Just when the nation’s baking skills have improved massively, after two years of enforced confinement, the price of flour is set to skyrocket. This a typical example of what happens when governments get involved in our lives.
First, they kept us in our homes with nothing but an oven to keep us busy. Then they got involved in a war between two of the world’s key grain exporters.
And so I might have produced my final scones of the decade last week. And not just because Japanese households don’t have ovens.
My father-in-law, who bought the flour, wasn’t happy about having to do so, given the price.
Just wait until he returns to his retirement home in Spain next week. Watching Japanese people deal with proper inflation will be fascinating.
But this inflationary crisis is not only about Spain or my in-laws’ oven-less Japanese kitchen. It’s becoming a proper global food crisis.
For many years, two commentators who taught me a good deal claimed that farmers were the future’s rock stars… well, the investment bankers of the future.
Just when I’d decided to work in finance, Jim Rodgers famously declared that, forget bankers, farmers would be the ones getting rich in the next economic cycle. In 2012, he said the same to Forbes magazine:
There’s going to be a huge shift in American society, American culture, in the places where one is going to get rich. The stock brokers are going to be driving taxis. The smart ones will learn to drive tractors so they can work for the smart farmers. The farmers are going to be driving Lamborghinis.
In addition to giving free career advice – learn to drive a tractor – Rodgers recommended investing in various agricultural commodity holdings. These are notorious, but they may be working a lot better lately.
Chris Martenson of Peak Prosperity has been urging his followers to establish a small farm for as long as Rodgers. He warned about the breakdown of supply chains, and how the end of cheap energy would undermine the ability of the globalised world to deliver the goods we rely on.
Interestingly, here in Japan, hobby farming is not just popular, it seems to be the norm for people outside major cities. If I look out of the window, I can see dozens of small crop plots in between rice paddies and houses.
Going by the amount of manure dumped by farmers on to various European parliaments over the years, I’m not so sure Rodgers or Martenson gave the best advice for the past decade. However, it must be said that, lately, with the global food market falling into chaos in many of the ways they did predict, even if that prediction it was so long ago, the pair have been looking pretty foresighted.
And, as they did anticipate, food prices are now skyrocketing, too, though I’m not so sure it’s benefitting farmers that much.
Let’s take a closer look at how crazy global food markets have become, even if it’s all too familiar after the recent similar drama over energy prices.
First of all, Russia and Ukraine account for 29% of global grain exports. But Russia is being sanctioned and Ukraine’s ports are blockaded by Russia, with 15 million tonnes of wheat, corn and barley waiting on the docks.
Bird flu is back in the United States, causing huge culls of poultry. China’s winter wheat crop is said to be the worst in history, while African swine fever caused a scare in Chinese pork production.
As things get dicey in agricultural markets, nations are taking action to protect themselves. Argentina has halted various types of soy exports. Hungary has banned grain exports. Serbia, never to be outdone by the Hungarians, followed suit. And Algeria’s president banned exports of all consumer products that Algeria imports, such as sugar, pasta, oil, semolina and wheat derivatives.
Speaking of derivatives, wheat prices trading in Chicago were up 50% by the time the Daily Mail claimed food prices were going to soar by 50%…
Bloomberg reported on how “U.S. Breadmakers Fear Soaring Costs as Turmoil Engulfs Wheat Trade”.
The UK’s own National Federation of Fish Friers – and yes, there is such a thing – claimed that 30% of shops would close by March 2023 over the crisis. But which crisis? Well, a surprising chunk of Britain’s fish supply – 60% of haddock and cod, the two most popular choices – comes from Russia.
And a former McDonald’s CEO claims inflation is causing havoc in the American restaurant industry, where “portion sizes are shrinking. Prices are going up”.
The list goes on, and it’s not going to end well for consumers of food, whatever their tastes.
Snarky comments aside, consider what will happen to nations dependent on food imports…
Everybody’s favourite geopolitical bad boy, Turkey, is top of the list. The country gets 75% of its wheat from Russia and Ukraine. I wonder who the Turks will side with in the geopolitical standoff taking shape.
Then there’s the Middle East, with the Arab Spring in its recent memory. It’s also dependent on food imports. As are parts of Africa.
So the food crisis could quickly morph into a geopolitical one, and a worse one than we have now.
As if that’s not bad enough, consider the flow-on effects for next season. You see, the planting season is defined by all sorts of inputs. Energy and fertiliser just happen to be the key ones.
But it also just so happens that energy and fertiliser are also in crisis, aside from being very closely tied to each other in the first place. The Australian Workers’ Union explained just how connected they are back in 2021, under the headline, “Why You Should Give a Sh*t about Gas and Fertiliser”:
Australian consumers could see their food bills jump and even face food shortages as soaring fuel prices push the price of farm fertiliser sky high.
The problem stems from an international fuel shortage, with prices of the two main sources of energy used to produce fertiliser – natural gas and coal – going through the roof.
In Europe, some natural gas price indexes have risen by up to 895 per cent and these higher costs are wreaking havoc with industry and households exposed to the rising cost.
They didn’t tell you about coal and gas being crucial parts of the food chain, did they?
And then came the war between the world’s key energy and food exporters.
European ammonia prices are up about sixfold since the beginning of 2021 (80% of ammonia is used as fertiliser).
Minette Batters, president of the UK’s National Farmers Union, told Radio 4 about how energy pressures will affect the growing season and, thereby, future food prices:
I think the impact has been felt most harshly in the protected crop sector, that’s aubergines, peppers, cucumbers.
We are already seeing massive contractions, because these businesses – really 50 per cent of those costs – are reliant on the price of gas so if you take the normal price, the average for a therm of gas, at 60p, a grower I spoke to yesterday said it’s now 600, I mean these costs are just impossible to grow.
So, the future is not looking very green to me.
As the energy analysts of Doomberg are fond of saying in their interviews, “the price elasticity of food is infinite”. Which basically just means that people will pay anything to eat something.
And so food has a habit of exposing inflation and supply chain problems very well. Cars, laptops and holidays are on the opposite end of the scale, because people can delay and avoid those purchases. But, this time, the crisis is hitting two of our necessities instead. And the inflation will be bad. Very bad.
There are several courses of action you might decide to take based on all this. Bloomberg Economics helpfully highlighted some of them in a tweet and article on the topic:
From selling your car to forgoing chemotherapy for your dog, @tghilarducci has tips on how to beat inflation
The article to which the tweet linked was even more surreal: “Inflation Stings Most If You Earn Less Than $300K.”
Should earning more than $300K be out of reach, or if you don’t have a dog with cancer, there are other options to reduce the impact of inflation.
In fact, I’d like to make an announcement in today’s Fortune & Freedom. I’ve thought seriously about leaving my role as editor of this publication in order to pursue a career amongst the small-scale farming community.
I’ll be seeing you there, and soon, if I’m right about inflation. Unless you decide to take this action now and make money from the inflationary nightmare instead.
Nick Hubble
Editor, Fortune & Freedom
