Some stores are now implementing limits on how much of a given product that people can buy at a single time.
Major retailers in New York, in areas of New England, and on the West Coast are limiting purchases of flour, rice, and cooking oil as demand outstrips supply. There are also anecdotal reports that some consumers are hoarding grain stocks.
Of course when you get deeper into the story you find out an interesting tidbit that suggests the problems are probably more due to how stores handle logistics than due to actual shortages.
“There have been so many stories about worldwide shortages that it encourages people to stock up. What most people don’t realize is that supply chains have changed, so inventories are very short,” Mr. Rawles, a former Army intelligence officer, said. “Even if people increased their purchasing by 20%, all the store shelves would be wiped out.”
Still, there is a problem with food prices right now. They are going up, and going up quite a bit. One reason for this is the switch to biofuels due to government mandates. The subsidies for using corn for ethanol production has helped drive up the price of corn. This in turn causes people to substitute away from corn to various substitutes which are also going up in price.
These factors combined are why we are seeing riots in various places around the world and also why there are signs of problems here in the U.S. Green fuel initiatives that have pushed biofuels are a big mistake. From Ronald Bailey’s Reason article on this topic,
In the last year, the price of wheat has tripled, corn doubled, and rice almost doubled. As prices soared, food riots have broken out in about 20 poor countries including Yemen, Haiti, Egypt, Pakistan, Indonesia, Ivory Coast, and Mexico. In response some countries, such as India, Pakistan Egypt and Vietnam, are banning the export of grains and imposing food price controls.
Nice eh? And yet, biofuels were supposed to be good for the environment and break the grip of the OPEC oil cartel and put a dent in the petro-dollars flowing to terrorists. Nevermind that oil is at its highest price in nominal and real terms. That biofuels would lead to these kinds of problems was obvious. If biofuels were indeed a cheaper alternative to oil, then economies would have switched. I don’t care what kind of lame-brained conspiracy theory you adhere to regarding ExxonMobil or other oil companies, the switch would have occured. What this means is that biofuels are more expensive that oil as an energy source, and that forcing a switch would mean we end up worse off.
Think of it this way. Suppose you consume two goods, bread and apples. There is a third product, mangoes, but they are very expensive, and very few of them are consumed. Now the government comes along and forces everyone to consume 3x the number of mangoes as before. What happens? People end up consuming less bread, less apples, and while consuming more mangoes their overall food consumption is lower as well. Is this a sound policy? Of course not. But dress it up in the nonsense of environmentalism, trot out his Eminence Al Gore to pontificate on the virtues of mangoes, and for good measure wrap it all up in the American flag and a bad policy becomes a reality.
This isn’t to say that oil prices are part of the problem, as are natural gas prices. As Bailey notes in his article, the rising price of natural gas has increased the cost of applying fertilizers. Why are natural gas prices high? Well in part because of policies to promote technologies that are as clean or cleaner than natural gas in producing electricity. Again we can turn to economics here. If the technology for generating electricity via a “clean” coal process are more expensive than simply building a combined cycle natural gas plant which do you think will get built? That is right, people will build more and more natural gas plants until the cost of running a natural gas plant becomes as costly as running a “clean” coal plant. As for oil, the problem here should be obvious. Farming equipment runs on gasoline and oil products are used to get the food to the markets. Increase both of these costs and the price of food has to go up as well.
Of course, if things continue the response will be for farmers to grow more crops. Higher prices for corn and wheat will induce suppliers to consider using lands that at lower prices were not cost effective to plant. However, it is unlikely that we will see something like this. Instead a politician, who is running for president, will seize upon this problem and state, “Something must be done.” This candidate will come up with some dopey policy like the dopey policies noted above. The other candidates feeling the pressure to also be seen as “doing something” will each come up with their own foolish policies. The idea of actually just ending the biofuels policies likely wont make it to the discussion. If we are lucky the problem will resolve itself before any of the candidates actually takes office and some other “crisis” will occupy by their time coming up with nonsensical policies.
