The coming commodity squeeze

Date posted: January 24, 2012

Although everyone is focused on today’s challenging economy, it’s helpful to look ahead at some of the economic issues we will likely face down the road. Many experts say a big issue will be both the supply and price of basic commodities. What do they mean? N.C. State University economist Mike Walden explains.

“Well, what we’re talking about here … is the use of raw materials — raw commodities, if you will — like oil, metals, grains, even water. And as the world economy has grown — and it has grown tremendously particularly in those so-called emerging countries — the use of these materials has simply sky-rocketed. And the reason our prices are … going up is because demand is outstripping supply.

“So, there’s several worries here: One is that there’s a linkage between, some say, the …  increased use of commodities and climate change. That’s one concern. Second concern is that as we have already seen demand increasing faster than supply and prices going up. That may continue to accelerate. So we may see even higher prices for these raw basic commodities down the road.

“And then thirdly there seems to be linkage between the use of many of these commodities. For example, as the population increases and we need … to grow more food, and we’re using more basic commodities there, we also have to use more water. Or we use more water in order to extract more fuel. So there’s a lot of linkage here.

“So, many see this as a big — perhaps the biggest — issue down the road. But it’s good that we can anticipate it. And secondly it does create huge incentives for technology to be employed to improve productivity use of these raw commodities.”

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