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Sunday, February 1, 2009

Food Prices: Up, Up, and Away!

2437520379_f9851dfb48_m Food Prices: Up, Up, and Away!
photo credit: graygoosie

Since most people who know me also know of my passion for all things preparedness, I’m often asked what is a good idea for investing one’s hard-earned money. With $7 trillion (yes, with a ‘T’) of “wealth” having been wiped out recently, people are looking at their 401k results in abject horror. What to do?

Any good investor will tell you that it’s important to diversify, or in other words, not to put all your financial eggs in one basket. For that reason, my advice for the start of a solid investment usually consists of one word: food.

Food storage is important for many reasons, not the least of which is that you’ll be able to provide for your family should any TEOTWAWKI scenario come our way. But one oft-overlooked aspect of food storage is that by stocking up now, you’re beating inflation.

Consider for a moment a few of the following headlines:

Similar articles are in abundance, all pointing to the same truth: food is increasing in price. Investing in wheat alone over the past five years would have given you a higher return (in terms of dollars) than any mutual fund out there. As much as the government tries to manipulate the Consumer Price Index to suppress the reality of inflation, they can’t get around a simple analysis demonstrating a 15% inflation in food prices in the past single year.

Deflation won’t help either, since increasing layoffs will only cut production and thus lead to a shortage. Remember your supply and demand curves from Economics 101? Yes, that’s right, lowering the supply (as a result of deflation) will increase the demand on the product (assuming it’s a product generally desired, as food is), which in turn increases its price. As prices decrease in the short term through deflation, there will be less incentive to increase supply (because of diminished profit margins), thus creating a future shortage when inflation certainly will return in full force.

Lowering the supply is not only the result of a poor economic climate and downsizing firms. The government has in the past—and the present is not too different—passed legislation to artificially prop up prices by wastefully diminishing the existing supply. This temporary action (seen as positive by those selling the product) only misallocates resources and puts others out of business. Atlas Shrugged teaches this lesson quite well.

Food should not be treated as an investment that will yield a resale profit. Rather, its storage should be treated as a “the sooner, the better” situation in order to save you money. By delaying the purchase of your needed supplies, you are only hurting yourself; rising inflation and a devaluated dollar are both working against you, and quickly.

Again, the financial benefit of storing up food is one of the less important reasons for doing so. But there is wisdom in “buying low and selling high”, or simply buying low and thus putting yourself in a position to aid others if/when the time comes. And as expensive as things are now, it is only going to get worse. That’s what we learn from Zimbabwe, anyways.


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