The New York Post headline announced that prices were rising for many food staple items, particularly meat, fruit, milk and butter.
This was the same message that I got when I recently went shopping with my better half. We had come up the refrigerated dairy aisle and stopped alongside about four other people as everyone gazed at the rows of shredded and block cheese products that were all on sale at prices that, roughly two years ago, were full prices. One person stood with her hand on her chin and commented to her neighbor about the prices and my better half likewise asked, what’s going on with cheese? My response was that it was simply due to the mega-drought that’s presently parching the western US.
Prices are going up for all of these items and as much as I truly dislike the Federal Reserve, it’s actually a supply and demand issue instead of a monetary policy issue. The reality is that the western United States – and especially California – is now locked into a horrendous drought, which some scientists state is the type that occurs only about once in a hundred years or so. Satellite images of the San Joaquin valley show the tremendous difference to that valley in the course of only year; what’s especially startling in the January year-over-year photos is the loss of the typical snowpack. It’s the melting of the snowpack that helps provide water to replenish reservoirs and land and with that diminished, the effect is impressive. It was this kind of megadrought that was thought to be responsible for the gradual destruction of the Anasazi culture that flourished in the pre-European southwestern United States, leaving behind the famous cliff dwellings at Chaco Canyon in present-day Arizona. This isn’t meant to be breathlessly apocalytic, but a drought of this magnitude is going to leave a considerable hurting on how we live in those conditions and in those areas.
The fact is, California and the western US provide a significant percentage of our national food supply. The state’s top five agricultural products are dairy, greenhouse/nursery products, grapes, walnuts and beef livestock and the effect of the drought has already been dramatic; In late 2013, agricultural conglomerate Cargill announced that it was closing yet another beef feedlot in Texas as the size of the aggregate US cattle herd dropped to levels unseen since the early 1950s. The principal cause of the herd decline is due to drought-related high feed costs for ranchers, who correspondingly culled their herds to bring their margins back into line. Considering that the population of the US has more than doubled from 131 million to 308 million from 1950 to 2010, it’s a given that a significant drop in supply would affect prices. When the USDA reports that the typical American consumes 7 more pounds of beef today than in the 1950s, then clearly the demand is up as well and with that, prices. California provides the same for dairy as it is the number one state for production of milk and dairy products, accounting for about 20% of domestic US milk production. So it’s a given there as well that any impact upon the supply is going to have a corresponding effect upon prices, especially when Americans are likewise prolific milk drinkers. But the other part of the demand issue is that we’re now exporting far more dairy production to other countries, particularly China, than in the past. New Zealand leads the world in dairy exports but is likewise suffering from drought-related supply issues so that their customers are looking elsewhere and that elsewhere is the US. China’s appetite for milk has led to a 39% rise in US dairy exports in the first quarter of 2014 alone and while it’s nominally only about $700 million – how jaded are we when a million of anything doesn’t seem like much? – that’s still a lot of dairy that isn’t making it to our own shelves.
So yes, prices are rising and as the drought continues and we use our own food supplies for export purposes, they’re going to continue doing so. It’s a simple math problem. Understand that inflation is not a single variable issue but a bubbling stew of multiple ingredients – supply and demand, monetary supply and policy, technological change and political policy amongst others. But when you examine the causes, you have the ability to look at larger issues and the mundane price of those blocks of cheese on that refrigerated aisle shelf take on new meaning. A New Yorker commented to the Post reporter that while prices have gone up, her income has not, as it hasn’t for hundreds of millions of other Americans. If we’re going to permit an unfettered laissez-faire capitalism by producers, then we have to look to the income side of the house and see why our incomes haven’t risen accordingly. What’s the cause and what can and must be done to bolster that income to sustain a diminishing middle class? Indeed, should we begin adopting policies that protect the food supply for our own citizenry instead of using food as an export entry in the trade balance ledger? Much as I don’t want anyone anywhere to starve, China’s demand for milk is partially predicated upon their own citizens’ distrust of their domestic production due to pollution and safety issues, and that is their problem. Not ours.
Prices for those items will continue to rise until such time as either demand decreases or supply increases. Until then, we’ll certainly have to make the necessary micro-level changes such as buying and freezing extra blocks of cheese on sale, shifting to other protein sources to replace beef, and becoming far more purposeful in our meal-planning and shopping. But we’ll have to also begin expecting that our leadership – political and business – review and change the policies that benefit the corporations to the detriment of the individual. We can’t repeal the laws of supply and demand…they are as real as gravity. But we can and should expect that leadership won’t engage in monetary and political policies that create conditions that are only exacerbated when supply and demand go south.