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Doomster or Boomster?

Jan 6, 2011 • Demand, Supply, and Markets, Developing Economies, Economic Debates, Environment, Innovation, International Trade and Finance, Regulation, Thinking Economically • 603 Views    No Comments

Agree or disagree? “Both the jayhawk and the man eat chickens, but the more jayhawks, the fewer chickens, while the more men, the more chickens.”

The quote is from 19th century economist Henry George but it relates to a report from the FAO (Food and Agriculture Organization of the United Nations). Predicting that the world will have (approximately) 2.3 billion more people in 2050, the FAO  said we will need 70% more food production.

Can we do it? The debate continues between the doomsters and the boomsters. Saying production cannot keep up with population, doomsters like biologist Paul Ehrlich look back to Malthus. Meanwhile boomsters, like Julian Simon say that human ingenuity and the incentives of higher prices lead to more production.

The Economic Lesson

Where are food prices? Summarized by Bloomberg, currently sugar and oilseeds (which include soybeans, sesame seed, sunflower products, canola) have been the primary reason for a 25% climb since December, 2009. The last big jump was during 2008 when a 43% spike in the FAO Index reflected higher cereals and rice prices and led to food riots in poorer nations. A handy site for seeing the current state of food production in developing nations, country by country, is here

As economists we have so many variables! When the price of a commodity skyrockets, the result is less supply because the cost of production increases. On the other hand, as we saw with oil, when price goes up, it creates incentives on the supply side to, 1) produce more 2) innovate;  create an alternative.

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