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Rising Prices on the Menu

All around the world, poor weather has reduced harvests and driven up food prices, fueling inflation risks and hitting the most vulnerable. Floods in Australia, Pakistan, and parts of India have helped push up the cost of food, as have droughts in the US, China, Argentina, and Eastern Europe. Energy prices are again on the rise, with likely knock-on effects for food. Many countries, especially developing and emerging economies, are struggling with the implications of high food prices, given their effects on poverty, inflation, and,for importing countries, the balance of payments. Higher food prices may also have contributed to social unrest in the Middle East and North Africa.

An insightful article from the IMF website provides a good insight, click here to open the PDF

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Posted by on August 6, 2012 in Agriculture


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UN Report – World is running out of food, water and energy to meet needs of a rapidly growing population

The world is running out of time to ensure there is sufficient food, water and energy to meet the needs of a rapidly growing population and to avoid sending up to 3 billion people into poverty, a U.N. report warned on Monday.

Even by 2030, the world will need at least 50 percent more food, 45 percent more energy and 30 percent more water, according to U.N. estimates, at a time when a changing environment is creating new limits to supply. (Still wondering what the best investment themes of our generation will be ?)

And if the world fails to tackle these problems, it risks condemning up to 3 billion people into poverty, the report said.

Efforts towards sustainable development are neither fast enough nor deep enough, as well as suffering from a lack of political will, the United Nations’ high-level panel on global sustainability said.

“The current global development model is unsustainable. To achieve sustainability, a transformation of the global economy is required,” the report said.

“Tinkering on the margins will not do the job. The current global economic crisis … offers an opportunity for significant reforms.”

There are 20 million more undernourished people now than in 2000; 5.2 million hectares of forest are lost per year – an area the size of Costa Rica; 85 percent of all fish stocks are over-exploited or depleted; and carbon dioxide emissions have risen 38 percent between 1990 and 2009, which heightens the risk of sea level rise and more extreme weather.

The panel, which made 56 recommendations for sustainable development to be included in economic policy as quickly as possible, said a “new political economy” was needed.

Isn’t it time that we as citizens of the earth invest in our own future and that of our children ? After all, we did not inherit the earth from our parents, we merely loaned it from our children and their children.

At Global Fund Exchange, we have dedicated our entire obsessive focus on investing in the future of our planet through sustainable and profitable investments in water, energy, agriculture and other vital and important scarce resources.

We have decided to invest wisely and with purpose in order to leave a legacy for our children. If you wish to join us, please contact our Chairman, Anric Blatt or our CEO, Lauralouise Duffy for a further discussion to explore how we can help you leave a legacy that is worthwhile and sustainable for future generations.


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How would oil prices be affected if a conflict with Iran were to break out ?

The price of a barrel of Brent could spike from current levels of around $114 to anywhere between $135 and $210 in the unlikely event of a military strike on Iran’s nuclear facilities by the US or Israel. However, this threat is itself a very powerful reason for the West to hold off. Instead, by far the more eminent risk is that near term oil prices will collapse due to an escalation of the financial crisis in the euro-zone.

Oil prices are still some way below the peaks seen during the Arab Spring. (See Chart 1 below) But they have recently been propped up by three factors:

  • renewed optimism that the crisis in the euro-zone can be contained;
  • reduced fears about the US and Chinese economies, due in part to fresh hopes of monetary easing;
  • and persistent speculation that Israel or the US is about to launch a military strike on Iran.

It is hard to quantify the relative importance of these, and other, pressures on the oil price. However, based on the price movements observed after recent news on Iran, worries about a potential conflict with the West are probably already adding between $2 and $5 to the cost of a barrel of crude.

Tensions between Iran and the US, as well as both Israel and Saudi Arabia, are unusually high and have been raised further by the latest International Atomic Energy Agency (IAEA) report on the alleged militarisation of Iran’s nuclear programme and the resulting rebuff by Iran’s envoy to the International Atomic Energy Agency (IAEA) Ali Asghar Soltaniyeh. As a global investment house, geopolitical research – provided by the likes of Stratfor is an essential ingredient of our macro-economic research in a world that is ever more connected.

Nonetheless, any military action against Iran does still appear to be a long way off. The US is struggling to disengage from Iraq and Afghanistan, was reluctant to take the lead in Libya, and has plenty to worry about in Syria and Egypt. Officials have stressed that a strike on Iran’s nuclear facilities, whether by the US or Israel, would have limited benefits but many potential costs, not least the impact on oil prices, and is therefore very much a last resort. Instead, the US is focusing on encouraging other countries to tighten economic sanctions on Iran.

However, as investors regularly ask, it is worth considering what might happen to oil prices if we are wrong. Iran produces approx 3.5m barrels per day (bpd), or 4% of global supply, second only to Saudi Arabia within OPEC. (See Chart 2.) It is unlikely that any military strike would target Iran’s oil facilities, but global sanctions or the withdrawal of supplies by Iran itself could have a similar effect. One useful rule of thumb is that the percentage increase in the oil price required to balance the market following a shock should be roughly five times the percentage reduction in supply. Correspondingly, a temporary halt to Iranian supply might add 20% (4%*5) to the price of Brent, taking it above $135 per barrel.

The impact could be much greater if Iran followed through on past threats to disrupt oil supplies through the Strait of Hormuz, the only waterway available to ship oil from the Persian Gulf. This could reduce global supply by 10-15m bpd, at least temporarily, which might lift the price of Brent to between $180 and $210 per barrel. However, the impact would be offset in part by the release of emergency stocks and there are serious doubts that Iran has the military resources to block the Strait for long.

In all this, though, it important to reiterate that we do not think that a military strike on Iran is imminent. Instead, for the next several years the more likely seismic shock is the break-up of the euro, which could see significant temporary oil price collapsing despite the long term fundamentals and unprecedented demand from the developing world. Some of our energy traders predict a $150 trading range within the next 12 months irrespective of the Iran threat, purely based on demand from the developing world and the fact that the 2008 – 2010 credit crisis virtually evaporated refining and exploration investments in the crucial supply regions. Either way, energy markets will continue to dominate global investment themes for the future.

About Global Fund Exchange

The Global Fund Exchange Group is an investment management group offering sensible diversified portfolio solutions to institutional investors since 2005. These are often customized to the particular requirements of clients, optimizing returns and controlling risk. Our focus is on the real and evident global macro trends that will shape our planet in future years.

Global Fund Exchange has constructed tailor made multi-manager portfolios exceeding US$2 billion for some of the world’s most sophisticated pension funds, sovereign wealth funds and other institutions in global tactical asset allocation, alternative investments, energy, commodity and multi-strategies.

The Earth Wind & Fire Fund is an actively managed global macro, multi-strategy, multi-manager fund focused on the future of energy and the future of our planet. The fund aims to provide our institutional investors with the ability to participate in these mega macro opportunities whilst significantly reducing volatility. Through strategic mandates with highly experienced specialists all across the world, we specifically focus on opportunities in:

  • Clean Energy
  • Agriculture
  • Carbon & Emissions Trading
  • Systematic Trading
  • Water
  • Traditional Energy
  • Natural Resources

The AquaTerra Fund is a focused carve out of the existing Agriculture, Water and Natural Resources portfolios originated from the  the multi strategy Earth Wind & Fire Fund. This more concentrated portfolio invests in agriculture, water and other scarce natural resources across equities, commodities and futures throughout the world. It is managed by the same multi-manager team at Global Fund Exchange, headed by Lauralouise Duffy and Anric Blatt.

The Earth Wind & Fire Fund is an actively managed global macro, multi-strategy, multi-manager fund focused on the future of energy and the future of our planet.

The fund aims to provide our institutional investors with the ability to participate in these mega macro opportunities whilst significantly reducing volatility.

Through strategic mandates with highly experienced specialists all across the world, we specifically focus on opportunities in:

Clean Energy Agriculture Carbon & Emissions Trading Systematic Trading
Water Traditional Energy Natural Resources Hedge Strategies

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Water Infrastructure Investment in the GCC


The Middle East is one of the most water-scarce regions in the world. The region’s challenge is twofold. On one hand, natural water resources are close to zero, and on the other, water consumption rates in the GCC region are one of the highest in the world.

Freshwater resources available in the region are lower than 1% of the total available global freshwater supplies. However, the region is home to almost 6% of the world’s population. Furthermore, its population growth is one of the highest in the world. The GCC population grew at a 10-year CAGR*1 of 3% (to 2010) whereas world population growth has fallen to 1.1% in 2011. It is now 1.8% in India and 0.8% for China. According to The Economist Intelligence Unit, the region’s population is expected to grow from an estimated 39.6 million in 2008 to 53.4 million in 2020—a 12-year CAGR of 3%.

Saudi Arabia has little water when compared with the United States, but the average Saudi uses nearly one-half as much water as the average American.*2 The average daily water consumption per capita is 250 liters in Saudi Arabia.*3 A similar situation exists in other GCC countries as well. In a recent study by Maplecroft, the GCC countries Bahrain, Qatar, Kuwait, and Saudi Arabia were rated as the world’s most water-stressed countries, with the least available water per capita. Growing scarcity of groundwater in the GCC has resulted in water extraction exceeding the availability of natural renewable water resources.

High population growth is therefore making it a necessity for GCC governments to thrust momentum on faster execution of water projects. Thus, it comes as no surprise that the Partnerships Technical Bureau (PTB) of Kuwait selected a power and water scheme as well as a wastewater treatment facility to be included in its first wave of projects. Investment is urgently needed to build new infrastructure.4

Water in the GCC is mainly produced from desalination. Even though this is a very costly process—as it requires higher amounts of energy to convert sea water into drinking water—compared with pumping water out of the ground, it is still the most practical solution for the GCC. The GCC already accounts for  approximately 57% of world’s total desalination capacity. Saudi Arabia, which operates 30 desalination plants and produces 24 million cubic meters of water per day, is the world’s largest producer of desalinated water. The GCC region is bestowed with high oil and gas reserves which make desalination projects relatively less costly when compared with the rest of the world.

However, alternatives are being sought. There is an urgent need for alternative and improved water management practices. To better manage this scarce and costly resource, these countries are looking at new options. Some projects for wastewater treatment and recycling are planned. Kuwait showed the way in this area as far back as 2004, with its Sulaibiya wastewater treatment works. With a capacity of 425,000 cubic meters per day, it was at that time the largest wastewater treatment and reclamation project in the world.

Pricing is a crucial and politically charged issue. The GCC-wide estimate for producing and supplying a cubic meter of water is US$2. However, depending on the country, customers currently pay, on a non-weighted average basis, only around 60% of this cost.*5 This varies from 2% for Saudi Arabia to almost the full cost in the UAE (except Abu Dhabi).

*1 -Compounded annual growth rate.
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Posted by on November 2, 2011 in Oil, Water


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Food wars, another chapter in a long story

Regional turmoil and domestic uncertainty have sent food prices soaring and depleted stocks in Tunisia.

The cost of meat has risen by 20-40 %, as have the prices of vegetables, fruits and mineral water. Certain food commodities subsidised by the state, including sugar and vegetable oils, were smuggled into Libya and caused the black market to flourish.

The rate of daily food expenditure has soared as people stock up in anticipation of food shortages. ….Continue reading original article

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Jordan buys 100,000 tons of wheat and 150,000 tons of barley to bolster food security stocks

Livestock prices soar 200% as Eid Al-Adha nears – what is Eid al-Adha ? (it will fall on or around Nov 6th, 2011)

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Posted by on November 2, 2011 in Agriculture


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21st Century Food Wars – The New Geopolitics of Food

From Mumbai to Madagascar, Maseru to Maan, high prices are spawning land grabs and ousting dictators. Welcome to the 21st-century food wars.

In the United States, when world wheat prices rise by 75 percent, as they have over the last year, it means the difference between a $2 loaf of bread and a loaf costing maybe $2.10. If, however, you live in New Delhi, those skyrocketing costs really matter: A doubling in the world price of wheat actually means that the wheat you carry home from the market to hand-grind into flour for chapatis costs twice as much. And the same is true with rice. If the world price of rice doubles, so does the price of rice in your neighborhood market in Jakarta. And so does the cost of the bowl of boiled rice on an Indonesian family’s dinner table.

Welcome to the new food economics of 2011: Prices are climbing, but the impact is not at all being felt equally. For Americans, who spend less than one-tenth of their income in the supermarket, the soaring food prices we’ve seen so far this year are an annoyance, not a calamity. But for the planet’s poorest 2 billion people, who spend 50 to 70 percent of their income on food, these soaring prices may mean going from two meals a day to one. Those who are barely hanging on to the lower rungs of the global economic ladder risk losing their grip entirely. This can contribute — and it has — to revolutions and upheaval.

Already in 2011, the U.N. Food Price Index has eclipsed its previous all-time global high; as of March it had climbed for eight consecutive months. With this year’s harvest predicted to fall short, with governments in the Middle East and Africa teetering as a result of the price spikes, and with anxious markets sustaining one shock after another, food has quickly become the hidden driver of world politics. And crises like these are going to become increasingly common. The new geopolitics of food looks a whole lot more volatile — and a whole lot more contentious — than it used to. Scarcity is the new norm.

Until recently, sudden price surges just didn’t matter as much, as they were quickly followed by a return to the relatively low food prices that helped shape the political stability of the late 20th century across much of the globe. But now both the causes and consequences are ominously different.

In many ways, this is a resumption of the 2007-2008 food crisis, which subsided not because the world somehow came together to solve its grain crunch once and for all, but because the Great Recession tempered growth in demand even as favorable weather helped farmers produce the largest grain harvest on record. Historically, price spikes tended to be almost exclusively driven by unusual weather — a monsoon failure in India, a drought in the former Soviet Union, a heat wave in the U.S. Midwest. Such events were always disruptive, but thankfully infrequent. Unfortunately, today’s price hikes are driven by trends that are both elevating demand and making it more difficult to increase production: among them, a rapidly expanding population, crop-withering temperature increases, and irrigation wells running dry. Each night, there are 219,000 additional people to feed at the global dinner table.

More alarming still, the world is losing its ability to soften the effect of shortages. In response to previous price surges, the United States, the world’s largest grain producer, was effectively able to steer the world away from potential catastrophe. From the mid-20th century until 1995, the United States had either grain surpluses or idle cropland that could be planted to rescue countries in trouble. When the Indian monsoon failed in 1965, for example, President Lyndon Johnson’s administration shipped one-fifth of the U.S. wheat crop to India, successfully staving off famine. We can’t do that anymore; the safety cushion is gone.

That’s why the food crisis of 2011 is for real, and why it may bring with it yet more bread riots cum political revolutions. What if the upheavals that greeted dictators Zine el-Abidine Ben Ali in Tunisia, Hosni Mubarak in Egypt, and Muammar al-Qaddafi in Libya (a country that imports 90 percent of its grain) are not the end of the story, but the beginning of it? Get ready, farmers and foreign ministers alike, for a new era in which world food scarcity increasingly shapes global politics.

THE DOUBLING OF WORLD grain prices since early 2007 has been driven primarily by two factors: accelerating growth in demand and the increasing difficulty of rapidly expanding production. The result is a world that looks strikingly different from the bountiful global grain economy of the last century. What will the geopolitics of food look like in a new era dominated by scarcity? Even at this early stage, we can see at least the broad outlines of the emerging food economy.

On the demand side, farmers now face clear sources of increasing pressure. The first is population growth. Each year the world’s farmers must feed 80 million additional people, nearly all of them in developing countries. The world’s population has nearly doubled since 1970 and is headed toward 9 billion by midcentury. Some 3 billion people, meanwhile, are also trying to move up the food chain, consuming more meat, milk, and eggs. As more families in China and elsewhere enter the middle class, they expect to eat better.

But as global consumption of grain-intensive livestock products climbs, so does the demand for the extra corn and soybeans needed to feed all that livestock. (Grain consumption per person in the United States, for example, is four times that in India, where little grain is converted into animal protein. For now.)

At the same time, the United States, which once was able to act as a global buffer of sorts against poor harvests elsewhere, is now converting massive quantities of grain into fuel for cars, even as world grain consumption, which is already up to roughly 2.2 billion metric tons per year, is growing at an accelerating rate. A decade ago, the growth in consumption was 20 million tons per year. More recently it has risen by 40 million tons every year. But the rate at which the United States is converting grain into ethanol has grown even faster. In 2010, the United States harvested nearly 400 million tons of grain, of which 126 million tons went to ethanol fuel distilleries (up from 16 million tons in 2000). This massive capacity to convert grain into fuel means that the price of grain is now tied to the price of oil. So if oil goes to $150 per barrel or more, the price of grain will follow it upward as it becomes ever more profitable to convert grain into oil substitutes. And it’s not just a U.S. phenomenon: Brazil, which distills ethanol from sugar cane, ranks second in production after the United States, while the European Union’s goal of getting 10 percent of its transport energy from renewables, mostly biofuels, by 2020 is also diverting land from food crops.

This is not merely a story about the booming demand for food. Everything from falling water tables to eroding soils and the consequences of global warming means that the world’s food supply is unlikely to keep up with our collectively growing appetites. Take climate change: The rule of thumb among crop ecologists is that for every 1 degree Celsius rise in temperature above the growing season optimum, farmers can expect a 10 percent decline in grain yields. This relationship was borne out all too dramatically during the 2010 heat wave in Russia, which reduced the country’s grain harvest by nearly 40 percent.

While temperatures are rising, water tables are falling as farmers overpump for irrigation. This artificially inflates food production in the short run, creating a food bubble that bursts when aquifers are depleted and pumping is necessarily reduced to the rate of recharge. In arid Saudi Arabia, irrigation had surprisingly enabled the country to be self-sufficient in wheat for more than 20 years; now, wheat production is collapsing because the non-replenishable aquifer the country uses for irrigation is largely depleted. The Saudis soon will be importing all their grain.

Saudi Arabia is only one of some 18 countries with water-based food bubbles. All together, more than half the world’s people live in countries where water tables are falling. The politically troubled Arab Middle East is the first geographic region where grain production has peaked and begun to decline because of water shortages, even as populations continue to grow. Grain production is already going down in Syria and Iraq and may soon decline in Yemen. But the largest food bubbles are in India and China. In India, where farmers have drilled some 20 million irrigation wells, water tables are falling and the wells are starting to go dry. The World Bank reports that 175 million Indians are being fed with grain produced by overpumping. In China, overpumping is concentrated in the North China Plain, which produces half of China’s wheat and a third of its corn. An estimated 130 million Chinese are currently fed by overpumping. How will these countries make up for the inevitable shortfalls when the aquifers are depleted?

Even as we are running our wells dry, we are also mismanaging our soils, creating new deserts. Soil erosion as a result of overplowing and land mismanagement is undermining the productivity of one-third of the world’s cropland. How severe is it? Look at satellite images showing two huge new dust bowls: one stretching across northern and western China and western Mongolia; the other across central Africa. Wang Tao, a leading Chinese desert scholar, reports that each year some 1,400 square miles of land in northern China turn to desert.

China is heading for a ‘Dust Bowl’ like the one that forced more than 2 million “Okies” to leave their land in the U.S. in the 1930s. But the dust bowl forming in China is much larger and so is the population: China’s migration may measure in the tens of millions. And as a U.S. embassy report entitled ‘Grapes of Wrath in Inner Mongolia’ noted, “unfortunately, China’s twenty-first century ‘Okies’ have no California to escape to – at least not in China.”

In Mongolia and Lesotho, grain harvests have shrunk by half or more over the last few decades. North Korea and Haiti are also suffering from heavy soil losses; both countries face famine if they lose international food aid. Civilization can survive the loss of its oil reserves, but it cannot survive the loss of its soil reserves.

Beyond the changes in the environment that make it ever harder to meet human demand, there’s an important intangible factor to consider: Over the last half-century or so, we have come to take agricultural progress for granted. Decade after decade, advancing technology underpinned steady gains in raising land productivity. Indeed, world grain yield per acre has tripled since 1950. But now that era is coming to an end in some of the more agriculturally advanced countries, where farmers are already using all available technologies to raise yields. In effect, the farmers have caught up with the scientists. After climbing for a century, rice yield per acre in Japan has not risen at all for 16 years. In China, yields may level off soon. Just those two countries alone account for one-third of the world’s rice harvest. Meanwhile, wheat yields have plateaued in Britain, France, and Germany — Western Europe’s three largest wheat producers.

IN THIS ERA OF TIGHTENING world food supplies, the ability to grow food is fast becoming a new form of geopolitical leverage, and countries are scrambling to secure their own parochial interests at the expense of the common good.

The first signs of trouble came in 2007, when farmers began having difficulty keeping up with the growth in global demand for grain. Grain and soybean prices started to climb, tripling by mid-2008. In response, many exporting countries tried to control the rise of domestic food prices by restricting exports. Among them were Russia and Argentina, two leading wheat exporters. Vietnam, the No. 2 rice exporter, banned exports entirely for several months in early 2008. So did several other smaller exporters of grain.

With exporting countries restricting exports in 2007 and 2008, importing countries panicked. No longer able to rely on the market to supply the grain they needed, several countries took the novel step of trying to negotiate long-term grain-supply agreements with exporting countries. The Philippines, for instance, negotiated a three-year agreement with Vietnam for 1.5 million tons of rice per year. A delegation of Yemenis traveled to Australia with a similar goal in mind, but had no luck. In a seller’s market, exporters were reluctant to make long-term commitments.

Fearing they might not be able to buy needed grain from the market, some of the more affluent countries, led by Saudi Arabia, South Korea, and China, took the unusual step in 2008 of buying or leasing land in other countries on which to grow grain for themselves. Most of these land acquisitions are in Africa, where some governments lease cropland for less than $1 per acre per year. Among the principal destinations were Ethiopia and Sudan, countries where millions of people are being sustained with food from the U.N. World Food Program. That the governments of these two countries are willing to sell land to foreign interests when their own people are hungry is a sad commentary on their leadership.

By the end of 2009, hundreds of land acquisition deals had been negotiated, some of them exceeding a million acres. A 2010 World Bank analysis of these “land grabs” reported that a total of nearly 140 million acres were involved — an area that exceeds the cropland devoted to corn and wheat combined in the United States. Such acquisitions also typically involve water rights, meaning that land grabs potentially affect all downstream countries as well. Any water extracted from the upper Nile River basin to irrigate crops in Ethiopia or Sudan, for instance, will now not reach Egypt, upending the delicate water politics of the Nile by adding new countries with which Egypt must negotiate.

The potential for conflict — and not just over water — is high. Many of the land deals have been made in secret, and in most cases, the land involved was already in use by villagers when it was sold or leased. Often those already farming the land were neither consulted about nor even informed of the new arrangements. And because there typically are no formal land titles in many developing-country villages, the farmers who lost their land have had little backing to bring their cases to court. Reporter John Vidal, writing in Britain’s Observer, quotes Nyikaw Ochalla from Ethiopia’s Gambella region: “The foreign companies are arriving in large numbers, depriving people of land they have used for centuries. There is no consultation with the indigenous population. The deals are done secretly. The only thing the local people see is people coming with lots of tractors to invade their lands.”

Local hostility toward such land grabs is the rule, not the exception. In 2007, as food prices were starting to rise, China signed an agreement with the Philippines to lease 2.5 million acres of land slated for food crops that would be shipped home. Once word leaked, the public outcry — much of it from Filipino farmers — forced Manila to suspend the agreement. A similar uproar rocked Madagascar, where a South Korean firm, Daewoo Logistics, had pursued rights to more than 3 million acres of land. Word of the deal helped stoke a political furor that toppled the government and forced cancellation of the agreement. Indeed, few things are more likely to fuel insurgencies than taking land from people. Agricultural equipment is easily sabotaged. If ripe fields of grain are torched, they burn quickly.

Not only are these deals risky, but foreign investors producing food in a country full of hungry people face another political question of how to get the grain out. Will villagers permit trucks laden with grain headed for port cities to proceed when they themselves may be on the verge of starvation? The potential for political instability in countries where villagers have lost their land and their livelihoods is high. Conflicts could easily develop between investor and host countries.

These acquisitions represent a potential investment in agriculture in developing countries of an estimated $50 billion. But it could take many years to realize any substantial production gains. The public infrastructure for modern market-oriented agriculture does not yet exist in most of Africa. In some countries it will take years just to build the roads and ports needed to bring in agricultural inputs such as fertilizer and to export farm products. Beyond that, modern agriculture requires its own infrastructure: machine sheds, grain-drying equipment, silos, fertilizer storage sheds, fuel storage facilities, equipment repair and maintenance services, well-drilling equipment, irrigation pumps, and energy to power the pumps. Overall, development of the land acquired to date appears to be moving very slowly.

So how much will all this expand world food output? We don’t know, but the World Bank analysis indicates that only 37 percent of the projects will be devoted to food crops. Most of the land bought up so far will be used to produce biofuels and other industrial crops.

Even if some of these projects do eventually boost land productivity, who will benefit? If virtually all the inputs — the farm equipment, the fertilizer, the pesticides, the seeds — are brought in from abroad and if all the output is shipped out of the country, it will contribute little to the host country’s economy. At best, locals may find work as farm laborers, but in highly mechanized operations, the jobs will be few. At worst, impoverished countries like Mozambique and Sudan will be left with less land and water with which to feed their already hungry populations. Thus far the land grabs have contributed more to stirring unrest than to expanding food production.

And this rich country-poor country divide could grow even more pronounced — and soon. This January, a new stage in the scramble among importing countries to secure food began to unfold when South Korea, which imports 70 percent of its grain, announced that it was creating a new public-private entity that will be responsible for acquiring part of this grain. With an initial office in Chicago, the plan is to bypass the large international trading firms by buying grain directly from U.S. farmers. As the Koreans acquire their own grain elevators, they may well sign multiyear delivery contracts with farmers, agreeing to buy specified quantities of wheat, corn, or soybeans at a fixed price.

Other importers will not stand idly by as South Korea tries to tie up a portion of the U.S. grain harvest even before it gets to market. The enterprising Koreans may soon be joined by China, Japan, Saudi Arabia, and other leading importers. Although South Korea’s initial focus is the United States, far and away the world’s largest grain exporter, it may later consider brokering deals with Canada, Australia, Argentina, and other major exporters. This is happening just as China may be on the verge of entering the U.S. market as a potentially massive importer of grain. With China’s 1.4 billion increasingly affluent consumers starting to compete with U.S. consumers for the U.S. grain harvest,

cheap food, seen by many as an American birthright, may be coming to an end.

No one knows where this intensifying competition for food supplies will go, but the world seems to be moving away from the international cooperation that evolved over several decades following World War II to an every-country-for-itself philosophy. Food nationalism may help secure food supplies for individual affluent countries, but it does little to enhance world food security. Indeed, the low-income countries that host land grabs or import grain will likely see their food situation deteriorate.

AFTER THE CARNAGE of two world wars and the economic missteps that led to the Great Depression, countries joined together in 1945 to create the United Nations, finally realizing that in the modern world we cannot live in isolation, tempting though that might be. The International Monetary Fund was created to help manage the monetary system and promote economic stability and progress. Within the U.N. system, specialized agencies from the World Health Organization to the Food and Agriculture Organization (FAO) play major roles in the world today. All this has fostered international cooperation.

But while the FAO collects and analyzes global agricultural data and provides technical assistance, there is no organized effort to ensure the adequacy of world food supplies. Indeed, most international negotiations on agricultural trade until recently focused on access to markets, with the United States, Canada, Australia, and Argentina persistently pressing Europe and Japan to open their highly protected agricultural markets. But in the first decade of this century, access to supplies has emerged as the overriding issue as the world transitions from an era of food surpluses to a new politics of food scarcity. At the same time, the U.S. food aid program that once worked to fend off famine wherever it threatened has largely been replaced by the U.N. World Food Program (WFP), where the United States is the leading donor. The WFP now has food-assistance operations in some 70 countries and an annual budget of $4 billion. There is little international coordination otherwise. French President Nicolas Sarkozy — the reigning president of the G-20 — is proposing to deal with rising food prices by curbing speculation in commodity markets. Useful though this may be, it treats the symptoms of growing food insecurity, not the causes, such as population growth and climate change. The world now needs to focus not only on agricultural policy, but on a structure that integrates it with energy, population, and water policies, each of which directly affects food security.

But that is not happening. Instead, as land and water become scarcer, as the Earth’s temperature rises, and as world food security deteriorates, a dangerous geopolitics of food scarcity is emerging. Land grabbing, water grabbing, and buying grain directly from farmers in exporting countries are now integral parts of a global power struggle for food security

With grain stocks low and climate volatility increasing, the risks are also increasing. We are now so close to the edge that a breakdown in the food system could come at any time. Consider, for example, what would have happened if the 2010 heat wave that was centered in Moscow had instead been centered in Chicago. In round numbers, the 40 percent drop in Russia’s hoped-for harvest of roughly 100 million tons cost the world 40 million tons of grain, but a 40 percent drop in the far larger U.S. grain harvest of 400 million tons would have cost 160 million tons. The world’s carryover stocks of grain (the amount in the bin when the new harvest begins) would have dropped to just 52 days of consumption. This level would have been not only the lowest on record, but also well below the 62-day carryover that set the stage for the 2007-2008 tripling of world grain prices.

Then what? There would have been chaos in world grain markets. Grain prices would have climbed off the charts. Some grain-exporting countries, trying to hold down domestic food prices, would have restricted or even banned exports, as they did in 2007 and 2008. The TV news would have been dominated not by the hundreds of fires in the Russian countryside, but by footage of food riots in low-income grain-importing countries and reports of governments falling as hunger spread out of control. Oil-exporting countries that import grain would have been trying to barter oil for grain, and low-income grain importers would have lost out. With governments toppling and confidence in the world grain market shattered, the global economy could have started to unravel.

We may not always be so lucky. At issue now is whether the world can go beyond focusing on the symptoms of the deteriorating food situation and instead attack the underlying causes. If we cannot produce higher crop yields with less water and conserve fertile soils, many agricultural areas will cease to be viable. And this goes far beyond farmers. If we cannot move at wartime speed to stabilize the climate, we may not be able to avoid runaway food prices. If we cannot accelerate the shift to smaller families and stabilize the world population sooner rather than later, the ranks of the hungry will almost certainly continue to expand. The time to act is now — before the food crisis of 2011 becomes the new normal.

The content of this original article is from Lester R. Brown

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Posted by on September 11, 2011 in Agriculture, Oil, Policy, Water


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Europe’s weather threatens power, wheat price hikes – Deutsche Bank

In a note released on Friday, analysts at the German bank warn that dry and warm weather in Europe hits hydropower production – Norwegian hydro generation in January was almost a third lower year on year.

But it also hampers the transport of fuels, with low water-levels on the Rhine – where barges are operating at as little as 30% of normal capacity – making it difficult to supply power plants with fuel oil and coal. Meanwhile, barge rates have nearly trebled since December, Deutsche Bank says.

Of particular concern are wheat prices – Europe is the second largest exporter of wheat, after the US, accounting for 18% of global wheat exports. France, Germany and the UK represent 55% of EU wheat production.

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