The New Alchemy, Part 2: Oil and Water Into Food

Applying science to the production of food can also help boost output. The dispersion of technology, such as high yielding and fast maturing wheat and rice seeds (developed in Japan) and hybrid corn (from the U.S.) can be helpful. Water can be used more efficiently, such as the drip irrigation that has been employed extensively in Israel, Cyprus and Jordan (though this accounts for less than 4% of the U.S. irrigation and less than 1% of China and India's irrigation).

Through various other applications of science, animals can become more efficient in converting grains to protein. Consider the chicken. In 1900 the average hen laid 30 eggs a year. Now she can lay 250 eggs or more a year. In 1900 it took 16 weeks for a chicken to come suitable for frying (weight of 2 pounds). Today a four-pound roasting chicken is ready in just six weeks. In 1930, it took more than six pounds of feed to yield one pound of broiler meat. By 1940 it required four pounds of grain. Today, less than two pounds of feed are needed. Now that is productivity.

Social organization is important too. Since the early 1970s, there have been cooperative ventures in India that allow farmers to pool their efforts and achieve economies of scale in various parts of the production of foodstuffs. In 1998, India surpassed the U.S. in milk production, which now exceeds its rice harvest. In the 1970s, India produced a half cup of milk per capita. Now its production is more than a cup per capita, and instead of feeding the cows the scarce grains, Indian farmers use wheat and rice straw and corn stalks. Cutting wastage, through improvements such as cement storage silos on the farms themselves, also boosts the usable harvest.

The Energy Costs of Food

There is a clear connection between water, grain, animal protein and oil. Irrigation of farm land is far and away the biggest use of water (at about 70%). Food production is also very energy intensive. Agriculture accounts for a full sixth of U.S. energy consumption.

---

Marc Chandler has been covering the global capital markets in one fashion or another for nearly 20 years, working at economic consulting firms and global investment banks. Currently, he is the chief foreign exchange strategist at Brown Brothers Harriman. Recently, Chandler was the chief currency strategist for HSBC Bank USA. He is a prolific writer and speaker and appears regularly on CNBC. In addition to being quoted in the financial press, Chandler is often a guest writer for the Financial Times. He also teaches at New York University, where he is an associate professor in the School of Continuing and Professional Studies. While Chandler cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.