Since I wrote our last newsletter, I attended three different grocery store auctions where the stores closed and they could not find a buyer for the store. The first auction was the grocery store that we went to often when we lived at our old farm before we started eating almost exclusively organic. It was a large store, Selby’s Grocery in Poolesville, Md. I was looking for a large meat grinder for making pet food and I was able to buy it for an incredible price at the second grocery store auction (the store pictured above). One guy accused me of stealing it, it was so cheap.
The prices kept dropping with each auction. By the third grocery store auction, there were only about ten people buying. Most of the freezers, refrigerated cases, and store shelving in that store were sold for scrap because no one had a use for them. Being in a grocery store that couldn’t make it, with only a hand full of bidders, and prices way below where they should have been, had a profound affect on everyone there. It is hard to describe in words.
There are a number of events that are happening that I think are important that we keep in mind as we plan for the rest of the year and the next several years. There is a good possibility that nothing significant will happen and things will continue as they have been. But there also exists a very real possibility of significant food shortages.
One event that could cause a significant food shortage is the drought in California. Statewide, the drought is getting worse. The drought could end at any time, but some scientists are saying that it is likely going to be a prolonged drought. A prolonged drought would have a significant impact on our food supply. According to the California Department of Agriculture website, California produces nearly half of US-grown fruits, nuts and vegetables. http://www.cdfa.ca.gov/statistics/
California produces (as a percentage of all US production for each food item):
Fresh carrots 81%
Processing tomatoes 96%
Plus significant quantities of other fruits and vegetables.
Another thing that could cause food shortages is high inflation. Massive amounts of money have been created in recent years without much apparent inflation. Exporting money out of our country has helped keep inflation down. The US dollar is the world reserve currency and it is used by many countries to to buy and sell with other countries. However, in the last month or so, Russia, China, India, France, and others have agreed together to stop using the US dollar for trading between their countries. A significant part of the world ceasing to use the US dollar for trade has the potential to cause higher inflation (not necessarily hyperinflation) here in our country.
High inflation often results in the government imposing price controls on certain items such as food to keep prices from rising. What usually happens then is that those items disappear from store shelves because they cost more to produce than what they can sell for. Just last month, this very thing happened in Panama, which uses the US dollar for their currency. The Panama Post reported July 21:
“During the last couple of weeks, Panama — with expected annual economic growth of 7 percent this year — has faced what hardline socialist nations such as Cuba and Venezuela experience every day: food shortages. As many experts warned, and only 15 days after newly elected President Juan Carlos Varela announced the price-control law, the empty shelves are everywhere.” http://panampost.com/marcela-estrada/2014/07/21/econ-101-for-panama-new-price-controls-bring-rampant-shortages/
Food shortages can also occur when there is high inflation, even if there are not price controls. Items with a very low profit margin such as rice, eggs, chicken, produce, and other basic food items tend to disappear from the stores because there is not enough profit margin to cover the losses from inflation. Costs continue to rise for the producer or manufacturer.
Another event that could cause significant food shortages is Walmart going out of business. The first thought of many is that Walmart will never go out of business. But if we have high inflation, it could potentially put Walmart under. Walmart has put many smaller grocery stores out of business in recent years, such as Selby’s Grocery in Poolesville, as they have expanded their grocery departments. Grocery sales now amount for 55% of all of Walmart’s sales. Forbes magazine reports that Walmart now has 25% of the US grocery store sales. http://www.forbes.com/sites/greatspeculations/2013/05/20/wal-mart-cleans-up-on-poor-america-with-25-of-u-s-grocery-sales/
Walmart’s business model has worked very well for them during periods of low inflation and low interest rates. However, Walmart is currently facing a difficult retail environment. Their same store sales have declined in each of the last five quarters. Their CEO recently stepped down and a new CEO was appointed. Walmart does not have much inventory in warehouses, but buys most of their products just as they need them. Their trucks on the road making deliveries are a significant part of their “warehouse” inventory. Low inventory, coupled with very small profit margins, could be a recipe for disaster for Walmart if high inflation and high interest rates occurred. In other countries that had high inflation, many businesses were able to keep going by using their stockpiled inventory as a hedge against inflation.
What should we do to have food if there is a food shortage?
Don’t become a paranoid “prepper” that has a year or more of freeze dried food stashed around the house. But I do think it would be wise to not have the current “Walmart inventory mentality” in which you have less than six days of food on hand and need to run to the grocery store several times a week for food. Having a month or two worth of food on hand would give you a nice cushion. There is a certain satisfaction knowing that you have food on hand at all times and that you don’t have to run to the store to stock up every time they are calling for a snow storm.
A freezer is a good investment. It is a simple, easy way to stock up on food without it going bad. It is also a way to save money even if there is never a food shortage. For example, you could buy larger quantities of chickens from us at a time and only come to the farm several times a year rather than every month. The savings on trips to our farm and to the store could add up quickly. With a freezer you can also save significant amounts of money by buying in larger quantities and stocking up on items when they are on sale or when you find them at a really good price.
Historically, price controls are put on items sold by large corporations. If that were to happen here, knowing local farmers, such as our farm, could also be an important source of food. We will do all we can to be here for you. Hopefully there will NEVER be a food shortage, but if there is, be ready.