The Biggest Urbanization Program Ever and Food Prices

Source: NYT

According to the New York Times (link here), China is in the midst of a program to move 250 million people from the countryside to cities, joining the 450 million that already live in Chinese cities. China's goal is to be 70 percent urban, and therefore modernized by 2025. A quarter of a billion people will be watching their ancestral villages return to the earth and are pushed into modernity "replacing small rural homes with high-rises, paving over vast swaths of farmland and drastically altering the lives of rural dwellers"

(China’s Great Uprooting: Moving 250 Million Into Cities, June 15, 2013 New York Times)

The building frenzy is on display in places like Liaocheng, which grew up as an entrepôt for local wheat farmers in the North China Plain. It is now ringed by scores of 20-story towers housing now-landless farmers who have been thrust into city life. Many are giddy at their new lives — they received the apartments free, plus tens of thousands of dollars for their land — but others are uncertain about what they will do when the money runs out.

Aggressive state spending is planned on new roads, hospitals, schools, community centers — which could cost upward of $600 billion a year, according to economists’ estimates. In addition, vast sums will be needed to pay for the education, health care and pensions of the ex-farmers.

While the economic fortunes of many have improved in the mass move to cities, unemployment and other social woes have also followed the enormous dislocation. Some young people feel lucky to have jobs that pay survival wages of about $150 a month; others wile away their days in pool halls and video-game arcades (ibid).

Economically, city dwellers create demand for goods and services and country-dwellers do not.

The primary motivation for the urbanization push is to change China’s economic structure, with growth based on domestic demand for products instead of relying so much on export. In theory, new urbanites mean vast new opportunities for construction companies, public transportation, utilities and appliance makers, and a break from the cycle of farmers consuming only what they produce. “If half of China’s population starts consuming, growth is inevitable,” said Li Xiangyang, vice director of the Institute of World Economics and Politics, part of a government research institute. “Right now they are living in rural areas where they do not consume” (ibid.)

In addition to moving people from rural to urban areas, the Chinese government is trying to get rid of unsightly hamlets and make way for large industrial projects such as dams. My uncle, fresh from a visit to China, writes: 

Mike,

Here are a couple of pictures of Chongqing showing the poorer area that will soon be demolished and replaced by modern high rise apartments. The other [third picture] shows a modern 'village' on the Yangtze River that replaced a village that now is under the river since the dam was completed. 1.5 million people were relocated when they built the dam.

Will this great experiment work? Will China succeed in creating a massive modern economy, dwarfing the demand for goods and services enjoyed in the United States, or will it create a large underclass of unskilled, slum dwellers? I don't know. I will guess, however, that this urbanization program will create greater demand for food. City dwellers tend to eat more animal and processed products, creating more demand for grains, sugars, and other basic foodstuffs. Farmers, rapidly decreasing in number, eat closer to the base of the food chain. I also believe that China's gamble on urbanization will decrease the supply of food. The government is paving over farmland or giving it to local governments and agribusiness. Meanwhile, brilliant investor Jim Rogers writes:

Until prices  reach a point where growing food is profitable, the world's farmers, who are currently aging and dying, are not going to be replaced. Prices must rise, and they will. In recent years, the world has been consuming more food than it has produced. Those inventories that were so high in the 1980s are now historically low, somewhere near 14 percent of consumption. The world is facing drastic shortages. Food prices are on the way up (Rogers, Jim, Street Smarts: Adventures on the Road and in the Markets, Crown Publishing, 2013, P.28).

Look for food prices to increase, whether inflation appears or not. (See my previous blog on this issue here.)

Dim-Witted Eaters Need Government Help: Taxes on Unhealthy Foods

The following interview is a fictional account inspired by an article in the July 24, 2011 New York Times--Bad Food? Tax it and Subsidize Vegetables and the scholarly report, The Potential Impact of Sugar-Sweetened Beverage Taxes in New York State. However, my satire is looking more and more like political reality. The Harvard School of Public Health has come out with taxation schemes to combat obesity. See half of U.S. population will be obese by 2030 experts predict... Also see Plan to Tax Soda Gets a Mixed Reception.
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The president has just appointed a head of the newly created federal agency, Assisting (Preferred) Races (with) Rice, Oranges, Greens and Needed Taxes, acronym--ARROGANT. A journalist, interested in the scope and goals of this new agency, interviewed him. Here is the transcript: 

Journalist: What are you doing?
Leader of ARROGANT: Congress and the president gave me powers to tax foods that cause obesity and other health problems. I’ve slapped a two-cents tax per ounce tax on soda. You won’t find a six-pack of Coke on sale for $2.09 any more. My $1.44 tax makes that Coke six-pack sell for $3.53.
Journalist: The tax almost doubles the price.
Leader of ARROGANT: That’s right. Demand is highly elastic, highly sensitive to price changes. People will purchase much less unhealthy soda. They will immediately lose weight and be healthier. I’ve also imposed a fifty-cents per serving tax on McDonalds french fries.
Journalist: A medium fries used to cost $1.79. Now it’s $2.29. That’s a 28 percent tax.
Leader of ARROGANT: It’s a bargain for the nation! We will lower consumption of soda alone by 20 percent, prevent 1.5 million Americans from becoming obese and prevent 400,000 cases of type 2 diabetes, saving $30 billion dollars.
Journalist: Those projections are based on…
Leader of ARROGANT: a study by Dr.Y. Claire Wang, an assistant professor at Columbia’s Mailman School of Public Health for the State of New York. Those numbers she gave for the state were then scaled nationally.
Journalist: Dr. Wang states in the above reference that the “health benefit and medical savings are larger among African-Americans and Hispanics than among non-Hispanic Whites. Lower income individuals are expected to accrue a disproportionately larger share of the health benefits.” The money from the tax could be “used to support education programs and infrastructure designed to promote healthy eating and active living…” (Executive summary) Is that right?
Leader of ARROGANT: That is correct.
Journalist: So you are saying that minorities and the poor are too stupid to know how to eat healthily.
Leader of ARROGANT: We would guide them to make the correct choice through school programs, advertisements, and putting subsidized produce in more available locations.
Journalist: You would put grapes instead of soda in vending machines?
Leader of ARROGANT: Yes, just like what’s already in place in Japan and Iowa. Next we will train kids to eat steamed broccoli instead of pizza.
Journalist: I’m not sure that you will be successful. What percentage of over consumption of calories comes from sugary beverages?
Leader of ARROGANT: 40 percent
Journalist: So you have addressed less than half the problem here.
Leader of ARROGANT: We are working on the rest—a tax on french fries as I mentioned earlier and taxes on doughnuts are in the works. Denmark has a saturated-fat tax starting in October. That is our next step. This is the role of government.
Journalist: I don’t recall setting the people’s diet patterns as a constitutionally prescribed function of the federal government.
Leader of ARROGANT: I represent the people. The general will is the rule of law.
Journalist: Do you have a precedent for your actions?
Leader of ARROGANT: Yes, the war on tobacco has worked. Cigarette taxes comprise about half the cost of cigarettes. Less people smoke, and the people’s health is more important than the rights of those doing the wrong thing.
Journalist: As less people smoke or drink soda, don’t the tax revenues eventually drop?
Leader of ARROGANT: Yes, but slimming people down is more important than providing the poor with subsidies on vegetables.
Journalist: So the poor will be priced out of enjoying a burger with fries and a coke and eventually get less benefits from the tax revenues.
Leader of ARROGANT: Yes, in the long run we know what’s good for them.
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Postscript: Your Federal government is working hard to protect you from making poor food choices. See USDA Secretary: We Must ‘Create Appropriate Transition’ for What Americans Eat here.
Those that want to research the link between obesity and fast food should read Don't Eat This Book. Fast Food and the Supersizing of America by Morgan Spurlock. See a link here. Cato's research on big government and obesity is here. Libertarian sites examine the civil rights issues connected to taking away people's food choices. The huge Cokes are not the cause. As of June, 2012, researchers have found more important factors than soda (link here).