Fear of Food Shortages
Posts like this one have been popping up all over social media.
And yes, we have something to be afraid of. But, no, it is not “their” fault.
Food Shortages are the Unintended Consequence of Isolation
A Business Parable
Before we get into the very real issues worldwide distribution is facing, listen to a parable on the power of $20 in a free market.
Some time ago, we did not have the money to buy some presents and some necessary clothes for our kids from Once Upon a Child (one of our favorite stores). A grandma gifted $20 her grandkids, and thus the $120 journey of a $20 bill began.
Because you see, although she no longer had the $20, grandma had spent the $20 on a worthwhile thing: her grandkids. So she has gained $20 in value.
Now, that $20 came into our possession and we took it to the store with our kids. At this point, we have gained $20 in value because we are able to get gifts and necessities for our children that we couldn’t before. The $20 has now become $40 in value: $20 to grandma, $20 to us.
The generous daughter wanted to spend part of her birthday money to buy a Christmas gift for her brother. So, she took $5 in value to buy a $5 gift for her friend. The $40 in value just added $10.
Now, we still had possession of $15 which allowed us to buy a birthday gift as well as clothes for our kids. This meant that all $20 was spent at one store. In the entire exchanges so far, the $20 has remained intact but it has provided $50 in value to the various parties.
Now, the store owner has a positive cashflow of $20 for the 15-20 minutes we were in the store. Not bad.
The value of the $20 just went up to $70.
But, the store owner has employees: 5 of them. This is where the math gets a little more complicated because the $20 is going to be broken into bits and pieces.
Bear with me.
I estimate (from experience being a seller as well as a buyer) that the goods we bought cost Once Upon a Child around $10. So, part of the $20 value had already been spent buying the merchandise we bought ($10). We had to deal with 3 employees in the process of our shopping experience, so we will count that as an average of $10 per hour per employee. This comes out to an employment cost of $7.50 for the 15 minutes we were going to be there.
So now, the value of that $20 has gone from $70 to $87.50. Out of the $7.50 that went towards payroll, approximately 1/3rd of that is going to be pulled from the employees in various forms of taxes, so that adds $2.50 in value to the US government. The store owner is going to take $2.50 in profits.
Our total has gone up to $92.50.
As you see, the value of $20 increases every time it changes hands because we all gained value from the economic transactions.
Grandparents had the value of giving to grandkids, parents the value of providing for children, siblings the value of getting gifts and giving them, the store owner gets the value of cash flow, the value of paying employees, and the value of profits. Employees get paid. The government takes their taxes.
And then the process starts with each of the parties who have been the end recipients of our shopping trip (employees, the business owner, parents selling their goods, the government).
Food Waste of the Pandemic
The New York Times recently wrote an article about the fact that farmers across the United States are being forced to plow under vegetables and dump milk. A lot of farmers are, rightfully, looking for a reason for this food waste.
And the problem is we do not realize how much product there is throughout the United States that cannot benefit from the multiplied benefit of a free market.
Yes, the US Government is spending billions to try to stop the slowing of our economy that has come from mandatory social distancing. But, there is no state system that can match the multiplication effect of the free flow of goods.
And, there is no distribution channel set up to get food from most farmers to an American home.
The cost of Distribution
As another article points out, many small farms distribute directly to chefs and organizations (universities, events organizers, etc.). These farmers have been multiplying their food by specifically targeting people who provide more than the basics of nutrition.
When was the last time you bought fresh fava beans? I don’t think I’ve ever bought fresh fava beans. But, I have bought dishes from restaurants with them in it.
In the same way, there are farmers who supply milk school lunch programs, for university cafeterias, for other fresh products that are not in high demand.
The process of getting fresh milk from a dairy to a plastic jug in a local grocery store can take over a week with multiple steps. If one of those steps is missing, the milk will go bad before it gets to you, so the farmers who are not part of your distribution chain have to throw their milk out even if your grocery store has no milk left on its shelves.
The same thing happens with eggs for restaurants, with mixed greens for salad bars, and so on.
America has been producing enough food to feed every person on the planet for decades. But the problem has always been distribution.
With social distancing, distribution becomes even a larger problem.
If the retailer slows down or shuts down, food gets wasted.
If a manufacturer is deemed “non-essential”, food gets wasted.
Is the Waste Purposeful?
This leads to the question many people are asking. Is this food waste being done on purpose?
I go with the answer that I always apply to failed socialist and communist policies (ever hear of the Great Leap Forward?). No, the meddlers in the economy are not purposefully trying to destroy it. People honestly believe they are doing good, whether it is Chinese communists who think that the forced transition from small farms to industrial communes will save lives later or whether it is current governments who are trying to balance the triage between economics and a biological pandemic.
The waste is a necessary byproduct of this much meddling. So we are faced with walking a fine line between medical necessities and economic ones.
It’s not an easy place for anyone to be.