Food, Fuel, and Finance: The Crisis of the Three Fs  

Dan at The Daily Reckoning (no fan of Peak Energy I believe, but no matter) has a column on the food vs fuel issue, containing a few choice turns of phrase about dinosaurs and meteor showers (along with some unsubstantiated population doomerism, which I wish people would avoid).

While the share market digests the news of collapsing brokers and falling financial profits, the grand poobahs of the world's economy are wringing their hands in worry. What's keeping them up at night? The three Fs, each its own kind of crisis: food, fuel, and finance.

"The World Bank met on Sunday faced with a mounting food price crisis that has sparked deadly unrest in developing countries, underscoring the urgency of fighting hunger and poverty," reports Channel News Asia. How urgent, you ask? The Prime Minister of Haiti was sent packing this weekend by crowds protesting soaring food and fuel prices. We don't even know who the man is but reckon he won't be the last public official to be ridden out of town on a rail before this current crisis is over (and it may not be any time soon).

As usual, it's the people at the margin (whether lending or with food) that are affected first when surplus turns to scarcity. Despite all the daily signs of abundance here in Australia, let us not forget that there are about four and half billion people on the planet who have little margin for error in their daily lives. If food prices go up, many of these people go hungry.

World Bank President Robert Zoellick, doing his best impersonation of Franklin Delano Roosevelt, wants a "new deal" for global food programs. He's asked richer nations to contribute US$500 million immediately to help get food to poorer nations.

IMF President Dominique Strauss-Kahn was less pragmatic but more rhetorical. Wrapping up his organisation's annual spring meeting, he said that, "Food prices, if they go on like they are doing today ... the consequences will be terrible…Hundreds of thousands of people will be starving…As we know, learning from the past, those kinds of questions sometimes end in war."

People often talk about resource wars being a common feature of the coming century (or decade). But it's usually oil and energy they're talking about, not rice and wheat. Food is fuel for the body (we've been watching the Biggest Loser). If you don't have access to cheap calories, what good is cheap fuel?

It's our contention here at the Daily Reckoning that both food and fuel are getting more expensive. The scary thought is that artificially low interest rates and cheap energy have, for many years now, sent bogus signals to the world about how much and how fast the population can grow. Agricultural abundance is only a very recent (and perhaps temporary) historical phenomenon. It's no coincidence that it occurred alongside the energy boom from cheap oil.

Not that it's any consolation to starving people stranded in long petrol lines, but businesses in the agricultural sector are going to boom (provided they aren't nationalised). Farm equipment, fertilizer, and large producers should all see earnings rise this year. And next year. And the year after that.

The second "f" crisis is in finance. It's been with us so long now it doesn't seem like it's new. But some people are slow on the uptake. The nerve endings of large institutions like the IMF and World Bank are few and far removed from the tiny central brains that direct the movements of these mammoths. Brontosaurus Banks.

Like a bunch of dinosaurs standing under a meteor shower, the G-7 meeting this weekend produced lots of talk and no action. The ministers agreed that concrete steps need to be taken in the global financial system to improve transparency and the way the banks value certain assets. The G-7 statement also paid lip service to issue of credit ratings and how to make sure in the future that garbage debt doesn't get a Triple A investment grade rating. ...

The conclusion? There is no one solution to the credit crisis. That is bad news for people who think of the economy like a machine. It's not just a matter of changing the oil or checking the fuel pump. The engine is sputtering, the drive train is wrecked, the tires are flat, and someone seems to have cut the brake lines. There are no air bags. As they say in the used car business, it's not the years, it's the miles. You wonder if this globalisation jalopy is going to make it. ...

This is why the day-to-day movements in the dollar index and in gold don't tell you much. The most important fact about the gold price is that that the official policy of the U.S. government is to cheapen its currency. Rates are being lowered. The government is spending money. It's also giving away money, hoping Americans can spend the country out of recession.

Do you know of any person or any nation that ever spent its way to prosperity? Neither do we.

The fuel crisis hasn't reached the same acute stage as global food markets. But in time, it will...

Tom Philpott at Grist continues his series on Can industrial agriculture feed the world? with the "Global food riots edition".

A couple of months ago, I raised the question, can industrial agriculture feed the world? I was being intentionally provocative. For decades, policymakers have treated low-input, diversified agriculture -- "organic" in the sense described by the great British agriculture scholar Sir Albert Howard -- as a kind of hippy indulgence. Sure, it's nice to grow food without poison, but you can't feed the world that way.

To feed the globe's teeming masses, you need loads of mined and fossil-fuel synthesized fertilizers, pesticides by the tons, patent-protected genetically modified seeds, heroic irrigation projects, gargantuan, petroleum-fueled "combine" machines, etc. But as I wrote in the earlier post, evidence is mounting that organic agriculture is just as productive as chemical-based.

Moreover, even before the recent spike in global food prices, some 800 million people lacked access to food worldwide. Industrial agriculture excels at cranking out calories, but its productive capacity tends to be hyper-consolidated in hands of a few corporations and a relatively small group of landowners. The people who most need the food it generates can't always get their hands on it. Vaunted for its efficiency, industrial ag generates massive amounts of wasted food, even as hundreds of millions go without enough.

And now, the system has come under severe strain. Global grain stocks are at all-time lows, prices are escalating, and hunger riots are erupting in Egypt, Cameroon, Haiti, and Burkina Faso -- and could well spread, the FAO warns. ...

What's being described here is a full-on crisis in industrial ag. And I don't think the reflexive official response -- more industrial ag -- will work this time. The above-linked FAO document talks about finding ways to get more "inputs" to smallholder farmers in the global south. But prices for fertilizers, GM seeds, and insecticides are all escalating, rising even faster than food prices. Just as urban dwellers in the global south are being priced out of food markets, farmers in the global south are being priced out of ag-input markets.

Moreover, the use of these inputs -- particularly synthetic nitrogen fertilizer -- contributes massively to climate change, degrades water, blots out sea life, etc. Under these circumstances, yet another push to consolidate industrial agriculture in the global south seems imbecilic. The time has come for global institutions like the FAO to take low-input, intensive organic agriculture -- intellectually rooted in smallholder farming styles in India -- seriously as a response to the crisis in industrial agriculture.

The SMH reports that the World Bank is calling for food crisis action.

The World Bank has called for the international community to beef up its response to soaring food prices that have led to starvation and are threatening political stability in the developing world. Many ministers gathered for the World Bank's annual spring meeting also raised concerns over the increased use of bio-fuels, which share much of the blame for the lack of food supplies, as an alternative energy source.

A joint statement by the ministers urged countries to meet a $US500 million ($A536.88 million) aid shortfall at the World Food Program to help the world's poorest regions, where hundreds of thousands are threatened with starvation.

Global food prices have jumped 83 per cent over the last three years, and World Bank President Robert Zoellick warned that the crisis had already toppled a government in Haiti and could push ever more people into poverty. "We have to put our money where our mouth is now, so that we can put food into hungry mouths," Zoellick said. "It is as stark as that."

Many countries put the blame for the food crisis squarely on the increased production of certain bio-fuels that use food crops as an alternative energy source. The United States, Europe and other regions have boosted their production of bio-fuels in recent years to reduce their dependence on imported oil and cut greenhouse-gas emissions that contribute to global warming.

Indian Finance Minister P Chidambaram called on industrial nations to cut off all subsidies for such bio-fuel production. "In a world where there is hunger and poverty, there is no policy justification for diverting food crops towards bio-fuels," Chidambaram said. "Converting food into fuel is neither good policy for the poor nor for the environment."

Tyler Hamilton's latest Clean Break column looks at space cadet Robert Zubrin and his efforts to extend government biofuel mandates even further.

My Clean Break column today is based on an interview with Robert Zubrin, the author of Energy Victory and the engineer that has been most vocal about sending humans to Mars. Zubrin's main thesis is that the Organization for the Petroleum Exporting Countries (OPEC) has been manipulating and benefitting from high oil prices and that this monopoly grip on the fossil-fuel market must be broken. He wants legislators to mandate that every new vehicle manufactured have flex-fuel capability, a move that would boost investment in and availability of biofuels and essentially water down OPEC's influence.

Now, this is quite the contentious argument given it seems more focused on energy security than on sustainability. There's no shortage of headlines trashing the environmental benefits of ethanol and emphasizing the impact on food prices and, in some cases, the negative environmental effects of growing corn for fuel. Mandating flex-fuel in all new vehicles would merely amplify the problems being discussed today, critics say.

I have to admit, I'm torn on this one. I see the value of biofuels, assuming our increased production of the fuel can be done sustainably, guided by regulation, and assuming we can transition quickly to cellulosic ethanol. The question is, would a flex-fuel mandate create such a huge, instant demand that all rules go out the window in order to meet this demand? Would it require we import ethanol from other countries where environmental track records are poor and beyond the oversight of North American governments?