Not many economists called the commodity and food market boom we have seen so far this year. Oil was supposed to have been falling by now – instead it set yet another all-time high on Friday.
As for the rising price of food, sure, there were hints, but no one predicted the extreme rises we have been seeing.
It all leaves one important question. Are we seeing a permanent change? Is oil up there in price for good simply because in the new world order demand for that black oozy stuff is too high for the earth’s limited resources?
Is food so dear at the moment because two permanent forces are working? First force: the world’s population, which is now 6.6 billion – and on course for 9 billion by the middle of this century. Second force, rising living standards – as China and India develop, demand for meat rises and, as you know, meat requires more land than crops that we eat directly, such as rice or wheat.
Or is it just temporary?
There were a string of reports in the press over the weekend blaming rising food on speculators.
Speculators were moving into food, went the argument, because they weren’t sure where else to put their money. The Observer, for example quoted Jim O’Neil, chief economist at Goldman Sachs as saying rising demand from the BRIC countries was not enough to explain all of the price surge.
It is quite convenient to blame speculators, of course. It means economists can say we were right not to call the rise, we could not have foreseen irrational buying, and it is all just temporary
It also means that speculators could get the blame for it all. Riots in the streets, social unrest, and it is all down to the speculators.
But it mustn’t be forgotten speculators do base their decisions on what the fundamentals are saying. If they believe price is too high, they are hardly likely to go on pushing it up.
The truth is, the real failure has been the with the economists – speculators and hedge funds the scapegoat.
Now, the more-optimistic economists are saying markets will respond to the food shortage by leading to an increase in the amount of land being used for agriculture.
Agriculture will become more efficient too.
It’s the natural way of things. When supply exceeds demand, we cut back on production. We cut back on investment. Then, all of a sudden, it flips. Demand is greater than supply and we invest more, we make the most of our existing resources.
That argument is fine when applied to ball bearings, even to computer chips. But it is not really acceptable when applied to food.
It seems that failure to spot the current food crisis was a failure of massive proportions.
At the moment we are all busy blaming banks for their over-exuberance in the supply of credit. But, in reality, a far bigger failure relates to the way the food crisis was not spotted in advance. As a result, people are going short of food, and all kinds of nasty social unrest could follow.
If there is a lesson to this, it is this. We just can’t afford to wait until crisis is staring us in the face before we act. We have to learn to read the signs.
Bear that in mind when we are told to stop fretting about global warming.
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