Poorest Billion Into New Poverty

Energy drives economy. Energy scarcity translates into higher costs of all goods and industrial overhead. The early-stage realities of Peak Oil are now beginning to manifest in all facets of commerce.

For over 50 years (since the beginning of the Green Revolution), agricultural production has relied increasingly on fossil oil to plant, water, fertilize, harvest, process, and transport. In just the last few months, Diesel fuel, the farmer’s lifeline (and thus eveyone’s lifeline), has broken the $4/gal barrier. Last night driving back from a screening of Craig Detweiler’s Purple State of Mind, we saw one station with Diesel at $4.45.

In many agricultural sectors, yield growth (which historically follows industrialized population growth) is not keeping up with demand growth. Farming yields are sharply down over the last two years. Those on the global margins, the “bottom of the pyramid,” are the hardest hit. According to an article in the current Economist,

World agriculture has entered a new, unsustainable and politically risky period… Food riots have erupted in countries all along the equator. In Haiti, protesters chanting “We’re hungry” forced the prime minister to resign; 24 people were killed in riots in Cameroon; Egypt’s president ordered the army to start baking bread; the Philippines made hoarding rice punishable by life imprisonment. “It’s an explosive situation and threatens political stability,” worries Jean-Louis Billon, president of Côte d’Ivoire’s chamber of commerce.

On a conservative estimate, food-price rises may reduce the spending power of the urban poor and country people who buy their own food by 20% (in some regions, prices are rising by far more). Just over 1 billion people live on $1 a day, the benchmark of absolute poverty; 1.5 billion live on $1 to $2 a day. Bob Zoellick, the president of the World Bank, reckons that food inflation could push at least 100m people into poverty, wiping out all the gains the poorest billion have made during almost a decade of economic growth.

The Economist makes no mention of raw energy in their analysis. Economists still believe that energy is an “external event” of global economics; that somehow, new, cheap, plentiful forms of energy will flood the market simply due to supply and demand. The economists are wrong – fossil energy is limited and becoming harder (more expensive) to find and extract. Moreover, for reasons outlined earlier in this journal, there are no magic energy sources (hydrogen, etc.) waiting to take its place.

Due largely to misguided policy human food grains are being increasingly diverted into cattle and energy production, hitting the poorest countries the hardest. Because of this mismanagement (along with other structural reasons), the cost of staple grain is inflating at historically unparalleled rates. Wheat costs alone rose 77% in 2007, and global rice prices have increased nearly 200% in just the last eight months.

Since 4Q06, rice has in fact tripled in cost and now sells for more than $1,000/ton, putting it farther out of reach for the global majority existing on $3/day or less. China, India, and other rapidly developing populations are demanding a larger share of the pie, against a backdrop of global energy (food) scarcity and rapidly inflating costs.

So far in 2008, inflation is higher than all of 2007. At this rate, food will double in price roughly every two years. U.S. rye flour stocks will be totally depleted in about 60 days. Some analysts are predicting corn shortages by Fall 08.

Food Shortages (i.e., energy demand – remember, this is primarily about energy) are starting to appear in otherwise prosperous countries. Even in the USA, bulk retailers like Costco and Sam’s Club are now rationing staples such as rice, wheat, and cooking oil.

Japan is experiencing their worst food crisis since WW2. From Business Day:

A 130% rise in the global cost of wheat in the past year — a 30% increase this month — has given rise to speculation that Japan, which relies on imports for 90% of its annual wheat consumption, is no longer on the brink of a food crisis, but has fallen off the cliff. According to one government poll, 80% of Japanese are frightened about what the future holds for their food supply.

Last week, as the prices of wheat and barley continued their relentless climb, the Japanese Government discovered it had exhausted its ¥230 billion ($A2.37 billion) budget for the grains with two months remaining. It was forced to call on an emergency ¥55 billion reserve to ensure it could continue feeding the nation.

“This was the first time the Government has had to take such drastic action since the war,” said Akio Shibata, an expert on food imports, who warned the Agriculture Ministry two years ago that Japan would have to cut back drastically on its sophisticated diet if it did not become more self-sufficient.

Observers of energy and population will take note that economies are cyclical, based on an unfathomable master equation filled with endless variables. But at the heart of the equation is found three simple rules:

  • Continued growth of global population
  • Rapid and widespread growth of global industrialization
  • Increasingly higher costs in finding and extracting fossil energy to support this growth

There is a point at which energy costs begin to limit industrial growth. We may have passed that point. U.S. economic growth in 2008 has already seen a 20% decrease in growth over 2007. Much of that is attributable to housing and credit, but energy costs are playing a growing role.

The good news is that economic incentives work. We are seeing, and will continue to see, higher demand for smaller cars. I anticipate non-hybrid, plug-in vehicles to proliferate by 2015-2020, with efficiencies of 50-100MPG (equiv).

But transportation efficiencies are only a fraction of our concerns. End of Suburbia author James Kunstler (recommended reading) outlines a few other must-do’s if we are to pass a rapidly industrializing world safely into the hands of future generations. Briefly, these include:

  • Increase local food production and distribution
  • Resurgence of rail, sea (sail), and public transportations
  • Small replacing large, glocal replacing global (energy, commerce, entertainment…)
  • Dramatic changes in architecture, scale of life, and economic expectations

You can state categorically that any enterprise now supersized is likely to fail — everything from the federal government to big corporations to huge institutions. If you can find a way to do something practical and useful on a smaller scale than it is currently being done, you are likely to have food in your cupboard and people who esteem you. An entire social infrastructure of voluntary associations, co-opted by the narcotic of television, needs to be reconstructed. Local institutions for care of the helpless will have to be organized. Local politics will be much more meaningful as state governments and federal agencies slide into complete impotence. Lots of jobs here for local heroes.

Quit wishing and start doing. The best way to feel hopeful about the future is to get off your ass and demonstrate to yourself that you are a capable, competent individual resolutely able to face new circumstances.

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