STORY TOOLS

• E-mail story
• Comments
• iPod friendly
• Printer friendly

More Business

• DOW FALLS 128: Stocks end wild session mixed
• Business Buzz: October 7
• TAX SECRETS: Multiple owners, multiple problems?

Share and Enjoy [?]

“When eating fruit, think of the person who planted the tree.” -- Vietnamese proverb

While dining at a Mexican restaurant with our daughter, son-in-law and two grandchildren, the rice and beans on our plates started a thought process for me which led to the stock market and our economy. Because dining with a two year old is a contact sport, my thoughts were put on hold until today.

Rice and beans are commodities we’re hearing a great deal about in today’s markets. Inflation is affecting the price of food in a big way and actual food cost inflation is at its highest in 17 years.

Some of why this is occurring can be explained by revisiting Abraham Maslow’s hierarchy of needs. His approach to understanding human motivation focuses on needs; deficiency needs and growth needs. Each deficiency need must be met before moving to the next higher level. The four levels of basic needs are:

1) Food, water, shelter and bodily comforts.

2) Safety and security

3) Love, belonging and acceptance

4) Esteem, self-confidence, achievement, approval and recognition.

So what does this have to do with rice and beans? The world population is evolving and baseline demand has increased dramatically over the last thirty to thirty-five years. Contributing to this are three particular trends that particularly stand out.

1) Suburbanization

2) Increases in real income

3) Larger numbers of women entering the workforce

Each trend contributes to increased consumption of gasoline and food. It’s no surprise that more women in the work place influence all levels of work and life. Rising standards of living around the world lead to consumption of “better” foods; meaning a switch from grains to meat as a protein source.

The increased consumption leads to short-term shortages and agriculture responds by increasing output. Much of the world is still archaic in their farming techniques and haven’t yet evolved to the point of using what we’d call traditional farm equipment technology.

For instance, Global Positioning Systems (GPS) are commonly used with farm machinery and the automata ion of farming. Some farm equipment is capable of driving itself by using electronic sensors, maps and GPS connections. GPS’ work with a system of orbiting satellites which communicate the equipment’s exact position and location in the field. This allows for the programming of precise seeding, spraying and harvesting. Nanotechnology is also adding to advancement. In contrast, many countries still do all of this by hand.

According to the U.S. Department of Agriculture (USDA) it takes up to 16 pounds of grain to produce just one pound of edible animal protein.

The increasing demand creates short-term food shortages like we’re seeing now.

Also consider that of all water used for all purposes in the United States, more than half goes to livestock production. Also from USDA Agricultural Statistics, it takes 2,500 gallons of water to produce one pound of edible beef.

With the advent of ethanol as a biofuel you can see how food inflation and gas inflation are connected. By cooking corn into sugar it can be used as ethanol to reduce the use of oil. The movement of corn use for food consumption to biofuel use directly impacts food inflation.

Gas prices up; restaurant dining down. Are you eating out less, whether it’s attributed to higher gas prices or higher prices at your favorite restaurant? Many of us are changing our habits and eating at home more often. There will always be the indulgence dinners such as birthdays, Mother’s Day and anniversary’s, but the “aspirational” customers (how do you like that for a label?) are eating out less, or eating out at fast food locations. Slowing demand growth in this sector quickly trickles into other areas and the cycle goes round and round.

Supply and demand tend to balance each other out over time with free-market capitalism. Production and output increase as agriculture responds and puts more fertile land into use. In the Midwest U.S. corn yields have doubled in the last 25 years. Diverting the use of grains from food consumption to biofuel usage is causing commodity prices to rise in the short-term.

As I witnessed with our grandchildren, human beings need to eat every four to six hours. Technology and innovation will lead the way.

---

Darcie Guerin is a financial adviser and branch manager at Raymond James & Associates Inc. at 606 Bald Eagle Drive, suite 401, Marco Island. Contact her at Darcie.Guerin@raymondjames.com, 389-1041 or toll-free (866) 343-0882.