China’s drought and global food prices

by | Feb 11, 2011 | Climate and resource scarcity, East Asia and Pacific, Economics and development, Global Dashboard

What a rollercoaster ride the story of global food prices has been this year – and we’re only a month in.

Back in January, when news emerged that food prices had reached a new record high, many analysts were relatively sanguine about the rise. As I noted in a Global Dashboard post on 6 January, the new price spike was largely driven by meat, sugar and vegetable oils, rather than, as in 2008, staples like wheat or rice.

Governments weren’t sliding into panic measures – unlike in 2008, when over 30 of them imposed export bans, forcing prices still higher. And while the 2008 spike was marked by protests in 61 countries (with violent unrest in 23 of them), that didn’t seem to be happening this time around.

How things can change in a month. No sooner had I published that post than Algeria erupted in rioting over high food prices – and while food prices weren’t the cause of recent events seen in Tunisia, Yemen and Egypt, they have certainly formed part of the backdrop.

Panic measures by governments are back in the news too, as Middle Eastern and North African governments frantically try to rebuild national food stocks as a defence against high prices and civil unrest.

And while there hasn’t been a slide back into mass export bans – yet – a number of eastern European countries have imposed restrictions on wheat exports; and the fact that France has put export bans squarely at the centre of its G20 agenda shows that concern about the risk of zero-sum games on food remains acute.

Perhaps most critically, price rises are now clearly discernible in markets for staple grains. Corn prices are at their highest level in 30 months, as the United States – which accounts for two thirds of global corn exports – experiences increased demand from ethanol distilleries and from China,coupled with reduced output from poor weather. Soybeans have been rising steadily too, again in large part thanks to Chinese imports.

And then there’s wheat. Wheat prices rose sharply during summer last year, when they were sent soaring by extreme weather in Russia, followed soon afterwards by its export ban. More recently, they have risen still higher because of poor weather in Australia and panic buying by Middle East and North African governments – most notably in the case of Egypt, the world’s largest importer of wheat.

So that’s the story so far on food prices in 2010. Now, in the latest episode of this gripping global drama, all eyes are turning to China, where the country’s northern grain-producing regions have been in the grip of a brutal drought for more than three months, raising fears about its winter wheat crop.

In many areas, the drought is the worst in six decades; in Shandong province, a key grain producer, the drought is the worst in 200 years. The government is spending nearly a billion dollars on emergency measures (extending even to firing anti-aircraft guns at clouds). Media coverage is mushrooming; futures markets are taking fright.

In the back of many minds is the worrying thought that while rice prices may not be spiking yet, there’s a school of thought that believes they did so in 2008 in large part because high wheat prices prompted consumers to substitute rice for wheat. And it was when rice spiked that things reallystarted to go haywire in 2008 – with export bans, hoarding and all the rest of it.

So just how bad is it? (more…)

Open City

by | Feb 9, 2011 | Africa, Global system, Influence and networks, North America

Readers of this blog tend to be interested in things like transnational identities, the state of America and life in 21st century cities.  So here’s some good news: there’s a new novel out that addresses all these things and then some.  Open City by Teju Cole (full disclosure: he’s a friend) is “the story of a young Nigerian-German psychiatrist in New York City five years after 9/11” with a detour to Brussels thrown in.  It came out in the U.S. yesterday, and is getting rave reviews.  Here’s one from Booklist:

Possibly the only negative thing to say about Cole’s intelligent and panoramic first novel is that it is a more generous account of the recent past than the era deserves. America’s standing in the world is never far from the restless thoughts of psychiatry resident Julius, a Nigerian immigrant who wanders Manhattan, pondering everything from Goya and the novels of J.M. Coetzee to the bankruptcy of Tower Records and the rise of the bedbug epidemic. In other words, it is an ongoing reverie in the tradition of W.G. Sebald or Nicholson Baker, but with the welcome interruptions of the friends and strangers Julius meets as he wanders Penn Station, the Upper West Side, and Brussels during a short holiday, and amid discussions of Alexander Hamilton, black identity, and the far left–a truly American novel emerges. Julius pines over a recent ex, mourns the death of a friend, goes to movies, concerts, and museums, but above all he ruminates, and the picture of a mind that emerges in lieu of a plot is fascinating, as it is engaged with the world in a rare and refreshing way.

So, a bit more complex than the Very Hungry Caterpillar. Go out – or on Amazon – and buy it. Cole maintains an esoteric online notebook linked to the novel (here) and is a sharp photographer too.  The funny fellow at the top of the post is one of his.

Wikileaked cable: peak oil in 2012

by | Feb 9, 2011 | Climate and resource scarcity, Economics and development

The Guardian has a story on Wikileaked cables from the US Embassy in Riyadh this morning, which record conversations between the US Consul-General in Riyadh and Sadad al-Husseini, the former head of exploration at Saudi Aramco, the state-owned  oil monopoly in the country. The first cable, from November 2007, is quoted as saying that:

In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.

Al-Husseini disagrees with this analysis, believing Aramco’s reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output.

While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered.

Seven months later, another cable:

Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period.

The author of the Guardian analysis, John Vidal, also paraphrases the cables as reporting that,

Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point.

Of course, none of this will come as any great surprise to GD readers – we first picked up on questions about “whether … Saudi Arabia hasn’t got any spare capacity to give” back in April 2008.