The Rising Cost of Nature

A fundamental global trend nowadays is growing natural resource scarcity. Oil and natural gas prices have soared in recent years. This past year, food prices have also skyrocketed, causing hardships among the poor and large shifts in income between countries and between rural and urban areas.

The most basic reason for the rise in natural resource prices is strong growth, especially in China and India, which is hitting against the physical limits of land, timber, oil and gas reserves, and water supplies. Thus, wherever nature’s goods and services are traded in markets (as with energy and food), prices are rising. When they are not traded in markets (as with clean air), the result is pollution and depletion rather than higher prices.

There are many reasons for the dramatic increase in world food prices, but the starting point is increased food consumption, again strongly powered by China’s economic growth. China’s population is eating more, notably more meat, which in turn requires the importation of higher volumes of animal feed made from soybeans and maize.

Moreover, rising world energy prices has made food production more costly, since it requires large energy inputs for transport, farming, and fertilizers. At the same time, rising energy prices create a strong incentive for farmers to switch from food production to fuel production.