The end to cheap food and fuel

Planning for higher food and energy prices, and their wider impacts

Published by Our Finite World on Mon, 06/13/2011 - 08:00
by Gail Tverberg

Over the years, we have become accustomed to a rising standard of living. One of things that has helped this happen is a gradually declining ratio of food costs to total personal expenditures. Energy costs have not followed as clear a trend, but are higher again now, and seem likely to be higher in the future as well.

As long as the sum of food and energy costs were declining, an increasingly larger percentage left over after covering “the basics” could be used for other purchases. This no doubt contributed to a rising standard of living, because a larger share of income could be used for education, and for recreation, and for new homes. The greater share of income that was available to spend on new homes no doubt contributed to the long-term rise in home prices.

Now, it looks like this long-term trend of lower food and energy prices in relationship to personal expenditures is turning around because of higher oil prices and higher food prices (and lower employment figures). Higher food prices are partly the result of higher oil prices, since oil is used in the production and transport of food. Other contributing factors include more land use for biofuels, rising meat expectations from “emerging market countries,” and weather “issues.”

How do we plan for this new situation, in which food and energy seem likely to again be rising in relationship to incomes, and as a result, living standards quite likely declining?

(More here, with charts.)