We took a look at farm prices. Even with the huge recent increases most farm prices are still much lower - in real terms - than they were 100 years ago. What made them go down? Technology...cheap, abundant water and fuel...and huge new areas of the world became accessible to mechanized agriculture.
We're just wondering if those advantages have been pumped out.
As to technology...breakthroughs don't always come when you want them. Except for parts of Africa, there are few areas that haven't already been introduced to the plow. Australia...Brazil...Russia...North America...Argentina - millions of square miles were brought into service during the last two centuries. Much of this land is less fertile today than it was 100 years ago - requiring higher inputs of fertilizer. Some of it has been taken for cities and highways. Some has been made unusable by overwork or contamination. If we haven't achieved it yet, we assume we are getting close to maximum usage of the world's arable surface area. As to new technology, we doubt that mechanization has much more to offer. And genetically-modified plants may lead to much higher yields, but who knows at what price? But it may be the constraints imposed by water and fuel that really hobble agricultural output in the future.
Colleague Byron King has some thoughts on this subject:
"For 200 years, the material wealth of the world has improved because of increased access to ancient stores of energy. We are mining the Devonian Era, the Pennsylvanian, the Permian, the Jurassic...hundreds of millions of years of stored energy, to release it within a span of two centuries or so. It's been fun while it lasted, eh? And the whole concept of 'economics' rests on that upward - ever upward - trend. Heck, cheap oil made it all look easy. Any damn-fool, poorly-run, hodge-podge of a country could act like a 'nation state' in the realm of world affairs, or how else to explain Mexico?
"But now we have reached the plateau in 'easy' energy...the best of the coal, the oil, the natural gas, the uranium...it has all been drilled and mined, and now we are going for the lower quality stuff, worse EROEI. Costs are going up. Quality is going down. The currency is degrading, so you cannot even do long term planning any more - in what denomination, pray-tell? You know the drill. Can the world transition to something else? Well, the key point in this is that we are not 'running out of oil,' but we are running out of time."
Running out of time? Aha! Here is the sense of urgency. Every day is a lost day. One day closer to...well...to what?
We can't see any farther ahead than Byron or anyone else. But when we read in the paper about food riots breaking out in various countries, we think we are getting a peek.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Warrick on 12 April 2008:
Farm efficiency is still improving significantly. I work with scientists developing techniques in two areas, both of which offer improved yields and reduced inputs.
Crop modeling combined into decision support tools are just starting to become a reality for farmers (rather than research farms). Efficiency in water and nitrogen use, especially cutting waste of resources because we did not know what was actually happening, is reducing costs significantly while also improving yields. In addition, the models are indicating where to look for constraints on current production. These models are getting so good, we are frequently now saying "when reality does not match the model, check reality." Not trying to be over confident, but just showing that we can now start to pinpoint other areas where efficiency gains can be made.
The second tool is Integrated Pest Management (IPM) where sprays are now frequently replaced with using beneficial insects, and often better monitoring is simply showing that no intervention is required at all. Previously, a farmer would have applied a spray. Again, efficiency in resource use (how much diesel is used in a single spray application) and frequently improved yields too.