Monday, March 7, 2011

Food Prices and Population Growth - Is Malthus Being Proven Correct?

Last week, the media was all abuzz about recently released data showing that food prices have reached an all-time high.  In this posting, I'll give a bit of background information about the source of this data.

The Food and Agriculture Organization (FAO) of the United Nations released its monthly Food Price Index (FFPI) for the month of February 2011 that showed an increase of 2.2 percent from January.  The FFPI reached 236 points, the highest level it has reached in both real and nominal terms since the FAO started tracking prices in January 1990.  Here's a graph showing the rise in the overall price of food since the inception of the FFPI:

The FAO's Food Price Index is "a measure of the monthly change in international prices of a basket of food commodities.  It consists of the average of five commodity group price indices (representing 55 quotations) weighted with the average export shares of each of the groups for 2002 - 2004.".  The five food groups studied include cereals, dairy, oils and fats, met and sugar.  In the month of February 2011, the prices of all commodity groups rose with the exception of sugar.  Here's the breakdown of the five groups:

1.) The Dairy Price Index rose the most among the five groups, it increased 4 percent from the previous month but is still off its all time high in November 2007 mainly because of strong product demand.

2.) The Cereal Price Index rose 3.7 percent from the previous month, the second highest increase among the five groups and the highest since July 2008.  The price of maize rose the most due to strong demand and tight supplies while prices for wheat rose only slightly and the price of rice fell slightly.

3.) The Meat Price Index rose 2 percent from the previous month due to higher prices for hog and sheep meat.   The price of beef has remained stable due to import disruptions in several markets.

4.) The Oils and Fats Price Index rose only marginally but is now just below the peak in June 2008.  A recovery in the global supply of these products is responsible for the small price increase.

5.) The Sugar Price Index fell slightly from the previous month but are still 16 percent higher than this time last year due to tight supplies.

Here is a graph showing the individual food group indices for the past two years:

Now, let's look at a report published by the United Nations Department of Economic and Social Affairs back in 2008.  In this report entitled "The 2008 Revision of the World Population Prospects", the United Nations estimates the projected population of the world to the year 2050 based on several variants.  These variants include changes to the world's fertility rate using the current constant fertility rate as well as low, medium and high fertility rate scenarios.  Here is a graph showing their projected world population to the year 2050:

Notice how in the medium fertility variant, the world's population will reach 8.57 billion by 2035, a 24 percent increase in 25 years over the world's current population of 6.904 billion (according to the United States Census Bureau).

Here are the regions in the world where the United Nations anticipates the population growth to be the greatest and the least:

It's not terribly surprising that the Asian region is going to be responsible for the lion's share of the world's population growth over the next four decades.

Robert Malthus was born in 1766 in Dorking, south of London England.  In 1805, he was appointed professor of Political Economy at Haileybury, a college run for the education of civil servants by the East India Company.  In 1798, Malthus wrote an essay entitled "An Essay on the Principle of Population as it Affects the Future Improvement of Society with Remarks on the Speculations of Mr. Godwin, M. Condorcet, and Other Writers."  Here is a quote from Chapter 1:

I think I may fairly make two postulata. 
First, That food is necessary to the existence of man. 
Secondly, That the passion between the sexes is necessary and will remain nearly in its present state. 
These two laws, ever since we have had any knowledge of mankind, appear to have been fixed laws of our nature, and, as we have not hitherto seen any alteration in them, we have no right to conclude that they will ever cease to be what they now are, without an immediate act of power in that Being who first arranged the system of the universe, and for the advantage of his creatures, still executes, according to fixed laws, all its various operations.

Here is another quote from Chapter 1:

"Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio. A slight acquaintance with numbers will shew the immensity of the first power in comparison of the second."

Malthus so presciently observed that the world's population increases at a far greater rate (geometric progression - 1, 2, 4, 8, 16...) than its production of food (arithmetic progression - 1, 2, 3, 4, 5....).  He notes, quite correctly, that the passion between the sexes is unlikely to diminish over time and that the natural rate of population growth is likely to continue unabated.

When we put the recent increases in the price of food into the context of population growth, one has to wonder when the growth in humanity will outstrip its ability to produce ever increasing amounts of food and that increasing demand for a relatively fixed supply of food (particularly in some parts of the world) will lead to long-term food price inflation.  The widespread use of hydrocarbon-based chemical fertilizers and pesticides has greatly increased agricultural output as has the addition of hydrocarbon-based mechanization especially over the last century.  This has kept food supply growing in tandem with population growth  One issue that will impact the supply of food, however, is out of mankind's control; the potential for massive climate change over the coming decades.  Certainly, it is possible that areas that are not currently farmable may become so as climate changes and as temperatures warm.  Equally likely, however, is the opportunity for the spread of diseases and pests into areas where they have not been historically endemic.  As well, unexpected frosts, droughts and floods may destroy crops in areas that have been normally considered prime agricultural lands.  If, over the next 25 years, the massive population growth as projected by the United Nations and a levelling off of the increases in agricultural output combine, portions of the the world's populace could be in for a perfect storm of misery.

Only time will tell whether Malthus' thesis was correct but if the world continues along its current path, we may find out sooner rather than later just how prescient he was.


  1. Im a devoted follower of this blog but this article i find hard to digest.
    The article assumes one variant that it shouldnt assume.
    -The rise of food prices is related to the limited production of food.
    Its simply not countries dont produce those basic foods us mention....developed countries produce only expensive products such as berries and asparagus. Just because these require more knowledge and are far more profitable.
    If demand will increase prices of basic foods these countries will go back to basics and food prices will falctuate downwards again.
    I didnt even mention that the unused potential farm land in the world can easily supply the growing population.....
    So why food prices increase?
    Because food prices directly linked to oil's!

    Food handling in every step of its production heavily relays on oil...tractors, transport and packaging. Hence it is not surprising that even though production exceeds demand and will continue to do so for a while...the actual cost of producing food is increasing as long as oil prices remain high.

    Malthus didnt think in terms of energy....
    Its not the population's size...its the abundance of energy....Its the same rule in nature.
    The amount of energy trees convert from the sun is the main source of food for the rest of the chain....

  2. I agree with Anonymous; good reply by the way.

  3. In autecological studies, bacterial growth in batch culture can be modeled with four different phases: lag phase (A), exponential or log phase (B), stationary phase (C), and death phase (D).

    1. During lag phase, bacteria adapt themselves to growth conditions. It is the period where the individual bacteria are maturing and not yet able to divide. During the lag phase of the bacterial growth cycle, synthesis of RNA, enzymes and other molecules occurs. So in this phase the microorganisms are not dormant.
    2. Exponential phase (sometimes called the log phase or the logarithmic phase) is a period characterized by cell doubling.[3] The number of new bacteria appearing per unit time is proportional to the present population. If growth is not limited, doubling will continue at a constant rate so both the number of cells and the rate of population increase doubles with each consecutive time period. For this type of exponential growth, plotting the natural logarithm of cell number against time produces a straight line. The slope of this line is the specific growth rate of the organism, which is a measure of the number of divisions per cell per unit time.[3] The actual rate of this growth (i.e. the slope of the line in the figure) depends upon the growth conditions, which affect the frequency of cell division events and the probability of both daughter cells surviving. Under controlled conditions, cyanobacteria can double their population four times a day.[4] Exponential growth cannot continue indefinitely, however, because the medium is soon depleted of nutrients and enriched with wastes.
    3. During stationary phase, the growth rate slows as a result of nutrient depletion and accumulation of toxic products. This phase is reached as the bacteria begin to exhaust the resources that are available to them. This phase is a constant value as the rate of bacterial growth is equal to the rate of bacterial death.
    4. At death phase, bacteria run out of nutrients and die.

  4. Anonymous

    I can't argue with any of your points. In large part, price increases in food are related to the use of grains to produce ethanol and the demand for ethanol rises as the price of oil rises perpetuating the problem. It will be interesting in the future though to see if there is a relationship between the price of food and population as those nations that cannot afford to feed themselves and who practise subsistence agriculture will suffer far more from high prices and low output.

    Thanks for your thoughts.

  5. Thank you for your comments (anonymous comment1).
    This blog is by far my favourite.

    our growth will be similar to bacteria's?
    Possible. I personally think population rise will halt due to cultural shifts such as equality to women and the adaptation of western life style.

    I agree with political junkie- its a self perpetuating trend....until alternatives to current energy sources will be found. I think high food prices might bring market stability.
    I believe (didnt check) that as a % of income expenditure, food is in a historic low.
    25 years ago food would be far more expensive... MacDonalds been a good meal out for the average MacDonalds is dirty cheap and a fancy restaurant is the new normal for middle class people.

    As geopolitical analyst I think you missed one crucial issue (maybe I missed your post)- Rare earth elements and Uranium as an energy source.

    Would be happy to contribute some graphs or charts on request. Not sure I can write as nice as you do :-)
    Thanks a lot for this wonderful blog!

  6. Thanks Michael. I did a posting on uranium way back when I started out located here:

    I'll likely revisit it sometime and put in more information as I have experience in the uranium industry.

    You are right, food expenditures as a percentage of household budgets is at an all-time low, a fact I constantly hear from farmers in my community!

  7. Thank you Junkie, its a good article (uranium)!

    I wonder how uranium prices are not directly linked to oil prices...
    This Cameco's share price (have a look on the last 5 years..) one would expect uranium would be in all time high...its just around its average

  8. Cameco has been having difficulty with flooding at their Cigar Lake mine which has impacted their production projections. Here's an article:

    They still have upside potential but, like the oils, CCO has not reached the highs that it reached when uranium prices soared in 2007 - 2008. I think that the market is a bit more cautious this time out.

  9. Good that I didnt buy any cameco shares now :-)

    Here is a good article about the japan- reactor situation

  10. I wonder how uranium prices are not directly linked to oil prices...

  11. Malthus overlooked a whole lot of things with his simplistic comparison of geometric vs arithmetic progressions. Not surprising as at this stage of history people still believed in God, that the world was created by Him in 7 days, and that the earth was flat. With the benefit of modern science and hindsight how anachronistic both of those seem now!

    According to basic economic theory, food production (the same as production of any commodity) can be defined as the result of a combination of labour, and the resources of land and capital. By definition, if the population grows by a geometric factor, so does the amount of labour available for food production.

    So then the biggest factor we need to look at is the ratio of (scarce) resources to labour. However the other factor that has to be considered here is technology, as this has a huge impact not only on farming methods, but on the available amount of land as more unsuitable land is irrigated and harnessed for food production. Therefore this all-important ratio is further altered beyond a simple arithmetic progression.

    The other elephant (or should I say pig, cow, sheep or chicken) in the room we cannot afford to ignore is WHAT food is produced. It is a fact that the rearing of livestock for meat consumes far more resources than growing vegetables, grains and cereals for human consumption. Depending on whether you subscribe to the vegetarian view or the more independent scientific view, the statistics are more or less alarming. From WikiPedia "the inefficiencies of meat, milk and egg production range from 4:1 up to 54:1 energy input to protein output ratio." Some averages from the US:
    It takes 440 gallons of water to produce 1 lb of beef, and 14 to produce 1 lb of wheat.
    For every lb of pork produced, 7 lb of corn and grains are fed to pigs.
    On average, it takes 12 times as many fossil fuels to produce 1 lb of meat protein than 1 lb of vegetable protein.

    This is relevant because in all these areas of the earth where huge population increases are expected, people there are not going to be concerned whether they get meat every day, rather that they get enough nutrition just to survive.

    Having said all this, the facts are incontrovertible. We are all going to die some day. The earth's resources, including land, are finite, and at some stage will not be able to support any further human population growth. Back to the humans as bacteria argument! Which is looking like the most convincing comment here...