Scarcity in small town America

by | Jun 2, 2008 | Climate and resource scarcity, Conflict and security, North America, Off topic

I was recently hiking in Putnam County, NY, a charming slice of hill country on the Hudson made famous by a musical about a Spelling Bee.  I picked up the Putnam County News and Recorder, an old-fashioned newspaper with old-fashioned  stories like “Sloop Club Strawberry Festival Serves Up Shortcakes and Sails” and “Heritage Funeral Home Allegations Unproven Says Owner”.  But I was struck by the signs of resource scarcity in small (if admittedly liberal, Obama-signs-everywhere) town America.  Here are some article openings from the 21 May edition:

The Putnam County Legislature’s Physical Services Committee implicitly acknowledged the financial impact that rising fuel prices are having on the county when, during its May 13 meeting, it heard a presentation on alternate fuels and ways of reducing the ever-escalating costs of heating the county’s buildings.

Water is perhaps our most precious natural resource. All life is dependent on a supply of clean water. And whether you are an average resident changing the oil in your car or a developer constructing several new houses – you have a legal obligation to ensure that your activities do not jeopardize the quality of water in area streams – and ultimately in the Hudson River. That was the gist of a presentation made at a meeting on May 14 at Cold Spring.

Gasoline continues to be a subject of considerable interest in and around the Village of Cold Spring – and not only because consumers are paying more than four dollars to purchase one gallon of regular at area pumps. At the meeting of the Village Board, Trustees passed a resolution requiring Mayor Anthony Phillips to submit expense claims documenting mileage incurred on Village business in order to be reimbursed.

It’s a sort of Olde Worlde Resilience, I guess.  And good to see.  Although most Putnam residents are probably most concerned about exactly how Olde Worlde their local 1970s-vintage nuclear power station is, especially as it has a “history of problematic performance”.  This week it’ll be testing its 156 emergency sirens – a temporary system, it transpires, while a new one is sorted out.  Reassuring.

UPDATE: for thoughts on why this post makes me look like a fool, look here.

West Africa: stuck in a food / fuel pincer movement

by | Jun 2, 2008 | Africa, Climate and resource scarcity, Economics and development

I had a long chat with Pascal Fletcher at Reuters on Friday while he was writing this article on the effect of price rises for food and fuel in west Africa, where he’s based.  He clearly knows the region back to front, and as his piece makes clear, the outlook isn’t good:

Africa’s cocoa makes the world’s chocolate, its fish, fruit and vegetables reach tables around the globe and its oil powers vehicles and factories from China to the United States. Yet far from benefiting from soaring commodity prices, African states are being squeezed as hard as any by the costs of fuel and food imports. Their desperate moves to cushion the impact for potentially restive populations threaten to wreck already stretched budgets, slashing receipts and swelling state spending.

As far as I can tell from the rough tally I’ve been keeping over the last few months, west Africa’s been one of the regions hardest hit by civil unrest related to food and fuel inflation, and Pascal’s article seems to confirm this.  As a result, many governments have been under pressure to subsidise prices for both.  Problem is, that doesn’t do their exchequers any good at all – quite apart from the inflationary impact of such measures.

The unplanned contingency measures, on top of global food and oil prices far above what most imagined a year ago, are wreaking havoc with governments’ finances. “This trend is throwing the budget out of gear,” Ghana’s President John Kufuor lamented last month when he unveiled a package of actions to mitigate the price rises …

As I argue in Pascal’s piece, the expense of subsiding goods across the whole economy, coupled with the inflationary impact, are two of the reasons for the current enthusiasm for social protection systems – be they food aid, vouchers or straightforward cash transfers – that are targeted at the poorest people.  Expect to hear a lot about such ‘social protection systems’ at this week’s UN food summit. 

But there’s a catch, too: in many places, the infrastructure for administering these systems just isn’t in place.  Helping countries to get it set up has to be a top priority for donors – starting right now.

Could soaring oil costs reverse globalisation?

by | Jun 2, 2008 | Climate and resource scarcity, Economics and development, Global system

Here’s a question I’ve been wondering about for a while now.  Just how much of an impact are soaring oil costs having on international trade through making it more expensive to ship freight?  And if oil costs keep rising – to $200 and beyond, say, as some analysts reckon could happen by the end of the year – is there a risk that transport costs could in effect start to roll back globalisation’s relentless advance over the last few decades? 

Last week, courtesy of John Robb, I found the first serious attempt I’ve yet come across to answer that question, from Jeff Rubin and Benjamin Tal (both at CIBC, an investment bank) – see pdf here (scroll down to page 4).  And it’s pretty powerful stuff, right from the first sentence, which says bluntly: “Globalisation is reversible.” 

The authors say that every one dollar rise in world oil prices translates into a one per cent rise in transport costs.  And as freight costs rise steadily upwards, they argue, what’s in effect happening is a de facto reversal of the tariff reductions that have been painstakingly negotiated in international trade rounds. 

Back when oil prices were $20 a barrel, they explain, transport costs were the equivalent of a 3% US tariff rate.  But at $150 a barrel – just $15 or so higher than oil today – the equivalent tariff rate goes up to 11%  – “going back to the average tariff rates of the 1970s”.  And $200?  “We are back at ‘tariff’ rates not seen since prior to the Kennedy Round GATT negotiations of the mid-1960s.”  So with this kind of economic impact, the authors continue, markets will seek shorter, and hence less expensive supply lines – which is “precisely what we have witnessed in response to past OPEC oil shocks”.

Now think about what this means for economies that – like China and India – have emerged by exploiting their cheaper labout (albeit that wage costs have more recently been rising sharply in both countries).  China’s steel exports to the US, they say, are now falling by 20% on a year-on-year basis – and they think that’s not only because of the slowing US economy, but also because cheaper Chinese labour is starting to be offset by the sheer cost of transporting the steel across the Pacific. Bottom line:

“In a world of triple-digit oil prices, distance costs money.  And while trade liberalisation and technology may have flattened the world, rising transport costs will once again make it rounder.”

Although Rubin and Tal don’t get into the effect on food prices specifically, the drivers they discuss are profoundly relevant for the longer term food outlook.  More on that in a future post.