Our middle is expanding...

Not just our waistline, guys. I'm talking the middle class.

These protesters are the most vociferous manifestations of a global trend: We are all paying more for bread, milk, and chocolate, to name just a few items. The new consumers of the emerging global middle class are driving up food prices everywhere. The food-price index compiled by The Economist since 1845 is now at an all-time high; it increased 30 percent in 2007 alone. Milk prices were up more than 29 percent last year, while wheat and soybeans increased by almost 80 and 90 percent, respectively. Many other grains, like rice and maize, reached record highs.

Prices are soaring not because there is less food (in 2007, the world produced more grains than ever before), but because some grains are now being used as fuel and because more people can afford to eat more. The average consumption of meat in China, for example, has more than doubled since the mid-1980s. The impact of a fast-growing middle class will soon be felt in the price of other resources. After all, members of the middle class not only consume more meat and grains, but they also buy more clothes, refrigerators, toys, medicines, and, eventually, cars and homes. China and India, with 40 percent of the world’s population, most of it still very poor, already consume more than half of the global supply of coal, iron ore, and steel.

Thanks to their growing prosperity and that of other countries such as Brazil, Indonesia, Turkey, and Vietnam, the demand for these products is booming. Not surprisingly, in the past two years, the world price of tin, nickel, and zinc have roughly doubled, while aluminum is up 39 percent and plywood is now 27 percent more expensive. Moreover, a middle-class lifestyle in these developing countries, even if more frugal than what is common in rich nations, is more energy intensive. In 2005, China added as much electricity generation as Britain produces in a year. In 2006, it added as much as France’s total supply. Yet, millions in China still lack reliable access to electricity; in India, more than 400 million don’t have power. The demand in India will grow fivefold in the next 25 years.

And you know what happened to oil prices. Again, oil reached its all-time high of $100 per barrel not because of supply constraints but because of unprecedented growth in consumption in poor countries with rising middle classes. China alone accounts for one third of the growth in the world’s oil consumption in recent years.

The middle class also likes to travel: The World Tourism Organization estimates that outbound tourists will grow from today’s 846 million a year to 1.6 billion in 2020. Venice and Paris will be even more expensive—and crowded—to visit. These protesters are the most vociferous manifestations of a global trend: We are all paying more for bread, milk, and chocolate, to name just a few items. The new consumers of the emerging global middle class are driving up food prices everywhere. The food-price index compiled by The Economist since 1845 is now at an all-time high; it increased 30 percent in 2007 alone. Milk prices were up more than 29 percent last year, while wheat and soybeans increased by almost 80 and 90 percent, respectively. Many other grains, like rice and maize, reached record highs. Prices are soaring not because there is less food (in 2007, the world produced more grains than ever before), but because some grains are now being used as fuel and because more people can afford to eat more. The average consumption of meat in China, for example, has more than doubled since the mid-1980s.

The impact of a fast-growing middle class will soon be felt in the price of other resources. After all, members of the middle class not only consume more meat and grains, but they also buy more clothes, refrigerators, toys, medicines, and, eventually, cars and homes. China and India, with 40 percent of the world’s population, most of it still very poor, already consume more than half of the global supply of coal, iron ore, and steel. Thanks to their growing prosperity and that of other countries such as Brazil, Indonesia, Turkey, and Vietnam, the demand for these products is booming. Not surprisingly, in the past two years, the world price of tin, nickel, and zinc have roughly doubled, while aluminum is up 39 percent and plywood is now 27 percent more expensive.

Moreover, a middle-class lifestyle in these developing countries, even if more frugal than what is common in rich nations, is more energy intensive. In 2005, China added as much electricity generation as Britain produces in a year. In 2006, it added as much as France’s total supply. Yet, millions in China still lack reliable access to electricity; in India, more than 400 million don’t have power. The demand in India will grow fivefold in the next 25 years.

And you know what happened to oil prices. Again, oil reached its all-time high of $100 per barrel not because of supply constraints but because of unprecedented growth in consumption in poor countries with rising middle classes. China alone accounts for one third of the growth in the world’s oil consumption in recent years. The middle class also likes to travel: The World Tourism Organization estimates that outbound tourists will grow from today’s 846 million a year to 1.6 billion in 2020. Venice and Paris will be even more expensive—and crowded—to visit. [More]

It's easy to let the mind go numb at these gigantic numbers and drift on the the NCAA playoffs. Let me see if I can add some suggestions to help get our minds around this phenomenon.

First, the world is not just about the USA anymore. As we have discovered, simply having the baddest military of the moment doesn't mean we get anything we want when we want.

Our mighty economy, prosperous though it is, doesn't have to fall to third or fourth to matter less. Like the white population of America, everything will change due to simply being another minority. In other words, we may still be the global 900# gorilla, but there are quite a few 700-800# playmates in the troop now.

Second, read my posts (here and here) about your fertilizer bill and then notice who is sucking up the Canadian potash, etc. Hmmm, connecting any dots now?

Nonetheless, it would be easy to get hysterical about the Chinese influence in commodities especially, but maybe unwarranted.

The worst fallout from China's quest for natural resources will be seen not in the countries they come from, nor in the countries that are competing for supplies, but in China itself. Over the past few years the volume of raw materials it consumes per unit of output has risen sharply. In particular, China has gone from miser to glutton in its use of energy, and is now struggling to diet. That has involved bigger imports of oil, gas and coal, and so more foreign entanglements. But it has also led to the rapid depletion of resources that China cannot import, such as clean air and water.

China is building a huge stock of grimy heavy industry, just as its coastal provinces are getting rich enough to care about the consequences. Protests about environmental issues are on the increase. There is not enough water in the Yellow River basin, which covers a huge swathe of northern China, to supply both farmers and factories. Acid rain from coal-fired power plants is reducing agricultural yields, raising the spectre of increased rural unrest. As it is, the authorities are struggling to ensure that the air will be fit for athletes to breathe at the Olympics in Beijing this summer. All the while, the number of noxious steel mills, cement kilns and power plants relentlessly increases. Global warming, which is fed by their fumes, will make all these problems even worse.

Environmental concerns are unlikely to bring down the Communist regime, or even to stir as much resentment as the arbitrary confiscation of land currently does among China's poorest. But those concerns are certainly prompting the government to reflect on what sort of economic path it wants to pursue. So far, its efforts to temper economic growth, encourage energy efficiency and wean the country off heavy industry have had little effect. But continued failure would eventually make China a less prosperous and more unstable place. [More]

There is, I believe, an increasing premium to producers who are able to balance the actions of a global commodity market while making very local decisions. I'm not suggesting I'm able to do that, but I'm pretty sure the guys who replace me will be able to.