Apr 032014
 April 3, 2014  Posted by at 12:25 pm Finance

Dorothea Lange Drought-stricken farm family near Muskogee, OK August 1939

It’s taken some time, but Nicole is back. Here’s her first article in a hopefully productive cycle:

Food insecurity has become a major global issue in recent years, underlying many of the instances of social upheaval around the world. This is both a reflection of the short-term fluctuations in an over-financialized commodity sector and also of the longer-term limits to growth scenario. As an ever greater number of limits are approached, a confluence of factors capable of compounding each other’s impact is created, and this can rapidly reach boiling point.

The commodity food price index has risen relentlessly, for a decade, peaking in periods of increasing fear and financial uncertainty. As we are rapidly approaching another such juncture, we can expect the issue to reassert itself with even greater force. Considering that the index demonstrates increasing food prices in nominal terms only, and does not reflect the additional factor of worsening affordability in real terms, it represents a substantial underestimate of the actual situation.

The UN FAO maintains its own food price index, which acts as a predictor of unrest. When it reaches 210, it represents a major red warning flag of a dangerously unstable condition:

It’s happening in Ukraine, Venezuela, Thailand, Bosnia, Syria, and beyond. Revolutions, unrest, and riots are sweeping the globe. The near-simultaneous eruption of violent protest can seem random and chaotic; inevitable symptoms of an unstable world. But there’s at least one common thread between the disparate nations, cultures, and people in conflict, one element that has demonstrably proven to make these uprisings more likely: high global food prices.

Modern agri-business has a very long list of dependencies on factors which are increasingly under threat, and as these obvious and predictable risks manifest, food insecurity will become a more ever-present condition globally. It is essential that we look to transforming food production, moving away from large scale industrial processes producing pseudo-food in an exceptionally destructive manner. Smaller scale and far saner practices, with far fewer unrealistic dependencies, need to be encouraged, and rapidly, if we are to avoid an extensive food supply crunch in the uncomfortably near future. There is almost nothing capable of having a comparably destructive effect on the fabric of society:

We now know that the fundamental triggers for the Arab spring were unprecedented food price rises. The first sign things were unravelling hit in 2008, when a global rice shortage coincided with dramatic increases in staple food prices, triggering food riots across the middle east, north Africa and south Asia. A month before the fall of the Egyptian and Tunisian regimes, the UN’s Food and Agriculture Organisation (FAO) reported record high food prices for dairy, meat, sugar and cereals.

Since 2008, global food prices have been consistently higher than in preceding decades, despite wild fluctuations….food price volatility is only a symptom of deeper systemic problems – namely, that the global industrial food system is increasingly unsustainable….The link between intensifying inequality, debt, climate change, fossil fuel dependency and the global food crisis is now undeniable. As population and industrial growth continue, the food crisis will only get worse…..The Arab spring is merely a taste of things to come.

Among the many dependencies of the agribusiness model, a true picture requires the consideration of finance, land ownership concentration, water, energy, climate, trade dependency, soil fertility/carrying capacity, biodiversity, inappropriate regulation and increasing corporate control over the food supply. This article is intended to be an overview of the first risk factor for food shortages – finance.

The world of finance has huge influence on food security, with many factors reinforcing each other. Commodity prices, consumer prices, land required to make a viable return, financial access to land, quota systems, risk management strategies, credit and debt are all vital considerations for farmers. Disruptions in this financial web, which has acted increasingly to trap farming into an over-stretched and highly vulnerable position, can be devastating.

Commodity prices are intimately connected with financial, as the whole commodity sector has been over-financialized, and therefore open to speculation and subjected to the boom and bust dynamics intrinsic to financial markets. Speculative episodes wreak havoc with sectors of the real economy, adding an artificial volatility to prices, on top of natural seasonal fluctuations or price movements due to climatic impacts. They provide ample, and highly profitable, opportunities for the exploitation of basic human needs:

Goldman makes its “food speculation” revenues by setting up and managing commodity funds that invest money from pension funds, insurance companies and wealthy individuals in return for fees and commissions. The firm invented these kinds of funds and continues to dominate the market, together with Barclays and Morgan Stanley. Swiss trading giant Glencore hit the headlines in August when its head of agriculture proclaimed that the US drought will be “good for Glencore”.

Goldman has always shrouded the breakdown of its profits in secrecy, but a WDM commodities derivatives expert has calculated the revenues it believes the bank makes from food speculation through an analysis of its recent results and market information. The bank declined to comment on WDM’s estimate or the impact of speculation on food prices. But Goldman Sachs is known to be advising clients that corn is one of its top trading tips for 2013, after the worst drought in US history whittled stockpiles down to their lowest level since 1974….Since deregulation allowed the creation of the commodity funds that allowed many speculators to invest in agriculture for the first time, institutions such as Goldman have channelled more than $200bn of cash into the area. This investment has coincided with a significant and sustained rise in global food prices.

Commodity prices move with the ebb and flow of liquidity, and with liquidity peaking it is no surprise that prices, including food commodity prices, are also peaking again. This in turn puts pressure on consumer prices, and on increasingly squeezed consumers. In poorer countries, where people spend a huge percentage of what little they have on food, the impact can be intolerable.

As we have explained before, in 2011, in the last price run up:

As we have seen in a number of places, this has been a major ingredient in the development of social unrest. High prices, and fear of both higher prices and actual shortages, can be socially explosive. Rising prices are not themselves inflation, as we have repeatedly explained, but are the result of it. Credit expansions create excess claims to underlying real wealth through the creation of artificial, or virtual, value. They also bring demand forward, increasing pressure on resources for the duration of the expansion period. Extrapolating consumption trends forwards linearly leads to fear of shortages, which encourages market participants to bid up prices speculatively….

….As an expansion develops, one can generally expect increasing upward pressure on commodity prices, thanks to both demand stimulation and latterly the perception that prices can only continue to increase. The resulting crescendo of fear – of impending shortages –  is accompanied by the parabolic price rise typical of speculative bubbles, as momentum-chasing creates a self-fulfilling prophecy. At the point where almost everyone with the capacity to do so has jumped on the bandwagon, and all agree that the upward trend is set in stone, a trend change is typically imminent.

Now at another market peak, the same scenario is unfolding again. We see the same combination of unbridled optimism in financial markets, asset bubbles, speculative fervour, and insiders selling out of financial assets to the public, that we have seen at other major tops. In addition, we’re seeing a major movement towards converting financial assets, the vast majority of which constitute excess claims to underlying real wealth, into real assets, such as farmland. This constitutes a grab for a share of the underlying collateral that so inadequately backs the vast quantity of debt in our bubble economy. As we move past the peak, on balance of probabilities in the not too distant future, we are likely once again to see speculative prices retreat with draining liquidity over the remainder of this year, although the grab for real assets is set to continue.

Lower commodity prices are not set to translate, however, into an abatement of the pressure-cooker situation with regard to food security in much of the world. Consumer prices typically lag changes in the money supply, and the commodity price reversals that result from monetary contraction. Consumer prices in volatile regions, already at or near breaking point, would likely remain high in nominal terms for some time. In addition, unrest can sharply raise risk and therefore reduce supply. Liquidity crunch, compounded by the effects of unrest, would also substantially impact people’s ability either to earn an income or to receive benefits. Where both a supply squeeze and a collapse of purchasing power set in as a vicious circle, food affordability can become drastically worse, even if commodity prices, and later consumer prices, decrease. This is the paradox of deflation, as we have explained before:

That is how speculative periods always resolve themselves. We argue, however, that this does not mean commodities will be cheap, even at much lower prices than today, given that the implosion of the wider credit bubble will cause purchasing power to fall faster than price. This means affordability worsening even as prices fall.

The higher prices that have benefited farmers (although not nearly as much as middle men and those higher up the financial food chain), are not set to last. When prices fall, those who depend on the current rate of return are going to be squeezed in their turn, particularly where they are carrying a high level of debt they need to service. Debt for land, equipment, stock, seed, or, in some jurisdictions, market quota, can easily become an unbearable burden.

In addition to direct commodity price speculation, the credit expansion and its psychology of commodity shortages has also led to considerable speculation in farmland prices. In many places agricultural land prices have tripled within ten years, demonstrating the exponential rise characteristic of bubbles. This has been part of a general real estate bubble that has also seen much productive land close to cities purchased for lucrative development and taken out of production. The process has increased the pressure on remaining farmland.

There is an increasingly strong perception that farmland prices can never go down, and so are a one way bet for investors. Once this perception becomes entrenched, it is self-reinforcing. Farmland ends up being bought by those looking to make money on a capital gain, rather than those with the knowledge to produce food, or perhaps even interest in doing so. Actual food production is very much a secondary consideration for real estate flippers. Demand for land is artificially stimulated and land values take make a major departure from the fundamental value of their productive capacity. In fact buying land and taking it out of production could accentuate shortages, and drive up both food prices and therefore farmland prices even further, generating an even larger profit. This makes life very much harder for those for whom productive capacity is the important metric.

Farmland is currently considered to be one of the best, and safest, investments possible. In the UK for instance, it compares with the top of the bubble prices in central London:

The following article by Britain’s Property Wire shows that rising agricultural land is not just a Canadian or American phenomenon. Farm land prices in the UK hit yet another record high during the first half of 2013 and have now more than trebled in less than a decade. The report says that this exponential growth in prices has been driven by the on going surge in demand from farmers and investors alike. Interest from potential buyers has now seen substantial rises since the end of 2008, and surveyors note that hikes in commodity prices are leading the charge to expand agricultural operations and investors increasingly are seeing land as an economic safe haven.

It has also been a ‘better bet’ than gold in recent years.

For many years it has been growing increasingly difficult to support a family through farming. The young are leaving the land for more lucrative city careers, so the workforce is aging rapidly, with the risk that important knowledge will be lost. Working at the base of the production pyramid is never particularly lucrative (in the absence of distorting subsidy regimes), as one is not in a position to harness and profit from the efforts of others from lower layers. Other careers further up the pyramid, where this is possible, and the personal physical effort required is substantially less, appear far more attractive to the younger generation.

Farmers have been forced to scale up their holdings, buying ever more, and more expensive, land. Land acquisition has created a significant debt burden for many farmers, as do all property bubbles. Farmers have also been seeking ever more expensive equipment necessary to work more land with fewer people. The need for equipment has created a huge dependency on fossil fuel based energy, and with energy prices as volatile as commodity prices, farmers are exposed to many risks they cannot control.

Financial markets have allowed farmers new mechanisms to manage some external risks, at the cost of drawing them more deeply into the financial web. For instance, hedging reduces exposure to price risks, and crop insurance can prevent catastrophic losses. However, both depend on functioning credit markets. It is easy to think that one can buy insulation from risk, but all too often one may buy the right to mange one risk, and yet be exposed to another one was not aware of. The seizing up of credit markets in 2008 revealed some of these risks, particularly in relation to margin debt, and therefore counter-party risk:

Corn, wheat, cotton, soybeans and other commodities have eclipsed record prices this year [2008] as a result of increased biofuel demand, acreage adjustments, production shortfalls, tight carryover stocks, and speculative investment, Welch said. “Many farmers wanting to lock in prices at these historic levels are turning to forward price contracts,” he said. Forward price contracts of a growing crop establish a “price and delivery provision,” Welch said, which transfers price risk from the producer to the writer of the contract. “(This is) usually a grain elevator or cotton merchant,” Welch said. “The elevator or merchant may then transfer this price risk to speculators by hedging in the futures market.”….

Those participating in the futures market must have enough margin money deposited to cover potential losses. The margin is balanced daily and those profits accrued in excess of the margin requirement may be withdrawn. “Any losses that draw the margin account below the minimum maintenance level must be offset by additional deposits to restore the account to its initial balance,” Welch said. Those that fail to bring the account up to the initial required level result in liquidation of the position and the holder of the account must absorb all losses. As a result of rapid escalation of commodity prices, elevators and merchants who wrote forward price contracts are facing losses of “enormous proportions,” Welch said.

“Wheat that was hedged at planting last October for a then all-time record high price of $7 a bushel has incurred margin calls of $6 per bushel or $30,000 per contract.” Forward-contracted corn last fall has increased in price by more than $2 a bushel, he said. “The margin requirement to maintain each of those contracts is now around $10,000,” he said. “For a medium to mid-sized grain elevator to maintain their hedged positions, they have had to deposit millions of dollars in margin money. Add to this the interest cost of funds required to maintain margin requirements and the financial burden of offering and maintaining forward contracts is considerable.”…

….“The impact of severe margin calls on the commercial sector should give growers renewed pause about the margin risks of hedging via selling straight futures,” he said. “Many producers are uncomfortable or unfamiliar or had unprofitable experiences with these marketing alternatives. It’s important that prospective hedgers learn all they can about these markets and understand the risks and rewards before initiating a hedging program.”….

….Commodity organizations representing grain and cotton industries have complained to the Commodity Futures Trading Commission that the markets are no longer working as intended.

Financialization introduces many external parties to the food production equation, and each must manage their own disparate risks. The whole interconnected construct is only as strong as the weakest link, and where over-leverage is concerned, the risk is systemic. Huge losses expose counterparty risk, and that in turn can ruin the perception of the value of ‘insurance’ contracts. It becomes obvious that losing parties cannot pay, and contracts only have value for as long as the promise to pay remains credible. It is possible to destroy a great deal of perceived, or virtual, value very quickly. 2008 was only the opening act in terms of the resolution of the credit bubble of the last 30 years. The majority of the credit contraction still lies ahead of us, so the 2008 dynamic is set to return in a turbo-charged manner over the next few years.

Credit destruction can have a major impact on food production in a short space of time. The failure of hedging or insurance, or both, leaves farmers exposed to price risk or the vagaries of the weather. Farmers who require credit for the purchase of seed may find that it is abruptly no longer available, meaning no planting is possible that year. A financial squeeze may mean that product cannot be sold as demand falls (given that demand is not what one wants, but what one can pay for), or that equipment cannot be repaired for lack of cash flow. Purchasing fuel could become problematic for the same reason.

Once the land price bubble bursts, the market will go illiquid, as real estate always does very quickly under such circumstances. Land prices then have a very long way to fall, and those who purchased their land with leverage at inflated prices may well find themselves sitting on negative equity while in an acute cash flow crisis. When push comes to shove, bankers will call in their loans, essentially imposing a margin call on debtors:

The problem boils down to banking regulations. Bank regulations are more heavily risk-weighting loan assets held by Banks. This causes asset/equity ratios to go out of balance. Banks have two options to correct their ratios, either raising capital or convert loans to cash – as cash assets don’t have a risk weighting discount. Of course the banks would like to start with the riskiest loans, but bad loans can’t be collected, so they are forced to call-in good loans.  And there you are, minding your own business with a perfectly performing loan. But the bank needs your cash – not your good loan. Real estate loans are the most commonly called.

That is a recipe for farm foreclosure, as was widespread in the last Great Depression:

All during the war [WWI], Food Administrator Herbert Hoover exhorted farmers in this country to increase production. As the prices realized for their products rose, farmers began to borrow money to buy more acres and new machinery, especially farm tractors since labor costs were sky high. Farm mortgages doubled between 1910 and 1920, from $3.3 billion to $6.7 billion ($74.4 billion today). Then after the war, as a recovering Europe and Russia began to feed themselves (and, in the case of Russia, even finding grain to export), the bottom dropped out. In 1921, the price of wheat dropped to $0.926 per bushel, and heavily indebted farmers couldn’t make the payments on all those new acres and tractors.

As a result, during the “Roaring Twenties” farmers weren’t doing much roaring, but credit was still easy and they limped along, falling further and further behind the rest of the country….Then, in October 1929, the whole financial house of cards that was the U.S. economy collapsed, triggered by the stock market crash….The malaise spread across much of the industrialized world, and soon there was no money to buy the farmer’s products or anything else. Desperate bankers called in their loans, but farmers had no money to pay them and foreclosures and bankruptcy sales became daily events….Some 750,000 farms were lost between 1930 and 1935 through bankruptcy and foreclosure.

We have been here before. This is not the first time finance has been unkind to farming. Where land purchases are concerned, leverage is the key to the pain the bursting of the bubble will cause. For those who have converted financial assets into real assets without leverage, there will be losses in financial terms, but the assets will still remain, and will generally retain productive value over time.

On a broader stage, the effects of finance and the hunt for investment returns on food security are much more immediate and severe. Farmland investment purchases, or land grabs, have increased enormously worldwide. This partly a result of rising food prices and fear of shortages, partly the outcome of a liquidity peak playing out as a farmland bubble, partly an attempt to grab real assets in the face of excess claims to underlying real wealth, and also reflective of wealthy countries with little farmland and large populations seeking outside of their own borders for food security for their own people. For instance, China and Saudi Arabia, among others, have been notable purchasers of external food production capability.

Where investment purchases occur in places where food insecurity, or the looming threat of it, is already present, the impact on the fabric of society is far more immediate than in the developed world. It amounts to an abrupt dislocation rather than a slow squeeze. Produce previously available locally is instead suddenly allocated for export, or, increasingly, land previously used in common by local communities is sold out from under them, denying them access to their means of support. This is becoming a major source of food insecurity, particularly in Africa, and it is being actively encouraged by western agencies such as the World Bank:

In 2009 alone, the World Bank estimates that around the world foreign investors acquired about 56 million hectares of farmland – an area about the size of France – by long-term lease or by purchase. Farmland has become a favourite “new asset” class for private investors; “like gold, only better” according to Capital & Crisis. The World Bank has its own term for the new global land rush. It calls it “agro-investment” and has developed seven voluntary principles to make the land deals “responsible”. Critics of the phenomenon – farmers’ movements, human rights, civil society, women’s and environmental organisations, and many scientists – call it “land grabbing”. They say there is no way that the taking over vast areas of smallholder farmland and transforming it into giant industrial plantations and agribusiness operations can ever be “responsible”. They argue that land grabs are throwing millions of farming families and indigenous peoples off their land….

….More than any other institution or agency, the World Bank Group has been promoting direct foreign investment in Africa, and enabling the farmland rush. Its private sector arm, the International Finance Corporation (IFC), with its Foreign Investment Advisory Service and its program to Remove Administrative Barriers to Investment, has been working – often behind the scenes – to ensure that African countries reform their land laws and fiscal regimes to make them attractive to foreign investors.

The World Bank Group has funded almost identical investment promotion agencies – “one-stop-shops” – in countries across the continent. It places people in strategic government ministries – even presidential offices – as private sector advisors. The investment promotion agencies are developing and advertising a veritable smorgasbord of incentives not just to attract foreign investment in farmland but also to ensure maximum profits to investors. These include extremely generous tax holidays for 10 or even 30 years, zero per cent duty on imports, and easy access to very large tracts of land, sometimes over 100,000 hectares. Investors may pay just a couple of dollars per hectare per year for the land, and in Mali, sometimes no land rent at all.

The Sierra Leone Investment and Export Promotion Agency, boasts about the extremely low labour rates and flexible labour laws in the country and about other privileges it accords investors – 100 per cent foreign ownership in all sectors, full repatriation of profits, dividends and royalties, no limits on expatriate employees. Such giveaways cast doubt on claims by African governments, and others trying to defend the land deals, that this kind of “agricultural investment” will solve unemployment, generate revenue for cash-strapped governments, reduce the dependence on aid, and bring economic development.

In this race to the bottom, African governments are also encouraged by the World Bank Group to outdo each other when it comes to protecting investors. Each year, it grades African on investor protection in its “Doing Business” report cards, praising countries that move up in the rankings in what an IFC official admits is a “horse race”. This means that low-income and food-deficit African countries, some still struggling to rebuild after long conflicts, such as Sierra Leone and Liberia, find themselves competing with each other to offer foreign investors ever sweeter deals on their arable land, so desperately needed for local food production.

The investment promotion agencies quote figures for the vast amounts of “uncultivated” or under-utilised” land in their countries, often without offering any recent land use studies to back up these figures or a thought for the millions of people who depend on that land for their livelihoods. Nor do they take into consideration the crucial importance of small family farms, which employ more than half the people and produce 80 per cent of the food on the continent….

….Since 2009, in the wake of the food, fuel and financial crises of 2007-2008, the rush for farmland has only accelerated. Recent in-depth research by the US-based Oakland Institute of land deals in seven African countries found that most of the land deals lack transparency, making it almost impossible to calculate their total area. Lack of transparency is a great enabler of corruption. Yet “transparency, good governance, and a proper enabling environment” is one of the seven principles laid out by the World Bank for “responsible agro-investment”. The Oakland Institute found that most of the land deals do not respect any of these principles.

Traditional informal or communal ownership rights are a particular problem, as these are not viewed as valid and are therefore very easy to usurp:

One central problem with land grabbing is that there is no transparency. Investors negotiate with national or local authorities to get access to land, and local communities are not involved in the discussions. The first time that they often learn about it is when the tractors arrive to fence off their land. Similarly, social movements and NGOs often find it difficult to get information.

The impact can be devastating, leaving people abruptly with no options at all:

The “town” chief of the village seemed to be in a state of shock. Sitting on the front porch of his mud and thatch home in Pujehun District in southern Sierra Leone, he struggled to find words that could explain how he had signed away the land that sustained his family and his community. He said he was coerced by his Paramount Chief, told that whether he agreed, or not, his land would still be taken and his small oil palm stand destroyed. He didn’t know the name of the foreign investor nor did he know that it planned to lease up to 35,000 hectares of farmland in the area to establish massive oil palm and rubber plantations. Haltingly, he said that without his land, he might as well take his leave of the village. By that he meant that he was as good as dead.

Investment in third world farmland is a one way street, with benefits accruing to the political and financial centre, very much at the expense of the periphery – local people in marginal locations with already precarious food security. In the rich world hungry for financial yield, expectations are completely unrealistic:

Land grabs, which target 20% profit rates for investors, are all about financial speculation. This is why land grabbing is completely incompatible with ensuring food security: food production can only bring profits of 3-5%. Land grabbing simply enhances the commodification of agriculture whose sole purpose is the over-remuneration of speculative capital.

These are the effects of over-financializing a vital sector of the real economy. Decisions as to land use and scale of operations are made by large players in rich countries for reasons of maximizing investment returns, securing control of vital sectors of the real economy in order to profit from increasing scarcity, and holding on to an asset seen as only going to increase in financial value. Control moves from the hands of local people to large institutional investors, and use reflects their priorities. The interests of the indigenous people, who have been sold out by their own governments, are considered irrelevant, and are ignored until deprivation becomes severe enough to provoke unrest:

The investors are hedge funds, private equity funds (that are attracting even prestigious American universities with their promises of high returns), pension funds, banks, multinational corporations, and sovereign wealth funds seeking to sow capital and grow profits….

….African farmers, left high and dry by their own governments during the decades of austerity programs imposed by the World Bank and the International Monetary Fund, do need investment and support. They desperately need decent roads and access to local markets, processing equipment to add value to their own diverse farm produce, storage and drying facilities to prevent post-harvest losses, and basic amenities such as schools and health centres and water wells to improve rural lives, so that farming communities can thrive. But foreign investors are not in business to provide any of these things. They are not in Africa to help impoverished African farmers improve their own farms, or to combat hunger. They are far more likely to destroy the family farm in Africa and aggravate hunger, all in the name of economies of scale, a global corporate food chain, and profits. The same actors – the speculators, bankers, unregulated investors – who have had a hand in inflating food prices and bringing the global economy to its knees are now consolidating control of global food production and of land, to profit from the very crises they provoked.

This process is a continuation of a long-standing, and accelerating, trend towards forced scaling up of land holdings and increasing monetization of farming operations. It began several decades ago with the Green Revolution. This was a programme of agricultural ‘modernization’ involving the introduction of new high-yielding hybrid seed varieties, irrigation infrastructure,  western management techniques, synthetic fertilizers and pesticides. In the short term, the much higher yields greatly increased food security, but over time a different picture has emerged, and the longer term negative impacts have been considerable.

The hybrid seeds require far more inputs – of water, fertilizers and pesticides and new seeds annually – than did the traditional varieties bred over time to be adapted to the local conditions. These inputs are expensive, which over time caused dependency on western companies as suppliers, and a widespread debt problem for small farmers. Small farmers, who had previously operated largely outside of the monetary economy, or only tenuously connected to it, all too often ended up losing their land as the minimum operational scale to make the inputs affordable increased after they were already hooked into the new system:

As more and more small-scale farmers are unable to compete with the larger farms, the chances that they sell off or mortgage out their land also increases. When the small-scale farmers are no longer able to make their payments, their ownership of the land is taken from them and in some cases the farmers and their families are evicted and thus unemployed. “This effect especially if combined with the eviction of an appreciable number of tenants will generate a growth in both the size and insecurity of the rural landless labor force. Growing numbers of the unemployed undoubtedly will leave the countryside and join the migration to the cities—swelling the urban slums.

Forcing farming from non-monetary subsistence into the monetary economy created greater concentration of land ownership (along with a tremendous loss of valuable biodiversity). The process of globalization has in general forced monetization as far down the operational scale as possible, and has increasingly cut off possibilities for operating viably below that scale. Plugging as many economic activities as possible into the monetary economy allows for surpluses to be efficiently removed via the wealth conveyor system from the periphery to the centre. After all, it is far simpler to collect surpluses in the form of money than in the form of produce. Combined with trade agreements strongly favouring richer countries with agri-business subsidies, the impact on small farmers has been dramatic. For instance, there has been an epidemic of farmer suicides in India – 200,000 between 1997 and 2009. This is clearly a reflection of people being pushed into an untenable situation. When farmers are so insecure, there can be no real food security for the rest of the population either.

The connection between boom and bust psychology, food insecurity and unrest is not always clear from headlines describing current events, but it is increasingly pertinent geopolitically. The impact, long felt in the global periphery, is inexorably moving into stressed areas of the developed world, as wealth concentration increases. Inequality has been deepening in richer countries too, as the base of the pyramid is squeezed ever more tightly in order to sustain the pinnacle in the condition to which it has become accustomed.

Food insecurity is a highly profitable business for those in a position to administer the misery:

Every time an American signs up for food stamps in one of 23 states, JPMorgan Chase & Co. adds to its revenue stream. That because JPMorgan Chase contracts to operate as the processor of the Electronic Benefits Transfer (EBT) cards in those states. JPMorgan earns a fee for each recipient, ranging from 31 cents to $2.30, depending on the state, every month for the term of the contract. JPMorgan’s seven-year Supplemental Nutrition Assistance Program (SNAP, the official name for the federal food stamp program) contract with New York state, for example, brought in more than $126 million of revenue to the big bank. Florida has paid JPMorgan more than $90 million since 2007. Pennsylvania’s seven-year contract exceeded $112 million….

….The number of Americans receiving SNAP benefits has more than doubled since 2000, to an astounding 46.6 million people as of 2012, according to government data. That’s nearly 15% of the U.S. population. So it’s no surprise that U.S. government spending on food stamp benefits has grown from $18 billion in 2000 to $85 billion in 2012 – a steep increase that has given JPMorgan a nice boost….And the bank has taken steps to make sure the SNAP program remains a growing source of revenue. JPMorgan’s political donations to the members of House and Senate agricultural committees, the ones with legislative responsibility for the program, soared from just over $82,000 in 2002 to nearly $333,000 as of 2010.

As if profiting from a program designed to help the poor were not bad enough, JPMorgan also makes money directly from the SNAP recipients. The GAI said JPMorgan and the other two primary EBT administrators – a subsidiary of Xerox Corp. called Affiliated Computer Services, and eFunds Corp., a subsidiary of Fidelity National Information Services – make money from food stamp recipients in other ways as well. Purchases made by EBT cards can only be made with special Point of Sale (POS) machines, for which the states also pay JPMorgan a monthly fee. Arizona pays $14.95 per POS machine per month. In addition, any time a SNAP recipient uses an EBT card at an ATM machine outside of JPMorgan’s network, the bank charges a fee, just as it would any other customer. JPMorgan also charges EBT users to replace lost cards, and for customer service calls (New York cardholders, for example, pay 25 cents per call.) All those charges and fees come directly out of the pocket of SNAP recipients – people so poor they need food stamps to make ends meet.

The bust phase of financial boom and bust does not play out as a slow squeeze, but typically as an abrupt dislocation once a critical tipping point has been reached. We have not yet seen this in the developed world, but the risk factors have clearly been well established. Farming is already well into financial overshoot, and also well into energy and ecological overshoot, but that is another story.

Food insecurity is clearly present at the base of the pyramid, and could rapidly shoot upwards over the next very few years. There is therefore a need to underline the urgency for radical change in food production systems. Even if we could expect useful policy reform in this field, which we cannot for reasons of regulatory capture and systemic inertia, among many other factors, the timescale would be far too long to make a difference. The change that is required can only come from the bottom up, though the decentralization of food production at human scale. As we have written before at TAE, scale matters, and decentralization, particularly in advance of system criticality, will be challenging. However, we have no other choice.

Part II of this essay will address the broader issues of food security, including water, energy, climate, soil fertility, and regulation.

Home Forums Nicole Foss: Finance and Food Insecurity

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    Dorothea Lange Drought-stricken farm family near Muskogee, OK August 1939 It’s taken some time, but Nicole is back. Here’s her first article in a hope
    [See the full post at: Nicole Foss: Finance and Food Insecurity]


    Although they are down today, most of the major grain crops’ spot prices are up substantially in 2014. What is a lot harder to gauge is the price of fruits and vegetables, since these are, individually, much smaller markets.

    Last week saw some precipitation on the west coast, including California. But with the rainy season just about over, it is probably a case of ‘too little, too late’. I think that one can make a good case for the idea that fruit and vegetable prices are going to be substantially higher in the USA within a couple of months. Presumably the higher prices would spill over to countries that export those products to the USA as well.


    The main reason for dramatic farmland price increases in Britain is because of the huge tax advantages it receives. Inheritance tax is levied at 40% on the wealth above £325,000 of anyone who dies in the UK. This includes the family home, stocks etc. On the basis that ‘only little people pay taxes’ the ultra-wealthy have made sure they have several ways of avoiding this one. First is the exemption from Inheritance Tax (IHT) of any assets handed over more than 7 years before death. This is obviously only useful to the ultra-rich who can feel confident that they can give away £millions while still keeping a few £hundreds thousand to cover their old-age costs. The other loophole is farmland. All agricultural land and associated houses (which can be historic mansions) are completely exempt from Inheritance Tax. That is why a huge proportion of this little island ‘democracy’ is still owned by a tiny number of families who have sat on it for hundreds of years. The small amount of land which does come onto the market each year tends to be bought for tax-avoidance purposes by ageing investors rather than by farmers for food production.

    phil harris

    Don’t forget FSU
    google land grab ukraine – ignore very recent use of the term for Crimea – see large-scale agriculture. It is different, but the motivation is the same.



    I am one of those ‘industrial farmers’ who help bring the world wheat and soy, though I am not doing so on a ‘massive’ scale. Nicole, I see some conflict inyour arguement, and wish to add something (actually a few things)…

    1) starving people bring down governments, so governments that wish to remain in power will do their best not to let people starve
    2) credit or no credit markets, the food will flow. just as the Fed printed oodles upon oodles of money to stabilize the system, governments will ensure that the food will continue to flow because…starving people bring down governments.
    3) people all levered up into land will suffer, and I don;t know about the rest of the world, but the US farmer learned from the days of “FarmAid” and is no longer levered up beyond the cost of current inputs for current crops in most cases. And if the speculators get hosed and blow out, so be it, they don;t deserve to be farming anyway.
    4) there is various ‘quality’ land around the world that is farmed. Some like the brasilian cerrado grows much of nothing without intensive inputs (read petroleum), while other land is productive without such intensive inputs. As energy prices go up, the energy intensive farmer is at a disadvantage to the one that has bought quality land with good transportation networks in place to get grains to market.
    5) grains are, unfortunately because they are not all that healthy, one of the cheapest ways to feed people. they are fungible and highly transportable, and make great filler for a plethora of other products found on the shelves in the grocery, or as part of the stable foods of many cultures (eg. tortillas). If you take grains out of the equation, you will see mass starvation. It takes 3-7 grain inputs to ‘grow’ one meat output (depending on the animal). And while veggies are good for you, they do not store well, are highly seasonal, and in an expensive petroleum world, the “2000 mile salad” becomes much more of a non-starter than transport of grains.
    6) I think it would be great if everyone put a garden in their back yard, but not everyone even HAS a back yard, let alone the inclination to plant veggies. The increasing size of cities worldwide, and the growth of mega-aglands means the avge person is beholden to the petro-grain complex be it for feedlot meat, or their box of Cheerios, Bisquick, or whatever.
    7) food insecurity is real, however few think of “food as fuel”, not only for the use of fuel to produce it, but that the food itself can be used for fuel. In addition to what you write, you should see more strategic investments like the Chinese purchase of SmithField Foods, the largest pork producer in the US. Why should they care to own a pork producer? Simple — they can xport finished pork which already has “absorbed” the cost of energy, water, and food, all of which is in short supply in China. It’s cheaper to pack a ship full of hog carcasses than ship 3-7 similar sized ships full of grain, and you get the energy and water involved to boot!

    Thus, from my perspective, you will most likely see no large scale collapse in the world food (grain) structure because most years you are only a few weeks away from grain storage silos running dry as you run thru each crop season. And do not forget that South America supplies when North america cannot, etc. Finally, if and when you see yet another ‘bad harvest’ somewhere, as invariably happens, you will see yet another great spike in food stuffs.

    Yes, hedge-fund “farmers” paying $10k/ac and up are a little loony to be doing so, assuminga greater fool theory in land price escalation, but land bought at lesser prices can still return 5-10% a year depending on prices in a world where financialized assets return maybe 3-4% if yo are lucky. And history tells you that before the age of FIRE, most wealth was held in “real assets”, not HFT traded digital bits of “paper” ona bookkeeping screen somewhere.

    In the end, if my land goes up or down, I care not, as I hope to own it the rest of my life, and for my children to own it as well. No matter what happens to the finance world, I knwo for a fact my family will never go hungry so long as rain falls from the sky. And I’ll take that deal over a share of GOOG any day of the week.


    Thanks Nicole for highlighting this nightmarish scenario. I can’t think of anything positive to add…


    …only more negatives, I’m afraid. Just as Monsanto and their ilk have created GMOs to destroy the traditional methods of farming and make farmers dependent on big agribusiness, the next outrage is going to be the (deliberate) demise of natural pollinators such as bees. They will be replaced with swarms of drones. Only those who pay (or are in the prerequisite in-group) will be able to grow crops. Every plant pollinated will be recorded and charged for. And they won’t pollinate plants grown with seeds not purchased from big agribusiness.
    Welcome to the future…



    1) Governments will certainly “do their best”, but it may not be good enough

    2) I’m no industrial farmer, but I’m pretty sure having “oodles” of money wouldn’t help my crops grow if there’s no fertilizer/fuel/farm equipment/etc. to buy with it because the financial system has seized up and global trade has come to a standstill. Money without the confidence behind it is basically just excess toilet paper.

    3) And if the cost of “current” inputs rises? One might suggest you’re speculating that cost structures won’t change dramatically, and thus ironic that you feel speculators should be blown out…

    4) I know where I live in Canada, we’ve unfortunately built a giant “urban sprawl” of houses and concrete over some of our best farmland… I’m sure we’ll realize our mistake soon enough

    5) Fair criticisms about vegetables, but perhaps why everyone’s lives are going to have to change once 2000 mile salads as well as grains become no longer affordable for those of us living in large cities or far away from agricultural heartlands

    6) There are growing options for us city-folk without backyards (e.g. https://www.freshcityfarms.com/news-events-urban-farming-toronto-local-food-movement/organic-balcony-gardening-101/); while it may be difficult to grow all your produce needs on your balcony, it’s just one part of a bigger solution communities will need to foster in a future that is more about localized solutions

    7) I’m not sure how strategic any international purchases really are – once finance and trade start to collapse, good luck to the Chinese owners of a hog company here in getting and product shipped over to mainland China (or getting any of their investment back for that matter); what’s much more likely is that the “strategic” Chinese are looking for ways to funnel their ill-gotten wealth out of China, and buying up a US hog farm may fit that bill

    No offense, but your perspective sounds like what you’re hoping will happen as opposed to what likely will be. People who have an investment in something sometimes tend to overlook the risks they face and focus on the things that they think will maintain the status quo.

    On the plus side, you seem to be on the right track in thinking about land as a productive asset and one worth passing onto your children and grandchildren. Let’s just hope things don’t get so topsy-turvy in the years to come that holding onto it becomes more difficult than originally thought. And careful about believing to know things to be true as a matter of ‘fact’ – lots of ‘black swans’ out there to ruin all those things we find ourselves so sure of.



    The Georgist perspective is slightly different, and crucially, points to a clear solution.
    Speculation in (farm)land is due to the fact that its rental value is untaxed.
    Farmland is not used in the best way because farmers are taxed for investing and hiring.
    Frank de Jong explains it very well


    Regarding the list of numbers –

    I think the second half of #5 is actually the weakest. Most of the others I can at least see D’s point. I agree with the first half of #5. Grains are fungible, and easily transported. Root vegetables store fine (see below), but they are mostly water so long distant transport is out of the question on a cost/food calorie basis. Grains are worth shipping around the world.

    I guess we could be talking about different vegetables, if you mean “salad greens”, then yes, fair point. But salad greens will never constitute a large share of a person’s daily calories. Many root vegetables store quite well, assuming they’re grown on well mineralized, fertile soil. We eat “out of our garden” through the winter and our roots store in the basement of our old house until May. Once we build a root cellar actually designed with root storage as its purpose we should be able to get to June, which means we’ll have garden veggies year round. Winter squash last a similarly long time. But perhaps by longterm you mean more than one year… grains keep that long thought they’re pretty worthless nutritionally after long storage. But something is better than nothing as you point out.

    This is possible on a much larger scale, but perhaps the dietary shift in the consuming public that would be required to push the market in that direction is a bridge too far.

    Diogenes Shrugged

    Most people aren’t versed in horticulture and farming, and they aren’t suddenly going to become educated. Which makes me wonder if some enterprising person might be able to design a course of studies on the Internet that qualify a student to become an urban sharecropper. Trainees would set up and monitor urban farms for people living in apartments and subdivisions, but would hopefully have to charge little due to a multitude of customers. For instance:

    As people struggle to solve food supply problems, I would imagine that a major source of disagreement could arise over the subject of land (and crop) ownership versus stewardship. An awareness of the Tragedy of the Commons might help to reveal the nature of mistakes made in the past, and provide some guidance before this becomes an issue.

    I’m new to the comment section of TAE, though I’ve been a steady reader for many years now. Something you all know that I’m going to repeat anyway is, to my way of thinking, foundational to everything said on this website. It’s a quote from Stoneleigh many years ago, and it’s re-appeared in many forms in both hers and Ilargi’s writings. The quote has been posted in large font at the center of my bulletin board ever since I first read it. I consider it to be the holy grail of understanding present economic circumstances, and I’m shocked that the rest of the finance and economics world doesn’t seem to have even discovered it, much less hailed it for its brilliance. Like a good song, I never get tired of it. I hope I’m not the only one who feels this way, and I hope you at least enjoy seeing it again …

    “Essentially, there are two kinds of inflation. As inflation is defined as an increase in the supply of money and credit relative to available goods and services, one can achieve inflation either by increasing the money component (as in Weimar Germany or modern Zimbabwe) or the credit component. In the former case, one divides the underlying real wealth pie into smaller and smaller pieces. In the latter case, which represents our situation, one does not subdivide the real wealth pie, but instead creates multiple and mutually exclusive claims to the same pieces of pie.

    “A credit expansion thus creates excess claims to underlying real wealth, and we have just lived through the largest credit expansion in human history. In other words, we are all playing a giant game of musical chairs, only there is perhaps one chair for every hundred people playing the game. You can imagine what will happen when the music stops. The free-for-all grab for an available chair represents the extinguishing of excess claims to underlying real wealth, and is deflation by definition. This will represent the end of extend-and-pretend, and the recognition that there is only so much to go around.” -Stoneleigh

    Pure genius, and I will forever be in her debt for sharing it.


    Hi Variable, let me respond point by point:


    1) Governments will certainly “do their best”, but it may not be good enough

    If it came to a total collapse scenario where even governments cannot do their best to
    keep it all flowing, pretty much all of us reading and writing here will be dead in no time.
    In my case, if my family and I get to our land, we can at least grow cows or other animals.

    2) I’m no industrial farmer, but I’m pretty sure having “oodles” of money wouldn’t help my crops grow if there’s no fertilizer/fuel/farm equipment/etc. to buy with it because the financial system has seized up and global trade has come to a standstill. Money without the confidence behind it is basically just excess toilet paper.

    Yes, there is SOME truth to that. However the lesson comes from the meltdown in Argentina
    where farmers bartered their crops for machinery, etc. The ‘king dollar’ may freeze up but
    people still gotta eat, and will trade accordingly. Seed and fertilizer dealers will trade for end
    products, machinery guys the same. End product will get traded for fuel, or in the case of
    corn or soy, turned INTO fuel.

    3) And if the cost of “current” inputs rises? One might suggest you’re speculating that cost structures won’t change dramatically, and thus ironic that you feel speculators should be blown out…

    I have no doubts inputs will rise. In fact, I am sort of ‘betting on it’ by owning quality land that
    requires LESS inputs to produce crops. I mentioned the cerrado. Those pp in a full blown
    crisis would potentially blow out. And their land would become worthless. However those of
    us who have quality land would only find our product in greater demand. Thus we could
    ‘absorb’ the price increases as needed and pass them along. Again, look at what happens
    when we have oNE bad crop nowadays in the world.

    4) I know where I live in Canada, we’ve unfortunately built a giant “urban sprawl” of houses and concrete over some of our best farmland… I’m sure we’ll realize our mistake soon enough

    I am sure you will, as will many others out there. As Joni Mitchell said, “paved paradise and
    put up a parking lot…” Again, the question is not so much the land, the question is the
    QUALITY of the land. Food is fuel, fuel is food. Quality land will grow ‘fuel’ if need be, junk
    land will not.

    5) Fair criticisms about vegetables, but perhaps why everyone’s lives are going to have to change once 2000 mile salads as well as grains become no longer affordable for those of us living in large cities or far away from agricultural heartlands

    My goal is not to ‘defend’ grains, just to point out what cheap calories they bring to the table.
    There is a picture out there of some small town in Switzerland where pretty much every
    home has a vegetable garden. Can you see North Americans even begin to try as much?
    Doubtful. Realistically too stupid and lazy. Like oil, grains are ‘fungible’ nowadays and
    the same almost everywhere. Standardization makes them as tradeable as any other item.

    6) There are growing options for us city-folk without backyards (e.g. https://www.freshcityfarms.com/news-events-urban-farming-toronto-local-food-movement/organic-balcony-gardening-101/); while it may be difficult to grow all your produce needs on your balcony, it’s just one part of a bigger solution communities will need to foster in a future that is more about localized solutions

    I tell people to go stand on a freeway overpass some day, and just look down at all the traffic
    that passes in an hour alone. How much food do we need for all those people? How much
    fuel? Where will the fuel priority be? RoberT Hirsch in his book “The coming world energy
    mess” believed that fuel will be allocated to food (almost)first. I agree.

    7) I’m not sure how strategic any international purchases really are – once finance and trade start to collapse, good luck to the Chinese owners of a hog company here in getting and product shipped over to mainland China (or getting any of their investment back for that matter); what’s much more likely is that the “strategic” Chinese are looking for ways to funnel their ill-gotten wealth out of China, and buying up a US hog farm may fit that bill

    No offense, but your perspective sounds like what you’re hoping will happen as opposed to what likely will be. People who have an investment in something sometimes tend to overlook the risks they face and focus on the things that they think will maintain the status quo.

    Well, I have never been accused of being an optimist! I got into farming as a strategic edge
    not only for the present, but a possible very messy future. One has to remember that in life
    it is the FEW (Food, energy, water) that are the most important. So I keep some wood lot
    for heat, and this year I will start planting some fruit trees, as well as putting together a
    rotating ‘seed bank’ so I have things to plant just in case. Personally I don;t see as dystopian
    a future as some of the rest of you. If anything, my greater fear as a grain producer will
    always be a large unchecked pandemic or perhaps a world war that encompasses my land.

    On the plus side, you seem to be on the right track in thinking about land as a productive asset and one worth passing onto your children and grandchildren. Let’s just hope things don’t get so topsy-turvy in the years to come that holding onto it becomes more difficult than originally thought. And careful about believing to know things to be true as a matter of ‘fact’ – lots of ‘black swans’ out there to ruin all those things we find ourselves so sure of.

    Oh no doubt! But if not land, what should one own? Gold? Got that. Can’t keep it all in a
    shiny metal. Can only store most food for so long. Live in a armored compound and wait?
    Not much of a life there. So i’ll do my farming, make my plans, and hope for the best.


    Nicole Foss


    I’ll have plenty to say about wheat and soy down the line, when I get to writing about nutrition 😉

    Starving people do indeed bring down governments, and I fully expect that to happen in more and more places. So far the US government’s way to deal with hunger is to provide minimal food allowances in a humiliating way, but to use the process to further enrich the top of the financial food chain. I can’t think of a much worse way to go about it.

    Pretty much nothing flows once the credit markets dry up. It’s amazing just how much of everything we depend on depends in turn on the circulation of money in the economy. People found that out in the Great Depression, when they said they had everything but money.

    I know plenty of farmers with debt, particularly those who had been trying to expand to stay ‘ahead of the game’, with more land and new equipment. Quota can be ridiculously expensive too.

    Energy dependency is huge. On average modern farming uses 10 units of energy for every one it produces. That’s insane. Without those energy inputs (and the fertilizer etc inputs that energy enables), many people would be finding out that subsoil isn’t very productive. The original topsoil has been strip mined for a long time.

    Grains are indeed the cheapest way to feed people, and you’re right that an awful lot of people would starve without them. Their energy dependency means that much grain production will be going away no matter what we do. So will much of any moving food around, not matter what kind of food it is. Moving food around costs money and energy, and we’re going to be short of both. You point out how much grain input is required to produce ‘animal outputs’, but most animals should not be eating grain in any case. Pastured meat is healthy, grain fed meat is not. Pastured can be done in a low energy way.

    The Russians fed the population (on cabbage soup mostly) from 10% of their arable land when the big farms failed. There’s a lot that can be done with community gardens. Granted it won’t feed everyone, and certainly not in the way they’re accustomed, but small scale food production could make a big difference.

    Agreed that embodied energy and water are important considerations for big food importers who are short of both.

    Personally I do see a major collapse in grain production, and I think it’s going to cause chaos.

    I hope your children do indeed get to own your land. Of course it’s a vastly better bet than the stock market, or any financial ‘asset’. If there’s no debt on it that may well be possible. Be careful though. Property taxes are going to go through the roof, and a liquidity crunch will make coming up with that money far more challenging than it is now, especially when consumers can’t afford the produce. That’s what happened in the Depression.

    Nicole Foss

    Diogenes Shrugged, thanks 🙂



    I don’t know about other farmers, but this guy is not levered up at all. All cash all the time.

    And I am sure you have plenty to say about wheat and soy! I may grow the stuff, but I sure don’t eat it, and tell everyone I know I don’t think they should either. Paleo is the way to go, but we cannot support a planet on paleo-style eating as we continue to add roughly 75 million people a year to world population. Thus grains are the backstop, if you will.

    I do have to say that while I respect your work immensely, I am much more in the Jim Rikards camp regarding ‘finance’, where we will see a new worlds reserve currency status and collapse of the current paradigms. But as he says, this has happened before, and it will not mean the end of anything other than change for the dollar and those who hold them. Hence I am better off owning productive farmland and get its annual ‘dividend’ than financial assets.

    Frankly, just as we have seen default in currencies throughout history, we will continue to see selective default going forward. Some by inflation, some will hit the dustbin like those before them and before them. Probably we will return to a commodity based currency system with finance caked by metals, foodstuffs, etc. tangible assets. Why do you think Warren Buffet bought a railroad? Cash is trash. Why are nearly all assets going up in cost (in dollar terms)? Cash is trash. The dollar has no real value, but a mine or farmland or an oil well or a railroad has a lot of value. All the funny money being printed IS getting out ‘into the wild’ via tangible asset purchases. The phony inflation numbers are just that.

    We can talk about collapse in asset prices but against what? What’s thedollaragainst gold overtime? Which would you rather hold?

    I agree leveraged speculators will suffer greatly at some point. Those of us unleveraged will to suffer at all.

    I’m glad I “bought the farm”. Inflation. Cannot destroy my land anymore than it can Warrens railroad.



    Good to hear that not only GS is deluded in doing G-d’s work on this planet, D!
    Stupid&Lazy must be kept alive by the the anointed ones, or surely there will be no anointment. LOL.
    You guys crack me up!
    Thanks for the fun!

    Oh, by the way, Nicole, a great article!
    Seeds are THE problem indeed.



    When did I say I am doing G-d’s work? I am just doing MY work. We’re it not for the thievery of the Fed and the USGov there are other things I could and would do. Maybe those days will return…

    But I certainly have my reservations….

    Nicole Foss

    D, indeed I don’t touch either wheat or soy, ever. I agree we can’t support 7 billion people on a paleodiet (although when people eat satiating proteins and fats they don’t actually need much food because what they eat is so nutrient dense). We can’t support that many on anything other than an industrial system, but we can only do that while we have the energy. Since energy is finite, we’re not going to be able to feed 7 billion at some point no matter what we do. We’re a very long way into overshoot, and catabolizing our natural capital (soil fertility) as we try to stay there. That’s a recipe for carrying capacity collapse.

    The impact will be vastly broader than for those who hold dollars. Credit underpins everything today. Even those who are no levered up are going to find all kinds of things they depend on don’t work anymore. What about spare parts for tractors as an example? Or chainsaws? When trade takes the inevitable hit, we’re going to regret not making things like that in our own countries anymore. Selling produce will be very difficult when the customers have no money, so cash flow will collapse.

    The dollar isn’t going to collapse any time soon, though it will eventually, like all fiat currencies. Cash is not a long term bet at all, but it is a good short term one, especially US dollars. A good balance is a productive asset with no debt, like your farm, and enough liquidity to see you through for a year, so you can pay the property taxes that will be skyrocketing.

    It isn’t inflation we’re facing, it’s deflation. It won’t destroy your farm, but it will make it very difficult to run as a business, and it will be seen as wealth and targeted by the taxman, whether or not you have cash flow. It is going to take a hit in many ways, but it’s still a good option in comparison with the other possibilities. No one is going to be unaffected by a major economic depression though.

    One point I’ll be covering in part two is the strip mining of soil fertility through, which industrial agriculture does very effectively. I’ll be writing about GMOs and glyphosate in relation to soil fertility too (and later their health effects). Something to think about if you want subsequent generations of your family to be able to live on the land.



    I am right there with you on the energy issue. However, before the impact of energy gets to the food producers you will see governments around the world cut back energy use to private transport. In fact, look how much driving has “voluntarily” decreased in total miles in the US since the start of “the great recession”. The US in particular is very energy wasteful, and we will find that our wastefulness will be cut off. As I mentioned before, starving people bring down governments, and yo agreed. Pretty much all governments will put in place energy scenarios with rationing, car pools, whatever and ensure that food production is high up on the list. Again, I believe Robert (et al) did a pretty fine job of discussing liquid fuels rationing in “The Impending World Energy Mess” and I encourage you to give it a read. I fully expect that long before I or any other farmers lose access to petro-fuels and derivatives your avge daily LA (or similar) commuter will lose their access. And yes, my input prices will go up significantly, but so will my sale prices because I won’t grow for free.

    And yes, I also agree with your credit thesis, but only to a point. Just as we found out far later that the Fed backstopped credit not only on the QT for hundreds of US firms, hedge funds, etc, they also did it for overseas banks, firms, etc. Credit will not totally collapse, it will “reset” and like any reset, there will be winners and losers. Expect the avge Joe to be the loser, as he is always the loser, and the power elite to be the winners as they are always the winners. Again, this is why they are parking their money in fine art, trophy properties, farmland, oil and gas wells, etc. Your avge Joe cannot do such things. He may own his house, and maybe securities which are just paper demands upon a business enterprise that runs on faith in management that oftentimes could care less about anything but making their stock options or bonus payments. Me personally, I would rather own the ‘means of production’ than be on the ends of production. Again, I go back to the FEW. I can live without a new iPad, but I cannot live without the FEW. Your avge Joe condo dweller in Sao Paulo or NYC is hosed. They are dependent upon a tight supply chain. They have no fall back. I have established my fall-back for my family. po1 seems to think that this makes me like GS, but I am only a small time investor/farmer looking at the broader picture. While I don;t want to start chasing cows around again v. growing grains, if I had to that is what I would do. What will that condo dweller do in NYC, eat concrete?

    We have been teetering between deflation and inflation for some time. I have told people that we will continue to see “inflation in the things we need. deflation in the things we own”. Food prices continue to rise despite the phony Fed numbers, as do cars (all bought on monthly credit it seems), but try to sell a used boat or similar and prices still have not rebounded. Producers still have a hard time raising prices in a world full of excess labor and limited real growth. You believe that the cenytral banks of the world will fail in their policies to create inflation, but I still have my doubts. They can ALWAYS create inflation if it means saving the banking system. We may see deflation yet again, however the US has only encountered real deflation 2x in maybe the last 100 years. Real deflation would be such a negative for the entire world I would fully expect the Fed, ECB, China, you name it to open the floodgates accordingly. However, none of us really knows what will happen, all we can do is make our best plans accordingly.

    Finally, I will agree with you on the entire GMO issue. Frankly, I would celebrate if they were banned tomorrow. Yes my yields would drop, and yes I would make less money every year afterwards, and yes a big part of the Third World would go hungry as a result, but the soils and the planet would be much better off for it., I’m okay with all of that happening. But I doubt it does. Too much money in politics, and too many tentacles form Monsanto et al in the process.

    In the end, in the final “Max Max” scenario, if everything goes into the crapper (which will not all happen all at once), I believe I will have done my best to ensure the long term safety and survivability of my family. That is all one can ask for, is it not?



    I agree with D that farmers will be first in line when fuel runs low. It won’t be a smooth transition, though. Car pooling isn’t going to be easy with most folks living in far flung suburbs.

    I got away from gardening for a couple of decades, mainly because I didn’t have a good space for it. When I started back up, it was very frustrating, because it took 3 or 4 years to get that ‘green thumb’ back. The idea that the masses will respond to exponentially higher food prices by growing their own food is an idea that is logical, but there is that pesky learning curve getting in the way.

    I tried selling some vegetables from my permaculture project last Summer. It is a hard sell, because people generally believe that food comes from supermarket. They go to the farmers’ market mainly to buy sno cones or donuts or some other specialty item. This year I’m skipping the farmers’ market and selling to a produce market.

    Btw, if you want to see a blank stare, just use the word ‘permaculture’ in just about any social or work setting. This is the only realistic global warming workaround that has a remote (or better) chance of working, and not one in a thousand has a clue it even exists, and at this late date. Not good.


    Actually pipefit, I see energy allocation in tiers as:

    1) politicians and the very well connected (because they are OOOOOHHH so important) he he
    2) military and civil police/fire service (so they can keep us all in place or in FEMA camps)
    3) farmers and food producers/distributors (to keep the food flowing)
    4) strategic transport such as trucking of foodstuffs and railroads for grain movement
    5) medical care such as ambulances, healthcare professionals, etc
    6) everyone else



    I may be useful to note than Nicole and I don’t define inflation as rising prices, but as the money and credit supply multiplied by the velocity of money. Rising (or falling) prices are merely an effect of this. There are tons of articles in our archives that explain this.

    This means that you can’t have inflation in one part of an economy and deflation in another, It also means that central bank control over the process is limited, since no-one can force people to spend.



    There has always been this debate about what the definition of inflation is — be it money expansion or prices rising. Richard Duncan notes that in the present economy money = credit, thus there need not be significant expansion of money but credit to accomplish the same goals. Nichole argues that credit will collapse, and while I by no means discount that arguement or that we could see such a collapse, from my POV if mony=credit as Duncan suggests, then the Fed and other central banks can always create more ‘money’ by backstopping more ‘credit’. We may have already seen that collapse in 2008/2009, and have the template for it’s management at hand.– MORE credit.

    Yes, eventually that has to come to a halt, but the can kickers are pretty good at kicking the can. I thought much of what we see now would have happened back in 2001. Perhaps they can keep this party going for another 8-10 years, maybe more, maybe less. It certainly is not going to happen tomorrow. Or the day after.

    Getting back to inflation, if money=credit, than the printing of credit equals a monetary expansion. To the man in the streets that equals rising prices. The MotS coud care less about rising or shrinking money supply, he care about the prices he pays for stuff v. the wages he earns. To him there is definitely ‘inflation’ — especially after the Obamanation of ObamaCare.

    So yes, I understand your definition. I encourage you to see it also in other ways.


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