Block’s Indicator of Sustainable Growth

by Ray Block

 A blog in 2007 described Norman Borlaug (aged 94) as the “greatest living American”. Borlaug received the Nobel Peace Prize in 1970 for his contributions to the world food supply. He subsequently received the highest civilian honour in United States, the Congressional Gold Medal.

 

Borlaug was one of four American geneticists breeding high yield disease resistant semi dwarf wheat for the Cooperative Wheat Research Production Program, a joint venture of the Rockefeller Foundation and the Mexican Ministry of Agriculture in the 1940s and 1950s. In the mid 1960s, he extended his work to India, on behalf of the Rockefeller Foundation and the Indian Ministry of Agriculture, at a time of widespread famine and starvation.

 

Borlaug’s Lerma Rojo 64 and Sonora 64 wheat varieties, successfully developed in Mexico enabled an almost doubling of wheat yields, enabling India and Pakistan to become self sufficient in the production of all cereals.

 

By 1968, William Gaud of the US Agency for International Development called Borlaug’s work a “green revolution,” and the name stuck.  Borlaug’s third contribution was the development of high yield semi dwarf indica and japonica rice cultivars at the International Rice Research Institute started by the Ford and Rockefeller Foundations, and at China’s Hunan Rice Research Institute. Borlaug’s colleagues at the Consultative Group on International Agricultural Research also developed and introduced a high yield variety of rice throughout most of Asia.

 

The first green revolution in Asia in the 1960s had been quite outstanding in its initial years, but 40 years on it has fizzled out. Is there now is a new green revolution in process of development, and can it sustain greater long lasting progress?

 

Today, there are a number of imponderables. The Food and Agricultural Organization (FAO) put the problem simply enough. Said the FAO on June 3 2008:“the world only needs $30 billion dollars a year to eradicate the scourge of hunger.”

 

Nice sentiment, but there isn’t money of that volume available from international aid for handout, and to do so each year is an impossible reality.

 

Dr Jacques Diouf, the FAO director general reminded the rich countries, that in a typical year like 2006, the world spent US$1,200 billion on arms, while food wasted in a single country could cost $100 billion, and excess consumption by the world’s obese amounted to $20 billion.

 

“Against that backdrop, how can we explain to people of good sense and good faith that it was not possible to find $30 billion a year to enable 862 million hungry people to enjoy the most fundamental of human rights: the right to food and thus the right to life,” asked the FAO chief..

           

Put that way, there is merit in what he says. But money aside, land degradation is on the rise, with FAO (July 2 2008) reporting that one fourth of the world’s population is affected by increases in land degradation. More than 20 per cent of all cultivated areas, 30 per cent of forests, and 10 per cent of grasslands are undergoing degradation.

 

There is also a growing shortage of water in the world, with the additional handicap of a  great deal of contaminated water, greatly adding to disease, and not really conducive to increased agricultural production.

 

Lars Thunell, executive vice president of the International Finance Corporation, an affiliate of the World Bank said at the Stockholm International Water Conference (IPS August 22 2008): “I believe we are at a tipping point, because the scarcity of water poses a threat to the food supply, just when the agricultural sector is stepping up production in response to riots over food prices, growing hunger, and rising malnutrition.”

 

According to UN estimates, a little less than one billion people worldwide still does not have access to clean drinking water, while over 2.6 billion people lack adequate sanitation.”

 

Understanding the impediments standing in the way of feeding starving people has prompted the need for a Green Revolution Mark 2. As in the 1940s and 1960s, philanthropists are involved in the new “African Green Revolution.” This time around it involves the Bill and Melinda Gates Foundation, and once again the Rockefeller Foundation.

 

Another international group, the Yara Foundation established in 2005 by the world’s leading supplier of fertilizers, the Norwegian based Yara International, has a record of a significant presence in Africa over the past 25 years.

 

Two other bodies have a role. The US Agency for International Development (USAID) promotes hybrid seeds through projects in Africa, as does the World Bank. There is also the lobbies of international biotechnology companies operating through the African Seed Trade Association (AFSTA), with the help of the American Seed Trade Association (ASTA).

 

At issue is a batttle about the role of biotech companies with proprietary genes dominating the international seed industry, which has been unresolved for a long time. That is the role of genetically modified crops (GMO), which United States promotes actively and the European Union still opposes.

 

The reporter Alleen Kwa (IPS September 1 2008) says that researcher Elenita Dano in her book “Unmasking the New Green Revolution in Africa: Motives, Players and Dynamics” is concerned about the deliberate sidelines role of the big biotech seed companies. 

 

Dano seeks to expose the seed companies. “Even as they quietly push their agenda forward through a myriad of partnerships with public research institutions, non-government organizations and farmers organizations.” She claims that the seed companies have allowed “public research institutions to be at the forefront in Africa, along with their philanthropic backers.”

 

The aim of the big seed companies is to secure an explicit target of gaining a five per cent increase in US seed exports to the African region within the first five years. Uganda was there first target, important mainly because it is strategically placed, as being next door to a much bigger market in Kenya. The US government’s USAID actively promotes the “potentials of biotechnology in the overall economic development strategy.” The philanthropists are fully behind the green revolution, with the involvement of the international seed companies.

 

Grace Machel of the Africa Progress Panel (New Times, Rwanda www.all Africa.com June 17 2008) says that Africa has the lowest use of fertilizers in the world, average grain yield in Africa is less than one ton per hectare, which is only one quarter of the world average. “Our population has increased, yet African agricultural yields have stagnated since the early 1960s. We must therefore raise agricultural productivity and increase food production.

 

“This includes reforming outdated policies and investing in key inputs such as fertilizer, improved seeds, effective water management and new crop varieties, and linking farmers to markets via investment in basic infrastructure. In short, Africa needs a green revolution. If the challenge seems daunting, there is some comfort in knowing that the expertise and the experience exist.

 

“With appropriate technology and support, for example, Malawi has gone from experiencing serious food shortages to becoming both self-reliant and a net exporter of food. The key is to build on this success and replicate it across the continent.”

 

The Africa Progress Panel is demanding that with the “shortfall of US$40 billion in aid, G8 countries must urgently address the deficits against their targets, set clear timetables for delivery and increase transparency in order to improve the quality of aid. The food crisis has put a clear premium on the G8 delivering its original pledges.” 

 

In West Africa, the Bill and Melinda Gates Foundation and the Rockefeller Foundation have financially supported the Alliance for a Green Revolution in Africa (AGRA), with a $150 million contribution to help small scale farmers grow more food by developing new crop varieties, introducing better farming techniques, and improving seed distribution.

 

The chairman of the Alliance is Kofi Annan, the former UN Secretary General and the executive head Namanga Ngongi, a retired UN official involved in the World Food Program. To date, the Alliance has been investigating the health of Africa’s soils, now the most depleted in the world. It has extended its work to help small scale farmers in water management initiatives to provide low cost efficient water management systems. In addition, the initial area of West Africa has been extended to the sub-Saharan region, where the volume of food available to the people seems to be reducing each year, at a time when the population keeps on increasing.

 

The International Food Policy Research Institute in Washington, which is associated with the biotech seed companies has acknowledged that serious mistakes were made in the first green revolution in Asia. To rectify the faults, there is a need for:

 

Ø       scale neutral technology package that can be profitably adopted on farms of all sizes.

Ø      The need for an equitable distribution of land with secure ownership or tenancy rights.

Ø      Efficient input, credit and product markets, so that farms of all sizes have access to modern farm inputs and information, and are able to receive similar prices for their products.

Ø      Policies that do not discriminate against small farms and landless laborers (no subsidies on mechanization and no scale biases in agricultural research and extension).

 

“These conditions are not easy to meet. Governments must make a concerted effort to ensure that small farmers have fair access to land, knowledge, and modern inputs.

 

“Another shortcoming of the Green Revolution was that it spread only in irrigated and high potential rain areas, and many villages or regions without access to sufficient water were left out.” There is widespread criticism that excessive and inappropriate use of fertilizers and pesticides polluted waterways, and killed beneficial insects and other wildlife.”

 

Irrigation practices have led to salt build-up and eventual abandonment of some of the best farming lands. Groundwater levels are retreating in areas where more water is being pumped for irrigation than can be replenished by the rains. Heavy reliance on a few major cereal varieties has led to a loss of biodiversity on farms.

 

The International Food Policy Research Institute says that there is a compound of tangled issues. “Millions of largely illiterate farmers began to use modern inputs for the first time, but inadequate extension and training, an absence of effective regulation of water quality, and input pricing and subsidy policies that made modern inputs too cheap and encouraged excessive use”are the root causes of most of the inadequacies.

 

There is no doubt that American and European researchers have developed some very valuable technologies, which can help to create a new green revolution. The sticking point is that most of the Asian and African farmers want the technologies, but they don’t want to be tied hand and foot to seed contracts by the biotech companies.

 

Professor MS Swaminathan, whom Time Magazine described in 1999 as the father of the Green Revolution, he had been a colleague of Norman Borlaug, and acclaimed as one of the 20 most influential Asians of the 20^th Century in a paper “Genetic Engineering and Food Security:Ecological and Livelihood Issues” deserves the last word.

 

“Because land and water for agriculture are diminishing resources, there is no option but to produce more food and other agricultural commodities from less arable land and irrigation water. In other words, the need for more food has to be met through higher yields per units of land, water, energy and time. We need to examine how science can be mobilized to raise further the biological ceiling without associated ecological harm.

 

“…The Green Revolution has so far helped to keep the rate of growth in food production above the population growth rate. The Green Revolution was, however, the result of public good research, supported by public funds. The emerging gene revolution, by contrast, is spearheaded by proprietary science and can come under monopolistic control. How can we take the fruits of the gene revolution to the unreached?”

 

It is a pity that the US, which does so much good work ruins it all with championing monopolistic biotech companies, rather than the needs of the Africans.

 

 

 

 Block

Posted under Climate Change, Economies, Food

by Ray Block

The European Union may have become a cumbersome grouping of 27 countries with an over zealous bureaucracy in Brussels, but its energy challenge to the rest of the world is quite daunting.

We intend, the EU says, to increase our renewable energies to 20 per cent of total energy consumed by 2020, and at the same time reduce greenhouse gas (GHG) emissions by 20 per cent from 1990 levels by 2020. This is only an interim step in the carbon abatement stakes, but it’s a good start to a much more ambitious carbon reduction target by 2050 and beyond.

Another requirement, less admirable, is to have all 27 countries achieving by 2010, a 10 per cent level of biofuels in the transport fuel mix, so as to reduce dependence on Middle East oil.

The European Union’s renewable energy targets started off with a big advantage in having large resources of hydro power, particularly in Scandinavian countries and in Austria, with a lot of small hydro projects scattered in the other countries.

At December 2006, the EU had reached a renewable energy level of 6.92 per cent. The make of renewables at that time was hydro 66.4 per cent, wind power 16.3 per cent, biomass 15.8 per cent, geothermal 1.3 per cent, and solar 0.3 per cent.

The goal for 2010 was to reach a 12.5 per cent renewable energy level. But this is proving unattainable, given that in 2008 only about 8.5 per cent of EU energy consumption currently comes from renewables. So the revised figure is to reach 12.5 per cent by the end of Phase 2 of the emission trading scheme in 2012.

To move to the 20 per cent renewable energy target by 2020 may prove more difficult, as the period of the soft entry into carbon abatement, that is from 2005 through to 2012, when heavy industrial emitters received free emission allowances comes to an end. From 2013, the emission allowances are to be auctioned and rationed at the same time to cope with the goal of reducing greenhouse gases.

From 2013 onward, the heavy emitters will have it much tougher. Andrew Bounds in Brussels for Financial Times (January 8 2008) says that some heavy industrial users are unlikely to be able to absorb increased costs from the proposed changes, which if implemented, would see a forced reduction in sulphur, nitrogen and dust emissions.

The draft directive would include carbon dioxide emissions of nitrous oxide from the production of nitric, adipic and glyoxalic acids, and perfluorocarbon, a greenhouse gas produced by some aluminium producers. No wonder some heavy industries are wondering whether it is worthwhile remaining as producers in the EU, in what could become a hostile atmosphere in directives from Brussels.

The new changes come into effect in 2013. They are aimed at closing loopholes that allowed power generators to make billions of euros in windfall profits from the over-allocation of free emissions permits in the 2005-07 first phase of the emission trading scheme.

The EU has cut national allocations of emission permits by 6.5 per cent for 2008-2012 compared with 2005, as it attempts to meet the 20 per cent cut in emissions from the 1990 level by 2020.The 10,800 installations covered by the emissions trading scheme account for 41 per cent of the EU’s carbon emissions.

At risk are producers of aluminium, steel, cement and chemicals, who apart from being forced to increase prices are unlikely to remain competitive with imports. How many companies may need to shift plants offshore to remain competitive is going to become a major concern, with consequent job losses in the EU?

The Financial Times says that the “commission wants to set an EU-wide emissions cap from 2013.” This will replace a more politically elastic system, whereby member states set their own cap, which are approved by Brussels. The free emission allocations for the energy sector and refineries will be no more.

“Overall, it is estimated that at least two-thirds of the total quantity of allowances will be auctioned in 2013. Today’s level is less than 10 per cent.” The newer members of the EU, the former Soviet satellites will receive disproportionate amounts of permits to allow them to catch up in economic terms, and they will receive the auction proceeds towards reforestation projects and investments in renewable energy technology.

The larger and richest economies are required to reduce emissions up to 20 per cent below 2005 by 2020, while the newcomers to the EU, the mainly agricultural countries with the lowest GDP per capita levels would be allowed to increase emissions compared with 2005, capped at +20 per cent for the poorest.

The EU ignored the large volume of lobbying from the richer countries, particularly the UK. To make matters worse for the laggards in renewable energy projects, such as the UK, they are almost certainly going to miss their EU targets by 2020.

There remains a possibility that major changes to the EU energy road map could happen, as a virtual deadline for parliamentary approval of the whole scheme will depend on elections to the new European Parliament, and subsequently a new Commission installed in mid 2009. As a study by Green Prices said: “the Commissioners might have new plans.” The consultant group went on: “there is still a danger that the proposal will be watered down during the tortuous negotiation process of the coming months.”

EU table of renewable energy competitiveness by 2020

countries which will get close to, or exceed the 20 per cent renewable energy target

2005 renewable level               2020 expected level

%                               %

Sweden         39.8                             49

Latvia         34.9                             42

Finland        28.5                             38

Austria        23.3                             34

Portugal       20.5                             31

Denmark        17                               30

Estonia        18                               25

Slovenia       16                               25

Romania        17.8                             24

France         10.3                             23

Lithuania      15                               23

Spain           8.7                             20

Germany         5.8                             18

Greece          6.9                             18

Italy           5.2                             17

Ireland         3.1                             16

Bulgaria        9.4                             16

The three laggard larger economies, UK, Netherlands and Poland are unlikely to meet their EU renewable targets.

UK               1.3                             15

Poland           7.2                             15

Netherlands      2.4                             14

Slovak Republic aims to get a 14 per cent renewable level by 2020, Belgium, Czech Republic and Hungary to a 13 per cent renewable level, while the other three EU members are all tiny economies- Luxembourg, Malta and Cyprus, with renewable targets ranging from 10 to 13 per cent.

One of the many problems in harnessing the differing renewable energy platforms in the community has been a lack of transparency and blocked access to energy grids. David Adam, the Guardian environment correspondent (July 24 2008) quoted Prime Minister Gordon Brown as saying the government would remove “without delay the barriers that currently prevent renewable generators connecting to the national grid.”

The current draft renewable energy directive provide for the virtual trading of renewables between member countries involving Guarantees of Origin (G0s), which certify the renewable origin of electricity produced. Under the system, member states may invest in renewable energy production in another member state in exchange for GOs, which can be counted towards the renewable target.

Posted under Climate Change, Economies, European Emission Trading Scheme, Food, Renewable Energies, World Inflation

BY Ray Block

The Dow Jones-AIG Commodity Index lost 11.9 per cent in July 2008, the largest monthly drop since the index was first published in 1991. But even so, the 12 month return in the commodity index to end July was still an astonishing 21.5 per cent. 33 per cent of the Dow Jones-AIG index consists of components in oil and gas.

The fall in both agricultural commodities and in oil reflects partly at least the sharp decline in economic growth in Europe, North America and Japan. This is shown up in the Baltic Dry Index, a measure of the cost of shipping raw materials, which plummeted 37 per cent since hitting a record on May 20 2008.

The Baltic Dry Index tends to swing widely, rising 110 per cent between June and November 2007, then falling 49 per cent through January 2008, and later recovering 110 per cent through May, prior to the most recent fall.

But how much of the volatility in commodity prices is due to financial speculation, as distinct from the normal movements in demand and supply? That indeed is the $64,000 question, but there are clues.

Four US Senators- Ron Wyden of Oregon, Byron Dorgan of North Dakota, Maria Cantwell of Washington and Bill Nelson of Florida in a August 14 2008 letter to the Inspector General of the Commodity Futures Trading Commission (CFTC) asked for an investigation into a flawed report on oil prices released by the Commission. The July 2008 interim report was prepared by economists from a number of government agencies, especially co-opted at the request of the Futures Commission to give an air of gravitas to the oil study.

Democrat Senators are convinced that there is too much financial speculation in the setting of oil and agricultural commodities, while Republican Senators disagree. The July report goes out of its way to declare that the rapid increase in institutional purchases of commodity index funds and the commodity swap dealers, who act as their intermediaries were not responsible for the sharp rise in oil speculation leading to large price rises. The institutions involved are mainly the large pension funds and endowment funds, while the dominant commodity swap dealers are from the Wall Street investment banks and other financial groups.

As Senator Joe Lieberman, the one time Democrat and now Independent Senator for Connecticut and chairman of the Senate homeland security and government affairs committee, and two other Senators-one Republican the other Democrat in an article in the Financial Times in London (July 25 2008) pointed to the giant rise over the last five years in institutional investment in commodity index funds, swelling from $13 billion to $260 billion.

Over the same five year period, commodities tracked in these funds rose 200 per cent. The Senators said that more than 71 per cent of the commodity futures contracts are owned by speculators, compared with 37 per cent in 2000. There may be a case for some speculation, such as providing liquidity. “But speculation at this level wreaks havoc on the economy-unnecessarily driving up prices and threatening both businesses and household budgets.”

“Combine the increasing commodity investments from private, state and local government pension plans, university endowments, insurance companies and other institutional investors, and the result is clear. Speculators are overwhelming our commodity markets and leading to substantial increases in food and energy prices for years to come.”

“In a series of hearings held by the homeland security and governmental affairs committee, we heard testimony that this kind of excessive speculation in the commodity markets may be adding as much as $40 to $60 to the cost of a barrel of oil.”

“Unfortunately, the CFTC has ignored its mission as our front line defence against rampant and unmanaged speculation. To this day, the commission has yet to recognise that speculation affects commodity prices.”

What is needed at all times is transparency, and this is the missing element.

18 months ago, the CFTC decided to suppress the data on the activities of speculators trading in commodities. The only group who applauded that decision was the International Swaps and Derivatives Association, which lobbies on behalf of Wall Street firms. Yet remarkably, the former chief lobbyist from the swaps and derivatives association has been appointed a member of the CFTC.

Hopefully, 2009 will see reform, but I’m not confident.

Ray Block
economies, food, inflation

Posted under Economies, Food, World Inflation

The relationship between food prices skyrocketing around the globe, and subsidies on ethanol and biodiesels has been exposed by a confidential World Bank report. The report was prepared in April 2008, but never released for fear of offending its principal sponsoring country, the US.

Says the World Bank: “Biofuels have forced food prices up by 75 per cent, far more than previously estimated. Rising food prices have pushed 100 million people worldwide below the poverty line, sparking food riots from Bangladesh to Egypt.”

The power of farm lobbies to enhance and entrench advantages for themselves knows no end in both United States and Europe. Politicians are like putty in their hands. The 75 per cent increase contradicts US government estimates that plant derived fuels have contributed less than 3 per cent to food price increases.

The Bush Administration links higher food prices to higher demand from India and China. But this is denied by the World Bank report. Says the World Bank: “rapid income growth in developing countries have not led to large increases in global grain consumption and was not a major factor responsible for large price increases.”

The G-8 country leaders meeting in Japan (July 8-9 2008) expressed suitable concern about escalating food and oil prices, but took no immediate action. The Japanese hosts gave the leaders a six course lunch and a 18 course dinner banquet, a hypocritical gesture demonstrating that pious talk without action about the growing food shortages shows how much real interest they have in the world’s poor.

Back in 2005, the G-8 leaders promised to increase global aid by 25 billion Euros a year by 2010. But the rich nations are only 14 per cent of the way towards hitting the target.

Other causes of higher food prices include the prolonged impact of the drought in Australia reducing that country’s wheat exports leading to a marginal reduction in the supply of world wheat stocks, and blue ear disease in China disrupted pig supply last year contributing to a 15.4 per cent increase in Chinese pork prices over the year.

The price of soybeans has doubled over the year, lower rice supply impeded by water shortages in South East Asia has led to a doubling in prices since the end of last year, with the world’s largest rice importer, Philippines ordering 1 million tons to feed its population. Water shortages has also affected rice production in Central America and West Africa.

The same trend to rapid rises in food prices, without the extreme effects in poorer countries is evident in America and other developed countries. In the US, the price of milk is up 17 per cent over the last 12 months, with a similar increase in dried beans, peas and lentils. The price of cheese is up 15 per cent, rice and pasta up 13 per cent, bread up 12 per cent. An even sharper rise in price of eggs over the last year is up 25 per cent, and up 62 per cent over the last two years.

Simon Johnson, chief economist of the International Monetary Fund also believes that ethanol and other biofuel subsidies are a major factor driving higher food prices. The IMF’s staff assessment is that a “significant part of the latest jump in food prices can be traced directly to biofuels policy.” Unless the policies are reversed, the impact of subsidies leading to a jump in ethanol supply, against the backdrop of protracted high food prices in coming years is going to be sharply more evident.

Still another factor involved in high food prices is the extent of speculation in the $US 5 trillion futures market for food commodities and oil. Senator Joe Lieberman, who chairs the US Senate committee on home security and government affairs said on July 7 2008: “My own conclusion is that index speculators are responsible for a big part of the commodity price increases.”

When you allow for world population expected by the United Nations to rise from a current 6.7 billion in 2008 to 8.9 billion by 2050, and the impact of global warming affecting agricultural production, with extremes in land degradation and weather conditions, can the world sit idly by and allow a speed up in diversion of food supply to expansion of biofuels?

This will show up in a rapid rise in diversion of corn from the foodstuff supply chain to ethanol feedstock, with a much greater increase in agricultural land dedicated to biofuel raw materials reducing the availability of foodstuffs. As ethanol and biodiesel production escalates, large increases in water usage dedicated to the biofuel market has started to impact on water availability in some US cities and towns.

The Institute for Agriculture and Trade Policy in Minnesota, the only US state which has publicly available records on ethanol’s water consumption says in a 2006 report that average water use in ethanol plants has been reduced from 5.8 gallons water per gallon of ethanol in 1998 to 4.2 gallons in 2005. This indicates greater efficiency over time, but ethanol is still costly in water usage.

Water availability will challenge the ethanol industry in many regions, particularly west of the Missouri River. Science Daily (October 11 2007) reported a National Research Council study saying that the rapid increase in ethanol production from corn could significantly harm water quality.

Rising increases in world oil prices, in conjunction with ethanol subsidy policies, has led to an explosion in corn ethanol production, and further expansion over the next 10 years will be even more dramatic. The new energy act passed by Congress basically mandates an increase in ethanol and biodiesel output to reach an annual goal of 36 billion gallons by 2022. Current US production in early 2008 is about 7 billion gallons, nearly all from corn and soybeans.

Biodiesel subsidies in the European Union has also had a similar experience to that of United States, particularly in a large diversion of farm land from dairy production into crops used for biodiesel production. This is particularly evident in rapeseed, with resultant sharp increases in price.

While politicians like the biofuel expansion because it reduces dependence on Middle East oil, reality must also be taken into account. As a Wall Street Journal editorial (October 17 2007) pointed out: “to replace just 10 per cent of gasoline and diesel consumption, the US would need to convert a full 43 per cent of its cropland to ethanol production.”

While the US and Europe are high cost producers of biofuels, there is at least a partial solution at hand. Brazil is ideally placed as the ethanol producing centre for the world. It is the low cost producer, due to the size of its sugarcane-ethanol industry and corresponding availability of bagasse (the solid residue after juices are pressed from the sugarcane stalk) as feedstock in the mills.

This was one of the conclusions from the Oak Ridge National Laboratory (ORNL) study Biofuel Feedstock Assessment for Selected Countries (2007). The only obstacle is that both the US and Europe have high tariff walls against imported Brazilian ethanol.

high food prices, low cost producer, exports, ethanol, biodiesels

Posted under Food