There is much more going on with rising food prices than just inflation and stormy weather. As food becomes more scarce and more expensive, the political class will increasingly fall back on the old Soviet excuse of “bad crop years” to explain away their disastrous interventions in farming.
Fortunately, you are not a Soviet peasant. Unlike those unfortunates, you have freedom of action to not be a victim – in fact, this is an emerging scenario in which you can make some serious money. But to do so you have to understand the basics of what’s happening to the future creation of global food supplies.
The Government’s Assault
against Farming Innovation
Threatens a Global Famine
Of course, if markets were allowed to function freely, to adapt and correct themselves, and, most importantly, to innovate, this startling jump in population growth would be no big deal. Unfortunately, as history shows from the Irish potato famine to African destitution, most starvation and shortages are caused by government. This time around, however, the potential scale of an unaffordable (for most) global food supply and resource availability crisis is unprecedented.
Ominously, a critical tipping point seems to have been reached – decades of steadily increasing “green” political and legal restrictions on the efficient use of natural resources have imposed heavy consequences. Meanwhile, subsidies in certain sectors (such as corn-based ethanol, which raises corn prices while providing no net gain in energy supply) have distorted the market.
The resulting dysfunction in farming and mining has contributed to resource shortages – but it’s also created investment opportunities.
Call it “Peak Resources,” because we increasingly live in an era in which we share in scarcity while government bureaucrats call the shots as to who gets what piece of a shrinking pie.
Political Meddling in Agricultural Technology
Threatens Affordable Food for the Masses
Nowhere is the threat of blunderbuss government more concerning than in the slowing of farming productivity gains which are absolutely essential to feeding a rising global population. Critical bio-engineering advances must be allowed to unfold, or a global starvation crisis could eventually ensue.
Wall Street Journal columnist Halman W. Jenkins said it well when he observed: “Not enough attention is focused on the forces of stagnation loose in our world. Agricultural output has been falling behind population growth for almost two decades, and so has productivity.”
Just one telling example of threats to the creation of adequate food supplies is the Obama Administration’s regulatory war against farming innovation:
- Specialty crops from genetically enhanced seeds which are resistant to the agricultural herbicide glyphosate (in the product line known as Roundup Ready) have been stuck in a 10-year bureaucratic time-out. This new avenue of mass food creation is under political attack. Roundup Ready’s less competitive counterparts are bending the USDA’s bureaucratic ear (the agency still has not provided an “environmental impact” statement allowing these exciting new food-creating innovations to move forward).
- Roundup Ready-treated sugar beets (accounting for 50% of U.S. sugar production) are among many next-generation crops whose fate is tied up in a political drama with so-called “organic” farmers who oppose this form of competition.
- While the Obama administration has finally allowed some latitude to alfalfa growers using breakthrough technology, the real message to problem solvers is that innovations such as Roundup Ready will attacked and derailed.
Of course, numerous investors who understand the dire implications of the coming global food crunch and the higher prices that result have jumped into commodity ETFs with an emphasis on agriculture.Those whose strategy is to play in the futures markets of the commodities themselves are vulnerable to a pricing anomaly known as “contango,” which often forces ETFs to pay profit-killing premiums when the near-term contracts roll over!
At the core of a prudent, long-term investment strategy is an emphasis on investing in the hard inputs of modern farming, starting with fuel, water, and the complex chemicals associated with advanced bio-engineering. Companies involved in supporting modern agriculture, such as fertilizer, pesticides, and high-tech farming tools, include Potash (POT), Monsanto (MON), Mosaic (MOS), Deere and Company (DE), Sygenta (SYT), and Archer Daniels Midland (ADM).