It stated: “Here's food for thought: Despite being fed a steady diet of conflicting news about the global economy, consumers around the world are still tucking into pricey steaks and juicy pork chops with gusto.“ (WSJ, 11/3 Edition)

It is a sentiment that we have heard many times recently as people try to reconcile all the gloom and doom talk in cable channels and economic data feeds with the reality of higher prices at the retail store or the foodservice menu.

How can you charge this kind of money for steaks or pork chops, the thinking goes, when nine per cent of people don’t have jobs and there is all this fear and panic all around?

Well, it often helps to take a step back and look at the world around you. And not just at your town, your state or even your country. Rather, it helps to look at the WORLD around you.

Thomas Friedman, a NY Times columnist, wrote a book a few years ago titled “The World Is Flat“, arguing that many of the political and physical barriers keeping people apart have been erased, creating a more level playing field and consequently a much more competitive environment.

The worker in Bangalore or Shanghai now has access not just to the internet or Hollywood movies, but also to the food resources that we take for granted.

And once we take this perceptual step back, consider both supplies and demand at a global level. In the top chart, we show what has happened to world cattle and hog inventories since 2000.

The world hog inventory through 2010 was down two per cent compared to 2000 and it is expected to grow only modestly in 2011 and 2012. USDA currently forecasts the total world swine inventory in 2012 at 781.5 million head, 0.2 per cent lower than in year 2000.

The world bovine inventory in year 2012 is forecast at 1.018 billion head, 1.4 per cent less than what it was in year 2000.

Productivity increases likely have allowed producers to get a bit more beef and pork out of smaller herds but the reality is that in 2012 we will have fewer animals than 12 years ago. Now consider the demand side of the equation: globally.

Since 2000, the world gross domestic product (GDP) has gone from $32.2 trillion (constant year 2000 dollars) to $63 trillion in year 2010.

Forecasts are for 2.7 per cent world GDP growth in 2011 and another three per cent growth in 2012. So by year 2012, the world GDP could be as high as $66.7 trillion, more than double what it was in year 2000.

Also important to consider, and contributing to the growth in economic activity, is population growth. The world population increased from about six billion people in year 2000 to about seven billion people today.

That is an almost 17 per cent increase in the number of people that need to be fed while again, world cattle and hog inventories actually have declined. The increase in population and economic activity has come from areas that are starting with a deficit in the number of calories they take each day.

There is particularly a deficit in the number of calories from protein. As incomes increase, people tend to increase protein calories in their diets. Again, it is not a matter of munching on “pricey steaks or juicy pork chops“ although that happens too.

Rather, it is the small increase at the margin spread out over a larger population that has double the money to spend, which is pushing prices higher.

It is a flat world that will only get flatter (i.e. more competitive) On a per capita basis, the supply of beef, pork and poultry available to US consumers in year 2012 will be the smallest since 1987. Back then, the US economic activity was estimated at $4.6 trillion, compared to $14.5 trillion in 2010. Food for thought, indeed.