Saturday, February 14, 2009

Food is not our answer...

In our anxiety over demand for farm commodities, I think we may be making some illogical speculation about food consumption during recessions. The basic truth is food is relatively inelastic as to price and worse yet, we may have been at a high point of consumption due to the ratio of food consumed at home to food outside the home.

These ideas popped up during this week's US Farm Report.  First, Round Table Commentator Brad Harding alluded to brisk sales at supermarkets as a good sign of an expanding market. Even if this anecdotal evidence is valid, I think it may be less encouraging to producers, albeit good news for our health.

The second moment was a report from the NCBA Convention about beef consumption which detailed a shift from steaks to hamburger.  Meat demand is problematic and the nervousness over formerly robust exports to places like China was clear.

Looking at the actual data, food expenditures have fallen off the table (so to speak).

In 2008's fourth quarter, consumer spending on food fell at an inflation-adjusted 3.7% from the third quarter, according to data from the Commerce Department's Bureau of Economic Analysis. That is the steepest decline in the 62 years the government has compiled the figure. The report is based on receipts from a sampling of food-oriented businesses across the country.
The big drop likely comes from two things, said Joseph Carson, an economist at AllianceBernstein who worked at the Commerce Department in the 1970s. First, consumers have been trading down to lower-priced items. Second, he thinks many households dug into their pantries for staples rather than going to the store, a trend that can't continue indefinitely. "You can't contract at this rate for long," he said. "It's just shocking." [More]

More importantly I think, domestic consumers are rediscovering home economics. Preparing food at home is certainly cheaper, although labor intensive.  But then more homes have some free labor as unemployment shoots upward. One perverse outcome would be to recoup some lost salary by lowering food expenditures by deploying labor to the kitchen (and I'm not specifying which gender of labor either).

In the same way, newly single-income households may discover the loss of net income could be significantly less than the whole salary as outsourced domestic work (lawn care, laundry, food prep, child care, etc.) are greatly reduced by now available labor. Indeed, if this recovery is as "jobless" as some expect, the ability to deploy unused family labor may be the key to raising a family's standard of living as opposed to adding a second income.
And looking at the list of what America is cutting back on, I wonder if we'll see a reversal of another trend:  America's growing waistline.    There is a school of thought which says that the reason Americans are getting fatter is not so much the absolute price of food as the kind of food we consume--what Seth Roberts calls "ditto foods".  These are commercially prepared foods which have high calorie density and are what some scientists call "hyperpalatable"--i.e. extremely flavorful.  They're also carefully prepared to ensure that they taste virtually the same every time.  The easy availability of these foods causes our bodies to kick up our "set point"--what our bodies naturally want us to weigh.  Our appetite regulation mechanisms do the rest

Home prepared meals are much less standardized, and not so fined tuned to hit the salty/sweet/fatty buttons over and over.  Also, much of the shopping is done for them when you aren't actually hungry, and so you're likely to pick healthier foods with lower caloric density--committing your future self to behave more virtuously than it probaby [sic] would decide to on the spur of the moment.  A leaner wallet may mean a leaner you. [More]

The hope for lagging commodity prices here rests on one large market force and some smaller ones.  We need to be feeding more people protein, not more protein to the same people, and the above states the case very well that is not likely to happen. More crucially, we need to work diligently to prevent protectionism from destroying our chance to add those people, because domestic consumption has probably seen its high water mark for my lifetime.

But the relatively unexciting outlook for domestic food consumption should make one truth crystal clear to Midwestern farmers: we are now addicted to ethanol. Good idea or bad, we have built a farm economy that cannot recover from the loss of 4 billion bushels of corn demand without the type of dislocations were are now seeing in housing and finance.

Perhaps this is what ethanol proponents pictured as success. I do not. With our eggs in one basket, we are more at risk than we have ever been for destabilizing volatility from political whim and popular sentiment.  We should have phased out the subsidies when the profits were high so the industry could adjust to real market forces.

Now we have little choice to plan our futures based on legislative decisions.

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