Wednesday

Food prices

Food prices to go up again, says report

27 May 2009

Prompted by the rise in fuel prices and threats like climate change, food prices will increase again, says a new UN report. To avert another crisis in Asia and the Pacific, it recommends farmers to adopt sustainable agricultural practices and avoid over-intensive cultivation.

Johannesburg: Food prices will rise again by 2015, when economies are expected to have recovered from the global recession, pushing up demand once more, says a recent UN report

: Food prices are still high in many developing countries/ Photo credit: IRIN

2008 is seen as the year of food crises, prompted in part by high fuel prices, but these started declining as the global recession got underway in late 2008 and eventually returned to 2006 levels, though food prices in many developing countries are still higher than they were then.

"This has been a temporary respite," said the report, Sustainable Agriculture and Food Security in Asia and the Pacific, by the UN Economic and Social Commission for Asia and the Pacific (ESCAP).

Citing the International Energy Agency's Energy Outlook 2008, which projected that the price of crude oil would average US$100 per barrel in the 2008-2015 period, and rise again to $120 in 2030, the report predicted that "food prices will rise again, too", partly because of resurgent demand, but also as a result of threats to sustainable agriculture, including climate change.

"Sustainable agriculture involved stewardship of both natural and human resources"

The report warned that unless farmers looked at ways to produce food more efficiently, the food security outlook would be "bleak"; sustainable agriculture involved stewardship of both natural and human resources - maintaining, regenerating or enhancing the natural environment, and ensuring the health of producers by offering them a decent income and working conditions.

Land degradation, brought on partly by over-intensive cultivation, and the use of mineral fertilisers to feed a growing population, was one of the biggest threats to agriculture.

From 1992 to 2002, countries such as India, Laos, Myanmar, the Philippines, Sri Lanka, Thailand and Vietnam increased their use of mineral fertilisers by as much as 90% , the ESCAP report noted.

In South and South-East Asia, around 74% of agricultural land has been severely affected by wind or water erosion, or chemical pollution. "If this process continues at its current rate over the next 50 years, crop output in northeastern China could fall by as much as 40%," the authors estimated

The problems are particularly severe in Central Asia, said the ESCAP report: in Kazakhstan alone, around 66 percent of the total land area has been desertified. Over-intensive livestock-keeping has also put pressure on rangeland

Forests provide critical ecosystem services to the agricultural sector, including pollination and watershed protection, and support to river fisheries. Between 1990 and 2005, deforestation accelerated in the Russian Federation, Cambodia, Vietnam and Papua New Guinea, partly prompted by the high fuel price crisis, which drove poor people to take more wood from the forests.

Water resources are also drying up, partly as a result of greater pressure being placed on agriculture by the increased demand for food. Globally, 15% to 35% of total water withdrawals for irrigated agriculture are estimated to be unsustainable – "that is, the use of water exceeds the renewable supply," the report commented.

In Asia and the Pacific region, this intensive withdrawal has depleted aquifers, particularly in South Asia and China, and has even reduced the flow of major waterways like the Ganges and Yellow rivers.

Source

"The data showed that food prices rose 5.6 per cent in April, a higher rate than the 4.2 per cent reported a year earlier, but slower than the 7.3 per cent rise reported in March, and well below the massive 8.6 per cent jump recorded last August.

Prices of soft commodities like wheat, corn and soy almost trebled between 2006 and the market peak in early 2008, as growing consumer wealth in developing economies led to soaring demand. Between 2001 and 2007, China and other emerging economies accounted for a 26m metric tonne average annual increase in consumption of major food stocks."

Source

"There were several explanations of why prices peaked as they did last year. One was that general economic activity forced up oil prices, which increased the costs of fertiliser and harvesting. Another was that rising living standards encouraged more people to buy meat products, and the diversion of cereal crops to animal feed imposed stresses on supply. Another argument involved biofuels, although I think that that debate got a little out of hand. Nevertheless, certainly in the United States, biofuel production took maize away from food production without delivering a great benefit in terms of fuel. Of course, there were also climate change factors—water shortages, desert conditions and crop failures for climatic reasons—and population growth pressures that contributed to what happened last year.

This year, some of those factors still exist, but additional ones have crept in. For example, the effect of the downturn has meant that many of the poorest people in the poorest countries have suffered a massive downturn in income, particularly due to the loss of remittances. That means that many of those people are poorer than they were before. Even though prices have come down from the peak, they are still historically high at a time when incomes are historically low. To a substantial degree, that is why the WFP is saying that it needs more this year than last year to address the needs and pressures that it faces."

House of Commons Debates

Interactive BBC site on food prices

Podcasts on food - worth listening to

More podcasts on food

"It is a viewpoint shared by Oxfam's Barbara Stocking, who told the BBC News website: "It takes the same amount of grain to fill an SUV with ethanol as it does to feed a person. We don't want any more subsidies for biofuels. This rush to biofuels is absolutely dreadful."

Food

The setting of food prices

Butter mountains are back

Telegraph article

NY Times

Biofuels

Some essential links

Biofuels

More on biofuels

Biofuel subsidies must stop

Tuesday

Objectives of firms

Link to youtube

Cobweb theorem

Link to youtube...

Butter prices rose - why?

One reason:

Sunday

Green taxes?

"Clean energy companies, which had been flying high on the back of soaring oil prices, tumbled to earth in the last few months of 2008. The boom in renewable and low-carbon alternatives to fossil fuels looked by November to have suffered a sudden bust.

The WilderHill New Energy Global Innovation Index, which tracks the performance of 88 clean energy stocks worldwide, plunged almost 70 per cent between the start of the year and November, with 84 out of the 88 companies seeing their share price fall. This was in sharp contrast to the previous year, when the index rose 58 per cent.

Clean energy sectors suffered particularly as the markets punished companies with high capital needs, and as investors sought safe havens in longer-established businesses, according to an analysis by New Energy Finance, a research specialist.

But against the backdrop of the World Future Energy Summit 2009 in Abu Dhabi, supporters of the sector warn against writing off clean energy just yet. Although this year will be difficult, prospects remain bright.

Michael Liebreich, chief executive of New Energy Finance, says: “2008 was a bruising year for clean energy shares. There was a point when [the WilderHill index] was at a level we haven’t seen since September 2003, before the ratification of the Kyoto protocol ... That’s plainly absurd, even in the light of the unsustainable surge in valuations in 2006 and 2007. The growth prospects for clean energy investment remain exciting.”

The arguments in favour of clean energy are becoming familiar to most businesspeople. Energy security is now a pressing concern for importers of oil and gas – the dispute between Russia and Ukraine in early January proved a jolting reminder to Europe of the problem of over-reliance on any single energy supplier. The US is equally wary of relying on politically unstable regions such as the Middle East for its fuel imports.

The soaring price of energy in recent years has intensified these worries, forcing governments and businesses to explore alternatives to oil and gas. Added to this has been another growing concern about oil: finding new sources of supply as the most easily tapped resources are depleted, and attention shifts to unconventional sources, such as oil sands, which are more expensive to exploit.

If “peak oil” theorists are correct, this problem will worsen markedly in the next two decades, and prices will rise further.

Climate change is the other reason to switch away from fossil fuels. Rising concentrations of greenhouse gases have outstripped scientific predictions, bringing us closer to what climate experts warn is the brink of a catastrophic degree of global warming.

Scientific evidence has been piling up, and the world is now less than a year away from a conference aimed at forging a new global deal on emissions.

Added to these pressures, pollution has prompted rapidly industrialising countries to seek cuts in their consumption of dirty fuels such as coal and oil.

Governments have sought to respond with fresh regulations. Europe has led the way with its greenhouse gas emissions trading scheme, but other countries have taken steps to set up their own trading systems: Japan, Australia and several US states have all embarked on carbon trading.

Some developing countries have also pursued lower-carbon strategies – China has stiff laws on car fuel economy, India has a national plan on carbon, and Mexico has pledged to halve emissions by 2050.

But these were the policies and realities of the boom. Last year’s financial crisis was accompanied by a precipitous fall in oil prices, and vociferous calls for a loosening of environmental regulations that would raise fuel prices.

The economics of alternative energy have reversed sharply: high energy prices made still-costly alternatives such as wind and solar power much more attractive, but as conventional energy prices have dropped, so has the impetus behind renewables. T Boone Pickens, the legendary Texas oilman, signalled the sudden change last year, when he drastically scaled down plans to invest in US wind power.

The lack of credit is also braking the growth of renewables, says Neil Suslak, managing director of Braemar Energy Ventures, a clean energy investor: “The current financial crisis will continue to slow the deployment of new renewable projects in the US in 2009 due to lack of capital available for projects generally, and a reduction in demand for currently more expensive renewable energy by energy users.”

Governments have also grown more wary of strengthening environmental regulations that could push up costs to hard-pressed businesses and consumers. European companies succeeded in wringing key concessions last year on the extension of the emissions trading scheme.

On the face of it, then, the recession and financial crisis spell disaster for clean energy as investors take fright and the economics of energy swing back in favour of oil. But as the recession takes hold, a new argument is gaining currency. The need for an economic stimulus, funded from the public purse, is now accepted by governments across the world. The US, Europe, Asia and others are all engaged in reigniting their economies by bringing forward public investments. Some governments are now suggesting this stimulus should be green – that investments should be directed towards creating an infrastructure for energy that would shift economies on to a low-carbon footing."

A lesson on Biofuels (Guardian)

Biofuels are a great classroom subject. Not only will this issue develop students' global awareness and understanding of the science of biofuels, but it can help them to develop an independent point of view on a vital issue.

Not a new phenomenon

Biofuels are nothing new. Rudolf Diesel, inventor of the diesel engine predicted the future importance of biofuels and used one in his diesel engine at the Paris World Fair in 1900. Diesel used peanut oil, but the term biofuels can refer to any organic material that can be rapidly replenished.

Introduce the topic by accessing the Guardian's Q&A section on biofuels (guardian.co.uk/environment/2008/jan/21/biofuels.alternativeenergy). Print it out, chop up into questions and answers, then challenge students to match them up. Differentiate by varying the number of questions.

Biofuels are a worldwide commodity: sugar cane and maize from the Americas; biodiesel, rapeseed and sugar beet from Europe; palm oil from south-east Asia. Provide students with a world map (eduplace.com/ss/maps/world.html) then ask them to plot the world's main biofuel producers with the help of Planet Ark (www.planetark.com/dailynewsstory.cfm/newsid/31182/story.htm), labelled with relevant facts and figures.

The UK, like other governments, is taking biofuels very seriously. The introduction of the Renewable Transport Fuel Obligation (RTFO) in April means that petrol and diesel should now contain at least 2.5% biofuel, rising to 5% by 2010. The US, with a view to reducing its dependence on other oil-producing countries, has a target of replacing 75% of oil imports with biofuel by 2025.

The world leader in biofuel motoring is Brazil, where all the cars run on ethanol or an ethanol mix. Use Brazil as a case study for students to explore. A BBC news report and video makes a good start for their investigation (http://news.bbc.co.uk/2/hi/business/4715332.stm). Ask them to produce a display or a PowerPoint presentation describing Brazil's experiences.

Show students a short film from The One Show showing how some individuals, including the footballer David James, are adopting biofuels in the UK (bbc.co.uk/theoneshow/article/2007/11/ls_biofuels.shtml). As they watch, ask students to list the different ways biofuels are being used and why people are using them, before discussing whether they think biofuels are a viable option for car users.

Biofuels are theoretically carbon neutral, as the carbon released by burning them is balanced by the carbon absorbed by plant growth. However, there is considerable alarm about the sudden rise in biofuel production, including the environmental costs of land clearance for growing biofuel crops. The overriding concern, however, is that using land normally used for food production has led to food shortages and high food prices. A recent World Bank report estimates that prices have soared by 75% - far higher than anticipated, and a rate that has forced 100 million people across the world into poverty. Challenge students to read this news report (guardian.co.uk/environment/2008/jul/03/biofuels.renewableenergy) and to translate it into a TV news report to present to the class.

Are algae the answer?

A new generation of biofuels may hold the answer. Show students an interactive presentation on the use of algae, which grows fast and is oil-rich (guardian.co.uk/environment/interactive/2008/jun/26/algae). They can research further at http://science.howstuffworks.com/algae-biodiesel.htm, before producing a cartoon strip or flowchart showing how it works.

You can sum up the study on biofuels in one of two ways. Science upd8 has an excellent lesson on biodiesel. Ask students to create a game for younger children on the pros and cons of biodiesel (upd8.org.uk/activity/256/Biodiesel.html). Alternatively, hold a trial with biofuels in the dock. Create teams for defence and prosecution, plus a jury and witnesses. The defence and prosecution must build up evidence and prepare witnesses to support their case. Is either side capable of winning, or will it leave a hung jury?

Biofuels

"Why did we stop using biofuels?

Cheap crude oil, especially from the Middle East, diverted interest and research away from biofuels. Oil's low price gave it dominance in the market.

So why is there renewed interest?

Growing concerns over climate change, rising oil prices and insecurity of supply mean that governments and industry are desperately searching for alternative fuels. George Bush's drive to reduce dependence on foreign oil led him to decree that by 2025, the US should replace 75% of imported oil with biofuel. The EU embraced biofuels as a key factor in a low-carbon future, and set a target that 10% of transport fuel will be biofuel by 2020."

Questions on biofuels

"The report, Sustainable biofuels: prospects and challenges, from the Royal Society, found that climate change mitigation, energy security, rising oil prices and economic objectives are encouraging "strong interest" in the development of biofuels for the transport sector.

Biofuels - derived from food crops including corn, sugar cane, palm oil and oilseed rape - are one of the few technologies with the potential to displace oil as a fuel for transport and are seen as a way to cut greenhouse gas emissions and boost energy security.

But the report warned that biofuels risk failing to deliver significant reductions in transport emissions and could even be environmentally damaging unless the government implements the right policies.

It said directives such as the UK's Renewable Transport Fuel Obligation (RTFO), the UK's implementation of the EU biofuels directive which comes into force in April 2008, does not necessarily encourage the use of the types of biofuels with the best greenhouse gas savings.

Although the policy requires fuel suppliers to ensure that 5% of all UK fuels sold are from a renewable source by 2010, it does not contain a target to reduce greenhouse gas emissions. As a result, the report says, it will do more for economic development and energy security than combating climate change."

Benefits of biofuels

"The latest controversy over biofuels backs up Oxfam's report published last week. Profit, pressure from industry and farm subsidies show that there is more behind this enthusiasm for the crops than a desire to stop climate change.

If politicians want to reduce emissions and stop global warming, biofuels are not the solution. Recent research suggests that biofuels may increase greenhouse gas emissions rather than reduce them. And by pushing up demand for agricultural land, they're causing farming to expand into other areas that store carbon – such as wetlands and forests – releasing way more carbon than is saved through biofuels."

Time to put the brakes on biofuels

"Using plant-based materials for fuel in cars and trucks was until recently heralded as the answer to the need to reduce carbon emissions from petrol and diesel fuels.

But the alarm expressed yesterday by Professor Robert Watson, the government's highest-ranking environment scientist, that the headlong pursuit of biofuels could accelerate climate change, is the latest in a series of comments from senior figures that have shaken Whitehall.

Both Watson and the former chief scientific officer, Sir David King, have joined the chorus of those calling for a key "sustainability" clause to be introduced to ensure biofuels do not compound the problem by competing for land with staple food crops and speeding up deforestation.

Speaking on Radio 4's Today programme, Watson said: "It would obviously be insane if we had a policy to try and reduce greenhouse gas emissions through the use of biofuels that's actually leading to an increase in the greenhouse gases from biofuels."

The comments are controversial because the government has committed the UK from April 1 to ensuring that at least 2.5% of all petrol and diesel for vehicles comes from biofuels, with that figure moving up to 5% by 2010. Meanwhile, the EU is aiming for 10% of power for transport being provided by crops from 2020."

Source: Guardian

"The government's scheme to introduce biofuels as a way to cut carbon emissions from road transport has led to extra emissions equivalent to putting 500,000 more cars on UK roads, according to environmentalists.

A new study shows that producing the amount of biofuels required to meet the government's targets in the past year could have inadvertently doubled the overall emissions of CO2 compared with the standard fossil fuels they have replaced. The extra emissions come from forest destruction tied indirectly to growing energy crops.

Biofuels are, in theory, carbon neutral because they only release the carbon dioxide absorbed from the atmosphere by a plant as it grows. But many recent studies have suggested that the indirect effects of producing biofuels can have a negative overall impact.

In several parts of the world, for example, growing biofuel crops such as soy competes for land with food crops, which are then often displaced on to land that has been cleared of forests. A new analysis, carried out for Friends of the Earth (FoE) by environmental consultants Scott Wilson, has estimated the amount of CO2 emitted as a result of this deforestation.

The researchers calculated that the overall carbon cost of clearing forests for biofuels was equivalent to an extra 1.3m tonnes of CO2 emitted into the atmosphere since April last year. That was when the government's Renewable Transport Fuels Obligation (RTFO) was introduced, which mandated fuel suppliers to include at least 2.5% biofuel in their petrol or diesel. Today that requirement rises to 3.3%.

"Until ministers can do their sums properly and can prove that biofuels are actually saving emissions, they do need to put them on hold," said Nick Davies, a biofuels campaigner at FoE.

Soy crops from the US, Argentina and Brazil are used in the most common UK biodiesels and all contribute to the deforestation problem. The FoE study assumed that 10% of the food crops displaced by biofuels would be pushed on to land created by clearing forests.

The researchers allocated this additional land to various agricultural uses and calculated the resulting amount of extra emissions using established models. For example, clearing one hectare of the Amazonian rainforest can release up to 1,000 tonnes of CO2 into the atmosphere, according to the UN's Intergovernmental Panel on Climate Change.

The FoE's concerns were also raised in a government-sponsored review of biofuels published by Ed Gallagher last year. In the study, he recommended that the introduction of biofuels to the UK should be slowed until more effective controls were in place to prevent the inadvertent rise in greenhouse gas emissions caused if, for example, forests are cleared to make way for biofuel production.

Gallagher's report said that if these displacements are left unchecked, current targets for biofuel production could cause a global rise in greenhouse gas emissions and an increase in poverty in the poorest countries by 2020.

His main recommendation, accepted by the government at the time, was to slow down the introduction of the RTFO so that, starting from a base of 2.5% biofuel mixed into petrol and diesel in 2008-09, manufacturers had to increase the proportion by only 0.5% per year. He further added that anything beyond 5% biofuel after 2013-14 should only be agreed by governments if the fuels are demonstrated as sustainable, including avoiding indirect effects such as change in land use.

"Gallagher has slowed down the rate of increase but we don't think that's an adequate response," said Davies. "He raised some serious concerns and, at the moment, they're not being addressed."

A spokeswoman for the Department for Transport acknowledged that the evidence around biofuels was still evolving. "What is not in dispute is the need to develop new, cleaner fuels and break our dependence on oil if we are to tackle climate change," she said.

"Some biofuels have the potential to help us achieve this. So whilst there is no case for pushing forward indiscriminately on those that may do more harm than good, it would be foolish to ignore any potential they do have.

"We have always been clear that biofuels can only make a useful contribution to mitigating climate change if they are sustainably produced. That is why we commissioned an independent review and following its recommendation we agreed to continue to proceed but to do so more cautiously until we are clearer about their wider effects on the environment.

"We believe this strikes a balanced approach based on the best possible science and evidence as it currently stands."

Davies said that, instead of focusing on ramping up biofuels, the government should encourage more proven methods to reduce transport emissions. "They should be investing in first-class public transport systems and smarter cars that actually save on fuel, and more provision for cyclists and pedestrians.

"They are proven to work and don't have the negative side-effects in terms of raising food prices and chopping down the rainforest. We need to put the biofuels obligation on hold until they can show biofuels are actually saving emissions.""

Source: Guardian

Carbon Trading

Links

Letter in the FT

"The prices paid for permits to produce carbon under the European Union’s emissions trading scheme suffered precipitous falls last December and in the early part of this year, tumbling from about €30 (£27) last summer to €15 in December before a fresh plunge to only about €8 in mid-February."

FT article

"

Prices for EU permits are nearly €14 ($18.4), up from a low of about €8 in February. Traders have priced in the effects of the recession driving down industrial production, and companies have largely stopped selling off permits to raise cash.

But volumes in the other main part of the market, the trade in carbon credits issued by the United Nations – 9 per cent of the market by value – fell about a third.

Trading in this market has been affected by uncertainty over what will replace the Kyoto protocol. The UN issues credits to carbon-cutting projects under the protocol, and these can be used by companies in the EU scheme to top up quotas.

The stream of finance for such projects is drying up, according to New Carbon Finance: the last new carbon fund, of $95m, was set up last year and no new money was raised in the first quarter of 2009.

The company forecast the carbon market would be worth about $120bn by the end of the year, broadly on a par with last year."

Article in FT

Guy Turner, director of New Carbon Finance, said: "In spite of the recession, a decline in carbon prices and uncertainty over what will happen after 2012 [when the current provisions of the Kyoto protocol expire], traders are taking this market seriously and trading more actively."

The bulk of the international market - about 84 per cent by value - is the European Union's emissions trading scheme, under which energy-intensive companies are issued a quota of carbon permits they may trade with one another. Trading in this market rose by 54 per cent, compared with the last quarter of 2008.

But volumes in the other main part of the market, the trade in carbon credits issued by the United Nations - 9 per cent of the market by value - fell about a third"

FT article

The current low prices for carbon dioxide mean that the value of the market is likely to drop by nearly one-third, from €92bn ($117bn) last year to €63bn this year, according to Point Carbon, a market analysis group part-owned by financial and industrial interests.

Falling emissions, resulting from lower activity in the recession, mean that companies need fewer permits under the European Union’s emissions trading scheme, the biggest section of the carbon market.

Prices for permits have fallen precipitously in recent weeks, reaching a low of €8.20 before bouncing back to stand at just less than €10 on Tuesday.

Last summer, the permits traded at more than €20.

Carbon credits are also issued by the United Nations to development projects that aim to cut pollution, particularly from energy generation in developing countries.

These could include wind farms or solar power plants that cut greenhouse gas emissions.

FT Article

"

Brussels lambasted the US and Australia yesterday for their inaction in cutting carbon dioxide emissions and stressed Europe's leading role in the battle against global warming. "Only EU leadership can break this impasse on a global agreement [post-Kyoto] to overcome climate change," Stavros Dimas, the EU's environment commissioner, told scientists from the UN's intergovernmental panel on climate change. The body is due to publish a report this week in Brussels on the impact of global warming.

What Mr Dimas knew - but did not tell the scientists, apparently - is that the EU's programme for cutting carbon, its two-year-old emissions trading scheme (ETS), remains in disarray.

The Democrats, who are now the majority party in the US Congress, and California's Republican governor, Arnold Schwarzenegger, are drafting plans for an American version of the carbon "cap-and-trade" scheme.

However, preliminary data on the scheme's performance last year - its second year of operation - showed that 93%, or about 9,000 of the 10,000 heavy industrial plants covered by the EU's trading scheme, emitted less carbon than their quota of free permits. The resulting 1%-1.5% rise in emissions was not as great as in 2005 but the spot price of a tonne of carbon fell by about a quarter to €1 (68p), at one point collapsing to just 92 cents.

Only a handful of countries shored up the market by issuing fewer emissions quotas than industry wanted. These included: Britain - where Drax, Europe's biggest coal-fired power plant, emitted 5m tonnes more than its 15.5m tonnes permit - Denmark, Ireland, Italy and Spain. The trading mechanism is designed to create scarcity, forcing up the price of carbon and prompting industries such as steel and power generation to invest in cleaner, greener technologies, such as renewable, carbon-free energy and, eventually, carbon capture and storage. So far, it is manifestly not working as planned"

Read more in the Guardian

"

Asked by MPs on the committee whether the European Emissions Trading scheme was insufficient to meet these targets, Humphrey Cadoux-Hudson, managing director of new nuclear build at EDF, agreed. "As currently framed today that is the case. What is needed are rules that will create a market that will allow us to create low-carbon technology."

"The thing that drives the price of something is certainty. The recording and verification of emissions creates uncertainty, as does the entry of new countries into the system."

Cadoux-Hudson said market "rules" are required because putting a value on carbon was difficult. "It's not something you can dig out of the ground."

Carbon trading is the key mechanism for reducing emissions and is likely to be central to discussions at the UN climate change summit in Copenhagen later this year.

"It may be that Copenhagen gives us a ray of light that we can trust long term prices but we haven't seen that in a sustainable price – we need a price signal right across the EU," he said.

Lord Nicholas Stern, who wrote the UK government's 2006 Stern review into the economics of climate change, has said that carbon markets are an essential element of climate change mitigation policy. But he has called for a floor price to be set to stabilise the market. Others have been scathing about the market mechanism though. The environmentalist James Lovelock has referred to them as a "scam"."

Food prices debate

Soft commodities are hardening. Corn, wheat, cocoa and coffee prices have all risen strongly in recent months, suggesting consumers will face an extended period of more expensive food prices.

Can poorer farmers hope to benefit from the rising demand for food? How will the rise in global food prices affect consumers? And can the world continue to feed its expanding population?

Read the debate in the Financial Times here

Questions about food prices

Food prices are rising. Rice is just the latest staple to soar through record levels as increasing demand and lagging supply on global markets prompt exporters to restrict their sales to quell food price inflation at home.

Similar moves by major wheat and soyabean exporters announced earlier this year have helped keep prices near record levels, while record corn prices continue to be underpinned by rising demand from China and from the biofuels industry.

Are staple foods poised to reach luxury prices, or is the current surge in agricultural commodities a bubble waiting to burst?

Read more here

Food crisis and China

For the Group of Eight ministers of agriculture meeting for the first time on Saturday 9there will be no greater example of the dilemma faced in feeding a growing population than China.

The world's largest agricultural economy makes the ministers wary because of its huge and expanding food needs: but also curious at Beijing's success in weathering last year's global food crisis better than most emerging economies.

Ever since China entered its phase of high economic growth 30 years ago it has faced apocalyptic warnings that its increasing demand for food would lead to shortages worldwide.

By and large, these warnings have turned out to be wide of the mark.

Yet in spite of its success in coping with last year's crisis, Beijing still has to feed its population with limited fertile land, scarce water and the threat of climate change.

Given China's size, if these problems are not addressed they will have huge effects on global agricultural markets as Beijing will have to import large amounts of food, tightening markets and sending prices higher.

At a time of heightened concerns about food security, illustrated by the G8 meeting, Beijing's challenge is a concern both at home and beyond. The G8 has warned that, without a doubling of spending by 2050, the global food crisis "will become structural".

China's response to the global and domestic challenge has won praise.

Read more here

Food price drivers

"So was the great global food shortage and the agriculture supercycle all a mirage? Not so, says Richard Warburton, head of agribusiness at Bidwells, a specialist consultancy. “The main drivers remain pretty much intact,” he says, adding “there’s quite a lot of confusion over the impact of the financial crisis.”

The main drivers he refers to are population increases, dietary shift and the growth of biofuels. Only the dietary shift – increasing demand for meat as large numbers of people get richer – is likely to be affected by a global slowdown.

“There were vast numbers of people going through the two dollars a day barrier and starting to eat more meat,” says Mr Warburton. “That may slow, but not much.”

Read more here

Why are food prices rising?

Food prices have been rising steadily in the past few months and the effects are being felt globally. As agricultural commodities such as wheat and dairy trade at record highs, some governments, such as Russia, are implementing price controls on selected types of bread, cheese, milk, eggs and vegetable oil.

But why is food getting more expensive? What role do biofuels play and how has the weather affected crop yields this year? How does the cost of oil factor into the price of food?

More here from the excellent Financial Times

Japanese jitters and food security

"The Japanese government is drawing up plans to finance investments in agricultural production in developing countries, in the latest sign of nervousness about food security among countries that import agricultural commodities.

Tokyo is looking to identify regions that could benefit from Japanese investment and assistance to increase food production, according to the country’s agriculture ministry.

The investment plans are, nonetheless, of a different nature from those of countries such as South Korea and Saudi Arabia, which are investing in farmland in order to export back the crops to feed their own population. Tokyo is planning to sell crops on the global food market, according to experts and diplomats familiar with Japan’s agriculture policy.

Munemitsu Hirano, director for international trade policy negotiations at the Ministry of Agriculture, Forestry and Fisheries, said Japan might not be guaranteed stable food supplies as a result of its investment efforts. But he told the Financial Times: “If [food] production increases worldwide that will help Japan to import.”

Tokyo has long supported ventures into agriculture by Japan’s trading houses – particularly in soya bean production in Latin America after it was spooked by its large dependency on the US during the brief US soya bean embargo of 1973. Itochu and Marubeni, two of the country’s trading houses, have said in the past year they wanted to boost their agricultural production and have signed deals with China to supply Beijing with agricultural commodities, particularly soya."

Read more here

Food prices

The UN’s Food and Agriculture Organisation’s findings show that poor countries continue to suffer the impact of high food prices. The blow was now compounded by sharply lower economic growth and remittances, said food aid officials.

“The food crisis has not gone away. In fact, it is coming back,” said Christopher Delgado, a policy adviser in agriculture at the World Bank, at a recent conference, who justified its warning on high local prices.

Food aid officials attribute the disconnect between local and international food prices to time lags, poor harvests in developing countries and in some cases to the difficulties of importing agricultural commodities due to the lack of trade finance.

The FAO will unveil on Thursday a tool to monitor about 800 monthly domestic retail and wholesale prices of main foods consumed in 55 developing countries. Until now, information on local prices was patchy.

Food price inflation hits the poor hardest, as the share of food in their total expenditure is much higher than that of wealthier populations, according to the FAO. Food represents about 10-20 per cent of consumer spending in industrialised nations, but as much as 60-80 per cent in developing countries, many of which are net-food-importers.

Although the price of corn, wheat, rice and other food staples in international markets has tumbled between 60 and 40 per cent from the all-time highs of last year, local food prices in most sub-Saharan African countries are today higher than a year ago, the FAO data show.

Retail rice in Malawi was quoted at 210 kwacha ($1.50, €1.11, £1.05) a kilogram, almost double that of a year ago. In Zambia, white maize, the main staple, cost in local markets 28,185 kwacha ($4.97, €3.69, £3.48) per 20kg, up from 17,500 kwacha a year ago.

Read more here

Food prices

Argentina is the world’s second biggest exporter of agricultural commodities and sales of soya and corn are critical to importers such as China, who turn to Argentina and Brazil until US harvests become available.

The farmers were protesting at about 60 points in northern and central Argentina and have staged roadblocks, occasionally forcing truckers to dump loads.

Strike fears helped push soya prices in Chicago nearly 8 per cent higher last week. Wheat, corn and meat prices also rose.

“The stand-off between Argentine farmers and their government is worsening, threatening further drawdown of an already tight US soyabean carry over,” said Richard Feltes, head of commodities research at MF Global, a brokerage in Chicago.

The US Department of Agriculture sees US soyabean inventories falling this season to a five-year low of 5m tonnes, from 15.6m in 2006-07.

Though farming is Argentina’s top export earner, the country has become increasingly unreliable in world markets. Farmers have used halting of overseas sales as the main bargaining tool since the confrontation over export tariffs began a year ago, and the government at times bans corn, wheat and beef exports to protect local supplies and prices.

Farmers see the plan to share 30 per cent of the soya tariffs as a bid to buy the support of governors.

Read more here

Common Agricultural policy

To maintain price the government intervenes and buys up the excess supply of 20 units at £3 each, and stores the unsold produce. Intervention costs £3 x 20 units plus the cost of storage. This theory is behind the operation of the EU Common Agricultural Policy (CAP).

Note the impact of minimum price depends on:

The difference between the market and minimum price
The price elasticity of supply and demand for the product

Use elasticities to quantify effects. A similar diagram is used to illustrate the effect of EU wide minimum wage legislation. NB: Minimum price has no impact if the equilibrium price is higher than the minimum

Other points to note:

CAP has ensured adequate supplies but it has incentivised farmers to produce more
CAP is the single biggest item in the EU budget and is costly to administer
CAP is a significant obstacle to WTO negotiations to reduce world wide tariffs

The Common Agricultural Policy (CAP) encourages output maximisation. Farmers adopt intensive farming techniques which see traditional small holdings merged into large super fames with the loss of hedgerows and natural habitats for wild animals.

Agricultural economist, Jules Pretty (University of Essex) estimates that the annual external cost of intensive farming in the UK is £2.3 billion on an ex post basis for cleaning up pollution & repairing habitats.

The above is an extract from here. Click here to read the full post.

Food prices in Britain

"Shoppers in Camberwell, a short bus ride from Dulwich and among the most deprived wards in the country, also said food prices were increasing.

“I don’t eat as much meat as I used to because it is so expensive. At the end of the week, you think, ‘Oh crikey’,” said Becky Smith, 33, a student. “I have noticed prices have gone up a lot. I try to budget shop, but there are lots of queues and they have gotten longer in the last few months.”

Jane Taylor, 50, a housewife, agreed: “The main things I buy are mince meat, sausages and a joint for Sunday, and from the beginning of the year they went up.” She was unimpressed with supermarket discounts. “They try and con you in shops by saying they’ve got offers, but you’re still paying for it one way or another.”

Residents also complained that their utility and housing costs were rising.

“Electricity has gone up – you put £10 ($15) in the electricity meter and it’s gone immediately. Rents have also gone up, nothing has gone down,” said Charlie Adams, 22, who is unemployed.

Carol Fodili, 53, a childminder, said rents had risen: “The electricity and gas bills have also gone up, but they’re saying they’ll be reduced again in April.”

Teresa Brown, 52, a care worker living in social housing, said: “Apparently my rent from the council hasn’t gone up, but I think electricity has gone up a little bit.”

Read more here

US Food Stamp Aid Hits Record

"The number of US citizens receiving food stamps jumped in January to a record 32.2m, up 400,000 from December, the US government said on Thursday, in a sign that rising unemployment and persistently high food prices are hurting consumers.

The programme is the US’s biggest domestic anti-hunger scheme, providing about $112 (€83, £76) a month per recipient or about $250 per household to buy food.

In the last year alone, the number of recipients of food stamps has risen by 16 per cent, according to statistics from the US Department of Agriculture, which manages the scheme. Since 2000, the number has rocketed from 17m to more than 32.2m. The increase of 15.2m is equal to the population of the Netherlands.

The US spent $37.6bn on the scheme in 2008. As part of President Barack Obama’s economic stimulus package, those who received food stamps will see a 13 per cent increase in their monthly support in April – equal to about $80 per household.

The previous peak was reached in 1994, after the economic crisis of 1991-92, when the number of people on food stamps reached 27m."

Read more here

Diagrams to learn

Economic Integration and the Single Market
Trade creation from having free trade within a customs union
Trade diversion – impact of a tariff
Trade and the PPF, trade and economies of scale
Labour market diagrams
Competition within the single market – contestable market diagrams
Fiscal harmonisation – effects of different taxes incl. indirect taxes, Laffer curve

European Monetary Union
AD-AS analysis of external economic shocks, changes in interest rates
Economic cycle diagram, trend growth and the output gap
Optimal currency area illustration
Phillips Curve – changing relationship between inflation and unemployment
Supply and demand in the currency market
Economic effects of unemployment on the EU economy
Crowding out from high budget deficit (market for loanable funds)

Living standards
Lorenz Curve e.g. for showing income and wealth inequality

EU Enlargement
AD-AS effects arising from increased trade, foreign direct investment
Labour market diagrams related to migration flows, e.g. changes in labour supply
Diagrams to show changes in unemployment, natural rate, NAIRU etc

CAP and Fishing
Government intervention in farming markets e.g. price support, set aside, quotas
Environmental impact of farming and fishing – externalities diagrams
Supply and demand diagrams to illustrate changes in global food prices

Environmental policy and transport
Market failure diagrams including externalities from pollution and waste
Diagrams showing carbon trading markets
Diagrams showing the effects of carbon taxes and government subsidies

Competition policy inside the EU
Monopoly and economic welfare
Contestable markets
Price discrimination
Costs, prices, profits – economies and diseconomies of scale
Oligopoly – economics of collusion, cartel behaviour
Oligopoly – kinked demand curve
Game theory – Prisoner’s Dilemma example

Criticising the data for 2888

Data criticism

1/ Check to see the source of the data and when the data was published, you might be able to criticise it for being out of date, or perhaps for being incomplete (you might be able to suggest extra data that would give you a firmer basis for making reasoned conclusions).

2/ You are most likely to find a degree of bias within the written extracts even when the information appears to come from official sources.

3/ Don’t leave all of the data criticism to the end, it is best to spread it through your answer and integrate it into each section.

Data sources / reliability / bias

OECD: International economics organisation providing reliable data
IMF: Likewise – check to see whether the info is up to date or partial
Euro Stat: Official EU stats agency bound by law to provide accurate data
European Commission: Harder to judge, some statements from EU Commissioners will contain the “official EU view” on certain policy issues, e.g. you would expect the EU Commissioner for Enlargement to be (broadly speaking) in favour of continued enlargement of the EU

Economist: Opposed to tax harmonisation
Critical of the performance of the European Central Bank
Generally critical of the single European currency
Favour tax reductions / liberalisation of trade between countries
Suspicious of most government intervention (neo-liberal)

Migration-Watch Right wing group opposed to free flowing labour migration
Telegraph: Euro sceptic, opposed to UK joining Euro / tax harmonisation
Bruges Group Anti-EU pressure group, wants UK to leave the EU
The Times Euro sceptic especially on further integration / pushing for structural reforms to the European economy
Britain in Europe: Pro EU integration pressure group
Guardian /Observer Centre left, pro Europe normally, believes in active government intervention, but strongly in favour of reforms, especially to the CAP and to EU trade policies with developing countries

Adapted from here

Good enough to eat?

"When I heard peanut products were being contaminated earlier this year, I immediately thought of my seven-year-old daughter Sasha, who has peanut butter sandwiches for lunch probably three times a week,” he told the nation in one of his weekly addresses from the White House. “No parent should have to worry that their child is going to get sick from their lunch.”

Citing the “troubling trend” that had seen the average number of disease outbreaks due to food contamination rise to some 350 a year, up from just 100 or so in the early 1990s, Mr Obama announced he was setting up a working group on food safety made up of cabinet secretaries and senior officials. He also promised to overhaul America’s “underfunded and understaffed” Food and Drug Administration."

Read the rest here

Food price volatility

Why may food prices start rising again raising fresh fears of high food price inflation? The key is to understand the reactions of farmers to changes in prices and the decisions they make about whether to plant new crops on marginally productive land.

"If inflation comes roaring back, the first place many people feel the pinch may be in food prices. The cost of corn, soya and wheat has fallen sharply from the levels they reached last summer at the height of the commodity boom. But lower prices mean lower returns per acre, so farmers are cutting plantings of marginally productive land to maximise profits.

European farmers cut plantings of winter wheat 2 per cent this year. In the US, which supplies half the world’s corn and a fifth of its wheat, officials expect plantings of those crops to decline 1.2 per cent and 7 per cent respectively. The US Department of Agriculture says aggregate 2009 plantings of the eight biggest grains could fall the largest amount in 20 years.

This is precisely the set-up investors who worry about a rapid return of inflation fear: low prices lead to underinvestment and cuts in productive capacity. When the economy picks up, prices soar because suppliers – in this case, farms – cannot keep up with renewed demand.

Food prices might rise even in the absence of an economic recovery. Export stockpiles are tight. That has not been a big problem in recent years thanks to an unusually long spate of good weather. At some point, that lucky streak will end.

Such concerns help explain why food prices have not fallen as far as those of other commodities. Prices for corn, wheat, soya and rice have dropped nearly half from their 2008 peaks, but they are still trading at about double their average prices of the past 10 years. Corn, at $4 a bushel, costs the same as it did in 2007. Aluminium, by contrast, is trading at levels not seen since 2003. Natural gas prices have not been so low since 2002. Food prices are unlikely to fall into line with those of other commodities. Indeed, they may not have anywhere to go but up."

(1) How could you illustrate the process described above with supply and demand diagrams?

(2) Explain why price elasticity of demand and price elasticity of supply is relevant in explaining food price volatility

(3) What do you understand by the term ‘marginally productive land’?

Revision

When revising for the OCR 2888 Economics of Europe paper be sure to really focus on these areas.

Competitive markets and how they work
Different market structures
Economic efficiency within market structures
Market imperfections and market failure
Role of government intervention in markets
Macroeconomic performance of the economy
Processes and policies in macroeconomics
International trade and protection

these topics are covered by all students regardless of the module covered, for example, students taking either development or the UK economy cover international trade and protection

Economists have a particular way of looking at the world. They draw on a toolkit of concepts and techniques to help to analyse and evaluate problems and potential policy solutions. As John Maynard Keynes put it Economics is an attitude of mind, a technique of thinking which helps its possessor to draw the right conclusions

The highest marks in economics exams are reserved for students who think like economists ie who select the appropriate tool from the toolkit to analyse and evaluat.

Source: http://rapidrevision.co.uk/

Carbon trading

“When we emit greenhouse gases we damage the prospects for others and, unless appropriate policy is in place, we do not bear the costs of the damage. Markets then fail in the sense that their main co-ordinating mechanism – prices – give the wrong signals.”
Professor Nick Stern (Blueprint for a cleaner planet)

Revision on Carbon Trading:

Friday

Wednesday

Food prices to go up again, says report

Tuesday

Sunday

Population

Numbers, numbers, numbers

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