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Friday, March 28, 2008

The Rice Crisis

Now things get serious. The grain shortage and rise in food prices has led poorer countries to impose some food export bans recently. China was one of the first. Now a bunch of rice-exporting countries have followed suit:
Rice prices jumped 30 per cent to an all-time high on Thursday, raising fears of fresh outbreaks of social unrest across Asia where the grain is a staple food for more than 2.5bn people.
...
These foreign sales restrictions have removed about a third of the rice traded in the international market.

“I have no idea how importing countries will get rice,” said Chookiat Ophaswongse, president of the Thai Rice Exporters Association. He forecast that prices would rise further.

The Philippines, the world’s largest buyer of the grain, said on Thursday it wanted to purchase 500,000 tonnes after it failed to buy a similar amount earlier this month.
This is a genuine disaster. Hungry people are always a disaster. India, Vietnam, Egypt and Cambodia are some of the countries participating. Rice prices have almost doubled this year. The Shrink gets it, although I'm darned if I can follow his psychological explanation. But regardless, messing with food production is not a road to world peace and prosperity. Europe, btw, set an official goal for use of biofuels at 10%. Here is an article about that last year (May 2007):
A year ago, this lush coastal field near Rome was filled with orderly rows of delicate durum wheat, used to make high quality Italian pasta. Today it overflows with rapeseed, a tall, gnarled weedlike plant bursting with coarse yellow flowers that has become a new manna for European farmers: rapeseed can be turned into biofuel.
...
In March, the European Commission, disappointed by the slow growth of the biofuels industry in Europe, approved a directive that included a "binding target" requiring member states to use 10 percent biofuel for transport by 2020 - the most ambitious and specific goal in the world.

Most EU states are currently far from achieving the target, and are introducing new incentives and subsidies to boost production.

As a result, bioenergy crops have now replaced food as the most profitable crop in a number European countries.
Because rice and other grains can be used interchangeably in some feeds, removing corn and wheat from the food market does place pressure on rice stocks. Organizations such as FAO started to warn about the results of bad biofuel policies last year, and now the Cassandras have proven to be accurate prophets. Much of US biofuel production is uneconomic, and the producers are dumping in Europe, so we have committed another round of malinvestment.

There is nothing worse for global political stability than this sort of a food crisis. It's also playing hell with the world economy. The negative trend is accelerating in Europe, where retail sales fell to contracting levels, but this type of inflation also cuts into the emerging consumer demand markets of the big Asian countries which were supposed to take up the slack in demand from the US and Europe.

Many have attributed US inflation to the Fed's monetary policy, but I believe that is largely wrong so far. The impact of food and fuel price increases causes relatively far more severe inflation (video) in countries that have been exporting to us. This shows up in their need to increase prices due to higher transport, production and labor costs. Cutting interest rates does not always lead to inflation (it didn't in the early 2000s), and raising interest rates doesn't always generate a decline in inflation. It especially doesn't when conditions are heavily and regressively inflationary in markets which export goods to you. See Japan's predicament.

Japan might be in a recession. Unemployment there rose and consumer demand remains weak. India is now projecting 2008 growth of around 8%, and the rupee is showing less strength.

Comments:
The Shrink gets it, although I'm darned if I can follow his psychological explanation

He's attributing the ethanol fiasco to some imaginary pathology of liberalism. However, it's a Bush administration policy, with clear benefits for agribusiness if no one else.

We ought to be trying new things in terms of conservation and sustainability and abandoning the failures quickly in order to move on to something better. I'm with Charlie Stross on this: you get better "green" technologies if you allow competitors and innovators to try to usher in a *better* tomorrow rather than regulate everyone down to a shack.
 
Anybody who wants to blame Bush had better be ready to explain how things will be better under a new republican administration. Anybody who just suddenly realized how silly it was to blame Bush and now wants to blame the republicans had better be ready to claim with a straight face that those policies will be changed under the democrats.

The US has cheap food, you want some you can pay in even cheaper dollars. The "demand" is just that currency makes for pricing power from producers without impacting the consumer.
 
Rob's got some darned good points there, Joy. Unfortunately this is CW run wild. I think SW is discussing the failure of the international community.

The IPCC pushed biofuels last year, igniting protests.
See the Summary for Policymakers, which includes such:
It is often more cost-effective to invest in end-use energy efficiency improvement than in increasing energy supply to satisfy demand for energy services. Efficiency improvement has a positive effect on energy security, local and regional air pollution abatement, and employment [4.2, 4.3, 6.5, 7.7, 11.3, 11.8].
• Renewable energy generally has a positive effect on energy security, employment and on air quality. Given costs relative to other supply options, renewable electricity, which accounted for 18% of the electricity supply in 2005, can have a 30-35% share of the total electricity supply in 2030 at carbon prices up to 50 US$/tCO2-eq [4.3, 4.4, 11.3, 11.6, 11.8].
 
Rob, I believe all of the current candidates are on board with the ethanol stuff.
 
Anybody who wants to blame Bush had better be ready to explain how things will be better under a new republican administration. Anybody who just suddenly realized how silly it was to blame Bush and now wants to blame the republicans had better be ready to claim with a straight face that those policies will be changed under the democrats.

Why?

No, seriously. Just because someone is to blame, doesn't mean nearly everyone else who seems to have a say *couldn't be*. However, picking one group ("liberals") and attributing it to some sort of in-group neurosis--as if it didn't have buy-in from a huge, even bipartisan, crowd, is fully obnoxious and I don't even want to spend 5 minutes to read the blogs of people who write like that, sorry. It's prejudice masquerading as armchair psychology, and fully condescending.

If the American people can't stand up and demand intelligent policy from our policymakers without being able to lob huge soft-money donations, then what do we do?
 
"picking one group ("liberals") and attributing it to some sort of in-group neurosis--as if it didn't have buy-in from a huge, even bipartisan, crowd, is fully obnoxious"

Who said it didn't have buy-in from a huge, bipartisan crowd? Shrinkwrapped didn't! And I subscribe to his perspective in identifying a causual element, and I know *I* believe it commands broad bipartisan support. Don't think because many Republicans support something it is not liberal!

This disaster is squarely attributable to the greenies and save-the-world-from-today's-environmental-disaster crowds, and the politicians that court them and associated votes and money.
 
It's not just a grain problem. I've also heard about cooking oil shortages in Asia because palm oil is being diverted to biodiesel production.
 
If we're talking worldwide (I think SW is), this seems to have been pushed by one segment and that segment is more toward what we call here in the States "liberal". In fairness (see my above link about the distress over last year's IPCC recs), a lot of environmental groups did point out the problem. Another UN group did.

If we're talking the States, biofuels have been pushed for quite a while and I think it is now the bipartisan CW. There are opposing voices on the left and the right.

The politics of the whole AGW/CO2 lobby are complicated and often are used as a shield for economic maneuvering.

The Dem party truly did use Bush's opposition to some of CO2 proposals as a political club. I think he was wrong to bend.

In Congress, we've had two successive Congresses headed by both parties who have signed on to it, and probably that is mostly political. Gotta stroke the farmers, especially in an election year.

I think the first ethanol subsidy occurred back in the 80's? Does anyone know for sure? This isn't brand new.

To me it seems that both parties are clinging to some shibboleths in an unreasoned manner, but in the US I do associate the Democratic party with a lot of unreasoned and passionate rhetoric about unproven science.

It's tempting to suspect that a lot of this - carbon credits, ethanol subsidies and the like - are really special interest programs.

There is such a dizzying array of claims about the real effects of carbon credits and biofuels that I don't know what to think about it.
 
First US Ethanol Subsidies in 1978: http://www.eia.doe.gov/kids/history/timelines/ethanol.html


Just another nice thing that Jimmy Carter did for us.
 
Screw the narcissistic myopia you folks are dealing in the worst sort of navel gazing in your 'Republican vs Democrat' blather...MoM you are flying blind if you think the current administration is not fundamentally hostile to reason based inquiry (not that that is unique to them by any means, rather a question of degree).

The real story is the confluence of this rice 'crunch' with the spread of wheat stem rust:
"A new and virulent wheat fungus, previously found in East Africa and Yemen, has moved to major wheat growing areas in Iran, reports the UN's Food and Agricultural Organization. The fungus is capable of wreaking havoc to wheat production by destroying entire fields.

Countries east of Iran, like Afghanistan, India, Pakistan, Turkmenistan, Uzbekistan and Kazakhstan, all major wheat producers, are most threatened by the fungus and should be on high alert, FAO said."


http://www.sciencedaily.com/releases/2008/03/080317091046.htm
 
"Screw the narcissistic myopia you folks are dealing in the worst sort of navel gazing in your 'Republican vs Democrat' blather...MoM you are flying blind if you think the current administration is not fundamentally hostile to reason based inquiry"

Good grief. Sounds like somebody watches too much CNN and PBS.
 
Nope, just a fan of the reality based community.
 
Energyecon, why don't you give specific examples instead of making such assertions? Better yet, why don't you give examples appropriate to this issue?

Liberal/Conservative/Libertarian politics doesn't split neatly into Dem/GOP dividing lines, and this is way more than just a US issue.

As for the wheat rust, yeah, so what is the relevance here? The wheat rust is not causing the overall grain shortage and has nothing to do with the rice crisis or corn costs induced by the corn-based ethanol program.

I have to tell you that I have formed a huge aversion to the phrase "reality-based community", because I most often run into that in the context of extreme irrationality conjoined with stump-preacher like fervor. I am not accusing you of being one of those people, but please debate issues rather than party names.

This nah-nah-nah stuff is getting us nowhere.

And by the way, I take the CO2 issue seriously, and would like to explore ways to meaningfully address it. But the CO2 lobby has engaged in a range of unscientific behavior combined with severe public pressure in such a way as to make itself look like some sort of end-of-the-world cult. I pity the serious climate scientists.
 
Relevance:

MoM post: "Because rice and other grains can be used interchangeably in some feeds, removing corn and wheat from the food market does place pressure on rice stocks."

While you are focused on biofuels as creating price pressure, I find it curious you fail to see linkage with the wheat rust, which is about to create a significant shock by impairing wheat production - given that your post explicitly links rice prices and the wheat supply.

nah-nah-nah: I was calling BS on all the partisan/ideological and USA-centric focus of the commentary. We are in complete agreement regarding the global scope of the issue. Ironically, the behavior you ascribe to "the reality based community" fits another group to a T. Let's take a pass on that label and go with 'reason based inquiry.'

Also, I did not give any group a pass or indulge in partisan one-ups-manship, rather I called a spade a spade. Go back to my comment "MoM you are flying blind if you think the current administration is not fundamentally hostile to reason based inquiry (not that that is unique to them by any means, rather a question of degree)." How is that a my side is better than your side?

The ethanol program in the USA is purely a special interest feedbag, corn based ethanol is a horrible malinvestment (again, complete agreement). Look to Brazil to see current generation ethanol technology done reasonably well.

The larger points:

1. This is global
2. Food price increases of this magnitude promote political instability
3. The "name and blame game" is a waste of time (though the primary focus of some commenters)
4. Current ethanol policy in the USA contributes to the price problem and is a malinvestment
5. Politically, nobody gets a pass.
 
I love your point 5. I agree that the problem is very extensive. But in terms of US policy, we need to focus on what we can do (or what we shouldn't). Given the economic situation in Indonesia, I doubt very much that the world should be trying to tell them what to do.

Complete agreement on the corn-based ethanol. It particularly bothers me that we've had a Republican-led congress and a Democrat-led congress sign on to this idea successively. We've got no real debate going on.

Yes, the rust is a problem, but harvests are always variable around the world due to disease, drought, floods (a lot of Arkansas crops just got wiped out). I think the major problem is that a lot of the biofuel debate assumed that we'd always have a stable food supply, which was economically a deranged assumption. Farmers are going to plant what they can make the most money on.

How was my original post US-centric?

I am extremely concerned that the carbon debate is being subverted into a closet protectionist debate. The insanity of instituting a carbon proxy for Hoot-Smawley at this stage in the game terrifies me.
 
Sorry if my remarks conflated the comments from the original post - I will be clearer in the future - in my nah^3 section I was insufficiently clear about that.

Maybe I am overly concerned, but I think the rust thing is going to be a problem in a very big way given the state of global food supply and stores.

See you upthread on the carbon concept! :-)
 
Both H5N1 and rust are hitting some of these countries hard.

We have left ourselves in a situation in which we urgently need some good harvests!
 
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