Oil in the food industry

2 July 2009

Today we are a worldwide oil-based civilisation, one that is totally dependent on a single resource, whose production will soon be falling and with a price which will increase. Since 1981, the quantity of oil extracted has exceeded new discoveries by an ever-widening margin. In 2008, the world pumped 31 billion barrels of oil but discovered fewer than 9 billion barrels of new oil. With oil reserves falling, population increasing at such a pace we need alternatively energy sources soon.
Of the 1 trillion barrels of oil extracted so far, there is only another (estimated) 1 trillion barrels left – much of which is oil that’s buried far offshore or deep underground; oil scattered in small reservoirs; oil that must be obtained from unfriendly, politically dangerous and hazardous places.
Food production is heavily dependent on oil: tractors; irrigation; and fertilizers. 12 gallons of fuel used to produce a ton of grain in 2005.
The developing world is also using less animals and more tractors, e.g. China.
Also as people move more to towns and cities, the demand for fertilizer climbs and increases the distance from farmer and consumer by hundreds of miles.
Freshwater levels are also falling, e.g. In India.
Much of Europe’s wheat has traditionally moved over long distances by ship, travelling from the USA to Europe, for example. What is new is the shipment of fresh fruits and vegetables over vast distances by air especially the more exotic.
Packaging can also be as much as 7% of food production energy use. It is not uncommon for the energy invested in packaging to exceed that in the food it contains. One analyst has observed, “An empty cereal box delivered to the grocery store would cost about the same as a full one.”
Kitchens also use energy to refrigerate and prepare food in the home than is used to produce it in the first place. The big energy user in the food system is the kitchen refrigerator, not the farm tractor. While oil dominates the production end of the food system, electricity dominates the consumption end.

To conclude, the 2009 food chain, based on cheap oil will not survive in its current structure, and in time this will have a direct effect on shares in oil companies; food production; logistics and supermarkets.

Remember as 2008 has shown, shares and other financial assets can go up and down at frightening speed. Don't buy any, unless you know what you are doing and can afford to lose the money.