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Wednesday, April 23, 2008

Sign of the Times

They looked at me kind of funny when I started taking close up pictures of their sign:


Andrew Leonard:

Japan's unwanted low-fat diet, Salon:  A drastic shortage of butter in Japan is providing the hook for some gloomy stories about the future of food in one of the richest nations of the world. Forget about Haiti or Kazakhstan -- Japan, too, is experiencing a food crisis.

From Australia's The Age:

While soaring food prices have triggered rioting among the starving millions of the third world, in wealthy Japan they have forced a pampered population to contemplate the shocking possibility of a long-term -- perhaps permanent -- reduction in the quality and quantity of its food.

From The Times:

Japan, its leading food importers say, will inevitably take a step backwards in the food it eats. "The time will come," says Akio Shibata, ... one of Japan's foremost experts on food supply, "when the Japanese people will realize that they will not have the quality, taste and prices of food they are used to."

The basic story line is familiar: a global surge in grain prices and animal feed... But there's an important twist. Just two years ago, a vast milk surplus in Japan forced local dairy farmers to literally pour raw milk down the drain and kill off excess dairy cows. According to the Asahi Shimbun, domestic production accounted for 86 percent of Japan's butter as recently as 2006, but after the painful resolution of the glut, butter production plunged.

The problem: You can pour milk down the drain in an instant, and kill off your herd of cows in a blink of eye. But you can't reverse the process so quickly. Building up a productive dairy herd takes years. The laws of supply and demand work slowly with food...

The combination of high oil and food prices and a burgeoning world population has everyone wondering whether humanity has finally reached the limits-to-growth end of the line. And sure, we must grant the possibility that the long, steady decline in the price of basic foodstuffs that has been a fact of post World War II life may have come to an abrupt end. But it's also true that a massive reconfiguration of the planet's productive capacity to produce desirable agricultural commodities, in response to current high prices, will take years to accomplish.

Kerry Howley:

Let Them Eat Carbs, by Kerry Howley: Wow:

“If part of our problem is that the Chinese are going to eat meat and you’ve got to have corn and soybeans to feed the Chinese their meat, then why isn’t it just as legitimate for the Chinese to go back and eat rice as it is for us to change our policy on corn to ethanol?” [Sen. Charles] Grassley asked in a conference call with reporters.

Not that this makes any sense economically, but it’s good to know that in Grassley’s calculus billions of people going without protein = some Iowans letting go of their ethanol subsidies.

The LA Times:

Rice in short supply at Costco, Sam's Club, LA Times: Worried about rising prices worldwide, customers have been stocking up, prompting Sam's Club to limit sales to no more than four bags. Costco is considering a similar move.
The global run on rice has hit U.S. shores but appears limited to big-box warehouse stores. Customers concerned about rising rice prices have been cleaning out the shelves at Wal-Mart Stores Inc.'s Sam's Club and Costco Wholesale Corp. stores.

Maybe things have changed since I left the rice country in Northern California, but let me make a few comments about rice in particular:

1. There are two varieties of rice, long grain and short grain (I'll include medium grain in here, as most people call it). They are produced in different geographic areas.

2. Short grain is grown in California and is mostly exported (e.g. Calrose is a popular variety in many areas of the world, though Koreans and Japanese turn their noses up at it - so substitution across varieties isn't always easy). Long grain is grown elsewhere, Louisiana used to grow a lot, but I haven't kept up. I think Louisiana does produce some short/medium grain as well. Long grain is largely consumed domestically.

3. So it's the demand for short grain rice that affects poorer countries much more than the demand for long grain (I think?). Is there a significant source of demand for short grain within the US? It turns out that there is, and one part of it is from beer producers  (A quick search gives figures in the range of 10% - 20% of total rice production in the US used in beer, but that includes all varieties of rice, so the percentage of just short grain would be higher). For example, Budweiser is vertically integrated and owns some of the bigger rice dryers in California. My mom worked in one owned by Budweiser for many years, and her job was to route rice by truck, train, ship, etc. from the dryer to its destination. A lot of it went through the Port of Sacramento.

4. Rice is also used in pet food. I don't have the figures in terms of how much is used, but I do know it is enough to have put upward price pressure on brewer's rice, so it's enough to matter.

5. The point is that is if want to reduce the demand for rice, perhaps our first efforts shouldn't be to convince people to give up eating long grain at meals, that won't help much, instead we need to look for ways to reduce the demand from industrial sources such as beer and pet food production to help keep down the price of short grain (pet food can substitute using other cereals if they are cheaper, but it's much harder for beer producers since substitution of other grains changes the flavor, so a reduction in overall demand for beer is the only way to bring this about).

[It's been a long time since I lived among rice farmers, and I'm doing this from memory. I think the general outline is correct, but if you know more about this, or can provide more precise details, please do.]

Note: Some of the statements above are being refined in comments, e.g. Arkansas is the number one producer of long grain and exports quite a bit.

    Posted by on Wednesday, April 23, 2008 at 01:35 PM in Economics | Permalink  TrackBack (0)  Comments (23)


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