Great news for cows

Rinderpest, a cattle disease that for centuries felled herds in Europe, Africa and Asia and caused periodic human famine, has been eradicated, veterinary epidemiologists announced this week.

Eradication is the Holy Grail of disease prevention and has been successful only once before. Smallpox, an equally devastating human scourge, was eradicated in 1980, proving it is possible to stamp out a microbe across the entire planet.
I always wonder how they prove eradication beyond a reasonable doubt. But nevertheless, a huge triumph. I spent some time last year with some folks who were instrumental in beginning this campaign back in the late 1980s/early 1990s - here is to them and their hard work over two decades.

Germany to phase out nuclear by 2022

This isn't the first time they've said this (the last was before the commodity boom), but
Germany will shut down all its nuclear plants by 2022, and eight reactors shut down after Japan's nuclear disaster in March won't be reactivated, the government announced Monday.
I'm generally bullish on nuclear power compared to other power sources (especially those which are currently baseload capable), so I'm sad to see this. And as a colleague of mine noted, the Russians must be grinning with glee that their geopolitical leverage and economic profits from natural gas will return with a vengeance.

Finite room for construction in China

China's explosive demand will finally drop from its stratospheric level, either because China's economic development falters or because China is finally totally covered over in cement.
That is Rick Bookstaber, a deeply thoughtful blogger on financial markets, in response to Jeremy Grantham's newsletter on "the mother of all paradigm shifts" (i.e., "Days of Abundant Resources and Falling Prices Are Over Forever"), which excited the likes of Cowen and Krugman.

Like Rick I am in the less apocalyptic camp, although for much prosaic reasons (he believes that eventually our resource consumption will decrease as we increasingly lead virtual lives and turn away from material consumption). As Tyler Cowen says, China cannot continue to invest 50% of its GDP forever. There is a long way to go for the world to catch up to rich-world consumption levels, but it also won't happen all at once (apply an optimistic GDP growth rate to your favorite sub-Saharan African country and you'll be shocked at how long it will take to get where China's income is today, even if everything goes well). Resource demand may not be curbed any time soon, but ultimately I have more faith in the power of prices and markets to change behavior than the doomsayers seem to.

A few responses to Prince Charles

I just read the transcript of Prince Charles' speech on sustainable agriculture in DC last week. There are a lot of good ideas, and a few areas in which I think more can be said.

Ag subsidies: I believe there’s a strong consensus across many individual issues and disciplines that American and European agricultural subsidies are wasteful and counter-productive. The challenge is a political one – there are about 20 farm states, and it’s very difficult to get things done legislatively in other areas (health care, immigration, climate change, you pick) without the support of at least some of that bipartisan group of 40 farm senators. It’s not a rich-world-only issue, too – here’s a year-old WSJ article (subscription required) on how difficult it has been to repeal fertilizer subsidies in India despite 40 years of trying, and recent fertilizer subsidies in Malawi have become a darling case study of country-led agricultural development proponents, despite criticism by the World Bank and others.

Scale: I think Prince Charles is too blasé about dismissing the benefits of scale for cost and efficiency of agricultural production. Cost is important not as much to you and me, but definitely to the urban slum-dweller in Cairo or Mumbai who spends 2/3 of his or her income on food. And efficiency is important for the environment – less yield per hectare of land means more land under cultivation, and since there’s not much unused cropland around the world, this results in degradation and cultivation of ecologically sensitive areas like the Amazon, the Sahel, Indonesia’s peat swamps, etc. If we can replicate current yields at scale using organic methods, that would be great, but the burden of proof is still on those who claim this can be done.

Local production: Another attractive idea that I think is easier to apply to ourselves (living in not only the richest but also one of the most agriculturally productive countries), but runs into difficulty when generalized across the world. There is a lot of upside in smallholder productivity in Sub-Saharan Africa, but in other regions that import food today – I’m thinking of mainly the Middle East and China – it would be very difficult for them to produce more food domestically without exactly the kind of unsustainable drawing down of natural capital that Prince Charles rightly warns against. If we want the most holistic and least naturally destructive agricultural system at a global level, it has to include a significant component of trade between the most fertile parts of the world and the less fertile but more populated parts (unfortunately the two don’t match).
To close, a photo I took from an airplane of pivot-irrigated wheat in the middle of the Egyptian desert, with water drawn unsustainably from the underlying aquifer (we do this in the American West, too). We Americans are very fortunate for the fertility as well as the economic prosperity of our country, and not all countries have the agro-ecological potential to feed themselves in a sustainable way.

Who funds mining in Afghanistan?

When he landed in Baghdad for a meeting with Iraq's oil minister, the minister asked, "What are you here for?"

"I'm here to make five new Iraqi billionaires every year for the next 10 years," Hannam said with a twinkle in his eyes. It was an effective icebreaker...
Remember Afghanistan's $1 trillion in mineral reserves? Meet the JP Morgan investment banker who is catalyzing financing for their development. Not very critical, but pretty interesting.

Feeding the world just got harder

Whoops, that would be 10 billion people, not 9. Africa is the big driver. I suspect this number could still move a lot. Economic growth will be a key determinant.


So apparently crude fell ~10% today. I've heard poor economic data, OPEC raising output limits and even "sudden realization of the impact of CNG and EVs" (not joking), but that is still a whopper of a one-day move.

Refining margins and crude price

Linking to a comment exchange with Geoff Styles in response to his recent post on the oil earnings backlash. My initial reaction was that it seemed like Geoff was implying that refining businesses are structurally short crude and therefore oil majors are not as long oil as we think they are.
I agree with you and Robert that the majors are price takers, and accusations of "gouging" are generally misguided, but it's misleading to imply that they are not way long crude price. High prices are great for upstream and generally passed through by refining (unless there's some evidence that refining margins shrink when crude prices rise?), so on net a clear plus for the integrated majors.
In brief, I ran a few quick correlations based on this refinery margin data, and came out with R squareds of approximately zero. This would indicate no consistent relationship (i.e. full price pass-through over time), although I recognize that the analysis is crude and I'd welcome any improvements or corrections.

Also keep in mind that while refining margins don't rise and fall with crude prices, it's a highly cyclical industry, and through-cycle returns are pretty thin. Not a place I'd want to be sinking a lot of capital right now, especially with lots of NOCs building refinery capacity for reasons often more related to jobs than pure financial returns.

Most shipped bulk commodities

One other factoid I found interesting in Prime Movers of Globalization was the relative volumes of the most shipped bulk commodities (besides crude and petroleum products, which dwarf them).
  • iron ore, ~800 million tons

  • coal, ~800 million tons

  • grain (I think including oilseeds as well), ~300 million tons

  • bauxite and alumina, ~80 million tons

  • phosphates, ~30 million tons
This might only be interesting for commodity nerds, but I thought the drop-off was impressive.

Book review: Starved for Science

Along with Prime Movers of Globalization, I bought and read Starved for Science: How Biotechnology Is Being Kept Out of Africa after Tyler Cowen recommended it (although a colleague also mentioned it earlier the same day – the two together were motive enough for me). The thesis is that the under-penetration of GMO crops in Africa is a travesty, ultimately caused by the post-colonial export of rich-country attitudes from Europe to Africa’s urban political elites, who are then reluctant to take the risk of allowing GMOs, despite the tremendous potential benefits.

Author Robert Paarlberg is aggressive, even polemical, but one can sense his deep passion and anger on the topic, and his ample supporting evidence is hard to argue with. A few of his strong points are that proving the absence of risk is impossible (and in practice a selectively enforced double standard in regulation); rich-country citizens do not object to pharmaceuticals produced through GMO pathways, perhaps because they provide tangible benefits to the majority of the population, whereas higher crop yields do not; and that the safety standards applied to GMOs in the African countries that don’t allow them (all but South Africa) wildly exceed the level of other food safety standards in those countries (something like 700,000 people are estimated to die from food poisoning in Africa every year, and millions are affected by hunger and malnutrition).

Worth a read to hear an uncompromising and well-informed exposition of the pro-GMO position; although I believe there are multiple, interdependent paths to improve smallholder farmer productivity, I found myself swayed by his arguments. I would be interested to hear a critical rebuttal from the other side, though.

Book review: Prime Movers of Globalization

Prime Movers of Globalization: The History and Impact of Diesel Engines and Gas Turbines by Vaclav Smil (who I love) was the first of two books recommended by Tyler Cowen that I devoured in the past ten days (only available in hard copy, so great for plane take-off and landing when the Kindle is forbidden). The book is technical but fascinating, and recommended; the rest of this post will be more of an attempt at synthesis for intellectual diary purposes rather than a critical review.
  • A very small number of prime movers have been used throughout human history: human and animal power since the Agricultural Revolution, sail, waterwheels and later windmills by the Middle Ages; and the steam turbine, the gasoline engine, the diesel engine and the gas turbine in the Industrial Age.

  • Diesel engines and gas turbines (a.k.a. jet engines) are markedly more efficient than the next-best technology for the critical-for-globalization applications of large-scale shipping and flight, respectively. Despite approaching technological asymptotes (the basic designs of Rudolf Diesel, Frank Whittle and Hans-Joachim Pabst von Ohain are still recognizable, and conversion of energy efficiency is near theoretical maxima), they’ve enjoyed “prime mover primacy” for half a century or more, and it’s not even close.

  • Nor are any likely replacements on the horizon, so we can predict with remarkable confidence that they will remain dominant for another half century or more. Their use will depend on fuel prices, so in a peak oil scenario it could diminish, but there’s not an alternative way to ship petroleum, ore, grains, and manufactured products from Brazil to China to America, etc.

  • Biofuels will never dent fossil fuel consumption by these prime movers. Biodiesel from palm oil has ~2x the land intensity of corn ethanol and ~4x that of sugarcane ethanol, and biodiesel from temperate crops is almost an order of magnitude worse. Supplying marine diesel demand from palm oil would require 1/3 of the land currently under cultivation globally for agriculture. Smil believes algae will never scale economically, although the supporting evidence for this is less clear.

  • Rudolf Diesel was a bit of a socialist and hoped the diesel engine would enable small industry to compete with large; as he grappled with late in his life, it instead enabled industry and trade on a hitherto unimagined scale, and whether the world is a happier place for this is hard to say.