Food

I think this focus on food prices will continue well beyond the current inflation crisis. Food price increases are being driven by the climate crisis, the shifting supply chains, and global conflict. So, prices are going to be growing faster than most things for at least the medium term.

We talk about food as if it is somehow separate from other processes in the economy because most people see it as an essential part of life. Unlike, say, a microchip for a car. While it would be great if this was the case, food has become just another commodity for global capital and that means it is treated much like microchips, plastic toys, and blue jeans.

The price of food under "advanced" capitalism is not controlled by the state—for the most part. This is rather obvious when we look at it, but the popular narrative tends to put blame on the government for price changes. The exceptions to this rule are things like milk in Canada that have some supply management where the government subsidizes production to meet a minimum level at a set price.

Costs of production of food, not just distribution or point of sale to the consumer sets a floor on price for food. And, the prices are built in well before it reaches your fridge at home.

The supply chain for some food production can be as complex as the supply chain for putting together an airplane. There are many hands on your food, many machines, inputs, and multiple separate processes it goes through before it gets to you. Each of these adds cost to the production process.

One part that many people forget when talking about food is that much of the cost of food was already baked-in based on the production of food the year before.

Time is a big factor for food production costs. Not only because food has a shelf-life, but because it takes years for most food to go from planning to being picked.

The current prices for food produces are not able to be modified much by the state—at least not without creating other problems and unintended consequences. It does not have to be this way, but to pretend we can interfere with food prices and markets right now, in the midst of a crisis, without thinking it through is dangerous.

While it is not untrue to blame "companies" for high food prices, the price increase of food is much more complex than this and likely not anything one single company has caused. And, as with anything in economics, it depends on which ideological position you take that drive the cause and solutions is to the current situation.

The neoclassical view of the economy is that there is perfect competition and the price of things is the natural price of things. For them, the price is set by the cost of production (cost of inputs, and wages, debt payments, etc) plus a natural rate of profit that capital deserves for making things happen.

The current price increase for food under this neoclassical view are from direct and indirect interference in the private food market by governments (who are trying to keep their population fed). The orthodox proponents of neoclassical ideology do not really have a solution to the current issue as they see it as directly related to the causes of general "inflation". That is, workers are being paid too much money.

The Post Keynesian position is that there is imperfect competition and the price of things is the natural price of things plus a monopoly mark-up or some other distortion in the price cause by monopoly power over the market.

This heterodox view points directly to "monopoly" providers of food, the monopoly owners of some food patents, and the profiteering on food by some distributors who have set food prices higher. This view cannot address the fundamental issues that the cost of food has actually increased.

Both the neoclassical and the heterodox views rely, at their foundation, on some natural price of the product during some imagined perfect competition market price.

So, neoclassicals say it is not the companies' fault. The post-keynesians say that it is partly a company's fault.

From my view, the very idea of trying to find a perfectly competitive market in global food production would probably result in global famine or workers becoming destitute trying to work in the industry. Close to what we actually have now.

I also think there is a rather high bar to say that there is true monopoly behaviour in food pricing. There is no indication that there is monopoly behaviour in food price setting beyond some very specific examples of very specific goods. If there were, we would find some firms in food production making higher profit rates than other firms. We do not see this.

Folks right now who are pointing at individual companies are pointing to the mass of profits of food distributors/sellers. It is true that they are making banner profits and there is no question is a problem (for workers). However, there does not seem to be anything more insidious about these companies' behaviour this year versus their actions for the previous decade.

In fact, much of the current profit rates of many of these distributors is from a type of "buying cheap, selling dear". That is, the food that these firms purchased was cheaper when they bought it, but the market price of those foods stuffs increased with inflation at selling time.

While the "selling cheap, buying dear" can legitimately be called profiteering (that is maximizing profits), it hardly has to be monopoly behaviour that has caused it. We will see if profits come down as these distributors have to re-stock their shelves. Which is something that is already happening.

So, what is really going on?

For the classical view, let us go back to some basics. Let us say that the price of the production of food is the price of the capital inputs and labour inputs. Inputs include the price of seed, planting, maintaining, and harvesting. That is to say, the "value" of the food being exchanged for money is the product of those inputs.

And, because we have a global value chain for food production, the value creation of food also include the inputs transport, fuel, storage, and the labour that goes into that. These costs are not insignificant.

There is disruption in those value-creation chain right now which increases costs in a real way.

• Climate change
• war
• de-globalization
• price of oil
• shipping costs affecting input prices of seed, machines, and fertilizer
• labour shortages and the degree to which migrant workers are willing to do work for basically nothing increases the price of labour.
• disruptions in the "normal" goods supply chain increase prices.
• Buying new storage, hiring new people, finding and paying new people in different parts of the world to do these things.
• purchasing inputs from different suppliers, and
• dealing with debt and increased risk

All these increase costs. And, all these mini crises for inputs increase the cost of production, distribution, and seeling of food.

Together, these costs of production put a floor on the price. There is no ability for food producers and distributors and sellers to sell at a loss for an extended period of time. So, they must sell at the highest costs of production.

However, this floor on cost of inputs does not set the price of selling food. The price floor of selling is the highest marginal cost of production, not the lowest.

Because of competition, the difference between one company's costs and the highest marginal cost is the profit made by these companies. If the company produces at the highest marginal cost and can stay in business, it is not going to make much profit as it has to sell at the highest price. If a new player in the market is there and produces at a lower price, it is going to sell at the highest prices it can—which will likely be at a price just lower than the lowest price of the most expensive producers' costs.

There is a ridiculous amount of competition in this value chain for food production because there are thousands of processes that go into food production, transport, storage, processing, and selling and it happens all over the world. This competition puts downward pressure on costs—companies spending too much on production and not pivoting on investment in new technology or too expensive debt/labour go out of business or are purchased by larger capitals.

This can easily be seen in the rate of technological change in the food producing sector. It moves very fast.

All these pressures make the band of low cost to high cost small. The profit margins on food are very small and only work at scale within the global food production system.

So, profits might go up and down, but they are relative to the highest sustained marginal cost of production over the time-frame of production of food.

The key here on costs and profits is the time frame: it runs between 3-10 years for most food products for producers and about 1 year for distributors (we are only talking food costs, not distributors' other costs if they sell other things).

In this analysis it is not one or another company that is the cause of high food prices. It is the value chain that has been developed under this form of capitalism that has created the problem.

It is called the Green Revolution. When it comes to food production, the Green Revolution was the global supply chain development of capitalism, the commodification of all food, and the heavy increase in the use of oil to produce food.

Much of the downward pressure on prices of food stuffs we have seen in the previous 40-50 years is about to end because that was all a result of shifting production from local labour to cheap labour from the periphery of the first world, oil, and automation. That "innovation" (debt) cycle that kept costs from increasing is at an end.

The next innovation (and debt) cycle has not started yet. So, we are at a point where food will only get more expensive to produce as wealth is not able to be as easily extracted from nature and workers through profit subsidies, globalization, and pollution.

The problem with the current economic and policy paradigm around food is the private, profit-driven nature of food investment. The Green Revolution provided producers subsidies in the form of cheaper labour, cheaper fuel, cheaper fertilizers, and productivity-increasing chemicals that hid the waste generated. The subsidies created a system that—in some ways—purposely creates waste that is unaccounted for.

The only solution is one where the wasted food, energy, and many inputs are redirected towards the production of food closer to the consumer in more sustainable ways. Unfortunately, any transition will take along time to accomplish and it is unlikely to be without major crises of its own. However, public intervention into the food supply is going to be part of the way forward one way or another.

The call is not the "collectivization" of food or the public ownership of food. It is a call for more democratic intervention in the food production, distribution, and preparation of food system. This intervention is as necessary as the shift away from coal-powered electricity generation and is an essential part of the reduction of carbon intensive production.

There are many other direct interventions the state could make to bring food costs down for consumers, or at least provide more equitable access to food. These include things like public production of meals, school meal programs, bulk production and distribution of basic food, and coordination of supply of healthy food for the working poor. All could be done as part of a health working program from health care to affordable food availability. Such interventions are as drastic as the ones listed above.

The necessity for massive amounts of investment to be made will only be done through state-supported investment that is of a non-profit nature. Private capital is unable to invest at this scale when the (profit) margins are already so tight.

Any transition is going to have to include supported supply chains and storage solutions that eliminate redundancies. It will also have to plan for the elimination of the food-energy competition such as ethanol production from corn and non-waste bio-diesel.

The climate and global systems are going to change faster than people think and it all adds-up to one inescapable fact that in the short term food is going to get more expensive.

In the next 30 years, unless there is a major push for local and urban agriculture, reduction in food waste, and direct supports for public production, distribution, and provision of food, we will not have the food we need.

Industrialized islands like the UK, New Zealand—and places like Cuba and Indonesia—are a good place to look at local food issues.

I think the UK is the main canary in the coal mine when it comes to food costs and localized production. UK companies and people have a lot of agriculture and a lot of purchasing power to buy food. If it is having trouble producing food for a not-so-fast growing population and cannot import food because it is competing with other countries for that supply, it is a major red flag that we are entering a very bad decade.

And, we are already getting there if you believe the National Farmers' Union:

NFU calls for action on supply chain emergency

Government faces a stark choice: back British food production to secure a home-grown supply of sustainable food or risk seeing more empty shelves in the nation’s supermarkets, NFU President Minette Batters warned today.

• https://www.nfuonline.com/updates-and-information/nfu-action-on-supply-chain-emergency/