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

Between 1945 and 1994, the U.S. crop yield grew three-fold, but the energy input grew four-fold. The trend has reached the point of diminishing returns. Oil itself has become more energy intensive. In the 1940s, it took about one barrel of oil to get 100 barrels. Now that ratio is closer to 1 to 10.

At current production rates and given the current level of technology, some oil producers are projected to run out of oil in the next 10 to 15 years. Many countries are going to face severe water shortages. There are some pundits who suggest that the next wars are more likely to be over water than oil.

Enough to Go Around?

As countries modernize, the desire for animal protein increases, but if everyone consumed the 800 kilograms of grain (100 directly and 700 through meat and other products) per person per year that the average North American does, the world's 2-billion-ton harvest might support only 2.5 billion people. At the average Indian consumption level of 200 kilograms (nearly all consumed directly, little left for livestock feed), the current world's harvest could support about 10 billion people, according to projections.

As Herb Stein famously put it, any process that can't go on forever eventually stops.

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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.