Decoupling of oil price and renewables

Geoff Styles has a post titled "Will $100 oil help renewables?", in which he argues the counterintuitive answer that, "no, not that much." Worth reading in full, but since I like to practice synthesis:

Today, gas predominantly sets the marginal price of power generation, and gas prices have decoupled from oil due to abundant shale gas supply. Transport is minimally electrified, so renewable power cannot yet substitute oil in that sphere. And prices for commodity input often rise along with oil, increasing renewable costs (a.k.a. the "receding horizon").

The first, I totally agree with. The second is broadly speaking true, although paths like CNG, gas-to-liquids and coal-to-liquids become economically viable with high oil prices and could re-strengthen the link between transport and electric power (as could increasing EV penetration over the longer term). The third is directionally true, but not absolute (and not entirely causal). Many second-gen biofuels use waste inputs which are not otherwise traded, so higher oil prices are an unmitigated boon for them. The prices of silicon and corn are often correlated with crude, but probably more because of overall economic growth than because crude drives their price. It will be interesting to see if corn starts to price off of its value as ethanol, as it did back in 2008. Not good for food security, if it does.

Watch the crush spread

Trying to chase down cause and effect in energy and resource markets can be frustrating - it is hard to follow a linear path to a new, coherent equilibrium. Take, for example, Geoff Styles' recent line of thought on the impact of Egyptian unrest on renewable energy.

... since the protests started on January 25, and without any actual disruption in oil deliveries, the price of UK Brent crude... has climbed by around $5 per barrel and now trades solidly above $100.

... [Ethanol and biodiesel] stand to gain if oil prices are driven up by factors that don't also push up the prices of the commodities from which they're made [emphasis mine].

That last bit is critical, and can't be taken for granted. In late 2008 ethanol was clearly the marginal use of corn and corn became priced off of its value in use as ethanol, squeezing margins despite high oil prices. If biofuels come back in a big way, this dynamic is likely to kick in (leading, incidentally, to even higher food prices, not good for most people).

The Christian case for fighting hunger

Roger Thurow, co-author of Enough, makes the Christian case for fighting hunger through agricultural development.

There's the political side of hunger and a policy prism. But there is this moral imperative to solving hunger. It's the right thing to do. Churches are extremely important for pushing the moral importance of the issue of hunger. It is something appreciated and understood in churches, since one of the main precepts of all religions is to feed the hungry. And for Christians, Matthew 25:35, there it is: "I was hungry and you gave me food … What you did to the least of these my brethren, you did unto me" (v. 40).

Bono referred to that passage when he was at Wheaton College on his Heart of America tour. Francis Pelekamoyo, the head of Opportunity International in Malawi, searched the Bible and wondered: What should I do after my years as central bank governor? That's the passage he kept coming back to. This is what we should do. This is what Jesus wants us to do.

Davos, world hunger and Felix Salmon

After a conversation with Dan Barber of Blue Hill Farm (a phenomenal restaurant, by the way), Felix Salmon is convinced that the Davos approach to solving world hunger is broken:

No one talked about creating relatively small and self-sufficient agricultural communities: the model is still very much that you sell your one crop for money, and then use that money to buy whatever other food you might need.

Here’s my comment in response:

Felix, I love that you posted on this, but I don’t think where you’re coming out is specific enough to the rural smallholder farming households who make up most of the world’s hungry. They are food-insecure because they can’t produce enough to feed their families and/or they don’t make enough money from selling their surplus crops to buy enough food to close the deficit. “Creating relatively small and self-sufficient agricultural communities” is a nice goal, but we can’t get there in poor countries without figuring out the “how” of improving smallholder productivity.

Staple crop monocultures for these smallholders aren’t necessarily as dumb as they might seem from afar. Which staple crop often varies according to local growing conditions (e.g., in Ethiopia, some regions grow mainly maize, others mainly wheat, teff, or sorghum). And if you’re struggling to grow enough to feed your family on your single hectare of land, focusing on the most productive staple crop – perhaps with a small plot of a cash crop like tomatoes or onions on the side – makes sense.

Agricultural innovation (like, say, flood-resistant rice or drought-tolerant corn, or yield- and sustainability-enhancing crop rotation techniques for that matter) is critical not so the developed world can produce more to ship to the developing world, but rather so poor farmers in developing world can produce enough food to feed themselves.

The power and persistence of democracy

FP has a list of the Top 100 Global Thinkers for 2009, which is interesting through. I enjoyed this description of #58 and one of my favorite economists, Amartya Sen:

Sen is that rarest of hybrids -- "the only recent or living economist who takes philosophy seriously," in the words of Martha Nussbaum (No. 93). Taking his cue from such diverse figures as Karl Marx and Adam Smith (whom he hails as an underappreciated moral philosopher), Sen earned a Nobel Prize in economics in 1998 for his groundbreaking insight: Food scarcity doesn't kill people; bad governments do. Central to his thinking is the concept of "capabilities" -- the idea that it is not just the distribution of resources in a society that matters, but the ability of its members to make informed choices about the use of those resources and to punish leaders who fail them. [emphasis mine]

Sen's emphasis on the power of democracy is interesting when juxtaposed with the career-establishing claim of #65, Francis Fukuyama, that the spread of liberal democracy is inevitable:

The foreign-policy world can be pretty cleanly split into two groups: those who passionately agree with "The End of History," and those who passionately disagree. Fukuyama's seminal work came out 20 years ago, but its central conclusion -- that liberal democracy will supplant other political ideologies as the dominant paradigm of the 21st century [emphasis mine] -- remains the crucial issue of the day. With Moscow and Beijing flexing their global muscles and the recession driving Western democracies inward, Fukuyama's thesis might seem in doubt, but he's still making the case. "I am still fairly confident that democratic systems are the only viable ones," he told Newsweek. This year, Fukuyama joined in debates about the future of Iran -- arguing, against conventional wisdom, that it may be possible for the Islamic Republic to "evolve towards a genuine rule-of-law democracy," even while allowing for continued strong clerical influence.

It's hard to win the debate over whether democracy will prevail (I suspect it will remain a debate for decades). One con argument that I enjoyed was made by #66 Robert Kagan in The Return of History and the End of Dreams, which basically opposes Fukuyama’s thesis (a point not captured by FP, which only notes that he “calls for the creation of a "league of democracies" to promote political liberalization and human rights globally”).

Personally, I'm skeptical of seemingly fatalistic or starry-eyed arguments that democracy will prevail, and I'm also skeptical of the dogmatic faith that liberal democracy is the only effective way to govern, particularly from an economic perspective (see: China).

300 well-chosen words on food

At the NYT Room for Debate on "Can biotech cure world hunger?", this is Michael Roberts:

• I don't think biotech crops are evil and could be a big help, especially in developing nations. But I think we'd be naive to think these will solve all the world's food problems going forward. Maybe they will but they probably won't.


• Good development policy, whatever that may be, is surely good food policy. In many ways food is too cheap relative to income in rich countries and too expensive relative to income in poor countries. Both problems are solved if incomes are more equal. Figuring out good development policy is, err..., much harder...


• I think a meat tax makes a lot of sense. Taxing meat would help to keep staple grains cheap and plentiful, which would help the poorest food-importing countries and probably improve health outcomes in rich countries. Some economists would probably cry foul. They might claim lump-sum transfers of cash would be a better way to deal with the underlying distributional issue. The problem is effective transfers to especially poor countries are very difficult. (Consider why those countries are poor in the first place.) Also, given our semi-public health care systems in rich countries, there could be negative externalities from meat consumption.


• Stop ethanol subsidies. These look really silly.


• Then there is that other externality we might want to tax or cap (CO2).

Enough (hunger)

I’m currently reading Enough: Why the World's Poorest Starve in an Age of Plenty, based on a trusted recommendation, and am finding it surprisingly substantive for a book written by two WSJ journalists. I’m about halfway through and will post more when I’m done, but two quick thoughts for now.

First, I had not appreciated at all the bizarre distortions created by the U.S. food aid system (aid is required to come from U.S. farms) and the “Iron Triangle” of farmers, shippers and charities which upholds is. The resistance to spending just 25% of food aid budget on locally produced food (which would be much more cost-effective) is astounding (it was quashed in Congress four years running from 2005-2008).

Second, everyone (Bono, Tony Blair, the authors, etc.) fixates on hunger in Africa specifically, but there are more undernourished people in South Asia than in Africa, and Africa has less than 30% of the billion undernourished people in the world. The lion’s share are in Asia (despite the Green Revolution!). So it’s good to keep that in perspective.

Update: Right, so apparently I posted on the latter less than two weeks ago, in response to an NYT article on the same topic.

Malnutrition worse in India than Africa

“India is an economic powerhouse and a nutritional weakling.”

This is from this NYT article on malnutrition in India; it is no surprise that malnutrition is prevalent, but this statistic surprised me:

India is often compared — and often compares itself — with China, but the fact is that as China became an economic powerhouse it greatly reduced malnutrition. In an all-fronts effort, China cut child malnutrition by two-thirds between 1990 and 2002. Today only 7 percent of Chinese children under age 5 are underweight, whereas the figure for India is 43 percent. Even in sub-Saharan Africa, which most people assume to have the direst poverty statistics, the average child-malnutrition rate is 28 percent.

I would not have guessed 50% worse than the average of Sub-Saharan Africa.

World Bank seems off on land grab

The World Bank has picked up the land grab issue, but taken a slightly bizarre tack:

Yet little attention has been paid to how these transactions are happening and whether the investors are following the same processes and procedures as normal land lease deals involving foreign individuals or companies.

It seems almost as if they are more worried about Westerners not getting equal access than about the welfare of the citizens of the landed countries. They get back toward this a little bit at the end, but as the World Bank I feel like the effect on country development should be their lead thought on this particular issue.

Food prices are a double-edged sword

Higher food prices are good for farmers and bad for poor consumers, particularly those who live on the edge of undernourishment. This is totally tautological, but the Michael Pollan/Vandana Shiva side of the food debate appears to ignore this frequently by decrying the low costs of industrial production as an unadulterated, obesity-causing evil.

As real food prices fall over the last half century, undernourishment as a proportion of world population was cut almost in half (22% to 13%), and then it spiked recently due largely to higher food prices.

That's all (but I expect to link back to this post frequently as this comes up all the time).

"Land grab" specifics

FP Passport picks up the IFPRI report on “Land Grabbing” by foreign investors in developing countries and asks the right question:

Is the investment good or bad for the recipient countries?

I think the FAO gets it broadly right in their own recent report ("Land Grab or Development Opportunity", published June 2009):

Increased investment may bring macro-level benefits (such as GDP growth and improved government revenues), and may create opportunities for economic development and livelihood improvement in rural areas.

But as governments or markets make land available to prospecting investors, large-scale land acquisitions may result in local people losing access to the resources on which they depend for their food security – particularly as some key recipient countries are themselves faced with food security challenges.

My only push is, can we make this more specific? (They probably do in their report - it is 130 pages long - but I haven't read it yet.)

Off the top of my head, one huge positive outcome would be major investment in transportation infrastructure like roads and rail to remote areas of Africa - transportation is a huge friction in the value chain and takes a big chunk out of the value many rural farmers can realize for their products. Private sector infrastructure investment would be nice, but most of these regions are not seen as stable enough to attract it in the short term; country governments lack the money, political will, and/or capability; and the new international food aid paradigm appears more focused on agricultural productivity and seems unlikely to devote major dollars to infrastructure. So if Saudi Arabia or China can build and pay for roads and rails, it will benefit many.

On the other hand, the food security concern is well-founded, particularly because it will bite at the exact same time the "land grabbers" are most determined to export the production (i.e., a food price crisis and market breakdown like 2007/8). Saudi Arabia did not buy 500,000 hectares in Tanzania for the 95% of the time when the grain they desire is readily available on the world food market; they bought the land for the 5% of the time when prices have spiked and trade barriers have risen. Unfortunately, this will be exactly when Tanzanians themselves have food security issues; in this sense, food security is a zero-sum game and the "land grab" investments are neo-colonial in the sense that they appropriate local resources for rich-country consumption in the circumstances where it matters most.

The new food aid paradigm

Last week, Secretary of Agriculture Tom Vilsack signaled a major shift in U.S. food aid policy from providing American-grown emergency food aid to investing in agricultural productivity in developing countries:

"It is a more comprehensive, holistic view of food security that focuses on the notion that we want to make food more available, we want to make it accessible and we want to make sure that it is properly used," Vilsack said in a speech to the Chicago Council on Global Affairs. "If we can help countries become more productive themselves then they will be in a better position to feed their own people," he said.

The World Bank was already moving in that direction. Then this week, the G8 followed suit:

The G8 countries will this week announce a “food security initiative”, committing more than $12bn for agricultural development over the next three years, in a move that signals a further shift from food aid to long-term investments in farming in the developing world.

In many ways this "teach a man to fish" approach is a welcome change (although not unprecedented - under none other than the recently much-discussed Robert McNamara, the World Bank made a major push into agriculture in the 1970s, with mixed results).

On the other hand, improved productivity alone cannot eliminate hunger - the UN Hunger Task Force estimates that only ~50% of the now more than 1 billion undernourished people in the world are smallholder farmers, with the remainder mostly rural landless or urban. Improved productivity can move the poorest smallholders from net food buyers to net sellers, but it is unlikely to have more than a marginal impact on world cereal prices, so social safety nets will remain an indispensable part of the food security equation until economic growth can raise incomes to the point where food becomes affordable to the rest.