Effects of Globalization of Agriculture

Globalization of Trade,Capital Flows and Labor has led to many desired and undesired effects.While the globalization of Services and Industry has been extensively dealt with,the Effects of Globalization of Agriculture has been ignored by the media and academia.One thing that is clear to me is that has contributed hugely to the Price Rise in Food.The cause of Food Inflation which has led to increased hunger and starvation in developing countries are the quite varied and listed below.

1) Rise of Food Commodity as as Asset Class – Various Funds launced 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 India 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) More Trade in Agriculture – With growth in trade route and tranportation has led to convergence in global food prices.This leads to divergence of food away from needy people in the East towards more affluent societies in the west.India has had to import export controls on food to stop steep rises in food prices.Despite these measures,India has seen food inflation of more than 15% over the last year.

4) 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.

Hunger Riots

2008 saw a sharp rise in commodity prices everywhere as asset bubbles found their way from commodities like oil,gold etc to food based commodities as well.The sharp increase in food prices has led to massive distress amongst poor population across the world.Riots related to Food Scarcity has been reported across 35 countries which has gone almost unnoticed by the global media.Virtual doubling of food prices in 2008 in a short span of time pushed people living  on a day to day basis into starvation.The unrestricted trading of food based derivative contracts had a major role to play in this spurt of prices.With the Lehman Collapse,the Food Prices also collapsed.However the global reflation being practiced by Central Banks is again fueling pressures on Food Prices.High volatility in Commodities which was almost unseen 10 years ago has become the “new normal”.Its no longer strange to find Oil prices moving 5% on a daily basis.With these commodities being treated more like financial assets rather than critical inputs of daily living,expect more Hunger Riots in the Future.

Hunger riots causing disruptions in 35 countries – L’Humanite

The International Fund for Agricultural Development (IFAD) has warned that the current international trend of increasingly expensive food products is expected to continue. According to IFAD, the high cost of petrol, the increasing demand for meat in Asia, the conversion of land to the production of biofuel crops, problems linked to climate change and financial speculation are all important factors of the international rise in food prices.

Violent protests against rising food prices have broken out in a number of poor countries. Like Haiti, Egypt, Burkina Faso and Mauritania, to cite only a few, have experienced hunger riots. In 2007 alone, UN figures reveal an 80% increase in the price of dairy products, and a 42% increase in the price of cereals.

Spread of Ethnic Vegetables

Global movement of people has led to a rapid spread of local cuisines.Indian cuisine is almost as popular in the UK as native cuisine.This had led to increased demand of vegetables which were restricted to specific geographies.Exotic Brazilian vegetables have become popular in US supermarkets while vegetables like zucchini,asparagus etc which were virtually unknown in Indian markets have become staple fare these days.

Farmers find opportunity in immigrant vegetables – AP

Maxixe, a Brazilian relative of the cucumber, is relatively unknown in the U.S., but it may one day be as common as cilantro as farmers and consumers embrace more so-called ethnic vegetables.Sales of ethnic vegetables have benefited from “buy local” marketing campaigns and federal farm legislation giving states grants to expand specialty crop production, he said. There’s also been a greater emphasis on marketing specialty vegetables, with New York and New Jersey starting programs aimed at selling produce to ethnic groups.

The Oil Industry which had gone on the defensive with questions being raised about their commitment towards  environment and society has learned nothing from the BP Oil Spill.This disaster had brought  the lies,deception and corruption of  Oil Giant BP in plain sight of everyone.However the strong civil society backlash has failed to reform the Oil Companies.Andarko is trying to shirk responsibility towards its legitimate payments towards the Gulf Oil Disaster.And even as the strong public reaction against the biggest ecological disaster in US history continues,Oil Companies are using their massive cash warchests to fund opposition to Green Efforts.The Oil Lobby is now trying to stop a California Law AB32 which would limit the emission of GHGs from the states oil refiners and industries.It also mandates Renewable Energy to meet 30% of California’s Energy Demand by 2020 from rought 15% at present.

Texas Oil Refiners Valero Energy and Tesoro Corp are at the forefront of the battle against the environmental groups and the large Clean Technology industry.This Green Law  has become a key issue in the California Elections in November 2010.A defeat of this Green Law in one of the most Clean Tech supporting states would be a great victory for the Oil Industry against supporters of a cleaner and greener future.Huge amount of money is being spent by both sides to win over the electorate.Valero Energy is the biggest oil refiner in the United States and is the one of the biggest fighters against Federal Climate Legislation.Note Valero Energy has already bought up substantial biofuel capacity and research in order to hedge its losses.The current cat fight shows that the US still remains moribund and stuck in its climate change fighting efforts.The Oil Lobby in contrast still remains strong as ever.

Bid to suspend California’s global warming law qualifies for November ballot – LA Times

California headed for a high-stakes battle over global warming Tuesday, as an oil industry-backed measure to suspend the state’s aggressive climate-change law qualified for the November ballot.The fight will pit the state’s powerful environmental organizations and clean-tech businesses against the oil and manufacturing industries. It also arrays many conservative political leaders, including the GOP nominee for governor, Meg Whitman, against Gov. Arnold Schwarzenegger, a fellow Republican who regards the global warming law as a key part of his legacy.Whitman has said she would suspend the global-warming law for one year but has not endorsed the initiative.

The measure, launched six months ago by Texas oil giants Valero Energy Inc. and Tesoro Corp., comes as the industry has fallen under intense scrutiny in the wake of the Gulf of Mexico oil spill disaster.Under California’s law, known as AB 32, the state is setting limits on greenhouse gas emissions from automobiles, oil refineries and other industries, and will probably require that a third of the state’s electricity come from renewable sources by 2020, up from about 15% today. New rules under the law would encourage sales of more fuel-efficient cars.

Oil Drilling Ban Overturned by US Court

The Oil Industry has also managed a minor victory by getting a US District Judge to overturn the Oil Drilling Ban put in place after the BP Oil Spill.The 6 month moratarium would have reexamined the safety regulations which had been compromised by the Regulator and Oil Companies.However the Oil Companies are oblivious to the massive damage being suffered by humans and wildlife alike as they can’t seem to wait to drill more Oil.The reason given is the loss in jobs and profits which does not make sense.The catastrophic loss of life,jobs and revenues from the BP Oil Spill is far larger.Not to wait to examine the causes of the disaster to prevent a repeat is grossly if not criminally negligent.

Judge rejects U.S. deep-water oil drilling ban – SF Chronicle

A federal judge on Tuesday struck down the Obama administration’s six-month ban on deep-water drilling and rebuked the government for “arbitrarily” imposing a moratorium that would cause “irreparable harm to businesses” along the Gulf Coast.

Interior Secretary Ken Salazar said Tuesday night that he will issue a new order against such drilling, which he said would eliminate “any doubt that a moratorium is needed, appropriate and within our authorities.”

The decision by U.S. District Judge Martin Feldman in New Orleans was a major defeat for President Obama, who imposed the ban last month in the wake of the Deepwater Horizon disaster.

The administration had argued that the ban would give an independent commission time to investigate what caused the rig to explode in the Gulf of Mexico on April 20, killing 11 people and unleashing the nation’s worst oil spill.

Green Investing in India has become a buzzword much as it has become in the rest of the world.However the Green Industry in India is at a nascent stage compared to other parts of the world .India does not figure in the Clean Technology race with Green Leadership being taken over by China with US ,Japan,South Korea and Europe in hot pursuit.It is not that India is totally bereft of Green Investing Opportunities but on a World Class level, India has still got a long way to go.

Wind Energy

Suzlon is/was the first World Class Green Company from India figuring in the top 5 Global Wind Turbine Makers . It made ambitious acquistions in Europe buying up German turbine producer Repower and Hansen Transmission at the Peak 2008 price levels.The Global Financial Crisis coupled with Execution problems has reduced to a bit player in the Wind Energy Market.It is languishing at 10% of its stock price peak with only faint hopes of a turnaround as it is still saddled with high debt .With the advent of Chinese heavyweights  Goldwind,Suzlon has little chances of winning its lost marketshare back.

Solar Energy

Like Suzlon,Moser Baer had ambitious plans in the Solar Energy field making investments left and right in Crystalline Silicon and Thin Film Solar.Also like Suzlon,its execution has fallen  far short of its ambitions.There are other companies like Tata BP Solar,Webel and others but they are not competitive on the world stage.The recent lobbying for protection from solar imports is clear proof of this fact.

Other Green Segments

India is almost non existent in other upcoming Green Industries of  Energy Efficiency,Energy Storage,Biofuels Clean Transportation etc.Most of the Technology and Equipment is imported from outside.There have been some innovative companies like Reva but these are exceptions which can be counted on fingers.Unlike its strengths in knowledge based sectors like Information Technology and Pharma,India still does not figure in Green Technology.

Green Investing Opportunities

The opportunities for Green Investing are  quite few at present with some upcoming Green IPOs and investing in listed companies like Suzlon,Moser Baer,Webel etc.However these investments are hardly lucrative relative to other booming sectors of the Indian Economy.Greater opportunities lie in the investing in Green Infrastructure like Hydro,Solar and Nuclear Power with substantial PE investments being made in this sector.In Summary,an investor would be much better off searching for “Greener Pastures” in countries other than India

EREC has released a  new report “Re-thinking 2050″ outlining the roadmap to make Europe 100% powered by renewable energy by 2050  . The report was released in the European parliament .While the report discusses a lot about the benefits  to getting to the objective,it has precious little on the specifics of the costs and policies required to get there.Lot on intent and little on action like the Copenhagen meet. The main features to the report are

  1. Develop a European wide supergrid
  2. Large scale growth in wind ,geothermal,oceanic,solar PV,solar thermal and biomass energy
  3. Solar at 50% and Wind at 25% will form the bulk of the renewable energy supplying Europe by 2050
  4. Transport to be mainly fueled by biofuels
  5. Heating and Cooling to be provided by biomass,solar thermal and geothermal energy
  6. Not a lot on policy measures except sticking to the European directives,carbon tax and removal of subsidies for fossil fuels.

 

The report is hugely bullish for solar PV and somewhat bullish for wind if Europe manages to implement this report

Pseudo Green company Codexis which makes enzymes for use in the pharma and biofuel industry managed a strong performance on Friday to close up 8% higher from its IPO prices of $13.

Like the other green IPO A123 Systems this company does not have great financials with losses in the last 2-3 years and prospective losses for the next 2-3 years as well. Both of these companies claim to have great technology to solve critical problems in the fields of transportation in a clean manner.

Note after the initial euphoria A123 system stock price languishes at its IPO prices down almost 60% from its peak as there is little near term prospects of profits as investors cashed in after the initial 1 year lock in period.

While Codexis received a tepid response compared to A123 systems , the current market cap of $477 million seems too high given its super high risky character.Company seems completely dependent on Shell which remains a major investor and its main customer.I don’t have expertise in understanding it core business whether it is a truly path breaking technology. However the main factor supporting the Codexis story is Shell .If Shell continues to support Codexis and its partnership with Brazilian sugar company Cosan uses Codexis technology to make a big biofuel commitment then this stock would be a great one.However I would wait since some of these companies can take a long time in translating promises into reality.