Run On The Grain Bank

Netscape Enhanced

How A Small Scare Created
A Run On The Grain Bank

Portela: Gary, we've been doing this bulk grain food business now for 50 years. In 1996, business was so astonishing that we ran our facility 24 hours a day, except on the Sabbath, trying to keep up with orders. We were inundated with orders. We could not keep up. We ran a minimum of 6-7 months behind trying to fill orders as they came in, running 24 hours a day. We are not a large company, but 54 people working around the clock do put out quite a bit of product. There was a lot of scares in 1996, especially the early part of the year -- February, March and April. I'm sure the listeners can remember that Kansas and the Mid-west were going through a drought cycle. It was very cold. A lot of the corn and the winter wheat was destroyed in the Kansas area, the bread basket of the U.S.

Couple this with a new disease in the wheat crop in some areas of the country called Karnal Bunt Disease. In 1996 the newspapers were building this up. You add all these scenarios together and there was a great deal of demand to get yourself a 6 month, year or two year supply of food; an emergency food reserve. The business that I'm in and a few other companies who are in this business were inundated and could not handle the orders. And that was just a small, potential scare that happened. If the crisis would have continued, there is no way that people would have gotten food. It would have been too late. Supplies were extremely short, Gary.

North: On your web site, which I do recommend people visit, you've got some links to some articles by Geri Guidetti at the Ark Institute. She has created some very startling pages for her web site which are linked to your site about the grain supply problem. She is obviously convinced that people have got to take steps to begin to protect themselves. I think that is also true because:

1. Everything is going to get more expensive, inevitably.
2. There is going to be a panic at some point.
People are going to think through what the implications are of the year 2000 problem which means they are going to be out looking for goods that will keep them going.
3. The incredible thinness of the distribution system. There is literally only a handful of companies people can go to that supply grains stored in a fashion for long-term home storage. Obviously, if you had a six-month backlog of orders a year ago without any real panic hitting, if there were any kind of public fear on the ability of the supply system to deliver the goods there would be no possible way you could make those deliveries.

Portela: You are absolutely right. You need to be prepared before time. The parable of the Ten Virgins, perhaps, has some connotations to this aspect.

North: Yes, but half of them didn't make it.

Portela: This is exactly my point.

North: And that really is the big problem. This is a moral difficulty. You can help solve it for people who are willing to listen to what I am saying. And it is this: In every economy, goods are geared to traditional supply characteristics in terms of how much demand people are going to pressure a particular industry for, how much they are willing to pay, how much credit they can get a hold of, and what their general purchasing and consumption habits are. Whole societies gear up their production system according to this traditional and familiar array of prices and demand. There is nothing else that we, as a society can do. You can't forecast everything, so you go pretty much by what you did this year or last year and hope next year is going to be pretty much the same. And in most cases this comes true.

But then comes a break in the supply system or a threat of a break in the supply system. And for a period of time, people's demand shifts. They say, "I'm not going to buy a new car; I'm going to buy food." Well, it would not take very many people, and I'm talking tens of thousands, not hundreds of thousands -- tens of thousands of people -- changing their mind on buying a car this year and buying $5,000 worth of food in advance or $3,000 or even a $1,000. It would not take very many people shifting their preferences to create a gigantic bottleneck in this survival food market.

Obviously it doesn't mean you couldn't get grain at some price if you were some huge food manufacturer. Yes, you will be able be supplied at some price. The large processors are used to buying tons of food and processing it, and they are in the general supply line. And so, yes, large processors will probably be able to get delivery but we aren't talking about them. We are talking about little people and the delivery system that is geared toward little people. I mean, I've got to be realistic.

You are a Mormon, right?

Portela: Yes, I am. Most of us are.

North: Let's be reasonable. In the social division of labor, Mormons have pretty much got a lock on the survival food industry because it is part of the religious premises of the organization.

Portela: They have been forever, Gary.

North: I don't object. I'm kind of what we call a `free rider,' in that I take advantage, as a non-Mormon, of the services that you and a relative handful of other people have offered to the general public and to the church also. But for the general public, I'm very glad somebody is out there doing this.

Now, let's be realistic -- and I've got to be realistic. I'm trying to stay about one month or three months or maybe a year ahead of the president of the Mormon Church. Because if he sends down a message saying he thinks the year 2000 problem is going to create a crisis, and he is strongly recommending more than usual, even firmly emphasizing that members of the organization go out and buy an emergency supply of food, there is no way that you as a business are going to be able to keep up with the demand.

Portela: Gary, that's true. Just the business we get from the LDS church membership would wipe us out. Right now, half my sales come from sources not affiliated with the LDS Church. We get many, many sales to other groups. Most of them are church groups, but they are not now predominantly LDS. There are many other groups waking up to the fact that maybe we are living on a little bubble on the edge of the fence and perhaps common sense tells us to do something. Everyone goes out and gets life insurance and health insurance, why not get a little food insurance.

The Large U.S. Food Surpluses Are Gone!

North: I think the reason is that the modern system of capitalist agriculture has been so spectacularly successful for the last 200 years that we really believe famine is not possible any more.

Portela: Gary, last year in 1996, when Kansas, Oklahoma, and some of the other mid-west states lost approximately half of their winter wheat supplies, the United States came within a couple of weeks of running out of their wheat supply and their corn supply. Their corn was practically gone by the time a new harvest hit last September and October. It was that precarious.

Prices, like on corn, doubled and almost tripled. Wheat definitely did double in price. If Mother Nature hadn't given us a reasonably good harvest in 1996, you would have seen prices continue to sky rocket. As it is, the harvest was better than expected and prices have dropped. Wheat prices have softened and so has corn, barley and these other grains.

But we never filled up the bins! We don't have a stock pile. We have enough grain, yes, to last until a new crop harvest comes in, but the surplus is gone. The United States used to have huge surpluses and so did the world in general. Those stock piles are gone. The government made a conscious decision to get rid of those stock piles because of their budget problems. They had to buy the grain and then they had to pay to store it. This all cost billions of dollars. They have eliminated that stock pile. And so now we are living year to year on our harvest, just like most families in the United States of America are living from one trip to the grocery store to the next.

If that supply happens not to be there, what are they going to do? How are they going to feed their children? Those parents are going to look into their eyes and say, "I'm sorry you are hungry." We saw some potential crisis that could hit. Think of the LA riots and how quick the food down there was gone. It was only one or two days. If order hadn't been restored as quickly as it was, what could have happened?

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