by Alex Evans | Jun 19, 2008 | Africa, Climate and resource scarcity, Cooperation and coherence, East Asia and Pacific, Economics and development, Global system
Not much respite in prospect on food export restrictions, if today’s FT is anything to go by. Vietnam, the world’s second largest exporter of rice, has imposed a minimum price of $800 a tonne on rice exports (the price last year was $300 – ouch). Meanwhile, Argentina has just passed a tariff bill which “is not likely to lead to an immediate resumption of grain exports in the world’s third-biggest soy producer, sixth-biggest wheat producer and second-biggest corn exporter, analysts say”.
These problems underline a bigger challenge lurking in the background: that while the world may have a rules-based global trading system built around the WTO, that system is built for totally different trading conditions to the ones that obtain today.
In essence, the WTO and its dispute resolution architecture are designed to help countries to work through squabbles about market access and dumping – the sort of scuffles you expect in a buyer’s market. Fine – except that today, we’re in a seller’s market, on food and energy alike, where the concerns that are really furrowing brows are over security of supply, not market access.
And as a range of current examples show, the one thing policymakers can’t do is just sit back and ‘leave it to the market’. On energy, there’s already increasing friction over strategic oil supplies in Africa, the Arabian Gulf and the South China Sea. On food, meanwhile, export restrictions have left many countries in serious difficulties – like the Philippines, which is trying to go self-sufficient in rice within three years (from being the world’s no. 1 importer today – good luck). Meanwhile, China, Saudi Arabia and other importers are engaged in a quiet but determined hunt for land to buy in third countries.
Over the long term, these pressures may increase dramatically. Demand for energy and food is forecast to grow by 50 per cent each by 2030, according to the IEA and the World Bank respectively. If supply growth fails to keep pace – as seems entirely possible, especially given that food and energy prices are increasingly interlinked (through fuel costs, fertiliser costs, and the arbitrage relationship created by biofuels) – then situations like these will in retrospect seem like no more than trailers for the main feature.
In that context, it would be helpful if our rules-based trading system had something – anything – to say on the subject of security of supply. Do major exporters of key strategic resources have responsibilities as well as rights in the international system? Or is it no more than the legitimate exercise of sovereignty if they suspend or restrict exports at a moment’s notice?
Big questions – but not ones that are the subject of searching debate among trade negotiators. Like Britain’s artillery guns in Singapore during World War Two, the world trade system’s defences are pointing the wrong way.
by Alex Evans | Jun 3, 2008 | Climate and resource scarcity
One of the catches with this week’s UN food summit is that it’s not immediately clear just what deal the various heads of state and ministers assembled here are supposed to cut – and that leaves the (hundreds of) journalists here looking for story angles. Look at some of the main issues at play in the food prices issue and you start to see their problem:
Humanitarian relief. The World Food Programme’s urgent appeal for $755m needed to keep feeding the 73 million people dependent on it for help has been making headlines all spring – but now the funding gap has been plugged, thanks to a half a billion dollar donation from Saudi Arabia.
(Incidentally, it’s a mystery on a par with the Marie Celeste as to why WFP didn’t wait until the summit to announce the cash. Here in Rome, it would have been the story from the summit. As it was, the news – announced late on a Friday afternoon – sank with hardly a trace. One leading food journalist I spoke to this morning said he didn’t get the press release until two days later. You couldn’t make it up…)
Trade. Numerous policymakers have pointed to the long term importance of trade reform, and pushing ahead with the Doha Development Round. But as far as this summit is concerned, that’s off the agenda, since the Doha Round has its own, separate, negotiations.
Changing diet patterns. The growth of a global middle class eating a grain-intensive western diet is the single biggest driver of rising prices, and as I noted in another post earlier today, it raises the awesomely complex and politically difficult question of fair shares. But there’s no chance of any substantive discussion of that here this week.
Investing in agricultural supply. Everyone agrees that a ‘new green revolution’, or whatever you want to call it, will be essential given that demand is set to rise 50% by 2030. But while the UN’s High Level Task Force sets out a strong analysis in its newly published paper on elements of a comprehensive strategy, it’s hard to see what actual deal this week’s summit could cut in this area. Admittedly, several countries are likely to announce major new funding commitments while they’re here. But the amounts will have to be very big to become the story of the week.
So what does that leave? If I worked for the UN Secretary-General, I’d be putting all of my effort into persuading one or two of the really big producers who’ve imposed export restrictions on crops – like India, Russia, Kazakhstan or Argentina – to announce an easing of those restrictions. That would mark an important step forward, and represent a triumph for the UN and its Secretary-General.
But without that, it looks like the story of the week is likely to be about biofuels – where it’s hard to see any great strides towards consensus being made here in Rome. On the contrary, with the US and Brazil defending biofuels to the hilt even as others (including FAO head Jacques Diouf) fire broadsides off against feeding crops to cars, the risk is of a damaging spat. That will make for a lively story, if it becomes the angle that journalists here go for – but could also lead to all sides entrenching their positions, which would be a Bad Thing.
by Alex Evans | May 30, 2008 | Climate and resource scarcity, Conflict and security, Economics and development
Next week, the UN is holding a major summit on food security in Rome – I’ll be there throughout (and blogging regularly on what goes on). Ahead of the kick-off, I’ve updated the Global Dashboard page on where to get briefed on food prices, and put out a scene-setter press release through Chatham House that sets out a few thoughts on what the summit needs to achieve.
This week’s already seen a couple of new items on food prices that are worth a look, starting with a new annual FAO / OECD outlook report – which this year looks all the way out to 2017. It finds that although prices will come down in the short term (which you already knew, since you read it here on Global Dashboard on March 18th), nominal prices over the medium term will remain “substantially above” levels over the last ten years. In other words, it’s not just a blip.
Also worth a look is World Bank President Bob Zoellick’s ten point plan for food prices, published in the FT this morning. His article confirms that he’s well ahead of the curve on understanding the need for an integrated approach to scarcity issues:he says collective action is needed on “the interconnected challenges of energy, food and water [which will be] drivers of the world economy and security”. (I’ll be publishing a paper on how the multilateral system needs to be reformed to cope better with scarcity issues just before the G8 in early July.)
What will actually happen at the summit is currently anyone’s guess. It’s fair to say that FAO haven’t been very proactive in briefing the media on likely outcomes or what they’re hoping for, which puts them in the rather hazardous position of allowing high expectations to emerge without really managing them. Another risk is that a major spat over biofuels could erupt: Ahmadinejad and Chavez will both be at the food summit, and would like nothing better to embarrass the US over its support for ethanol – and while US subsidies for corn-based ethanol are certainly problematic, it’s hard to see these particular interlocutors opening up much political space on Capitol Hill as legislators contemplate the Farm Bill.
But on the upside, great progress has been made on financing the immediate humanitarian needs (after Saudi Arabia stunned everyone by coming up with half a billion dollars last week – a coup for WFP head Josette Sheeran and for UN Emergency Relief Coordinator Sir John Holmes, who’s invested much time encouraging Gulf countries to contribute). This, together with the prospect of some short term relief on prices, gives policymakers a chance to look ahead towards the longer term challenges as well as short term crisis management.
It’s also hard to remember a time when the UN system and the international financial institutions have worked together as closely or as effectively as they seem to have been doing on the UN’s food task force – a great story, given how fragmented the international system usually is, but one that’s gone largely unreported. Even so, the real work in pulling together the longer term agenda is still in front of us…
by Alex Evans | May 29, 2008 | Climate and resource scarcity, North America
You’ve heard of greenwash. Now: cornwash! A firm called Abengoa Bioenergy has a full page advertisement in today’s FT, which begins thus:
Manipulation: Bioethanol is the main cause of increased food prices.
Evidence: The main factors of the staggering cost of food are a shift in the Asian diet … and the current price for oil…. In fact, it is estimated that the impact of biofuels on cereal prices will only be in the range of 3% to 6% as compared to 2006 prices.
Where to start? Well, maybe with the point that their advert rests on attacking a straw man. Hardly anyone would disagree that high income growth, leading to changing diet patterns, is the single largest driver of rising prices.
What the advert doesn’t say is that most analysts would also put biofuels as the second largest. Opinion varies as to how much of the food price rise over the last three years is down to biofuels; FAO reckon 15-20%, while IFPRI reckon it’s more like 30%. (I know of at least two experts in the World Bank who’d argue privately that the figure is somewhere between 50% and 70%.) Here‘s one of the authors of FAO’s latest World Food Outlook report:
Biofuels are the largest new source of demand for agriculture and are causing higher prices. We are very worried particularly about biofuel policy. US government incentives for ethanol producers are distorting the market.
True, not all biofuels are problematic. Second generation biofuels like cellulose are great, though not commercially viable yet. Jatropha looks promising. Ethanol from sugar may yet prove sustainable.
But as the 5th largest producer of bioethanol in the US, Abengoa’s one of the prime beneficiaries of subsidies for corn-based ethanol – which, despite being on track to hoover up a whole third of the US corn crop this year, is nonetheless one of the biofuels that from a food security or climate viewpoint alike just makes no sense: for the amount of corn it takes to fill up an SUV with ethanol, you could feed a person for a year.
by Alex Evans | May 28, 2008 | Climate and resource scarcity
The FT has a long analysis piece this morning on how the political salience of environmental issues is faring in Britain as the economy nosedives. The news ain’t good:
At a time of falling house prices and rising household costs, people are telling pollsters that they are no longer quite so interested in saving the planet. Ipsos Mori has found that environmental concerns reached a pinnacle in January 2007, when 19 per cent of people, unprompted, named the environment as one of the biggest issues facing Britain today, compared with just a few per cent several years earlier. But by January 2008, that figure had fallen to 8 per cent, while the economy was rated a top concern by one in five. One very senior member of the shadow cabinet put it more strongly: “People hate this green stuff.”
But on the other hand, CNN has this:
At a time when gas prices are at an all-time high, Americans have curtailed their driving at a historic rate. The Department of Transportation said figures from March show the steepest decrease in driving ever recorded.
Compared with March a year earlier, Americans drove an estimated 4.3 percent less — that’s 11 billion fewer miles, the DOT’s Federal Highway Administration said Monday, calling it “the sharpest yearly drop for any month in FHWA history.”
The question, then: as far as climate change is concerned, does a drop in public concern for the environment actually matter, as long as the oil price keeps on rising? Answer: yes, because there’s absolutely no law to say that pursuing enery independence is necessarily green.
Exhibit A: corn-based ethanol. Pointless as a climate mitigation measure (and seriously harmful on the food security front). As an energy security measure, unfortunately, rather effective.
Exhibit B: liquid fuels from coal. The US National Association of Mining is already out there making the arguments. Also rather effective from an energy security point of view, but not good at all for the climate.
All this adds up to a pretty good case for policymakers to focus heavy fire on unlocking electric cars, it seems to me, given how far away hydrogen still looks.
