Ethanol-blended petrol from cassava, corn and sugarcane,
bio-diesel from rapeseed, jatropha, palm-oil, etc.,
are being touted as the fuels that will in the future
drive cars in the US and Europe.
BIO-FUEL WAR ON FOOD
The North’s bio-fuel appetite will pave the way for the South’s starvation.
Even the International Monetary Fund,
always ready to immolate the poor at the altar of commerce,
now warns that using food to produce bio-fuel
"might further strain the already tight supplies
of arable land and water all over the world."
Panic Buying As Global Grain Record Lows
by Joseph Dancy, The Market Oracle, Jan 7, 2008
The agricultural sector was one of the areas we found most attractive in 2007. We expect that will remain the case. Long term global price and demand trends remain positive. Recent developments include:
* High ocean freight rates have pushed the delivered price of wheat upward but it is not choking off export demand according to analysts. Export sales of U.S. wheat are 'beginning to look like panic buying' according to some commentators. Overseas buyers are purchasing grain, anticipating the U.S. will run out of wheat. Analysts claim this may happen in the market for hard red winter and white wheat. Wheat exports 'simply can not be sustained at current levels' according to agricultural experts. 'Either price will have to increase more to ration the remaining supply or, as was rumored in grain markets this week, the U.S. government will step in'.
* Officials last month forecast U.S. wheat stocks will shrink to their lowest level in 60 years. The U.S. is the world's largest exporter of wheat, and importing countries are bidding heavily for its crops as other exporters cut supplies. The USDA has cautioned in six months wheat exporters in the US have already sold more than 90 percent of what the agency expected to be exported for the entire year.
* Russia, the world's fourth-biggest wheat exporter, announced plans last month to cap exports of the grain once exports reach 12.5 million tons. The threshold may be breached as early as January, according to Russia 's Grain Union, which comprises the nation's biggest grain producers and traders. The Russian government also said it would raise its wheat export tariff sharply, to 40 percent from 10 percent, to keep grain at home. The move should restrict the world's exportable supplies and could boost demand for U.S. wheat.
* China announced late last month that the export of wheat, corn, rice, soybeans, and various processed grains will be subject to export levies in 2008. The export levies will range from 5% - 25%, covering 57 types of grain or grain products. In 2007 China offered tax rebates on grain exports, a 13% rebate on 84 categories of grain and grain products. Levies for wheat and wheat products will be 20% and 25% respectively, while the export levy for corn, rice, and soybean will be 5%. Export levies on processed corn, rice and soybean products rates were fixed at 10%.
* The Canadian Wheat Board, one of the world's largest sellers of wheat and barley, expects wheat prices to remain elevated well into next year because of low global stockpiles. “We see current strong prices being maintained” according to a spokesman.
* Wheat rose above $10 a bushel in the futures market for the first time last month. Rice also jumped to a record, while soybeans reached the highest in 34 years. Corn was its costliest in nine months.
* The U.S.D.A. issued a report last month forecasting soybean inventories will decline by 68 percent from year earlier levels. The agency also increased projected export volumes. An analyst noted the strong demand: "If we were not to plant anymore soybeans next year than we planted this year, and demand stayed the same, we would run out of soybeans in the U.S. on May 1 of 2009.”
* Soybeans may lead gains among agricultural commodities next year because of crop shortages and rising demand for biofuels according to Goldman Sachs Group Inc. The New York-based bank raised its 12-month forecast for the crop last month by 61 percent to $14.50 a bushel from $9 a bushel. Wheat may trade at $7.50 a bushel in a year compared with a previous forecast of $6, Goldman said. The bank raised its estimate for corn by 20 percent to $5.30 a bushel from $4.40.
* Price gains in the agricultural sector in 2007 far outpaced the S & P 500 index. Note specifically the gains in the price of eggs, wheat, soy, and barley in the chart at right (chart courtesy of Ned W. Schmidt, publisher of Agri-Food Value View).
* The U.S.D.A. World Supply and Demand report issued last month lowered the estimated U.S. ending inventory levels for wheat, corn, and soybeans, mostly because of stronger than expected exports.
* Food prices have increased substantially in the last year, but in real terms prices are still well below levels seen in the 1970's. None-the-less, the upward trend in pricing is troubling to both economists and consumers. Chart at right courtesy of the Economist.
* From 2002 to 2007 the number of acres planted in corn in the U.S. rose 24%, to 86.1 million. The energy bill signed last month by President Bush mandates that oil refiners eventually boost ethanol use as a gasoline additive to 36 billion gallons a year from the current seven billion gallons – which will further increase demand for corn.
* While most of the U.S. corn crop - 43 percent - is fed to livestock to produce meat, dairy products and eggs, an increasing percentage is being used to produce ethanol. Twenty-four percent of this year's corn crop will be turned into ethanol, up from just 14 percent two years ago.
* With soaring grain prices the price of U.S. farmland has also increased substantially. Farmland prices skyrocketed 50% over the past three years, to an average of close to $2,200 an acre according to the U.S. Department of Agriculture. Unlike the grain prices, the upward trend in land prices extends back over the last decade. Charts courtesy of Barron's.
* Net U.S. farm income is expect to hit a record $87.5 billion in 2007, and will reach another record in 2008 as economic trends continue according to U.S.D.A. estimates.
• Over 37% of the United States is in severe to extreme drought conditions. According to the Federal U.S. Drought Monitor, at least 57% of the West and 76% of the Southeast is suffering from moderate to exceptional drought. The drought, if it continues, will hinder agricultural production.
* The world is eating more than it produces and food prices may climb for years because of expansion of farming for fuel and climate change, risking social unrest, experts at the International Food Policy Research Institute concluded in a new report issued last month.
* The United Nation's Food and Agriculture Organization last month warned that rising demand and falling supply represent an “unforeseen and unprecedented” shift in the global food system – raising political risks in some areas.
• The global commodities boom has elevated rice -- a staple food for half of the world -- to its highest level in nearly 20 years according to an article last month in the Wall Street Journal. The ‘ubiquitous grain is suffering poor harvests and tight supplies in some of the biggest rice-exporting and rice-consuming nations, and is expected to contribute to a protracted bout of food-price inflation for the foreseeable future in the developing world.' Chart courtesy of the Wall Street Journal.
In summary, we have record low grain inventories globally as we move into a new crop year. We have demand growing strongly. Which means that going forward even small crop failures are going to drive grain prices to record levels. As an investor, we continue to find these long term trends - and this niche - very attractive.
Bio-fuelling the world’s hunger
by K. P. Prabhakaran Nair, Hindu Business Line, Jan 4, 2008
The soaring Sensex is as adrenalin to India Inc. Not many, however, seem to be unduly concerned about the galloping food prices. Almost everyone, from the Prime Minister downwards, is making pious noises on this score, without any tangible efforts to rein in the soaring prices. A new dimension is being added to the galloping food prices. And that is the clamour for “green fuel”, which has to come from soyabean, rapeseed, sugarcane, sorghum, oil palm or corn, in the main, and also from jatropha, now added to the list.
In 2007, as wheat prices rose record levels, corn and soybean — both increasingly used for green fuel manufacture — climbed to multi-year highs. As the US is heading into recession, commodities are outperforming stocks and bonds. Palm oil, used to extract bio-diesel at $800 plus a tonne, is outpacing crude oil. Bio-fuels are being touted as the new panacea for global warming. But, because this fuel from plants is being introduced without much thought about wider implications; it is becoming a good idea practised badly. Let us look at some scientific facts about bio-fuels.
Clamour for “green fuel”
With the announcement of the Peace Nobel, which has brought global warming to centre-stage, the attention of the developed world has shifted to “green fuels.” The recent meet on climate change in Bali, Indonesia, where 10,000 delegates discussed the problem for a fortnight, and in the process emitted enormous amounts of GHGs such as carbon di-oxide, lends a note of urgency to the entire question. Ethanol-blended petrol from cassava, corn and sugarcane, bio-diesel from rapeseed, jatropha, palm-oil, etc., are being touted as the fuels that will in the future drive cars in the US and Europe. Europe has mandated that 5 per cent of transport fuel must originate in crops by 2010, just two years away. As usual, developing countries are being targeted as the regions where crops for green fuels are to be grown. Look at the unfolding scenario.
Poor pay the price
Swaziland, a tiny nation in the African continent, is already in the grip of a terrible famine, where 40 per cent of its people face acute food shortages. The reason? The government there has allocated thousands of hectares of farmland in the district of Lavumisa, worst hit by drought and famine, for ethanol production from the Swazi people’s staple food crop, cassava. Nearer home, farmers in Nagaland are being prodded to swap paddy in the traditional Jhum lands for jatropha cultivation. The International Crop Research Institute for Semi-Arid Tropics (Icrisat), in Hyderabad, an arm of the Washington lobby, has got a $1.5-million project on ethanol production from sweet sorghum and cassava. The UK-based D1 Oils is piloting a jatropha project. Globally, D1 Oils plans to cultivate one million hectares of jatropha, spread across mainly India, Southern Africa, South-East Asia, China and Australia by 2011 to cater to the growing green fuel demand of the US and Europe. In India, it plans to have 3.5 lakh hectares. And in this onslaught, some of the country’s best farmland will simply switch from food crops to fuel crops.
In late 2006, Mexico experienced the tortilla wars, as people found the price of their staple, corn, had doubled. The reason? The price hike was triggered by the newfound use of the crop as a green fuel and the corporate control over it. Archer Daniels Midlands, the largest ethanol processor in the region with financial stakes in a Mexican oil company that makes tortillas and refines wheat, was the entity behind this. So, Midlands benefits when tortilla prices increase and consumers switch from corn to wheat, more pertinently, when there is a switch from food to fuel.
India sucked in
India, unwittingly, is entering into this quagmire. Even in the tiny State of Kerala, in the “rice bowl” district of Palakkad, loud noises are being heard about the desirability of jatropha in preference to paddy. The bio-fuel policy of the US and Europe is sweet music to Africa, already reeling under food shortages, because, the governments there think that they can make a fast buck. What it does to food production seems nobody’s concern. India is not far behind. Or else, why the new-found enthusiasm to propagate bio-fuel crops at the expense of arable farm land?
In short, the North’s bio-fuel appetite will pave the way for the South’s starvation. Even the International Monetary Fund, always ready to immolate the poor at the altar of commerce, now warns that using food to produce bio-fuel “might further strain the already tight supplies of arable land and water all over the world.” The UN Food and Agriculture Organisation has announced the lowest global food reserves in 25 years threatening what it calls a “very serious crisis”. Even when the price of food was low, 850 million people worldwide and more than 220 million in India went hungry because they could not afford to buy it. With every increment in the price of flour or grain, several more millions of poor will be pushed below the breadline. Look at the cost of staple grains. The price of rice has risen by 20 per cent over the past year, maize by 50 per cent and wheat by 100 per cent.
Effectiveness of green fuel
The demands of the motoring lobby and business groups clamouring for new infrastructure have to be met, even while the people being pushed off their lands remain voiceless. Even Tamil Nadu, where there is an entrenched automobile lobby, is fast catching up the green fuel bandwagon, with all kinds of subsidies and incentives. Poor farmers will find the lure too tempting to pass up, and food production will be the first casualty. I am not saying India should say “no” to green fuel. But before we jump onto the green fuel bandwagon, we must do our math well. In principle, burning bio-fuels merely releases the carbon which the crops accumulated while growing. If one counts only the immediate carbon costs of planting and processing bio-fuels, they appear to reduce GHGs. But, when you look at the total impact, one would realise that the bio-fuels cause more warming than petroleum. Ethanol from maize causes between 0.9 and 1.5 times more warming as petrol does, while rapeseed oil, the source of more than 80 per cent of world’s bio-diesel, generates 1 to 1.7 times the impact of ordinary diesel. These figures are brushed under the carpet by the automobile lobby, which wants its works to stay afloat. The answer to global warming is not a simple switch from fossil fuel to green fuel. It must address the road congestion India is creating due to a mindless automobile manufacturing policy.
In any case, green fuels are here to stay and food production, be it grains or oilseeds, will be the first casualty and the poor will be hit hard because of galloping food prices.
It would be naïve to think that jatropha will mitigate India’s soaring oil bills. Jatropha is not a small-scale farmer’s crop. It will be economically viable only on a large scale. India does not have much wasteland. Where it exists, the investments in infrastructure, in terms of easy transport and other machinery installation to make the unit economically viable, will be enormous. The wastelands along railway tracks cannot be used, because they are in long, non-contiguous strips. People and planners in New Delhi talk about several things without truly understanding the practical difficulties. The important by-product in jatropha oil extraction is glycerine. Where in India do we have the necessary infrastructure to use glycerine production on such a huge scale? Also, one must remember that the maximum oil extracted from jatropha seeds will not exceed 35 per cent. The net result in large-scale jatropha cultivation is that India will lose a lot of fertile land to jatropha cultivation where the monetary returns could be better, but grain producing lands will slowly stop being arable. The mandarins in New Delhi seem lost for a clear-cut answer to this grave and vexing question. Ultimately India’s food security will be threatened. The ambitious (at least on paper) National Food Security Mission of the UPA government will be severely dented by such ill-thought out projects. It is the foreign companies that will gain by getting into jatropha cultivation, like the UK-based D1 Oils, and make a lot of money at the cost of the country’s food security.
The opportunity for a bio-fuel revolution is not in the rich world’s cities to run their vehicles, but in the grid unconnected villages in India and Africa, where electricity is scarce, with no generators to run pumps or vehicles. It is here that fossil fuels will grow because there is no alternative. Instead of bringing fossil fuel long distances to feed urban markets, this part of the world can leapfrog to a new energy future, if bio-fuel can come from non-edible crops, jatropha, for example. This also means that the fuel market will need to be redesigned. In today’s business model, the company will grow the crops, extract the oil, transport it first to refineries and then back to consumers. The new model needs distributed growth in which India will have millions of villagers growing the bio-fuel crops, and millions of distributors and users in the villages. Can the somnolent Indian planners think up such a strategy? The alternative is to simply cater to the whims of the corporate world. (The author is an international agricultural scientist.)
Spectre of wheat shortages results in big speculative rises in wheat price
Carl Mortished, World Business Editor, The Times, Dec 18, 2007
Speculative funds piled into wheat futures yesterday, causing the price per bushel to breach $10 for the first time as traders fretted about low stocks and the risk of drought afflicting the US crop. The cost of a bushel of wheat has doubled in the space of a year, fuelling worldwide food price inflation and creating havoc in developing countries that depend on imported food. Wheat prices continue to gain ground after a big surge in the spring in the cost of grain, which forced millers in the UK to push up the price of flour. Bakers have passed on the cost, raising the price of a loaf by 10 per cent and animal feed merchants raised the cost of feed creating an inflationary tornado in the farmyard.
Farmers are also feeling the pinch with the soaring cost of agro-chemicals, including fertilisers, pesticides and herbicides. Rising demand for grain has created worldwide shortages of nitrate fertilisers. Growhow UK, a large British producer of fertilisers, has seen a doubling of its raw material costs with the price of urea rising from $225 to $420 (£208) per tonne and ammonium phosphate soaring 150 per cent year on year. “We are going through unprecedented times,” Ken Bowler, Growhow’s marketing manager, said. The core ingredients of chemical fertilisers come from the energy industry, notably natural gas where the cost is rising sharply. However, soaring demand from farmers is another driver. “As wheat prices have risen, plantings have risen. In the EU, set-aside acreage has been reduced to zero.”
ADM Milling, [Archer Daniels Midland] Britain’s biggest flour miller, said that fears of a drought in the United States and speculators were driving up the wheat price. A spokesman for ADM said that the company was not yet raising prices but was watching the market closely. “Flour prices have more than doubled. We are looking at everything on a daily basis.” The price of CBOT’s benchmark March contract gained 3 per cent yesterday and pushed up European milling wheat futures. The Chicago wheat price has risen from about $5 a bushel in the fourth quarter of last year to reach $10.09 yesterday as concern over dwindling stocks has provoked frantic purchases by government agencies. Wheat stocks worldwide are at extraordinarily low levels after a lengthy drought in Australia, the elimination of EU intervention stocks and rising demand. A shift in the Asian diet to greater consumption of meat has led to increased demand for animal feed, while biofuel manufacturers have added competition for grain resources.
The soaring cost of food caused the Chinese Government yesterday to scrap export incentives on grain. Food prices in the People’s Republic rose by 18 per cent in November, causing the Chinese consumer price index to reach 6.9 per cent, its highest level in 11 years. In response, Beijing is scrapping a tax rebate on exports of grains, including corn, wheat, rice and soybean, in an attempt to curb domestic price surges. India yesteday failed to secure sufficient bids from grain merchants to meet a tender for 350,000 tonnes of wheat. The total bid amounted to 330,000 at exceptionally high prices. The Indian Government is building up emergency stocks but the global wheat shortage has provoked panic buying by government agencies in Asia, the Middle East and North Africa.
BIO-FUEL CRIME AGAINST HUMANITY
Commodity boom continues to roll (low inventories, poor harvests & growing demand for biofuels). BBC, Jan 16, 2008
Panic Buying As Global Grain Record Lows The Market Oracle, Jan 7, 2008
Biofuelling world's hunger. Hindu Business, Jan 4, 2008
Forget oil, the new global crisis is food. Financial Post, Jan 4, 2008
UN warns of critical food shortages. Canberra Times, Dec 26, 2007
Spectre of shortages (results in big rises in wheat price). The Times, Dec 18, 2007
FOOD AS FUEL STARVES HUNGRY
Biofuel emissions worse than oil (less C20 but more N20; more corn used as fuel than food) & Counting cost of wheat price hike (drought, flood, disease, food-as-fuel means bread shortage & hunger). Times/BBC, Sep 21, 2007
TAKE NOT OUR DAILY BREAD and WEATHER-FOOD-WATER-AIR CONTROL
~ an independent researcher monitoring local, national and international events ~