Party time for the US ethanol industry

Bismarck once noted that “laws are like sausages: it’s better not to see them being made”. Were he around today, he might add that both laws and sausages are, in the US at least, based mainly on corn.

As I’ve just mentioned in a separate post, today is crunch time for the Waxman-Markey climate bill in the House, and so everyone’s watching the few remaining undecided Democrats, many of whom have big coal interests in their states. One set of Democrats that’s firmly in the ‘decided’ column, though, is the farm-lobby – who will be busting out cold beers and chucking ribs on the grill this weekend if the Bill passes. 

Not long ago, the farm lobby were adamantly opposed to the bill, which they feared could increase their input prices, especially fuel for on-farm energy use. Moreover, the mighty corn lobby was especially unhappy that it wasn’t invited to the cap and trade party, as National Corn Growers Association President Bob Dickey made very plain on May 18th:

“After reviewing the legislation, we can see the bill does not clearly provide for a mechanism by which corn growers can sell carbon credits on the market. We strongly believe the bill will increase input costs without specific opportunities to offset those additions. We cannot support the American Clean Energy and Security Act in absence of the provisions that we have explained in some length to the Committee.”

Well, that was then. The bill now includes an amendment submitted by House Agriculture Committee chairman Collin Peterson, which will:

  • create a market for agricultural offsets that allows the sector to take part in cap-and-trade;
  • have this market regulated by the US Department of Agriculture, not the Environmental Protection Agency; and
  • explicitly exempt agriculture from having an emissions cap of its own.

Oh dear. Continue reading

The Feeding of the Nine Billion

Today sees the launch of The Feeding of the Nine Billion, my Chatham House pamphlet on food prices and scarcity issues, which brings a year-long research programme to its conclusion.  This morning’s Financial Times has a piece on the report here, and there’s a BBC World Service interview with me here (scroll to 9.42; you need RealPlayer installed).

The report’s key diagnosis is that while food prices have fallen significantly from their peak last year, they remain acutely problematic for poor people and por countries at their current levels – and poised to resume their upwards climb when the world emerges from the downturn.  Accordingly, the last thing policymakers can do at this stage is to heave a sigh of relief – on the contrary, they need to treat the current easing in prices as a window of opportunity in which to agree the comprehensive, long-term collective action needed to ensure food security for all in the 21st century.

Long term demand drivers, above all a population set to reach over 9 billion by mid-century and the rising affluence and expectations of a growing ‘gloal middle class’ are half the story, with the World Bank forecasting 50% higher demand for food by 2030. 

On the other hand, scarcity issues will present increasing challenges on the supply side.  Oil prices are also set to resume their climb after the downturn, given that investment in new production has collapsed as oil prices have fallen, setting the stage for a future supply crunch; food prices can be expected to follow them, as biofuels, fertiliser prices and transport costs all play their part.  Climate change, water scarcity and competition for land will all also push prices upwards.

So what needs to be done?  The report sets out a ten point agenda for action at the international level and in developing countries, but overall I think of the challenge in four key areas. Continue reading

Get us out of this mess…

I’ve been in Japan today, speaking at ‘Reforming International Institutions – Meeting the Challenges of the 21st Century’,  a seminar organized by the United Nations University and the British Embassy in Japan.

You can download my talk here (with pictures, references etc) – or the text only is available below the jump. There’s a webcast too.


  • It’s going to be a tough year. The financial meltdown has a long way to go, and the downturn is risking turning into a global depression.
  • Trade is a bell wether. Protectionist pressures are already on the rise. If they gain traction, take that as a warning of a wider loss of confidence in global institutions.
  • The unravelling of global economic imbalances could prove corrosive to the international order. If countries start to devalue to protect exports, expect a tit-for-tat dynamic to kick in.
  • Scarcity issues (energy, water, land, food, atmospheric space for emissions) remain the key medium term driver of global change. Commodity prices will spike again as soon as there’s recovery.
  • The downturn has stemmed the uncontrolled growth of emissions, but also lessened the chance of a robust global deal on climate.
  • Economic bad times could well drive increased conflict. A major new security threat might be the fabled black swan – hitting just when the global immune system is already overloaded.
  • If we experience a long crisis (or a chain of interlinked crises), we are likely to see either a significant loss of trust in the system (globalization retreats), or a significant increase in trust (interdependence increases). 
  • You need to stretch time horizons to get the latter – shared awareness (joint analysis of risks and challenges), as a basis for shared platforms (loose coalitions of leaders), which can lobby for a shared operating system (a new international institutional architecture).
  • 2009 sets a challenging agenda for the G20 (financial reform and economic recovery – but framed by a broader vision on climate, resources, security etc.)…
  • …the G8 (caucus of rich countries able to tee up Copenhagen and kick start development assistance if developing countries begin to teeter)…
  • …the UN (especially Ban Ki-Moon’s proposed high level ‘friend’s group’ on climate, but also as a fora for getting to grips with scarcity issues)…
  • and the Bretton Woods institutions and the WTO (first of all ensuring they keep their heads above water, then looking to ‘save globalization from itself’).
  • Oh and be ready for the backlash – people are angry and rightfully so, but that may well lead us down some populist blind alleys.

Continue reading

The Tories and DFID

As everyone waits to see what Obama plans to do about reforming foreign assistance in the US, back here in Britain change is in the air too: the Conservatives are coming clean about what they really think about DFID, the Department for International Development.

For a while now, there have been whispers that the Tories don’t really buy into the idea of an independent DFID – and that perhaps (gasp!) they might be considering merging it back into the Foreign Office, where it resided until 1997. Well, following last week’s Independent interview with Conservative aid spokesman Andrew Mitchell, we can put that notion to rest: “We are very committed to DFID continuing as an independent department of state”, says he.

So, a ringing endorsement of DFID, then?  Er, not quite.  Here’s the full context:

The shadow International Development Secretary, Andrew Mitchell, said DFID had begun to encroach on the work of other departments and to come “perilously close” to setting its own foreign policy, a role he said should be reserved for the Foreign Office. He said the Foreign Office will be given much greater influence over the use of overseas aid should the Tories win the next election …

“There are times when DFID comes perilously close to pursuing its own foreign policy and that is not right,” Mr Mitchell said. “Foreign policy is decided by the government and the Cabinet, led by the Foreign Office, and DFID should not be an alternative to this. We are very committed to DFID continuing as an independent department of state. But we would make it more of a specialised development department and a little less like an aid agency,” he said.

That left me wondering just which specific instances Mitchell was thinking of in arguing that DFID was coming close to having its own foreign policy.  Iraq? Afghanistan? Climate change? (Thinking that Paul Wolfowitz might not be such a great idea for President of the World Bank?) Sadly, we don’t know.  Earlier today I called his office to ask him to elaborate, but he declined to say more.

This is a shame, on two counts. First, because it’s a cop out.  For the Opposition front bench spokesman on international development to argue that the Department he shadows has come ‘close to pursuing its own foreign policy’ is a serious claim – and one which he ought to be prepared to substantiate.  To fail to do so leaves him open to accusations of offering soundbites rather than reasoned argument.

More fundamentally, though, it’s a shame that Andrew Mitchell wouldn’t elaborate because this debate needs to be had.   Continue reading

What the credit crunch means for development

Although there’s no consensus on whether we’re heading for a 2-3 year recession or a much longer period of deflation a la Japan in the 1990s (c.f. Nouriel Roubini on V, U and L shaped recessions), four implications for development are already clear.

First, donor countries are going to be facing a dramatically different situation in their public sector budgets from next year. With the US Treasury’s $700 billion bailout plan now approved by Congress, the incoming US Administration will face a budget deficit of up to a trillion dollars next year, rather than $300 bn as planned.  Other donors will find their budgets constrained too – by falling growth, lower tax revenues and probably also higher public debt.  In the UK, for example, public borrowing next year is likely to have to rise from an expected £43 bn to £100 bn or more.

All this means that governments will have less to spend – so we should start worrying now about what that means for development assistance.  While it remains to be seen whether those governments that have committed to spending 0.7% of national income on aid will row back on those commitments, it now looks much likelier that for example climate adaptation costs will come out of aid budgets, rather than being additional to 0.7% – as they should be.

This shift will be compounded by the second implication of the credit crunch: change in public attitudes.  So far, the full impacts of the financial crisis have yet to hit the real economy in developed countries.  But when they do, they will accelerate a switch that we can already see, towards more priority on issues that are ‘close to home’, and less on global issues like development and climate change.

Third, the financial crisis will obviously hit growth in developing countries.  Monday’s stock market falls hit developing country exchanges hardest: the benchmark MSCI emerging markets index, for example, fell 11% as investors fled for safety.  Meanwhile, the debate about whether developing countries in Asia and Africa have ‘decoupled’ from developed countries seems to be ending, with the conclusion that developing country growth is not immune from a downturn in the wider global economy.

And fourth, a reduction in commodity prices for the duration of the global downturn (however long that may be) as demand for them falls.  As I’ve mentioned, futures prices for grain crops are already falling; we can expect that trend to be supported by falling energy prices, which will reduce some of the pressure on food that’s come via fertiliser prices, transport costs and demand for crops as biofuels.

That said, let’s be clear: the fall in commodity prices due to a global downturn does not mean that we’re out of the woods for good on high food and fuel prices. As Javier Blas notes in the FT today, the downturn also means that necessary investment in increasing supply will be put off.  As soon as we’re out of the dowturn and demand starts going up again, we’ll discover that there’s been no shift in the underlying supply fundamentals – and hence that the stagflation drivers we were all worrying about until the credit crunch really began in earnest are just waiting where we left them.  Let’s hope policymakers use the current easing as a moment of opportunity to start getting long term policy frameworks in place to manage high commodity prices a bit better than we did over the last two years.