April 16th, 2008

The big increase in food prices over the last six months or so raises lots of issues, of which I’ll try to cover a few.

The first arises from the fact that prices for commodities, including oil as well as most ag commodities, are typically quoted in $US. In a situation where, for obvious reasons, the value of the $US is declining against all major currencies, this can be quite misleading. Measured against the euro, the currency of the world’s largest unified economy, the increase looks a lot less steep. The declining usefulness of the $US as a unit of account is another step in the process of transition away from a world in which the $US is a reserve currency. More on what will replace it soon, I hope.

In substantive terms, the increase in $US commodity prices is a big problem for the many Asian economies that have pursued some kind of peg to the $US as a means of maintaining export competitiveness. The adverse impact on domestic consumers is now becoming obvious, and the only solution is to abandon the dollar peg and allow an appreciation. China is already moving in this direction.

A second important point is the impact of demand from the biofuel sector, particularly for corn in the US. The idea of making biofuels from food crops was always problematic and the subsidy regime in the US makes it more so. The current food crisis should make subsidies for food-based biofuels politically and economically untenable, pushing the industry away from this easy short term solution and in the direction of sources such as switch grass, grown on marginal or non-arable land.

Finally, the biggest increases have been in wheat prices, reflecting the drought in Australia and in some other wheat producing countries (Kazakstan?). It seems likely, though it’s still impossible to prove, that human-induced climate change is increasing the frequency and severity of drought. So, it’s important not to regard climate change as a problem for the future. In all probability, adverse effects are already here.

Categories: Economics - General, Environment Tags:
  1. SimonJM
    April 16th, 2008 at 14:45 | #1

    Add to that Chinese wanting a meat rich diet and things get really interesting.

    I wonder if the dark browns think we will have business as usual if or when food riots break out in China and across the world?

    Maybe this will be the straw that broke the camels back as far as food subsidies and they will start allow a fair trade system instead of the current biased system.

  2. SimonJM
    April 16th, 2008 at 14:58 | #2

    Global food system ‘must change’

    The global agriculture system will have to change radically if the world is to avoid future environmental and social problems, a report has warned

  3. gandhi
    April 16th, 2008 at 15:19 | #3

    Sixty countries just signed a UN document calling for more eco-friendly agricultural production techniques. Australia was one of just four countries which refused to sign, “citing concerns over trade”. (Looks like the others were Canada, USA and Britain). So much for our new pro-UN and pro-environment government?

    Australia’s agriculture sector remains immune to share market volatility, and is tipped as “the most attractive sector on a risk-return basis for 2008”. Whoo hoo. At least we’ll all have a nice portfolio in our hands as our planet hurtles into oblivion.

    Meanwhile George Monbiot suggests we should cut way back on meat and eat Tilapia instead: “This is a freshwater fish that can be raised entirely on vegetable matter and has the best conversion efficiency — about 1,6kg of feed for 1kg of meat — of any farmed animal.”

    Talapia is currently listed as a noxious pest in Queensland. Could we kill two environmental birds (or fish, even) with one stone here? Maybe not, because “in the wild they tend to breed in large numbers and not grow large enough to be of commercial size”.

    I’m starting to wonder how much a little plot of land on some remote Philipines island might cost… Our global political and financial systems seem totally stuffed at the moment.

  4. gandhi
    April 16th, 2008 at 15:29 | #4

    BTW (via Antony Loewenstein’s great little blog) Tom Dispatch has an excerpt from Michael T. Clare’s new book, “Rising Powers, Shrinking Planet: The New Geopolitics of Energy”. He details five key forces in the new world order which will change our planet:

    1. Intense competition between older and newer economic powers for available supplies of energy,
    2. The insufficiency of primary energy supplies,
    3. The painfully slow development of energy alternatives,
    4. A steady migration of power and wealth from energy-deficit to energy-surplus nations, and
    5. A Growing Risk of Conflict.

    That last one is the big one, I would say. If we work together as a planet of equals, we can turn this crisis into a positive. But that is going to take some seriously inspiring political leadership at an international level. Not much sign of that anywhere on the planet at the moment.

  5. April 16th, 2008 at 17:15 | #5

    The declining usefulness of the $US as a unit of account is another step in the process of transition away from a world in which the $US is a reserve currency. More on what will replace it soon, I hope.

    I’m an exporter, I sell software developed in Australia primarily to Americans and priced in US dollars. I’d love to transition away from Useless Stupid Dollars, but I can’t see it happening anytime soon.

    BTW, the current economic environment is torture for my company and companies like mine. We’ll all be gone soon and no-one will miss us. I’m convinced Australia is destined to become a quarry for Asia.

    The current food crisis should make subsidies for food-based biofuels politically and economically untenable, pushing the industry away from this easy short term solution and in the direction of sources such as switch grass, grown on marginal or non-arable land.

    The authority on all things biofuels is Robert Rapier. Read his CV — he knows his stuff. RR is also decidedly pessimistic about cellulosic ethanol from switchgrass. According to RR the only biofuel that’s both scaleable and has a reasonable energy return is sugarcane ethanol.

  6. Joseph Clark
    April 16th, 2008 at 17:53 | #6

    Removing the bio-fuel industry subsidies is a great idea but why stop there? Why not remove all agricultural tariffs and subsidies? We could start with the CAP.

  7. NicM
    April 16th, 2008 at 18:42 | #7

    ghandi said: “… a little plot of land on some remote Philipines island… ”

    Well above sea level, I hope!

  8. Ian Gould
    April 16th, 2008 at 18:58 | #8

    SimonMJ wrote: “I wonder if the dark browns think we will have business as usual if or when food riots break out in China and across the world?”

    The local army shoots the protesters. The occasional third world government gets overthrown. A few million non-Caucasians starve.

    To some people that IS business as usual and an acceptable price to pay to maintain western lifestyles. Just dress it up with some rhetoric about how the free market will save us all eventually.

    “Maybe this will be the straw that broke the camels back as far as food subsidies and they will start allow a fair trade system instead of the current biased system.”

    Food subsidies make food CHEAPER. This has been the recurrent complaint of the anti-globalisation crowd – cheap allegedly dumped food from the developed world suppresses the prices received by third world farmers.

    Currently, third-world farmers are doing quite nicely – at the expense of the urban poor and landless rural workers.

    There are a whole bunch of reasons why agricultural subsidies are bad but we need to have a clear understanding of how they operate and what their effects are.

  9. Ian Gould
    April 16th, 2008 at 19:07 | #9

    When this issue arose in another thread I mentioned the rise in rice prices in south Asia.

    I think it’s instructive to look at what’s happened there because, rice is not a major developed world export and rice isn’t used for biofuels. (Although in theory I suppose rice fields could be being converted to biofuel crops such as oil palms.)

    Rice prices have risen in parallel with other food prices and there seem to be several factors driving that:

    1. Increased input costs, particularly for fertilisers and fuel;

    2. Increased demand, primarily to support increased meat production;

    3. two successive years of poor rainfall;

    4. reductions in the area of rice production with land being converted to other more profitable crops or converted to urban use.

    5. The old back-up systems of state-subsidised distribution of staples to the poor have been closed down or scaled back during the relatively affluent period of the last decade or so – in part due to pressure from the IMF.

    I think it important that we understand the role of biofuels in the current situation and show that biofuels are only one of a range of factors at work. Otherwise we’re goign to end with another “Greens kill babies” Big Lie like the nonexistent ban on the use of DDT to control malaria.

  10. Hermit
    April 16th, 2008 at 19:34 | #10

    The role of increasingly expensive water and fossil fuel inputs needs to be emphasised. US studies suggest that the calorific value of food is just a tenth of the energy input via tractor fuel, nitrogen fertiliser (derived from natural gas), electricity and the additional requirements of processing and distribution. Another key input, phosphate, is in world decline as witnessed by Incitec Pivot’s skyrocketing share price and the revival of mining on Nauru.

    Whether drought and insect tolerant GMO foods can make up the gap is arguable. We’re going to have to eat less red meat, buy local foods in season rather than exotics and recycle the water, nitrogen and phosphorous that passes through our innards.

  11. Steve Hamilton
    April 16th, 2008 at 20:07 | #11

    On a slightly different note, apparently the way to go with Ethanol is deriving it from waste products. There’s a small startup company in the US that can apparently produce Ethanol from waste products like garbage and plant waste etc. for something like less than 30c per litre, which is apparently around half the cost of producing petrol. Apparently it’s something like 800% efficient too (ie. produces 8 times the energy output than it requires for input).

    Anyway, ethanol’s not a bad medium term alternative for the world’s dwindling fossil fuel supplies, and this technology appears to negate any concerns that currently surround ethanol production.

    The company that owns the technology is called Coskata and they are apparently being backed by GM in the face of the CAFE ammendments for 2020.

  12. Donald Oats
    April 16th, 2008 at 20:12 | #12

    Up in Qld there were floods and down here in sunny SA our Murray Water allocations are to be <=4% starting July this year. Where does the upstream water go? (Rhetorical question)

    Seriously, there are some ridiculous allocative issues to do with water and the products grown with it in Australia. Meanwhile, river city councils and rural viewspapers seem unable to grasp the full gravity of the situation – the cargo cult mentality (there’s always been water flowing freely down the Murray, so therefore there always will be) here is very depressing. God help us if they decide to use rice for ethanol in this country, but hey why not, then it can be subsidised not once but twice.

  13. Jeremy Tager
    April 16th, 2008 at 20:15 | #13

    Some developing world farmers are doing quite well – soy farmers in Brazil and oil palm farmers in Indonesia. But these are not the small subsistence farmer that you find in much of the developing world. These are corporate sized farming enterprises feeding both the obscene meat eating habits of Europe and the cosmetic obsession of the developed world. Meat eating in particular is an energy, water and land intensive exercise. Reducing the amount of meat we eatincreases the amount of food available to us all. Equitable distribution, of course, is another matter.

  14. Hermit
    April 16th, 2008 at 20:54 | #14

    Don O. I was wondering how Adelaide’s milk supply would be affected if they can’t irrigate the river flats along the Murray. Maybe the cows can be trained to make powdered milk. There seems little prospect of increased river flows soon and any water from coastal desal will be too late and too expensive for broadacre farming. Thus more and more of Adelaide’s food will have to come from interstate. As you say the Croweaters seem strangely nonplussed about their dire outlook.

  15. SJ
    April 16th, 2008 at 21:28 | #15

    Ian Gould Says:

    I think it important that we understand the role of biofuels in the current situation and show that biofuels are only one of a range of factors at work. Otherwise we’re goign to end with another “Greens kill babies� Big Lie like the nonexistent ban on the use of DDT to control malaria.

    We should recognise that we’re going to get the Big Lie anyway. It’s Bush who’s diverted 30% of the US corn production into energy negative ethanol production. The US right and their camp followers in Oz will blame the greens for Bush’s stuff-up as surely as night follows day.

    That shouldn’t halt discussion about the stuff-up, because it’s going to happen anyway.

    30% of US corn production is huge.

    More at Econbrowser:

    On one level, the question of whether it is morally acceptable for us to divert the food that might have fed the hungry for purposes of driving our SUVs is no different from similar questions about any of a number of other details of how the well-off dispose of their wealth. But I’m thinking that the profound inefficiencies associated with this particular disposition of resources may also be relevant. As a result of ethanol subsidies and mandates, the dollar value of what we ourselves throw away in order to produce fuel in this fashion could be 50% greater than the value of the fuel itself. In other words, we could have more food for the Haitians, more fuel for us, and still have something left over for your other favorite cause, if we were simply to use our existing resources more wisely.

  16. SJ
    April 16th, 2008 at 21:45 | #16

    More still from Yves Smith at Naked Capitalism:

    Even though the seeming suddenness of the onset of food inflation and shortages has caught many by surprise, this too was predictable. I recall reading a Barrons Roundtable interview some years ago, perhaps around 2000, when Jim Rogers pointed out that China had set a goal for each person in the country to eat one egg a week. Meeting that objective, Rogers claimed, would require global wheat production to rise three-fold.

    Although it also follows in the category of “obvious with the benefit of hindsight,” I’m not sure how many would have predicted grain producers hoarding output for their population.

    (I note that Yves also cites both Econbrowser and this very post by John Quiggin, giving us a very neat circle). 🙂

  17. Ernestine Gross
    April 16th, 2008 at 23:14 | #17

    The topic of this thread takes a global perspective and brings out resource allocation problems associated with ‘uneven development’ – a problem about which Stephen Hymer (and possibly others) wrote before the big march forward to the past in the application of the history of economic thought happened in the late 1970s. On this and other blog sites, this march forward to the past is associated with the term ‘neo-cons’ and, at times, with ‘economic rationalism’. The topic is listed under ‘Economics – General, Environment, and there is a reminder of possible feedback relationships between human induced climate change and food supply.

    I have a request. I am asking John Quiggin whether he would be kind enough to stress at the upcoming 2020 event that the idea of separating ‘the environment’ from ‘economics’ is economic nonsense.

    My request may appear to be a request for stating the obvious because economics, as I understand it, is concerned with the material welfare of humans under alternative institutional environments and the finiteness of resources (‘in the long run’) is explicitly acknowledged in neo-classical theoretical models of economies, going back to Arrow-Debreu in the 1950s.
    The crucial dependence of ‘prosperity’, in an economic as distinct from a merely monetary or financial sense, on the environment seems to be taken as axiomatic by most people I have met in my life. However, the ‘metaphor’ of ‘economic growth’ seems to be deeply embedded in the public language. For example:
    According to the smh, a recent ANU survey found that:
    “Almost one in five of those polled listed the environment as their number one concern, four times as many as a decade ago. The economy came in second, and water third.�
    “Labor senator Kate Lundy, who attended the launch, said the Government would take the message of the poll on board.
    She was surprised the environment was considered more important than the economy, and said environmental issues were clearly “worthy of a lot of policy thought and deliberation”.–the-environment/2008/04/16/1208025271917.html

  18. Persse
    April 17th, 2008 at 02:41 | #18

    I think that the whole biofuel thing is too complicated and technical in its ramifications to be prescriptive about. It may have a role to play or may not. Subsidies for any given crop is bound to be a very bad idea. We simply do not know where the technology is going to take us yet. While the current state of play does suggest that ethanol from sugarcane, which is not that great a food anyway, is the best of a bad lot. Ethanol from wheat or maize is just not going to work. It belongs to the useless symbolism and rural rorting wastebasket.

    Agriculture’s predicament is that is most vulnerable to the multiplier effects of rising fuel costs. The very thing that will drive the search for alternatives.

    I believe that the government should stay out of the portable transport fuel market. Every rise in the price will bring in a new tier of possible technologies. If fuel prices have to go to $3.00 or more a litre so be it. Spend the subsidies monies on basic research.
    Food is a different matter – it is looming as a geo-political disaster. The vast sums wasted on “Defence” should be urgently turned to ensure that the world has enough to eat.

  19. gandhi
    April 17th, 2008 at 06:55 | #19

    A good point from Raj Patel in The Guardian:

    For anyone who understands the current food crisis, it is hard to listen to the head of the World Bank, Robert Zoellick, without gagging…The reason we’re seeing such misery as a result of this particular spike has everything to do with Zoellick and his friends.

    Before he replaced Paul Wolfowitz at the World Bank, Zoellick was the US trade representative, their man at the World Trade Organisation. While there, he won a reputation as a tough and guileful negotiator, savvy with details and pushy with the neoconservative economic agenda: a technocrat with a knuckleduster.

    His mission was to accelerate two decades of trade liberalisation in key strategic commodities for the United States, among them agriculture. Practically, this meant the removal of developing countries’ ability to stockpile grain (food mountains interfere with the market), to create tariff barriers (ditto), and to support farmers (they ought to be able to compete on their own). This Zoellick did often, and enthusiastically.

    Without agricultural support policies, though, there’s no buffer between the price shocks and the bellies of the poorest people on earth. No option to support sustainable smaller-scale farmers, because they’ve been driven off their land by cheap EU and US imports. No option to dip into grain reserves because they’ve been sold off to service debt. No way of increasing the income of the poorest, because social programmes have been cut to the bone.

  20. rossco
    April 17th, 2008 at 10:55 | #20

    Steve Hamilton says “On a slightly different note, apparently the way to go with Ethanol is deriving it from waste products” This may well work on a small scale but can the volume of waste be maintained on a sufficiently large scale to make it cost effective. You need the inputs to get the outputs. I would hope this does work but I need to be convinced.

  21. frank luff
    April 17th, 2008 at 11:14 | #21

    Where does the upstream water go?
    Most leaks from poor irrigation infrastructure, in Victoria!
    While building “centres” and generally spending on “things to get me elected” the infrastucture for irrigation on the Murray was neglected. While this was going on SA was piping its irrigation channels.
    Now the rest of Australia has to take up the slack.
    Now the Vic govt. has the temerity to be drawing water from the Murray to supply Melbourne!
    Paying to pipe water 70 kms to Melbourne weirs while twice the water leaks to ground water in northern Victoria is madness. To further aggrevate me open channels with their myriad faults, like evaporation being in the order of 6 feet a year, are denying the environmental flows, the Coorong is damn near dead.
    To top it off they got 1 billion dollars more in the latest handout to subsidise their inefficiency.
    One very pissed off fluff4

  22. Steve Hamilton
    April 17th, 2008 at 12:33 | #22

    rossco Says: “This may well work on a small scale but can the volume of waste be maintained on a sufficiently large scale to make it cost effective. You need the inputs to get the outputs. I would hope this does work but I need to be convinced.”

    Apparently the process can work with virtually any organic input, ie. carbon-based input. They are on track to open a plant in the next 3 years with an expected output of about 380 ML (380 million litres) per annum. The Energy Independence and Security Act requires the production of around 26 GL (26 Billion litres) in the US per annum by 2012. Of this, around 10 GL will come from food-based sources. So just one of these plants could be supplying almost 2% of the US total ethanol production by the time it’s up and running. 25 plants and you no longer need to source ethanol from any food-based source; and I think the concensus is that given the lax nature of the standards of inputs required (ie. any carbon-based source) there is unlikely to be an issue in sourcing the required inputs. As a sidenote, you can even apparently use old tyres as an input!

    Like any new technology, it probably won’t all go perfectly to plan, but it looks promising. At the very least it seems like a far more plausible idea to use waste to produce ethanol, rather than food; especially when the process is more than 8x more energy efficient that corn-based ethanol production, half the cost of petroleum production, and requires a third the amount of water required by corn-based ethanol production.

  23. frankis
    April 17th, 2008 at 13:11 | #23

    “On November 6, 2007 Range Fuels broke ground on our first commercial-scale cellulosic ethanol plant near Soperton, Georgia. This plant will be the first in the United States to produce commercial quantities of ethanol from biomass, which includes all plant and plant-derived material, such as wood, grasses, and corn stover.

    We are focused on utilizing leftover wood residues from timber harvesting that serve no useful purpose, converting them to about 20 million gallons of ethanol and other alcohols per year, initially.”

    Also, sugarcane works well as an ethanol feedstock in Brazil: “”Sugar growers here have a greener story to tell than do any other biofuel producers. They provide 45% of Brazil’s fuel (all cars in the country are able to run on ethanol) on only 1% of its arable land”.,9171,1725975-2,00.html (and ignore the rest of Time’s ignorant rant titled, stupidly, “The Clean Energy Scam”). It’s estimated somewhere that Brazil’s sugarcane ethanol has an EROI of better than 8:1, higher than for gasoline although not necessarily a terribly meaningful comparison.

  24. frank luff
    April 17th, 2008 at 15:51 | #24

    On tele recently, a crop I learned to despise, sugar cane, is apparently feeding electricity into the grid, by processing the waste.
    They have changed the practice of wasting water and are generally getting their act together, most encouraging. Their waste water ran into tidal rivers on the coast of NSW. Plus the ground being used gives up acids when cultivated for sugar. With all the other nasties they use the enviroment suffered no end, maybe worse than bananas.

    Maybe now the farmers have a chance to make some money without polluting everything.

  25. Ender
    April 17th, 2008 at 16:28 | #25

    frankis – “Also, sugarcane works well as an ethanol feedstock in Brazil: “â€?Sugar growers here have a greener story to tell than do any other biofuel producers. They provide 45% of Brazil’s fuel (all cars in the country are able to run on ethanol) on only 1% of its arable landâ€?.”

    Not so – please read this:

    “For Brazil, ethanol is therefore 0.30/3.6 = 8.3% of crude oil energy. This fraction has been fairly constant.”

    The 40% figure comes from gasoline use which is not the whole fuel picture.

    “In March 2006, the volumetric fractions of all transportation fuels consumed in Brazil were

    * Diesel fuel = 53.9%
    * Gasoline = 26.2%
    * Ethanol = 17% (40% of gasoline energy)
    * Natural gas = 2.9% ”

    The true picture is somewhat different. All that destruction of rainforest for 8.3% is not a good result.

  26. Ender
    April 17th, 2008 at 16:30 | #26

    Sorry forgot to include the reference:

  27. wizofaus
    April 17th, 2008 at 16:44 | #27

    Ender, do you know of any specific examples of rainforest being cut down to grow sugarcane?

  28. Steve Hamilton
    April 17th, 2008 at 17:01 | #28

    I should probably include a link to the website of the company that I was referring to above;

    And also a link to a press release from General Motors regarding Coskata;

  29. frankis
    April 17th, 2008 at 17:43 | #29

    Yes and no Ender. I agree that the paragraph I quoted from Time easily misleads a reader into thinking that ethanol represents a greater fraction of Brazil’s liquid fuel economy than it really does. On the other hand I did refer to the piece as “Time’s ignorant rant” so perhaps people would have been prepared to read it critically 🙂

    As Wizofaus is intimating to you, sugarcane does not do well on rainforest soils so the 1% of Brazil’s croplands given over to it does not come (directly) at the expense of rainforest. There’s plenty to think about with biofuels but I see Brazil’s results with so much ethanol from such a small fraction of their land as a more good than bad story.

  30. Joe
    April 17th, 2008 at 21:57 | #30

    I read some time ago at that the reason Brazil produces ethanol from sugar cane so efficiently is that they harvest the cane manually. I think that the time for Kanakas though is past.

  31. Ian Gould
    April 17th, 2008 at 22:22 | #31

    I did a fair bit of research on the sugar inudstry a few years back and so far as I know, the claim that Brazil uses manual labor is simply false.

    The Brazilian sugar industry is hugely efficient because they have gigantic (and highly mechanised) plantations which produce as much sugar as the entire Australian industry.

  32. Brian Bahnisch
    April 17th, 2008 at 22:57 | #32

    “Up in Qld there were floods and down here in sunny SA our Murray Water allocations are to be <=4% starting July this year. Where does the upstream water go? (Rhetorical question)”

    Donald O I think you’ll find that Qld only supplies about 5% of the water in the Murray-Darling system.

    Most of the water you may have seen on the tele was in the Fitzroy River system (the second largest in Australia) and rivers further north.

  33. Brian Bahnisch
    April 17th, 2008 at 23:02 | #33

    Joe, I recall hearing a few years ago from a bloke who would know that the Brazilian sugar industry is more efficient than ours and that we will never catch up.

    The factory that used to make sugar cane harvesters in Bundaberg was first bought by an American company which later closed it down and moved manufacturing to Brazil.

  34. April 18th, 2008 at 00:15 | #34

    South Africa cuts cane by hand, as does much of the Caribbean & lots & lots of other places. Brazilian farmers are incredibly efficient, Mostly of Japanese or Swiss German stock.

  35. John Horowitz
    April 18th, 2008 at 09:25 | #35

    “The idea of making biofuels from food crops was always problematic.”

    Land is fungible, so the idea of making biofuels is problematic no matter what the source of vegetative material. (Biofuels from municipal solid waste might be a good idea, however.)

    Even worse is the idea of using carbon stocks (existing carbon sources such as wood) rather than flows (annual vegetative growth.) In the U.S., carbon policy is getting worse, if that’s possible.

  36. April 18th, 2008 at 09:39 | #36

    Quite a lot of biofuel/ethanol production requires more BTU’s than it produces.

    Quite a lot of biofuel/ethanol is inefficient and burns dirty (ie, blows soot out the smokestack like a loaded gravel truck on a steep uphill grade)

    Crops are an annually renewable resource.
    The agricultural potential of Australia is considerably untapped.

    Perhaps we’ll ride to prosperity on the corn cob’s back?

  37. rog
    April 18th, 2008 at 09:53 | #37

    Brazilian cane cutters have to compete against harvesters – they work long hours and earn about $330/month.

    That wouldnt work here.

  38. Ian Gould
    April 18th, 2008 at 09:57 | #38

    I’m going to get a little speculative here – what effect, if any, is biofuel production having on fuel prices.

    If prices would be even higher in the absence of biofuels, you could argue that there’s an offsetting benefit to consumers and farmers.

    Unfortunately, at the moment, I don’t have the time to look for biofuel prices or production volumes.

  39. Ender
    April 18th, 2008 at 10:52 | #39

    frankis – “There’s plenty to think about with biofuels but I see Brazil’s results with so much ethanol from such a small fraction of their land as a more good than bad story.”

    However Brazil is the exception rather than the rule. Abundant rain combine with climate and soils to produce probably the best conditions to grow the highest yielding ethanol crop. This cannot be transferred as an example to other countries with poorer soils, less rainfall and less favourable climate.

    Ethanol is far more a farm subsidy than a solution to peak oil. Is more about preserving the status-quo.

  40. frankis
    April 18th, 2008 at 11:14 | #40

    Ethanol from corn, especially subsidised corn, is a travesty. Ethanol from lignocellulose is an idea with a big future.

  41. Steve Hamilton
    April 18th, 2008 at 11:25 | #41

    The issue with Biofuels is that they are potentially “cheaper” for consumers (mostly because of subsidies I would suspect), but at the same time they are siginificantly less efficient; they increase fuel consumption in passenger vehicles by something like 30%. So the value equation is completely balanced by the increased fuel usage. Not to mention the significant engineering upgrades required for engines to sustainably run on high-grade ethanol blends (ie. ethanol eats pretty much any rubber or plastic part that it comes into contact with). This has been estimated at around $US1000 per vehicle.

    So they’re not really a compelling alternative to petroleum in my view; and by the time that oil stocks dwindle to the point that their cost becomes prohbiitvely high, it’s likely that other solutions such as plug-ins and hydrogen fuel cells will have become more dominant. I don’t really see ethanol as having any medium- to long-term role.

    Everyone loves demonising petroleum, but I think everyone needs to take a minute to think of its miraculous value; $77 worth of petrol contains enough stored energy to launch a two-tonne car 100km into the air. And all for $1.50 per litre; Milk, Beer, Coca-cola, fruit juice all cost more than that.

  42. Ender
    April 18th, 2008 at 11:26 | #42

    wizofaus – “Ender, do you know of any specific examples of rainforest being cut down to grow sugarcane?”

    No however Brazil’s farming practice leaves a lot to be desired.,9171,1725975-1,00.html
    “In Brazil, for instance, only a tiny portion of the Amazon is being torn down to grow the sugarcane that fuels most Brazilian cars. More deforestation results from a chain reaction so vast it’s subtle: U.S. farmers are selling one-fifth of their corn to ethanol production, so U.S. soybean farmers are switching to corn, so Brazilian soybean farmers are expanding into cattle pastures, so Brazilian cattlemen are displaced to the Amazon. It’s the remorseless economics of commodities markets. “The price of soybeans goes up,” laments Sandro Menezes, a biologist with Conservation International in Brazil, “and the forest comes down.””

    There are flow on effects from biofuels that lead to the destruction of the rainforest.

  43. April 18th, 2008 at 12:18 | #43

    Ender, er.. have you ever been involved in Primary Production?

    I mean, beyond reading a few anti-McDonald’s pamphlets?

  44. April 18th, 2008 at 14:14 | #44

    frankis at #22: Are you BilB under another name?

    They provide 45% of Brazil’s fuel (all cars in the country are able to run on ethanol) on only 1% of its arable land�.

    Robert Rapier has debunked the “Brazil 45% myth” several times, including here:

    It does contain some errors. First, the author repeats (and actually embellishes) the claim that ethanol “provide(s) 45% of Brazil’s fuel.” As I have shown previously, from actual energy usage statistics, it is about 17% of transportation fuel on a volumetric basis, and 10% on an energy equivalent basis. Second, on carbon emissions, the author mentions that the “gains approached 90% for more efficient fuels.” Important to note that while these 80 or 90% carbon emission reductions for next generation ethanol are liberally thrown around, they are all based on models. Nobody has actually demonstrated this. To demonstrate it requires a cellulosic ethanol plant that is highly integrated. The waste biomass must be used to provide power for the plant. There are a number of problems to be worked through – if not we would already have a cellulosic ethanol industry – but these numbers continue to be repeated as if they were demonstrated.

  45. Ender
    April 18th, 2008 at 15:26 | #45

    steve at the pub – “Ender, er.. have you ever been involved in Primary Production?”

    er no – do I have to have been? The article I quoted from was about biofuels and how they are not anything like green fuels. Mostly they result in higher CO2 emissions. The Canadian Tar Sands are much the same. Biofuels are mostly about keeping the fossil fuel dream alive and making a few people a lot of money in the process.

  46. wizofaus
    April 18th, 2008 at 15:30 | #46

    Ender, yes I’m aware that corn ethanol production in the US is leading to rainforest destruction, but I don’t see the link to sugarcane ethanol production.

  47. April 18th, 2008 at 16:13 | #47

    Ender: Your post at #40 would indicate you have never been involved in primary production.

    I was being naughty, asking a question which had answered itself.

  48. frankis
    April 18th, 2008 at 16:23 | #48

    Carbonsink (eager would-be demythologiser): Ender debunked Time’s crummy wording 24 hours ago at comment #24 above.

    Robert Rapier knows his crude oils OK but he’s alarmist on prospects for new technologies. Sometimes you’d think innovation ended with the dinosaurs.

    And Brazil is overall energy self-sufficient with a huge fuel-ethanol economy sustained on only 1% of its ag lands, while Australia and the US are in deep energy debt.

  49. wizofaus
    April 18th, 2008 at 16:38 | #49

    Um, I’m fairly certain Australia is a net energy exporter, measured in either dollars or joules. That might include uranium, which is cheating a little, seeing we can’t actually use it ourselves.

    I’m as concerned as the next guy about the effect of our increasing dependence on foreign oil, but I don’t think it’s very likely to cause us to become a net energy importer, and quite probably won’t even significantly increase our trade deficit.

    See this for instance:

  50. frankis
    April 18th, 2008 at 17:38 | #50

    Oh right. I was trying (and succeeding!) to forget about coal (thanks wiz).

  51. April 18th, 2008 at 18:28 | #51

    Carbonsink (eager would-be demythologiser): Ender debunked Time’s crummy wording 24 hours ago at comment #24 above.

    Sorry missed that. I’m sure Ender would not dispute the general thrust of the Time piece, being that many biofuels are doing more harm than good. (e.g. US corn ethanol, Brazillian sugarcane ethanol, SE Asian palm oil biodiesel)

    The “Clean Energy Scam” seems like a perfectly valid title for such an article.

    Robert Rapier knows his crude oils OK but he’s alarmist on prospects for new technologies. Sometimes you’d think innovation ended with the dinosaurs.

    Well that’s kinda odd for someone who actually works on new technologies

    Robert Rapier, Engineering Director, Accsys Technologies PLC

    Robert is responsible for global engineering activities. His experience includes engineering roles in R&D, design, process, and production with Celanese, Hoechst, and ConocoPhillips. Robert holds an MSc in Chemical Engineering from Texas A&M University, BSc degrees in Chemistry and Mathematics, and was a recipient of the 1996 Presidential Green Chemistry Challenge award for his graduate school research on biomass chemistry. His previous experience includes cellulosic ethanol, butanol production, oil refining, natural gas production, and gas-to-liquids (GTL) production, and he has been a technical consultant for a number of biofuel projects. Robert holds several US and international patents pertaining to these roles, and has worked in the US, Germany, the UK, and the Netherlands. In his spare time he enjoys writing about energy and the environment for The Oil Drum and his R-Squared Energy Blog, and spending time with his wife and three children

  52. John Mashey
    April 20th, 2008 at 03:57 | #52

    re: #49

    It is a common thing for someone not so familiar with R&D management and/or proposed technologies to say “New technology ABC” will be great, or “no way” based on their leanings.

    Someone with a lot of relevant experience (like Rapier) is likelier to have more complex views.

  53. April 20th, 2008 at 12:15 | #53

    The declining usefulness of the $US as a unit of account is another step in the process of transition away from a world in which the $US is a reserve currency.

    A more stable unit of account would go a long way towards creating a better world. I’d suggest that one with a hard link to commodities would be a good idea.

  54. derrida derider
    April 20th, 2008 at 20:07 | #54

    Terje, please, please don’t suggest that hard link should be to a single commodity – we’ll have the thread flooded with gold bugs before you know it.

  55. April 20th, 2008 at 22:19 | #55

    DD – I’d prefer a single commodity such as gold for pure simplicity and transparency. However I’d settle for the Bancor proposed by Keynes.

  56. April 20th, 2008 at 22:55 | #56

    Oddly enough, I’ve long thought that silver would be a more generically useful bullion base than gold because it naturally connects to other commodities. That is, not only does it have industrial uses itself, but also about half of world silver production is as a by-product of meeting other needs (lead and zinc).

  57. Ernestine Gross
    April 20th, 2008 at 23:01 | #57

    Re 53 and 54: Gold and silver are not food and their relevance to the production of food is not obvious.

  58. April 20th, 2008 at 23:09 | #58

    Re 55. Read 51 for context.

  59. April 20th, 2008 at 23:10 | #59

    p.s. Hint – US dollars are not food either.

  60. Ernestine Gross
    April 21st, 2008 at 13:04 | #60

    True, Terje, US dollars are not food either. But the US dollar is the unit of account within the USA and a non-trivial amount of international trade contracts, involving food, are denominated in US dollar. Some currencies are pegged to the US dollar, others are not. (See JQ’s post)

    While you promote your theories relentlessly, I nevertheless gained the impression of you having an open mind. So I shall try out an idea for a universal unit of account. I should say up-front that the idea is not fully developed. I shall put some stuff in the form of assumptions to make it easier to pick errors.

    I propose solar energy, measured appropriately, to serve as universal unit of account on the assumption that

    a) all life on earth depends on solar energy.
    b) the total supply of solar energy cannot be manipulated by any human created institutional framework (eg governments, corporations, absolute kings or queens)
    c) in the short run (in terms of notions used by geologists) the supply is unlimited but in the long run the supply is finite.
    d) nuclear power for whatever purpose is ruled out (potentially destructive of life due to human actions).

  61. Ian Gould
    April 21st, 2008 at 15:35 | #61

    PML – I think that silver would be a poor basis for currency for exactly the reasons you describe – the idea of a commodity-backed currency is that the commodity reduces the volatility of the currency.

    The silver price is relatively volatile precisely because supply is dependent on the price of lead and copper and because demand is dependent on industrial applications. (What would the switch from silver-based photographic paper to digital cameras have done to the value of a silver-backed currency?)

  62. April 21st, 2008 at 18:23 | #62

    No, in the short term silver bullion would have a price that reflected carrying costs more than extraction costs. That is, in the short term it would reflect the stock around. In the medium term everything would stabilise via the Pigou Effect once stocks had been set up. The extraction costs would anchor stock levels over the long term.

  63. John Mashey
    April 22nd, 2008 at 07:53 | #63

    #60 Ernestine

    I’m fond of solar energy, but why not the more general case of useful energy, measured in Quads or ExJoules?

    See Lawrence Livermore Energy Flows for example.

    Note: I replied to your helpful comments in another thread, but I think the spam-filters must have trapped my reply. I’ll try to condense and strip out some URLs and try again tomorrow.

  64. April 25th, 2008 at 01:13 | #64

    So is anyone here prepared to acknowledge, now that the horse has bolted, that Thomas Malthus, Paul Ehrlich and the Club of Rome were right?

  65. jquiggin
    April 25th, 2008 at 09:31 | #65

    In a word, No.

  66. jquiggin
    April 25th, 2008 at 09:36 | #66

    In a longer word, more people are eating better than ever before. That’s the primary cause of rising prices.

  67. wizofaus
    April 25th, 2008 at 09:46 | #67

    There’s still plenty of scope for many of the possible scenarios the Club of Rome outlined to unfold. It is a tad concerning that evidence of energy and food shortages is already starting to come to the fore when there’s still at least another 50 years of strong population growth expected.

  68. wizofaus
    April 25th, 2008 at 09:48 | #68

    Also, John, that pattern (more people eating better than before) has been true since the end of WWII, yet prices, until about 5 or so years ago, had been going down. Now they’ve steadily been going up. Further, it’s not clear that the rise of India and China have all that much to do with it, give they’re still self-sufficient in food production (as I understand it).

  69. Greg Wood
    April 25th, 2008 at 16:48 | #69

    Re Johns’ longer word, there are also more people eating worse and catastrophically less than ever before.

    Nothing like selectively quoted data to ‘prove’ an economic viewpoint.

  70. jquiggin
    April 25th, 2008 at 19:41 | #70

    #69. This is incorrect. On most measures, the absolute number of hungry and malnourished people has declined in the last two decades.

  71. April 25th, 2008 at 20:26 | #71

    Ah… JQ, remember survivor bias. Absolute numbers go down when conditions get seriously worse as well as when they improve. I take it that GW’s “worse and catastrophically less” is asserting that the former is happening, though somewhat ambiguously; if so, your assertion could still be true without refuting his.

  72. Greg Wood
    April 25th, 2008 at 23:40 | #72

    Where is this notion of reducing hunger numbers substantiated?
    A cursory check revealed the snippets pasted below that seem to indicate otherwise.
    (How do we factor the millions of Anglophones who have high calorie intakes but abysmal nutritional standards?)

    Considering the implications of peak oil, climate change and heavily, increasingly urbanised populations everywhere, it is hard to see these conditions getting better.
    The difference between current popular perception and Malthusian reality is oil and a very tenuous hold upon the vast complexities being wrestled with and compounded with every new ‘silver bullet’.
    People can believe otherwise but there is no proof anywhere of the capability of the technologies that are being presumed to be able to maintain some form of systemic stasis – including growth!! There is only hope for these things. A hope that is practicably diminished via the bullishness of the belief – especially toward growth as being sustainable.

    From UN press release on FAO report – 1998:

    The number of undernourished people in the world has increased since the early 1990s, mainly because there has been little progress in reducing poverty, according to new estimates released today in the annual United Nations Food and Agriculture Organization report The State of Food and Agriculture 1998 (SOFA 98). The report notes the rise in the number of hungry people, despite significant reductions in hunger and malnutrition in several developing regions.

    “The total number of chronically undernourished people in developing countries is now estimated to be 828 million for the 1994-1996 period”, up from 822 million for 1990-92, according to the report.

    However, the overall percentage of malnourished as a part of the world population has declined over the same period from 20 to 19 per cent, the report says, adding that this has not been sufficient to compensate for population growth.

    Josette Sheeran (World Food Program Executive Director), quoted in interview 2007:
    “We’ve made gains against hunger in the world over the past few decades. Yet because of population growth in some of the world’s poorest regions, we have — in absolute numbers — more hungry people today than ever before”.

    The Independent
    Philip Thornton, Economics Correspondent
Monday, 16 October 2006
    Today should have been a day for a celebratory feast. Exactly 10 years ago 176 world leaders at the World Food Summit pledged to halve the number of undernourished people by 2015.
    Instead it is a day for commiseration and recrimination. More than 850 million are still hungry – some 18 million more than in 1996.

    From US Dept. Agriculture Economic Research Service report (2006):
    Preliminary estimates indicate that the number of hungry people in 70 lower income countries rose between 2005 and 2006, from 804 million people to 849 million.

    Twenty seven percent of the African population is estimated to be “under-nourished� or hungry and this percentage has only declined by two percent (from 29 percent) over the 10 year period of 1990/02-2000/02. Since Africa’s total population has increased from 589 million to 764 million over the same ten year period, the estimated absolute number of under-nourished people has risen from 176 million to 210 million, a 20 percent increase. UNICEF estimates that 39 percent and 29 percent of African children less than five years were stunted and underweight respectively, over the 1995-2002 period.

  73. wizofaus
    April 26th, 2008 at 06:22 | #73

    Thanks for those figures Greg. Of course ultimately the problem will solve else, as starvation and reproduction are not compatible.
    But the amount of human suffering that such a statement hides is too much to contemplate.
    Humanity as a whole may not be in “overshoot”, but sub-Saharan Africa almost certainly is.
    If the human population doesn’t reach 9 billion, it will be because of starvation on an unprecedented scale in that part of the world.

  74. wizofaus
    April 26th, 2008 at 06:23 | #74

    (Ack. “solve else” = “solve itself”. Where’s that preview button!)

  75. Greg Wood
    April 26th, 2008 at 11:51 | #75

    I’ve just read John’s comments to ABC reporter Annie Guest re the proposal by the new Sunshine Coast Mayor for a population cap across the region’s planning zonings.

    John states:
    “I think it would be much better, rather than looking at an aggregate like that, to look at the question of what kinds of economic activities we want to encourage in the Sunshine Coast and in the Australian economy more generally”

    John, such ‘learned’ comment is just plain silly at best and nefariously empty consternation at worst. Quite obviously one can’t be done without the other.

    Presently the Sunshine Coast ‘economy’ is, as is the SEQ economy generally, pressing all of its eggs into the housing and bulk tourism baskets and consequently pushing for as many people as possible to arrive to float that boat.

    Of course a different population strategy requires a different industrial outlook. But for as long as the population flood is seen as inevitable and unmitigable then housing rules. And thus so does the cataclysmic ingress. And it is cataclysmic, by many measures.

    Bob Abbott says population cap because that is what he knows it as. He’s a simple bloke with a huge ego, like a lot of our politicians. However he does seem to want to do well for people though if he can, which sets him apart somewhat from the political flock. And he does hove some Councillors in the new group who do know precisely what they are talking about.

    What he is really proposing, which is what was lost with the amalgamated decimation of the Noosa planning scheme, is a strategic plan that mindfullly calculates zoning zields and balances these demand numbers against natural resource levels and clearly determined, fully costed and securely scheduled infrastructure provisions. Within this broad equation sits economic and social engagement development strategies.

    This process is called planning. It is an unfamiliar concept because the vast bulk of the nation’s ‘planners’ are frauds and syncophants within a self-serving, self-perpetuating system of zero-sum resource liquidation dressed up to look like development.

    Humans have a terrible capacity to beleive that anything most of them agree upon, or hear of often enough from familiar sources, is reality. Even if it is, in simply demonstrable physical fact, a death march. It takes leadership to bridge the perception barriers around a deeply flawed social momentum. You are a prominent person John, and your opinion carries some public weight, but are you a leader or a follower?

    Your reported comments add deadly confusion not clarity to this hugely vexed but vital change, and act as a political sea anchor, rather than the bouyancy and propulsion device they should be if social sustainability, security and wellbeing is your aim. Maybe you could better address this landmark issue in a new entry.

  76. jquiggin
    April 26th, 2008 at 13:49 | #76

    Greg, the aggregate I was referring to was GDP, not population. My point was that a strategic plan needed to look at the nature of economic activity, not the gross value added in production.

    As a general point, your comments since you arrived have been quite aggressive in tone. Please try and avoid this in future.

  77. Ross
    April 27th, 2008 at 11:15 | #77

    Price supports contribute in equal measure to trade barriers in the escalation of global food prices. This applies both to supports in developing countries and the EU/US.

    The EU/US policies however sustain the whole as a globally low productivity degenerate system. Their trade barrier policies restrict the flow of capital to more productive broad acre farming opportunities in other geographies (a well capitalised broad acre venture will be far more productive but lose out commercially to price/barrier supported competitors).

    As stated elsewhere in this blog, the Chinese and Indians have been successfully chipping away at productivity. Stalin’s purges of the unproductive peasants isn’t an option thank God. Both India and China have genuine reason to fear their peasants (Maoists in India and the peoples army in China being the peasants protector). At the time of Tianemen Square food price inflation had occured as a result of the removal of key agricultural price supports and the inefficient automatic guarantee of public sector cadre jobs to uni students had been announced. This has subsequently had a massive positive effect on the Chinese economy and agricultural productivity and the lives of the peasant farmers (even if so many of them have had to migrate to urban areas).

    But in so many areas of the world the price supported “market gardener” producer is the political problem. From Thailand, to Arkansas, to the fields of France, and to Africa. Managing the transition to well capitalised broad acre farming and balancing social cohesion with productivity is the issue rather than the totally discredited Malthusian hysteria that is rolled out by commodity speculators and EU environmental fraudsters.

    The environmental issues of inputs and global aggregate acreage have a life outside the main issue that affects productivity and food pricing. So too does the displacement issue of fuel where sugar cane and corn are have very different dynamics in factors relating to land use and productivity. And I think your previous blog correspondent is using very dodgy numbers trying to run down the Brazilian success in displacing oil with cane bio.

  78. April 27th, 2008 at 15:09 | #78

    Greg Wood wrote:

    “Presently the Sunshine Coast ‘economy’ is, as is the SEQ economy generally, pressing all of its eggs into the housing and bulk tourism baskets and consequently pushing for as many people as possible to arrive to float that boat. …”

    Thankfully, this fact has been recognised by some business leaders on the Sunshine Coast. This has been reported in the story Coast told to grow up and diversify by Bill Hoffman in the Sunshine Coast Daily News of 26 April 2008.

    A spokesman for Sunshine Coast Business Council called for “the growth of the knowledge, creative, research and innovation, manufacturing and other such skills-based industries will create a larger total economic base that is better positioned for the region’s social and economic future” in place of “reliance on the mainstays of tourism, retail and property development industries.”

    A serious omission,of course, was agriculture. At least it is a step in the right direction. This is unsurprisingly being resisted by the developers who are, for their part, determined to cram as many people as possible into SEQ without any regard for food security or other measures of sustainablility in the region.

    For further information, see Curbing growth ‘would cost jobs’ by Jane Gardner in the Sunshine Coast Daily News of 25 April 2008, Sunshine Coast plan to cap population on Radio National’s PM of 24 April 2008 and How to end the Queensland economy’s addiction to population growth?.

  79. wbb
    April 27th, 2008 at 16:31 | #79

    According to the list below climate is playing a certain role in wheat shortages as JQ says.

    1. Canadian planting down 17 percent, the smallest crop since 1970, exports off 22 percent, hot/dry weather has affected yields.

    2. World ending stocks drop to 30-year low; export origin holdings down 40 percent.

    3. Australia stocks low, 2008 crop looking good.

    4. Argentine wheat crop is fully committed, government may restrict exports.

    5. Heavy rains deteriorate Western European crop quality, EU export taxes discussed.

    6. Drought hits Eastern Europe and Ukraine crops, weather damage in Russia, low stocks, export restrictions imposed.

    7. North African drought, Morocco crop down 76 percent, imports double to 3 million metric tons.

    8. Ocean freight transportation rates at record highs.

    9. U.S. winter wheat crop missed production expectations.

    10. Corn/wheat price spread at record level.


    Nevertheless according to the “largest farmer” in the world, Nurlan Tleubayev, world wheat production has been stable for the last 15 years.

    Demand, however, has not been stable.

  80. Ian Gould
    April 27th, 2008 at 17:53 | #80

    The increase in total US corn production since 2006 has almost exactly matched the increase in corn consumption for ethanol production – meaning ethanol production has had virtually no impact on the amount of corn available for other uses.,%20Soybeans,%20&%20Wheat.html

  81. wizofaus
    April 28th, 2008 at 07:16 | #81

    Actually Ian, that’s understating it…between 2006/7 and 2007/8, total production went up by 2539 million bushels, but usage for corn ethanol went up by only 1083 million bushels. On that basis, it’s hard to see what could driven the price of corn up so high (from $3/bu to $4) in that particular period. What would also be an interesting figure is how much land was switched from growing crops (of any sort) for food to growing crops for ethanol.

  82. Ian Gould
    April 28th, 2008 at 09:01 | #82

    Wiz, yes but to be as fair as possible I included the 3009 projection which shows a net reduction in corn available for other uses due to the continuing increase in corn use for ethanol.

    As for what drove the corn price – environmentalists have been saying for years that we’re really effectively eating oil. Take a look at what happened to the oil price over that period.

    Oh and let’s not forget the decline in the US dollar which makes US corn more attractive to foreign buyers.

    As I understand, the corn ethanol program was largely introduced to make up for the old set-aside program which was incompatible with WTO rules. The set-aside program paid farmers to leave fields fallow so at least some of the additional acreage used for corn probablt came from that.

  83. wizofaus
    April 28th, 2008 at 10:16 | #83

    Hmm…I’m not convinced even a 50% increase in the rise in the price of oil can explain much of a 31% rise in the price of a crop like corn – indeed, non-land costs for corn only increased by about 7% in that period, at least in Illinois: In particular, the increase in the cost of diesel fuel has had neglible impact.

  84. May 1st, 2008 at 13:01 | #84

    Howard’s old mate from Manildra is back in the news: Team Rudd is reviewing the ethanol subsidy.,25197,23625837-5013871,00.html

  85. May 1st, 2008 at 13:13 | #85

    And the retail traders association has finally admitted there is a duopoly at work in this country!

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