As I have pointed out before, first- (and some second-) world governments are poised to deliberately slow the growth of global income (and therefore global demand) to postpone the perceived exhaustion of world resources and to slow down the presumed impacts of man-made global warming.   Those who trust governments more than markets are in the ascendancy and meat production and consumption (by first- and second- world countries) are in the cross-hairs.  Failure to reach a coordinated agreement to slow economic growth, though, is certainly still possible since a single nation or group of nations will be reluctant to adopt such policies unilaterally as the economic consequences would be devastating to their economies in the long run.

 There is a growing misperception that market mechanisms will not be effective in transitioning global resource use to a sustainable level and that market (price) mechanisms will ration resources in such way as to lead to an increasingly inequitable distribution of global wealth, even though this has not been the case historically.

 A few months ago, I shared the stage in Spain (and spent some time chatting) with a locally popular and world-class general economist by the name of Xavier Sala-i-Martin.   Dr. Sala-i-Martin is from the Catalonia area of Spain, is Harvard-educated, and is one of the most cited economists in the world.  His principle area of interest and writing is economic growth and he currently holds joint appointments at Columbia University and the Barcelona Graduate School of Economics.

 One of the conclusions of his research (which struck down the conventional wisdom of the United Nations and the World Bank) is that world poverty has actually been decreasing over the last several decades both in rate and in the total number of people living in poverty (with Africa being the one-country exception).  In addition, he has also demonstrated that individual income inequality has been decreasing (visit http://www.nber.org/papers/w8933 for the abstract of his conclusions).   These misperceptions by the United Nations and World Bank are a big part of the underpinning of the current criticism of capitalism and market-based solutions to current and coming world resource constraints.  Despite these facts, current world governments are steering toward a transformational change in world economic organization.  This ideological and politically driven gamble seems likely to lead to some devastating consequences if fully implemented.

 Policy decisions are being put forward which increase the likelihood of both national and joint global actions to constrain energy (also water and arable land) use, at least by first- world nations.  The longer view is that this constraint will be eased as new technologies (subsidized in their current development) provide future energy through dramatically less fossil fuel use and achieve something closer to a net-zero use rate by firms and families.  That’s an “all-in” strategy at the world poker table that politicians are rushing to make without the explicit awareness of the consequences of failure by their constituents.  We are contemplating actions that could make the “lost decade” of Japan look like prosperity.

 Supporting these political conclusions, coordinated academic studies are emerging that seek to demonstrate, for instance, the energy (and water) inefficiency of protein production and consumption, especially as it is currently undertaken.  Adding up the total energy (and water) requirements of pork production starting from the energy necessary to produce the crop inputs for feed, the inputs used for those crops through the production, assembly, processing, transportation, retailing, home storage and cooking functions, reveals a disproportionate energy demand versus the energy output in calories consumed.  Never mind all the economic activity these processes create and the collateral benefits, output and jobs they produce.  This is a single variable energy in/energy out argument.

 The energy inputs of a fish only, lacto-ovo-vegetarian or vegan diet are demonstrably more efficient though they still require more energy input than output measured in calories consumed.  Couple this with the greenhouse gas emission from concentrated animal production (especially beef, but also significant in pork and poultry) and there is emerging both a coordinated educational focus to reduce meat consumption and the likelihood of new taxation, permitting and other regulation strategies aimed at the production and consumption segments in order to raise price and thereby reduce both production and quantity demanded at each price.

 The recent adoption of “Meatless Mondays” by the Baltimore Public School System is an example of the implementation of the education strategy and presumably serves to save limited tax dollars (which will eventually require Meatless Tuesdays, Wednesdays and Thursdays, as economies are purposely hobbled to save the world).

 The energy decision to subsidize the production and use of bio-fuels as at least a transitional strategy, has led to the removal of a significant portion of the feed grain supply from its use in meat production.  Some of this has occurred because the subsidy has made grain use more profitable in bio-fuel production but some has occurred through mandated (government required) use of biofuels in gasoline mixtures.

One-third of the U.S. corn supply is now diverted to bio-fuel production.  This has led to a significant and structural increase in the cost of producing meat worldwide, though politicized papers point to small (so far) change in the retail price of meat as evidence that no impact has occurred.   At the present time, most of the dramatic increases in cost are being borne by the production sector through massive net income/equity losses (think of these as temporary subsidies for meat consumers) but these will eventually be passed through to the consumer as supply is driven down.  It is worthy to note that China, which had embarked on this course a few years ago, has now banned the production of new bio-fuel plants which use feed grains as the distillation source.

The emergence of a significant demand for traditional feedstuffs for non-food uses means that the competitiveness of firms in meat production has been altered.  In the past, competitiveness among meat producers was largely determined by feed efficiency.  However, the emergence of a significant source of non-food demand for traditional feedstuffs has meant that local availability, even in high grain production areas, can be significantly impacted with meat production bidding against subsidized and mandated bio-fuel producers for available grains.

 This creates another major source of profit risk through coming stocks-to-use crises coupled with the fact that the price of corn in the United States is now highly correlated with the price of oil, though historically it has not been.  Other coarse grain prices are, in varying degrees, also correlated with corn prices and now, therefore, to oil prices as well.  Since this will achieve the current desire of many to raise the cost of food (by intention, not by market forces), those 1 billion or so world citizens who still subsist on $2 or less a day will have to wait for the flop (with apologies to Texas Hold’em fans) to see if any of the pot comes their way.

Editor’s Note: Dr. Dennis DiPietre is a swine consultant in Columbia, Missouri. His monthly commentary is sponsored by Elanco Animal Health.  For more information, go to: www.elanco.com

This commentary is for informational purposes only.  The opinions and comments expressed herein represent the opinions of the author--they do not necessarily reflect the opinion of Farms.com.  This commentary is not intended to provide individual advice to anyone.  Farms.com will not be liable for any errors or omissions in the information, or for any damages or losses in any way related to this commentary.