Bottlenecks, Supply-Demand Crises, and Rising Food and Oil Prices

As Nicholas Georgescu-Roegen pointed out in his 1971 classic The Entropy Law and the Economic Process, all forms of production and consumption are ultimately tributaries of solar energy flow captured through mining, forestry and agriculture. Despite the vast diversity of output in the global economy—from art to artillery—the main inputs are relatively simple: fossil fuels, minerals, timber and food (especially grains).

One of the results of the Industrial Revolution was to tie food production to fossil fuel inputs. The supply-demand dynamics of food and oil (and the distortions of cartels and subsidies) are as inseparable in industrial capitalism as air is from water in the atmosphere. And now the atmospheric effects of fossil fuel inputs since 1750 could reduce yields of rice, wheat and corn by as much as a third in Asia, Africa and Latin America(where the overwhelming majority of subsistence farmers now live).

These news stories from the last few days capture the interrelated dynamics of food production, oil consumption and climate change:

Global Food Crisis Looms as Climate and Fuel Shortages Bite
Rising Food Prices To Hit Consumption
Frenzy in the Markets as Oil Heads for $100 a Barrel
IEA Sounds Alarm Over Huge Energy Demands
High-Prices Oil Adds Volatility to Power Scramble

To see how these interrelationships work, look no further than the U.S. corn industry. As Michael Pollan shows in The Omnivore's Dilemma, the seeming diversity of products in U.S. supermarkets is largely corn-based. Corn-based sweeteners have replaced cane sugar in most U.S. soft drinks; U.S. bacon, eggs, milk and hamburgers (through corn-based pig, chicken and cattle-feed) ultimately come from corn. Corn is used in 2,500 out of 10,000 products sold in the average U.S. supermarket. This dietary monopoly is made possible through obscenely large subsidies ($51.3 billion from 1995 to 2005), about 63% of which go to the top 10% of enterprises, the main suppliers of corporate processors like Cargill and Archer Daniel's Midland. In fact, 3 or 4 corporations control 81% of corn exports in the U.S., 60% of the grain handling facilities, 61% of flour milling, and 49% of ethanol production.

The result (a real irony considering the anti-immigrant sentiment in the U.S. corn belt) is an export subsidy to the agribusiness giants of over $100 million annually to dump U.S. corn on the Mexican market under the neoliberal NAFTA rules. According to the Mexican government itself, U.S. corn dumping has driven around 2 million Mexican farmers off the land. CAFTA is now bringing this dynamic to Guatemala, Honduras and other signatories with small corn farmers.


Besides fuelling poverty in Latin America and obesity in the U.S., this subsidized corn production is fragile, because it's overwhelmingly oil-based. On average, 10 calories of fossil fuel energy are burned for every 1 calorie of food energy produced in the U.S. The fertilizers, the tractors, the processing equipment, the refrigerated trucks, the plastic packaging and grocery bags: all require oil.

The intimate connection of oil and food inputs at the base of the global economy means that changes in supply and demand affect both. We see this in rising food and oil prices worldwide, reported side by side by the Financial Times today:
To be continued...