likely expand and significantly increase the wine industry’s contributions to the state economy over time. Studies show consumers’ preference for Texas wine is growing, and as the state’s wineries gain more widespread notice, the industry is likely to bear increasingly more economic fruit.
posted @ 08:01 PM CST [link]
Friday, May 16, 2008
Pain at the Pump!
A funny thing happened on my way to the gas station—I lost a dime!
While that might not seem like much of a concern, when it costs a dime more—per gallon—for motor fuel, it seems that with all the traveling I do around Texas, my pocket continues to get lighter. It’s almost enough to make me want to walk instead of drive. “Almost” is the operative word. Of course, I’m not unique in this respect.
The high price we are paying at the pump has had different effects on US motorists. Some seem to be continuing their pattern of driving as much and as often as they desire. Others are trying to find ways to conserve, such as organizing their driving to make several stops along the way and get everything accomplished in one outing or increasing efforts to carpool.
With the demand for gas-guzzling vehicles rapidly falling, some owners are selling or trading them in on smaller and more fuel-efficient automobiles. Many auto dealers now have large quantities of SUVs and pickups available, most with prime discounts offered through special promotions. Last month, according to Kelley Blue Book, it required more than 66 days to sell a used SUV, even with a 20% devaluation from normal expectations. During the same month in 2007, it took about 48 days to move the vehicle, and the average discount from the manufacturer’s suggested retail price was only about 7.8%. (Interestingly, however, it is a full-size SUV which has recently been gaining attention as one of the most fuel-efficient options available.)
Another change in behavior relates to driving habits. Many drivers have chosen to ease back a bit on the accelerator to get a few more miles to the gallon, a benefit of modern technology which has developed many vehicles to get optimal gasoline usage between 30 and 60 miles per hour (mpg).
In most cases, the longer drive time resulting from throttling back 5 to 10 mpg would probably not be significantly detrimental to one’s schedule, and it does keep those dimes in the pocket a bit longer. Airlines recently started this procedure, and while most passengers have not complained or perhaps even noticed it, the change is adding up to savings, even millions of them over time, for the airline industry.
While most Americans look forward to summer and the opportunities it affords for vacation travel, during the warmer months this year, there could be slight curtailments in plans involving automobiles. Some people are keeping family outings closer to home and others are foregoing them or delaying them in hopes prices will ease relatively soon. The main reason cited for these kinds of decisions is the pain motorists are feeling as they fill their tanks.
Estimates of peaks and the duration of elevated prices for fuel vary, but the US Energy Department has posited that a peak could come next month, which is good news for summer driving opportunities. With the ongoing upswing in oil prices, topping $126 per barrel as I write this column, it is highly probable that peak prices could climb above the projected national average and that the crest might come a bit later than now anticipated.
Oil prices have doubled over the past year, and gasoline costs have risen almost 65 cents compared to this time last year. As a result, some analysts believe there is a possibility that prices could hit the $4 per gallon mark, but most predictors are doubtful it will go anywhere near that level on a national average basis (it is already above that level in some locales).
When looking at average prices for the entire year 2008, the Energy Department places the amount per gallon at approximately $3.52 a gallon. It does not sound too bad considering what we are paying right now, but this cost is still approximately 71 cents more than the average for 2007.
With political tensions and the myriad challenges currently facing oil producers around the world as well as ongoing problems US refineries are confronting, it seems likely that the price of oil, and the resultant cost we pay at the pump for motor fuel, is likely to be higher than we would like for quite some time.
posted @ 08:05 PM CST [link]
Friday, May 9, 2008
Cinco de Mayo
Over the past few days, festivities across Texas have marked the 146th anniversary of a historic feat accomplished by the Mexican army. The occasion was the defeat of a much larger French force at the Battle of Puebla on May 5, 1862.
Commonly known as Cinco de Mayo (May 5), this day of celebration is a symbol of national pride for people of Mexican ancestry and is observed with unique celebrations in numerous nations around the world, much on the order of St. Patrick’s Day, Oktoberfest, and the Chinese New Year. It also serves as an opportunity to highlight Mexican culture, especially music, dancing, and food (my personal favorite). Although virtually ignored in Mexico, the special day has been celebrated in California continuously since 1863 and has seen rising popularity across the US, especially for Americans of Mexican heritage. Nowhere is the party longer or louder than in Texas, where we can embrace this vital part of our culture and reflect its growing importance to our economy (you knew I would get it in there somewhere).
Since 2005, Texas has been a minority-majority state, joining Hawaii, New Mexico, and California where minorities represent more than 50% of the residents. Currently, some 52% of Texas’ population is other than Anglo. Much of this phenomenon reflects a rapidly expanding Hispanic population which is dominated by those of Mexican origin.
Five other states now have more than 40% minority population, i.e., all people excluding non-Hispanic single-race whites. The states that are well on the way toward the minority-majority status are Maryland, Mississippi, Georgia, New York, and Arizona.
According to the Census Bureau, the US Hispanic population now exceeds 45 million, reflecting approximately 15% of the nation’s total. In 2000, Hispanics comprised 12.6% of the nation’s residents. During the 2000-2007 timeframe, Hispanics accounted for about half of the aggregate population growth in the US.
The unprecedented swelling of the Hispanic population in the 1990s was because of immigration. Since that time, some 62% of the increase in Hispanics has been due to births. This dramatic augmentation is attributable primarily to the relatively young age of this group and its tendency to have larger families.
From 2006 to 2007, the number of Hispanics living in the country rose 3.3%, as compared to 2.9% for Asians, 1.3% for African Americans, and 0.3% for non-Hispanic whites.
The most recent data provided by the Census Bureau indicates that Texas had a 308,000 increase in its Hispanic population from 2006 to 2007, which was the largest of any state. Hispanics at 8.6 million now represent about 38% of the Texas population, second only to California’s 13.2 million.
While the Hispanic population gain in Texas ranks it first among all states, the leader in percentage increase for 2007 was South Carolina with 8.7%, a slight dip from the 9.1% increase the previous year. Texas’ 3.7% change from 2006 to 2007 placed it among 28 other states which experienced Hispanic growth between 3.0% and 6.0%.
Over the past several years, Hispanics have been moving further away from their traditional Southwestern residential patterns to live in urban centers across the country. The shift has been in response to increased employment opportunities in those areas.
The growing diversity of the US population is particularly important to the states of Texas and California where almost one-third of minorities reside. According to recent US Census Bureau estimates, projections suggest that minorities will constitute a majority of the overall US population by 2050. This pattern brings some challenges in providing educational opportunities and overcoming various achievement and occupational gaps, but it also brings an incredible resource to drive future market development and economic success.
The increase in Hispanics across the nation is likely to extend the Cinco de Mayo celebrations to more locales across the US in the future in recognition and appreciation of the ongoing contributions of the nation’s largest minority population. What could be better?
posted @ 07:45 PM CST [link]
Friday, May 2, 2008
A Texas Turnaround
Lawsuit reform has dramatically improved the fairness and efficiency of Texas’ civil justice system. Just a few years ago, the Lone Star State held a position near the bottom of state rankings and was frequently a source of derision in the national media. Objective studies now place the state’s civil justice system in the upper tier relative to many measures (though some challenges remain). This notable turnaround, from a legal system that was poorly regarded in several areas to one that is widely recognized as an effective model worthy of emulation, has brought substantial benefits.
In the 1980s and early 1990s, Texas was known for the lack of fairness and balance in its civil justice system. The distortions caused by these problems significantly eroded the state’s competitive position. Fears of excessive litigation and outsized claims were a substantial disincentive for potential corporate locations and expansions.
In February 1995, The Wall Street Journal called national attention to the civil litigation environment in Texas, and the state became infamous as the “Wild West of Lawsuits.” Even internationally, Texas was recognized as a paradise for plaintiffs. The London Observer reported that businesses in Texas should consider moving elsewhere to avoid the problems of the state’s civil justice system.
The threat of litigation can significantly decrease product innovation. When businesses operate in a high-liability-risk environment, they respond by reducing investments in product innovation because new products have more uncertain safety characteristics and can leave them vulnerable to lawsuits.
Another vulnerable sector is health care delivery. Prior to tort reform, medical malpractice premiums were extremely high, discouraging some doctors from continuing to practice or to perform certain procedures. An increase in “defensive medicine” (when doctors’ decisions to order tests, avoid procedures, or suggest treatments based in part on a fear of legal liability) was also a problem. In addition, the supply of doctors tends to be restricted by the higher risk and costs associated with an excessive system, thus further reducing access to health care.
My firm, The Perryman Group, has studied the issue of tort reform in Texas and other states on numerous occasions and has consistently found that the misallocations of scarce societal assets lead to (1) a loss of economic efficiency; (2) increased risks of doing business; (3) cost increases unrelated to productivity; (4) escalating insurance rates, particularly in specific areas such as medical malpractice; and (5) other problems.
In a recent study, we developed an extensive and comprehensive assessment process to measure the incremental gains from civil justice reforms. We looked at factors such as cost savings (administrative costs, court costs, non-productive expenditures to avoid or take advantage of excessive litigation reward opportunities, and the inefficiencies in the redistribution process); gains from safer products (in terms of people in the workforce who otherwise would have died from faulty products); and benefits of new products and manufacturing in Texas stemming from research, development, and innovation in a less litigious environment.
The results clearly demonstrate the economic benefits of the more efficient and effective system. In fact, we found that the total impact of tort reforms implemented since 1995 includes gains of $112.5 billion in spending each year as well as almost 499,000 jobs in the state. The reforms related to asbestos/silica litigation, which were enacted in 2005, are already contributing $490.3 million in annual spending and 2,683 permanent jobs. Reforms limiting non-economic damages in medical malpractice litigation alone lead to increases of $55.3 billion in spending per year and more than 223,000 jobs.
Tort reform and the resulting benefits to the legal environment enhance the prospects for investment in expansions and relocations to the state. In addition, companies already in Texas enjoy an advantageous competitive position relative to other areas. Gains in productivity stemming from a more effective and efficient tort system further add to the positive outcomes.
Beyond these quantifiable measures, there are a number of other benefits such as growth in the number of doctors entering the state, the inclusion of almost 430,000 Texans in health plans who would otherwise be uninsured, a decrease in the volume of lawsuits with little real merit, and many more. Benefits accrue through multiple channels including the investment climate, business activity, insurance rates, consumer wellbeing, productivity, jobs, output, income, inflation, economic development, and fiscal soundness. In fact, State budget resources (enhanced revenue and reduced spending requirements) are almost $2.6 billion higher each year than they would be in the absence of these reforms. Benefits are spread across the state, positively affecting communities both large and small.
Numerous studies of the impact of reforms on labor productivity and employment have demonstrated that states which changed their liability laws to decrease levels of liability experienced greater increases in aggregate productivity and employment than states that did not. At the same time, states adopting measures which increase liability often see productivity and employment fall. Our analysis clearly confirms this result.
Despite the enormous progress to date, challenges remain, with some regions of the state being known as areas where justice is not fairly administered, and continued vigilance and improvement is warranted. Increasing the effectiveness and efficiency of the civil justice system has brought significant dividends to Texas, and ongoing efforts can help to assure long-term competitiveness, prosperity, and economic opportunity.