Food prices have increased rapidly in the last 5 years after a long secular decline in food prices relative to world income. Not only have prices of essentials increased but heightened volatility is also being witnessed as stocks have started to run low. Now major organizations like the United Nations and Goldman Sachs are warning that the trend in food prices will keep on showing an upwards bias due to various secular factors coming into play.

Also Read about how Effects of Globalization of Agriculture are leading to Hunger Riots.

Why are Food Prices Increasing

The increase in Food Prices can be attributed to many reasons both fundamental and technical. Global Population growth is a significant driver along with food becoming an asset class for global funds.

1) Rise of Food Commodity as as Asset Class – Various Funds launched by Investment Banks have led to higher prices of agricultural products. Fund Managers are increasingly using these funds based on derivatives of corn, wheat, rice etc as a long only investment. While earlier food prices were determined by current supply and demand curves, nowadays future demand/supply perceptions are increasing affecting these prices mostly on the upside.

2) Growth of Chinese and Indian Middle Class – India and China have seen increasing prosperity over the last several years driven by strong economic growth. The rise in the Middle Class of these countries have led to increasing food consumption. The shift in food preferences towards meat has led to more grain consumption as meat consumption require more energy and grain usage, than plain vegetarian consumption.

3) Increased Usage of Crops for  Biofuel – Countries like US and Brazil have mandated increased usage of biofuel as a substitute for  petroleum based fuel for Transportation. Large amounts of crops like Corn are being diverted towards the manufacture of biofuels. Land which was meant for other crops is also being converted for usage of biofuel based crops. While the Global Financial Crisis has somewhat cooled the Corn prices, the return of economic growth is sure to put pressure on crop prices again. Note Biofuels as a solution to Climate Change and Global Warming is a small niche one at best.

Johann Hari: How Goldman gambled on starvation – Independent

At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people – mostly children – couldn’t afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it “a silent mass murder”, entirely due to “man-made actions.

Here’s how it happened. In 2006, financial speculators like Goldmans pulled out of the collapsing US real estate market. They reckoned food prices would stay steady or rise while the rest of the economy tanked, so they switched their funds there. Suddenly, the world’s frightened investors stampeded on to this ground.

So while the supply and demand of food stayed pretty much the same, the supply and demand for derivatives based on food massively rose – which meant the all-rolled-into-one price shot up, and the starvation began. The bubble only burst in March 2008 when the situation got so bad in the US that the speculators had to slash their spending to cover their losses back home.

Food Security Map

A Food Security Risk map from Maplecroft shows the most vulnerable regions in the world in terms of food security are South Asia and Africa. The only low risk countries are USA, Australia and Western Europe with the other geographic regions falling into the middle risk category.

Source http://maplecroft.com/

FAO

According to the Food and Agriculture Organisation (FAO) in Rome, global wheat production is expected to fall 5.2% in 2012 and yields from many other crops grown to feed animals could be 10% down on last year.

“Populations are growing but production is not keeping up with consumption. Prices for wheat have already risen 25% in 2012, maize 13% and dairy prices rose 7% just last month. Food reserves, [held to provide a buffer against rising prices] are at a critical low level.

Goldman Sachs

As Goldman notes, food inflation has been one of the most significant sources of headline inflation variation in emerging markets (EM) over the past few years. Since June, international prices for agricultural commodities have risen almost 30%, increasing the risk of fresh, food-related increases to EM headline inflation. We, like Goldman, expect EM headline inflation to start to reflect the relevant pressures more broadly

Solar Stocks have performed terribly in the past couple of years and have been a very painful experience for long term solar investors. The bad performance has not been restricted to the solar industry but also to other green sectors like wind energy, biofuels, energy storage etc. Only Energy Efficiency has performed relatively better thanks to acquisitions by big industrial and electrical conglomerates looking to expand their offerings.

Solar City Corp is a major US solar installer/integrator that is offering around $200 million of shares to the public for an estimated 13% stake in the company valuing the solar system integrator for around $1.5 billion.

Solar City Business Model

Solar City is the business of installing solar systems for residential and commercial customers either outright or through leases in partnership with financial and other companies (Citi, Google, U.S. Bancorp). The company has diversified into providing energy audits and retrofits as well.

The company’s investors include Draper Fisher Jurvetson, DBL Investors, and Generation Investment Management. Tesla Motors’ CEO Elon Musk also is an investor and is SolarCity’s board chairman.

Solar City Pros

1) One of the largest solar installers in the US with presence in 14 states and a topline growth of 84% in 2011.

2) Solar integration is a growth industry with falling solar system prices making solar energy increasingly affordable to a greater size of the population.

3) Elon Musk is a major figure in the Green Industry being the CEO of Tesla Motors which is the only successful independent Electric Vehicle company in the industry currently.

4) Company benefits from solar panel prices selling for below cost as it is in the business of installing solar systems and not manufacturing them.

Solar City Cons

a) The company has made losses for the last 5 years.

b) Other listed US solar system installers like Real Goods Solar and Akeena Solar have proven to be terrible investments.

c) Solar Installer Industry has low barriers of entry and very low margins.

d) Valuation does not look cheap for the company considering that the largest solar panel manufacturer can be bought for less than $200 million. First Solar which is not only one of the biggest solar panel manufacturer but also a bigger solar developer and installer has a market cap of less than $2 billion and is much more profitable.

e) Its not a great business to be in. Some of the top German solar installers like Conergy and Phoenix have lost huge amounts of money as the solar shakeout has affected them badly as well.These companies lost money on falling prices of solar panels inventory and diversifying into solar panel production.

Solar City Buy or Sell

Given the above facts, it makes no sense to buy Solar City at the above valuation and considering the hugely competitive nature of the solar installer industry. It is very hard to make money in green investing and Solar City does not possess any competitive advantage that would justify buying it at the price that is being talked about. 5 years of annual losses does not augur well despite a growing topline. The business of installing solar panels systems is a low margin business.

Solar City Competitor Analysis

Here are a list of Top US Installers/System Integrators. Note the list will keep expanding in the coming years as the size of the US Solar Energy Market Grows.

The Large Vertically Integrated Solar Panel Installers

1) SunEdison/MEMC – US Polysilicon and Wafer Producer MEMC bought SunEdison which was one of the largest solar installers in 2008. Now MEMC is strongly expanding the system installation business not only in the US but other parts of the world like India, Europe, Korea, Canada and other places. The company recently installed one of the biggest solar plants in the world in Rovigo, Italy.

2) Sunpower – Sunpower is a vertically integrated solar energy company known more for its highest efficiency solar panels. The company bought Powerlight a few years ago to enter the solar systems market and has bolstered the business constantly to become a major global installer. Sunpower is present in all 3 segments of the solar system business namely a) residential, b) commercial and c) utility. It is one of the largest US installers and has recently won a number of large utility contracts for building solar farms.

3) First Solar – First Solar is the largest producer of solar panels in the world using its proprietary thin film technology. The company is also one of the biggest utility solar system developer in the world focusing mainly on the North American Market.The company has built and sold the world’s largest solar farms in Sarnia, Ontario.The company has beefed up its solar installation business by buying project development teams and pipelines from Ausra, OptiSolar Turner etc.

4) Sharp/Recurrent Energy – Sharp recently bought Recurrent Energy one of the large independent solar power developers and system integrator in the US.Sharp already had a big presence in the California market where it is now facing increasing competition from the low cost Chinese players like Trina Solar, Yingli etc.

5) REC Solar – The Norwegian based Solar Company REC has started it solar system in the US a year or two ago and has managed to win some contracts. It is targeting all the 3 segments and is present in the major solar states of the US like New Jersey and Californa. It claims to be the largest residential solar installer in California with 17 MW of installations in 2010.

6) Solarworld – Another European company like REC,S olarworld is mainly targeting the utility and big commercial market recently winning a 11.6 MW order from LADWP. The company has a big manufacturing facility in Oregon and has aggressive expansion plans in the US as its domestic German market slows down.

7) Mitsui/Sunwize – Mitsui, the giant Japanese tradings house bought Sunwize in 2006 to enter the solar system market in the US. Note Mitsui is not a big solar panel producer like Sharp, Panasonic and others. The company sells mainly in Oregon and California and targets all the 3 segments of the market.

The Solar Financing/Leasing Companies

8 ) Sungevity – Sungevity is a California company targeting the residential market through a solar leasing plan. It extensively uses the Internet to design the system and has a JV with US Bank to provide financing to its customers.

9) SolarCity – SolarCity is a full-service solar provider for commercial and residential customers and does solar power system design, financing, installation and monitoring services from a single source.SolarCity is introduced a new solar lease option, called SolarLease. It also has other options like PPA .The company’s footprint extends to Arizona, California, Colorado, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Texas and Washington D.C.

10) SunRun – SunRun is one of the newer solar installation and solar financing companies that target the residential market mainly. The company is present mainly in the Western part of USA operating in 7 states Arizona, California, Colorado, Hawaii, Massachusetts, New Jersey, and Pennsylvania. The company uses a PPA model to sell solar systems and has partnered with a number of pure play solar installers.

The Solar EPC/Installation Companies

11) Akeena/Westinghouse Solar (WEST) – The first US Solar Installer to list on the US Stock Exchange,the company’s operations are based mainly in California. The company also sells solar system through retail outlets which was a first. The company also has a unique solar system which reduces solar installation costs called Mandalay.

12) Real Goods Solar (RSOL) – The second US Solar Installer to list on the Stock exchange, Real Goods Solar is present in California and Colorado and it targets the residential and commercial segments of the market.

13) Verengo Solar – The company also provides solar financing solutions and is present in the California market.

14) Borrego Solar – The company is similar to Verengo Solar but mainly concentrates on the commercial market. The company signed a deal with Chinese solar panel producer Yingli for procuring solar panels. The company is headquartered in California like most others.

Summary

The US Solar EPC Market has a good mix of large vertically integrated solar companies as well as independent solar installers. The leasing and PPA companies have added another dimension to the Solar System Market by making it easier for customer adoption of solar energy. There a a large number of solar system installers in the US and its tough to include most as most of them remain private companies.

More Reading

Solar City gets sued by Sunpower

Bankrupt Green Energy Companies

These days the only thing you hear about in the Green Industry is Bankruptcy or companies on the verge of insolvency. The problem is not related to the only sector, but afflicts the entire Green Industry with companies across Solar Energy, Wind Power, Energy Storage, Biofuels going out of business. The reasons are common and the results are also the same. In fact most of the stories related to massive job losses and how the companies have lost hundreds and millions of public and private money, led to ultimate failure. While the A123 , the most well known energy storage company is staring at a liquidity drought and desperately trying to survive, another company Valance Technology operating in the same sector has filed for bankruptcy. Valence develops rechargeable batteries based on lithium ion and polymer technology, has suddenly declared bankruptcy unable to weather the severe industry downturn.

Another energy storage company Beacon Power which used an innovative flywheel technology to store electricity had gone bankrupt earlier in the year. In fact the famous green investor, Vinod Khosla had said that he did not expect A123 Technologies to survive. Given the current fundamentals of A123, it does not look like he will be wrong. Centrotherm which was the third largest solar equipment manufacturers has become insolvent as well this week, as massive solar panel glut has made solar equipment makers compete with their own products being sold at 1/10th of the price.

Greenworldinvestor

Solar equipment companies are now feeling the heat as almost every company has stopped expanding capacity and there exists a large number of companies willing to sell almost new equipment for pennies to the dollar. Centrotherm which was the second largest seller of solar equipment with revenues of more than $800 million is facing a credit crunch. The company’s bank are refusing to renew credit lines or give it shipment finance. Hyundai had earlier bought solar cell equipment from Centrotherm as far back as 2008. Hyundai Solar Panel & Solar Cell factory, the  largest South Korean manufacturer is a 600 MW unit.

 WSJ

Valence Technology Inc. filed for voluntary Chapter 11 bankruptcy as the battery maker looks to boost liquidity and focus on its core business.

Valence develops rechargeable batteries based on lithium ion and polymer technology licensed from Telcordia Technologies. It also has research and development pacts with Delphi Automotive Systems, which holds the license to sell its batteries outside the U.S.

Valence, which had a market value of $110 million as of Wednesday’s close, has posted losses as it struggles to control costs.

 

India gives billions of dollars in misdirected subsidies to the fuel and fertilizer sectors which goes into the pockets of middlemen and profiteers. It is a known fact, that India’s fuel subsidies has engendered a huge mafia which makes billions of dollars each year. What is less known is that the fertilizer subsidy too, has grown its own pet corruption industry with subsidized urea being used by textile and plywood resin manufacturers. India gives a whopping 50-75% subsidy to urea which is used in agriculture as a fertilizer. However this huge discount on the actual cost has led to its leakage and bizarre usage in industry. Misdirected incentives and subsidies are the root cause of this wastage. The Indian Government instead of changing the structure of the delivery mechanism is trying to stop leakage through enforcement which has always failed. Instead of trying to focus the subsidy through targeted cash transfers, it continues to fuel wastage through ham handed broad subsidies. Note India’s fertilizer subsidy is distorted in other ways, with some types of fertilizers like urea getting subsidies, while others like DAP not getting the government largesse. This results in overuse of urea and under-use of DAP leading to soil degradation.

Read more about Pros & Cons of Biofuels & Pros & Cons of Renewable Energy.

India’s Misguided Fossil Fuel Subsidy root cause of Mafia Growth

India’s Fossil Fuel Subsidies have led to a massive growth of the petrol and diesel mafia in the country. India gives subsidies on diesel, kerosene and cooking gas through its state owned petro/gas companies like BPCL, IOCL, HPCL etc. These subsidies have been given for a long time and have led to the growth of a parallel black economy in these products. They not only lead to capital misallocation but also to the massive illegal profits for a few. It is a well known fact that all petroleum pump owners adulterate petroleum (which power most of the cars) with subsidized diesel and kerosene. This massive racket earns millions of dollars (if not billions) for a network of company officials, pump owners, government bureaucrats and politicians. The mafia is so strong and powerful that it thinks nothing of burning alive a senior police official. The racketeers are so rich and well connected that despite common knowledge nothing gets done about it.

ET

Irked by misuse of subsidy, the Centre has directed state governments to take firm steps to curb illegal diversion of fertilizers like urea to non-farm sectors. It is estimated that about 2 million tonnes of soil nutrients, especially urea, is being smuggled out for use by plywood resin manufacturers, textiles and other industries every year.

The official said, “We have received complaints of such incidents rampant in Gujarat, Maharashtra and Haryana. We have asked states to take serious action as central subsidy on fertilizers is being misused.” Urea, whose price is still controlled by the government, is selling at a subsidized rate of Rs 5,310 per tonne as against the production cost of Rs 13,000-23,000 per tonne.

Global Warming

The increase in the average temperature of Earth’s atmosphere and oceans is known as Global Warming. It is believed to have started in 1975–80. Because of increased human interference with the ecosystem, there is a rise in the emission of gases such as carbon dioxide, methane, and nitrous oxide. These Greenhouse gases causes the planet’s lower atmosphere and surface to get warmed by the absorption and emission of infrared radiation by gases in the atmosphere. It is a sustained increase in the temperature levels, great enough to cause changes in the global climate.

The United Nations has formed a group of scientists called the Intergovernmental Panel on Climate Change, or IPCC, which reviews the latest scientific findings and summarizes all the current facts about global warming.

Causes Of Global Warming

The main cause that can be attributed to increase this phenomenon is the rising levels of greenhouse gases produced by human activities such as deforestation and the burning of fossil fuels. About three-fourth of the increased CO2 level has been caused by the burning of fuels, over the past 20 years. The rest of it is caused mostly by deforestation.

Human Activity – With the increasing population, there is a huge demand for food & shelter for human beings. Industrialization, deforestation, and pollution have greatly increased atmospheric concentrations of water vapor, carbon dioxide, methane, and nitrous oxide. People have resorted to clearing lands to build houses & also need land for food cultivation. This has resulted in mass Deforestation all around the globe. Due to clearing of land for human habitations their is a major loss of forests, which would have otherwise absorbed all the CO2 released thereby.

Humans also emit several greenhouse gases responsible for warming in a variety of ways. Most come from the Combustion of fossil fuels in cars, factories and electricity production. Carbon dioxide is the major gas responsible for the most of the warming. Other gases & their major sources are methane released from land & grazing animals,  nitrous oxide from fertilizers, gases used for refrigeration and industrial processes. All these greenhouse gases trap heat near Earth’s surface.

Pros Of Global Warming

Global Warming is something that could not have been totally avoided.  To keep in pace with the rising  population, humans started cutting down trees to satisfy their needs – build homes & do food farming. Where would the masses seek shelter? Global Warming has resulted in the colder regions being more habitable & now there are more options for food cultivation. Arctic, Antarctic, Siberia, and other frozen regions of earth may experience more plant growth and milder climates.  Since the temperatures in frozen zones will go down less consumption of energy will be required to warm them. The next ice age may be prevented from occurring.

Though , the process should be done in an efficient way that would cause minimum loss to the environment. Making changes to the way we farm could reduce the gases we emit to the atmosphere.

There are many possible ways to improve the energy and vehicle fuel efficiency, so that less energy has to be produced – like increasing the wind, solar power & other renewable sources, biofuels, natural gas, and nuclear power. Carbon Sequestration is a process to capture the carbon dioxide emitted from fossil fuels and store it underground.

Cons Of Global Warming

Having said that, the effects of Global Warming are very alarming & cannot be neglected at all. Global warming could lead to large-scale food and water shortages and have catastrophic effects on wildlife. We are almost at the edge & immediate attention of everyone is required. Many people and governments are already working hard to cut greenhouse gases, and every single effort will count. There should be mass awareness programs where people can be educated about Global warming, its effects & solutions.

Hottest Times – The rate of warming is increasing. In the recent decades average temperatures have climbed 1.4 degrees Fahrenheit around the world since 1880. 11 of the past 12 years are among the hottest in the last two decades.

Endangered Animal Species –  Due to the disappearing habitat, changing ecosystems, and polluted oceans, more than a million species have faced extinction. Arctic ice is rapidly melting. Polar bears and other local plants & animal species are already suffering from the sea-ice loss. Average temperatures in Alaska, western Canada, and eastern Russia have risen at twice the global average. The beautiful Coral reefs are highly sensitive to even a little change in water temperature have suffered the worst & die off. Some butterflies, foxes, and alpine plants have moved farther north to more cooler areas.

Loss of Natural Beauty – Glaciers and mountain snows are rapidly melting. Arctic ice is rapidly disappearing. Ice is melting worldwide, especially at the Earth’s poles. This includes mountain glaciers, ice sheets covering West Antarctica and Greenland, and Arctic sea ice.

Natural Calamities – Some experts are of the opinion that due to extreme weather events disasters such as strong hurricanes, droughts, wildfires, heat waves, and strong tropical storms can also occur become common in many parts of the world.

Food Shortage – The growth of deserts may also cause food shortages in many places.

Sea level Rise – have become faster over the last century. Rises of just 4 inches could flood many South Seas islands and swamp large parts of Southeast Asia.

Loss of Habitat – Some hundred million people live within 1 meter of mean sea level, and much of the world’s population is concentrated in vulnerable coastal cities. In the U.S., Louisiana and Florida are especially at high risk.

 

 

 

 

Green Jobs in India is going to grow at a high double digit rate driven by the Real Estate and Construction Industry. The hiring will be done by Real Estate Companies in India looking for Energy Efficiency and Green Building professionals. Note the Green Industry globally has had a torrid 2011 with most of the major sectors like wind, solar, biofuels and lighting facing oversupply amidst slowing demand due to global macro problems. However the Green Industry has a great future driven by secular drivers like

a) Global Warming

b) Energy Security

c) Peak Oil

Real Estate in India is facing a Bubble and in general I have a bad opinion about the real estate developers and promoters. But this is one reason to be positive about the real estate industry in India . Note Green Buildings have become important not only from the planet point of view but also economically given the rising energy costs. Also LEED certified buildings command a higher valuation and rentals which drives the real estate protomers towards green buildings.

Why Green Buildings are Needed

Buildings account for a huge percentage of Energy Consumption and Carbon Emissions.They also use a massive amount of Resources and are responsible for a majority of the Solid Waste.Here are some fact about Green Building from the EPA.

39 percent of total energy use
12 percent of the total water consumption
68 percent of total electricity consumption
38 percent of the carbon dioxide emissions

What are the 7  Elements of Green Buildings

Green Buildings are made up of 7 Elements which need to incorporated during the Design and Construction of Green Buildings.

  1. Energy Efficiency and Renewable Energy
  2. Water Efficiency
  3. Environmentally Preferable Building Materials and Specifications
  4. Waste Reduction
  5. Toxics Reduction
  6. Indoor Air Quality
  7. Smart Growth and Sustainable Development

According to an estimate from Jones Lang LeSalle, a real estate consultancy, there will be a demand for around 1,000 energy and sustainability professionals. Primarily dominated by engineers and architects, this opportunity could also attract people from more diverse fields, as the market opens up. “With the introduction of the LEED Green Associate accreditations last year by the GB Certification Institute, more professionals from diverse backgrounds are keen to consider this career option,” he says. All one needs is an endorsement from a LEED-accredited professional and preparation to take an online exam facilitated by Prometric, an online testing solutions provider.