Monday, 17 December 2007

The Many And The FEW

One of the ideas that I can take away from 2007 is that many of our future problems are likely to be caused by the FEW – Food, Energy, and Water issues. Thanks to David Harries for giving me this idea at the WFS Conference in Minneapolis. Over recent months, I have been pondering upon this a lot. However, it is in recent weeks that the whole matter has come into sharp focus.

The Economist recently ran a briefing on the end of cheap food (see briefing). The argument has it that one solution to our current energy woes is bio-ethanol derived from corn. However, the tightening of the corn market is pushing up food prices around the world, which is, in turn, stretching global water resources to grow the corn. Interestingly, the theme was taken up in the US. For example, the Washington Post took up the review from The Economist to develop the argument (see article).

I see this as interesting at two levels. First, the level of public debate is starting to become joined up. We are starting to acknowledge that solutions in one area (the need for diversification from fossil fuels) can have an adverse effect in other areas (global hunger from rising food prices and falling aquifers from excessive water extraction). There is plenty of scope for the law of unintended consequences to come into play here.

The second point of interest is that we are now seeing exchange rates (rates of equivalence) being established. For example, the use of an SUV on corn derived ethanol in the US for a month uses the same amount of corn that it would take to feed a family in Africa for a year. Additionally, at current prices, every gallon of corn derived biodiesel bought at the pumps in the US is being subsidised by the US taxpayer to the tune of $1.98 (the cost to the consumer is $3.20). To make things completely ironic, US citizens are then being asked to contribute 1% of GDP to combat world poverty, which the subsidies helped to create in the first place.

Just because the debate has become joined up does not mean that the system has become any more sensible. We are also in danger of being unfair to the US. The EU system of farm subsidies has exactly the same impact on global poverty as the US system. What is important is that we are now able to chart the linkages in a rudimentary model.

As a reality check, we sampled the Predictify web site on food and oil price movements over 2008. We asked which commodity would have the greatest price inflation in 2008, food or oil (see results). 59% of the respondents said that food would see the fastest price growth; whilst 38% of the respondents said that oil would see the fastest price growth (3% said that they would be the same). This is interesting, as both commodities are now at historic highs. If the price level of one or the other rises significantly in the coming year, then we are entering previously uncharted territory.

How is that likely to affect our behaviour?

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