Tuesday, November 25, 2008

Wall Street Journal: A Run on (Food) Banks

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One area I forgot to really delve into in our latest round of economic assessments is how this recession is truly going to expose how much wider the gulf has become in the past decade between have's and have nots.... and how many more are falling into the have not category under this version of "dog eat dog" capitalism we've embraced.

We haven't talked much about our long term themes such as a World of Shortages because commodities are imploding under massive liquidations and now deflation fears, but back in January of this year we began discussing the very long term implications of food shortages [Jan 18: One Lonely Voice Agrees with Me on Food Inflation] We saw spikes in crop prices across the board last winter and spring but in retrospect the manipulation of speculators seems to have been as much of a cause as true supply and demand - however, the overall trend I do believe is still going to be upward as the world's population strains food supplies. (supplies of many crops are still at multi decade lows despite the price drops) But things got out of hand this year as the last vestiges of the over levered world piled into small markets and drove commodities up, out of their longer term trends and into super spikes.

The January post was more about fertilizer but I touched on food banks ... how in the "richest" country on Earth we were seeing huge increases in demands at food banks... and this was when the economy was "fine"

Call your local food bank if you don't believe me, we are already seeing anecdotal stories of large drops in food donations - after all canned beans hold their value more than our disastrous dollar.
  1. Food Bank Shortage in TX
  2. Food Bank Shortage in MI
  3. Food Bank Shortage in NYC
  4. Food Bank Shortage in Washington DC
  5. Food Bank Shortage in Pittsburgh
  6. Food Bank Shortage in New Hampshire
  7. Food Bank Shortage in Minnestota
Folks, I could do every state if I wanted... you get the picture - go run a check via Google. And it's going to only get worst as the economy worsens.

I followed that up with a piece in May [May 27: Food Banks Suffering in U.S., Children Overseas See Aid Cuts] Honestly we have it great here as for most Americans, food expenditures are 12-15% of our budget - in many developing countries its 50-60-70%. So think of how much you spend on mortgage/rent as a percent of income, double it - and consider that as how many people spend their money in the developing world. Now think about what happens when these people and their families are threatened with lack of access to affordable food. We saw the first flare ups this spring and summer which we wrote about in depth - some rioting in Egypt, Haitians resorting to eating mud cakes [Jan 30: Hungry Haitians Resort to Eating Dirt] I think this is a precursor (warning shots) for episodes that will increase in nature as the globe continues to crowd over the coming decades.

I know I constantly sound like I'm talking about the next crisis but I truly think we have a series of quite epic situations ahead of us; as Americans we tend to be very isolated about what is going on in the rest of the world. The strains on resources brought upon this world by too many people will be what cause the next generation of wars, with or without global climate change [Nov 17: Global Climate Change Could Lead to Violence]

But back to the U.S., little known fact that in the "richest" country on Earth, 1 in 11 are on food stamps - and that was this spring before the economy began to fall off the cliff. As we've discussed- income inequality and wealth distribution is at its widest since the 1920s, right before the you know what (D word). It is very interesting that so many parallels are lining up.... the "relative" equality we had in the 50s, 60s and even 70s and first half of 80s has really changed and going back to the point at the beginning of this piece, I think this recession is going to reveal a lot of the ugly beneath the surface - much like Katrina did in a more confined manner.

I will be a major outlier here and say I believe the stresses we are going to be facing the next decade, along with the lack of security in most jobs due to global competition is going to push America very much in the opposite direction we've been going the past quarter century. Social safety nets will be back in - we're going to become a lot more European in many ways as enough people are going to fall through the cracks, and the current ideology that "those people are just lazy or don't work hard enough" is going to look silly when applied to such large portions of our population. For example, it seems incredulous that 40% of the country is too lazy to work hard enough for healthcare but that's been the dog and pony we've been sold. I always find it interesting to receive emails from some of our foreign readers who when I post this sort of stuff are shocked it happens in the U.S. based on their perception of the country (i.e. "the richest on the planet") I'd argue to these emailers, that many inside the country also have little idea what is going on - we don't talk about it much here and many people don't traverse among different economic classes. I think this lack of exposure to what is going on changes as many in the lower and middle rungs of "middle class" are now going to be exposed to some not so nice things and we will hear a lot of "I never thought this could happen to me/us" in the years ahead. Again, I'm an outlier opinion, and I'm sure 95% of Americans would disagree.

On this point the LA Times show us one example in Southern California; again this is not a NEW situation - just one swept under the rug that has been moving up the proverbial economic food chain over the past half decade. Important points are the surge in 1st time visitors and the fact these are not the traditional "homeless" utilizing these banks as people assume. But our wages are stagnating - especially in the bottom half of wage earners, and cost of life continues to go up...
  • In Montebello, nearly 5,000 turned out for a food giveaway, a number that stunned organizers who had tried to keep it a low-key event, targeting publicity to several churches and schools. But word of mouth proved stronger than a few fliers, and crowds inundated Montebello Park. A diverse mix of people stood in a six-hour-long line -- families from middle- and working-class communities, including Pico Rivera, Montebello, Norwalk and Whittier.
  • Just a few paychecks ago, Betty Gillis, 44, was volunteering at a food pantry, handing out food to the needy. Saturday, she found herself on the receiving end of a food giveaway. Last month, the Whittier pharmacy technician was juggling two jobs to support her disabled husband, mother-in-law, and college student daughter. But her full-time employer cut her hours because there were too few customers. Her bosses also required her to work on weekends, forcing her to quit her second job -- and the money ran out.
  • The scene in Montebello reflected the crisis confronting local food banks struggling to keep up with demand that has surged more than 40% since last year, according to Los Angeles Regional Food Bank. New to food lines are middle-class families -- including some that until recently earned $70,000 a year.
  • "We're used to seeing low-income people and seniors on a fixed income coming in. Now we're seeing more and more middle-class people coming in -- people who just lost their job, are trying to pay their mortgage, or tapping into their 401(k) because of the huge financial losses," said Darren Hoffman, a spokesman for the regional food bank.
and the Wall Street Journal now is catching up to the food bank situation as well. In this specific food bank, 1/3rd live in a household where someone has a job.
  • .... demand at food banks is up about 25% across the country over a year ago, including a surge in first-time clients. More than one-third of those Feeding America serves live in a household where at least one person is employed; about a third of its clients are children, 10% elderly and only about 12% are homeless.
  • As the nation's financial crisis spread earlier this fall, several thousand people pressed forward in a line to make a withdrawal from a bank in suburban San Diego. The line stretched out the building, up the street and past the fire station. They walked away with boxes filled not with money but vegetables, fruit, pasta and juice. It was a run on a food bank. .... more than 4,000 people -- double the expectations -- flocked to the Word of Life Worship Center for food from the Feeding America-San Diego Food Bank, forming a line that snaked through the neighborhood.
  • As the economy sours, the nation's food banks are struggling to feed a surge of Americans worried about finding their next meal.
  • The long lines and the rush to cope with them expose America's persistent hunger problem and the challenges facing the institutions fighting it. Over the past decade, changes in what Americans eat and how food makers feed that appetite has cut food donations to food banks while boosting food banks' costs. Food banks were already grappling with these changes when the economic downturn hit.
  • In the past two decades, a vast system of food banks has evolved to support the millions of people in the U.S. -- one in nine households last year -- that have difficulty affording enough food for all their family members at some time during the year. The food banks are basically depots that collect bulk food and repackage it for food pantries and soup kitchens to distribute to the needy.
  • The food banks historically depended on food donations from food manufacturers and large supermarket chains. But in recent years, production of canned food, long a main staple of the food-bank business, has steadily fallen as American preferences shifted toward fresh food. Food from U.S. government programs in recent years has also dropped.
  • That change is compounded by higher efficiencies in food production and distribution. Manufacturers and retailers can better predict demand for products now, and produce fewer damaged cans and broken boxes -- items that would have traditionally gone to food banks. The rise of dollar stores and other low-priced retailers gives food makers a new outlet for excess food and a chance to recoup some of their costs, a benefit not offered by many food banks.
  • All this means less food for food banks. So they're buying more of their own food and moving to fresh foods, which are more nutritious than packaged food but are also more expensive to handle. Others are setting up kitchens to mix fresh ingredients into prepared meals that can be frozen. All are trying to boost cash donations to cover the growing cost of food and the infrastructure -- like freezers and refrigerated trucks -- for storing and transporting fresh food.
  • Collecting produce and distributing it to pantries means the food bank has to maintain a fleet of seven refrigerated trucks and more volunteers to sort through the fresh food. This requires more cash.
  • Donations of food from retailers to the San Francisco Food Bank have already dropped 20% in the past year.
  • Several corporations are injecting more cash, if not food. Wal-Mart is doing both. On Wednesday, it announced a new program that will push more food into the food-bank network by increasing the donations of meat and dairy products that are approaching their "sell by" dates.
  • The flow of new money is a welcome relief for some organizations such as the Open Heart Kitchen, a soup kitchen in Livermore, Calif., which nearly closed in October when its usual donations, including cash and food from individuals, businesses and civic organizations, "completely dried up," said Nancy Richardson, president of the nonprofit's board.
  • But that money and much of the recent largesse could prove to be little more than a stopgap measure for other food organizations. In recent months, rising costs and an array of economic blows forced food banks and pantries to shut down, some for days, others permanently, in Seattle, Alabama, Missouri and other states.
And let's end with this nice anecdotal story...
  • A Colorado farm couple say they got a huge surprise when they opened their fields to anyone who wanted to pick up free vegetables left over after the harvest. Forty thousand people showed up yesterday and picked the fields so clean that Joe and Chris Miller had to cancel a second day of gleaning.
  • Chris Miller says she had expected as many as 10,000 people might show up for the free potatoes, carrots and leeks. Instead an estimated 11,000 vehicles snaked around the cornfields, creating a back up of more than two miles. About 30 acres of the 600-acre farm turned into a parking lot.
  • Owner Chris Miller says "People obviously need food."
I wonder what Phil Gramm is thinking today, he of the "mental recession"...

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