Invest in Food
by Jeff Nielson, Sprott Money
At first glance, the title to this commentary seems facile, especially to those readers in higher income brackets. The reality, however, is that “investing in food” is a risk-free means of generating an annual return on one’s investment that would likely exceed the return one could earn on almost any other investment – despite the fact that nearly all other asset classes carry significant risks.
Indeed, with many asset classes currently at extreme “bubble” levels in their valuations (notably stocks,bonds, and real estate), the term “risk” is gross understatement. Putting any new money into any such assets (or simply keeping one’s wealth exposed to these sectors) is nothing less than financial suicide. In comparison to financial suicide; the opportunity for a risk-free return on one’s investing today obviously merits further scrutiny.
It is in this environment of extreme financial risk and perpetually spiraling food prices where we consider the proposition of food as an investment asset class. We begin by looking at the “fundamentals” of this market/investment class. And what we see (from this perspective) is extremely encouraging: food prices consistently soaring by roughly 20% per year, and significantly more for some categories of food (notably meat products).
With soaring food costs being a serious drain on the budgets of most families, our challenge is to find some way of turning this financial drain into a means of preserving/protecting our wealth: by investing in food. Regardless of one’s economic bracket; this is an investment opportunity which can be pursued by all of us.
Even those living in small apartments almost certainly have at least one closet whose space can be ‘sacrificed’ in order to capitalize on this risk-free opportunity. For those with more expansive residences; perhaps they have an entire room (rooms?) which can be devoted to “food investment”.
The proposition behind investing in food is simple. With all of us being food-consumers; we would greatly benefit by being able to pay “today’s prices” for particular food products, rather than the inflated prices of next month, six months from now, a year from now, etc. The longer we were/are able to continue paying today’s price, the greater the future savings.
It is this “future savings” which represents the risk-free return on our investment. At that point; the total, potential return on our investment is the product of four factors:
1) The total amount of space available for food storage (along with the types/categories of food one is capable of storing).
2) The total “shelf life” of particular categories of food products.
3) The annual “food inflation” rate.
4) Our own monthly/annual food consumption.
With the majority of people now living in multi-unit housing of some sort, where the total living space is relatively modest; the first factor may be the greatest limitation on the potential return from this investment. For those (more fortunate) individuals able to devote entire rooms (or perhaps a garage) to such investing; the earning/savings potential will be significantly greater.
There is also the issue of what specific types of food products one is capable of storing. Obviously “non-perishable goods” is the general category of food product which immediately comes to mind. However, for those individuals ready/willing/able to devote freezer-space to their food investing, suddenly the opportunity for savings and earnings is considerably expanded.
With meat/fish/poultry being near the top of the list when it comes to the food-inflation spiral; having a large freezer available for investing expands this investment opportunity. Indeed, for the average family; the annual savings on their food bill from a freezer full of meat would likely pay for the freezer itself, with the “investor” then able to earn an additional, annual return from this category of investing.
This brings us to our second factor, as we consider the practical parameters/limitations of investing in food. Many non-perishable goods can be stored almost indefinitely. Some can only be (safely) stored for a year or two. And in the case of food we store in a freezer; the shelf-life is likely no more than a year, and considerably less for many freezer goods.
The first two factors define our “capacity” for investing in food: total storage space available, and the length of time those goods can be stored (and still consumed). Once the food investor has calculated (and utilized) his/her capacity for this form of investing, our savings/profit becomes a simple function of the food-inflation rate.
The higher the inflation rate on the particular categories of goods we have stored, the greater our savings/profit. Thus this makes it incumbent on the food investor to carefully consider how best to allocate available storage space, and (for some) the available dollars to fund their food-investing. The better the job that the investor does on choosing his/her categories of products for storage, the greater the return.
Of course even with infinite space/dollars available for food investment, there is a final, practical reality which will act as a constraint for most of us when it comes to food investment: our own consumption-rate. Obviously, if we “invest” in a five-year supply of a particular food product which can only be stored safely for two years, we have misallocated funds, as some of our “investment” would spoil before we could consume it – and lock-in our profit.
We also need to consider the bulk of particular goods. A particular non-perishable item may be able to be safely stored for several years, but if it’s extremely bulky, it still might represent a “poor investment”. Conversely, items such as spices represent relatively high value/savings, while requiring minimal space, and have an extremely long shelf-life. It is partly for this reason that spices were quasi-currencies in previous, historical eras.
For homeowners, who have considerable living space, but (for whatever reason) have little storage space available for food investing; building a structure for food storage, such as a shed or (expanded) garage is a cost outlay which would likely pay for itself over a relatively short-term period – at which point the storage space would then generate a permanent, risk-free return.
One qualification must be added here, in order to account for the limited down-side to investing in food. With food prices soaring at an uneven rate; should we happen to purchase a particular category of food product at the peak of some spike in price, it is certainly within the realm of possibility that prices for that category of food could potentially decline – temporarily – thus reducing our overall return.
However, opposite to that very limited quasi-risk, we face the very real prospect of an imminent explosion in food prices, which would dwarf even the horrific spiral of (in particular) the past 10 years. Regular readers have seen the chart below many times in the past:
This insane, suicidal explosion in the U.S. monetary base does not suggest that the U.S. will face hyperinflation (of the U.S. dollar) in some relatively near-term horizon; it guarantees it. As we see the Euro-zone just (proudly) announce the conjuration of more than a trillion, new units of its own funny-money, and as we see the corrupt/incompetent Harper regime relentlessly destroy the Canadian dollar; obviously other Western populations will meet a similar fate with their own, paper funny-money.
While we can sacrifice consumption of many categories of goods in the face of a hyperinflationary spiral, we cannot avoid food consumption. At some point (likely between the end of this year and the middle of 2016); we will face an economic crisis characterized by the deflationary crashes of all the bubble-assets, with ‘sympathetic’ crashes for most other asset classes.
However, what readers need to understand is that a purely “deflationary” crash is no longer possible for thebankrupt regimes of the Western world. In order for any national economy to deflate; it must have savings it can cannibalize, in order to survive that deflationary shock (as was the case in “the Great Depression”).
The debtor-regimes of the West not only have no savings, most are already hopelessly insolvent, and teetering on bankruptcy, despite the lies to the contrary by the Corporate media, and our own, corrupt governments. In the revenue crisis which accompanies any deflationary crash; our insolvent governments will have two – and only two – choices: declare outright bankruptcy, or conjure-up their funny-money in quantities that dwarf even the sickening spike represented by the previous chart.
Such insanity would guarantee a full, hyperinflationary death-spiral in a matter of weeks, or several months at most, despite the near omnipotence of the One Bank when it comes to its currency manipulation. Indeed, this is why the less-corrupt East is not only busily crafting its own parallel financial system, next to the doomed financial/monetary Ponzi-scheme currently operated by the West, it’s about to assume control of the new, reserve currency: China’s renminbi.
For Western inhabitants, about to be devastated by a financial/economic cataclysm which is literally beyond the comprehension of any of us; we have two choices when it comes to protecting ourselves (apart fromsignificant holdings of gold and silver). Invest in food, or move to China.