Energy cost increases, and their effects on food prices, raise deeper questions. As fossil fuel costs increase, and in the period before a seriously viable substitute like fusion-derived electricity arrives (I’m guessing 2040 or later), economies of scale will continue to increase in importance, especially in the provision of what will become relatively lower cost commodities such as food. Will energy prices pull food prices higher to the point where we will once again have only locally produced food? Will everyone, even in suburbia, be turning their front yards (and every available patch of dirt) into a garden to reduce their food bills? Or, thanks to large scale agribusiness, will food remain cheap enough to have its cost increases eclipsed by those of energy itself?
Will home delivery become the most economical way to get your groceries? If going to get your food at the store costs more than the food itself, as could occur when gasoline costs more than $20/gallon and substitutes like electricity are also pulled higher in cost, delivery food may become far more prevalent. Will fast food delivery companies rise in prominence, and diversify until Domino’s Pizza become a 100 billion dollar per year juggernaut by 2030, delivering everything from fresh fruit to frozen fish and ice cream? In an increasingly energy-costly world, people will travel less and less, and work-at-home lifestyles could become far more prevalent. An efficient delivery service providing food to perhaps 20% of the people in a given neighborhood could cover several scheduled delivery routes per day or week and provide most of the food the people would need at the lowest possible delivery cost.
What might we see if deliver food becomes the cheapest way to feed oneself? If this were to occur, I foresee some interesting delivery systems in our future:
– semi truck trailers that automatically back into and leave the loading docks under electric power, and automatically load and unload themselves from train cars and container ships, plugging themselves in for a recharge as they dock. These could be created today
– local delivery vehicles, probably electrically-powered, that can carry hot, room temperature, and chilled food, and navigate with GPS systems that calculate the most efficient routes to perform multiple deliveries. These could exist today, given sufficient economies and a wide enough acceptance to increase the density of deliveries and limit total delivery cost.
– order and payment systems in which customers interact via internet using cell phones or laptops, and can pay at point of sale or in advance by calling a number or pushing buttons in proximity to the sellers wi-fi phone. Cell phone-based payment systems are already appearing in some parts of the world (Finland and parts of Japan in particular, I understand, the homes of giant cell phone manufacturers).
What changes might we see in agriculture and related infrastructure? To further reduce transportation infrastructure related costs, I can foresee agricultural systems of the future with the following features:
– Food produced as near to the point of consumption as possible, and grown and shipped short distances in the largest possible quantities and the highest possible economy of scale – an extension of the same principle that today has caused agribusiness to almost wipe out the family farm, but has kept our costs low.
– Growing seasons extended by increased use of high efficiency greenhouses, some partially underground to control summer temperatures
– Advanced technology for storing foodstuffs longer and in the most energy efficient ways possible.
Skilled experts could paint us a more detailed picture. Unfortunately, I just don’t have the time to crunch the numbers, though doing so would be enlightening, I’m sure, and could well change my understanding and ideas. I need a small team including a good economist and a few experts in the appropriate areas to develop the financial models and clarify under what conditions such a scenario as I suggest above would occur. (Hopefully my next lottery ticket will “hit”.) Somewhere there is a critical fuel price above which it will be economically sensible to change the way we feed ourselves.
We need to be thinking about these things. The following scenario is entirely off the top of my head. I know what I pay for apples, and they are sometimes labeled as coming from places such as New Zealand. I don’t know if they ship them in containers, nor do I know what weight of apples would fill a container, as it depends on their density, but will assume that the packaging they arrive in halves their density compared with just filling a container with unprotected apples. I don’t know how much it costs to pick them, or to break down a container full and ship it in smaller quantities to stores. I know that grocery stores typically have a profit margin of around 1%.
the math (a weak and cursory attempt)
– an apple weighs a third of a pound
– a shipping container may be able to carry 15 tons of unpackaged apples, or 7.5 tons of packaged apples (7.5 tons = 15,000 pounds = 45,000 apples)
– at the current $1.49 per pound (for example) that’s 50 cents per apple
– the container, therefore, carries $22,500 worth of apples at retail
– I heard somewhere that it cost $4000 per container to bring it from China before the steep rise in oil prices of the first half of 2008, and that after the oil price rose it cost $5600, a $1600 and 40% increase.
– $1600/45,000 apples is only 3.56 cents/apple, or a 7.1% price increase, but that is significant given the fact that, last I knew, most supermarkets exist on a profit margin of less than 2%.
Are such changes nearer than we might think? Given the comparison of a 7% price increase on imported apples and the normal profit margin for a grocery provider, can we be that far from at least some of the changes I wrote about above? The future is out there, with opportunities (as always) for the smart and quick to make money.
As always, I appreciate your comments. – Tim