Will Food Prices Begin Increasing Again? Posner's Comment

Becker is right to point out the difference in supply conditions between oil (and other minerals, but I will limit my discussion to oil) and agricultural products: it is cheaper to expand output of the latter than of the former. Hence as demand for oil and for food rise as a function of population growth (an important qualification, as I'll explain--population growth is not the only driver of increased demand for food), oil prices will rise faster than food prices. This is fortunate because while there are substitutes for oil, there are no substitutes for food. A continued increase in world population will increase the demand for both oil and food, and historical experience suggests, as Becker explains, that the increased demand for food can be met at only modestly increased cost even if the world's population expands greatly, though this depends in part on how rapid the expansion is--the more rapid it is and hence the steeper the increase in the demand for food, the higher the cost of meeting that demand will be, as it is easier to increase production in the long run than in the short run. Moreover, a sizable expansion in population would raise the price of farmland by increasing its opportunity cost. As the world grows wealthier, the rate of expansion of population should, if historical experience is a guide, slow. But even if population stopped growing altogether, the demand for food would continue to rise because more people (perhaps billions more) would be able to afford the rich diet that people in wealthy countries consume. Supplying that rich diet is very costly in agricultural resources, for one of the major components of the diet is meat and the production of meat requires more agricultural output than the production of cereals and vegetables, since the animals that people eat are big consumers of food. Technological innovations may hold down increases in the price of food that are due to the increased demand for a rich diet as multiplied by increase in population. But those innovations may create substantial externalities even if they do not push up prices (indeed, the less the increase in prices, the greater the output of agricultural commodities and hence the greater the externalities). As more and more countries adopt the most efficient methods of agricultural production, and thus for example converge on the optimally genetically modified variants of crops, genetic diversity will decline, which will increase the potential damage from blights. (It is not only stock portfolios that benefit from diversification.) Agriculture is a heavy user of water, moreover, and global warming appears to be reducing the supply of water usable for irrigation by reducing the size of glaciers. The run off from the seasonal melting of glaciers provides a more usable supply of water than rainfall, because the water from a melting glacier is channeled, while rain that falls outside a river or other body of water is difficult to store for use in irrigation. I am one of those timid souls who worry about the downside of technological advance and economic growth. I find the prospect of continued increases in population and income, and of the technological innovations necessary to cope with those trends, unsettling.

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