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.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.
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.
Great news for cows
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.
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?"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.
"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...
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.
Whoa
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.
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.
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
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.
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.
Fragiler-than-it-seems-Brazil, continued
I've worried before about whether Brazil's economic and political progress would falter if commodity prices swooned. Via MR, this FT article not only puts a number on that...
... it also calls out another worrisome trend, the explosion of consumer leverage.
Plug in 2005 commodity prices, for example, and Brazil’s $23bn trade surplus would become a $20bn deficit.
... it also calls out another worrisome trend, the explosion of consumer leverage.
Bank credit is now growing at a 20 per cent annual clip.With the real now at 1.57 vs. the dollar - higher than it ever got in 2008 - I am pondering whether now is the time to trim my Brazil investment exposure...
That has given Brazil’s economy an appearance of strength, but also risked stretching it thin. Typically, Brazilians now spend a quarter of disposable income on debt payments. At the height of the US credit boom, by contrast, American households spent about 15 per cent.
The line between trading and manipulation
Ah, the publicity that comes from an IPO...
This is OK and unsurprising...
This is OK and unsurprising...
Glencore made a speculative bet on rising wheat and corn prices in the early stages of last summer’s Russian drought, the world’s largest commodity trader has revealed ahead of its initial public offering that will value the company at $60bn.... but this is pretty sketchy:
As it bet on rising prices, senior traders at the Swiss-based company publicly urged Russia to impose a grain export ban... On August 3, Yury Ognev, head of Glencore’s Russian grain unit, encouraged Moscow to ban wheat exports, saying: “From our point of view the government has all the reasons to stop all exports.” His deputy made similar comments. At the time Glencore distanced itself from the comments, saying they represented Mr Ognev’s personal views. Russia imposed the ban on August 5, sending the price of the cereal more than 15 per cent higher in two days.As longtime readers know, I generally believe and document that speculation in commodity markets does more good than ill, but this type of lobbying for trade-reducing, volatility and uncertainty-enhancing measures makes me very uncomfortable, and will never be popular.
Resource primacy in African foreign investment
Interesting graphic on FDI in Africa from Afrographique (larger version at link):
Via Rachel Strohm, with the punch line:
Via Rachel Strohm, with the punch line:Investment levels seem strongly correlated with natural resources (no surprise there), but don’t appear to have much relation to the ease of doing business in a country. Nigeria, Sudan, Angola, and the Republic of Congo are all major oil exporters, even though of the 46 African countries the World Bank included in its 2011 Doing Business rankings*, they were respectively rated #17, 25, 31 and 40. Chad, at #46, had more investment than Botswana at #3. And Somalia, a failed state that didn’t even make it into the Doing Business rankings, had only a touch less investment than vaunted reformer Rwanda. Fascinating stuff.
Could U.S.-Brazil relations watershed survive commodity crash?
A very high percentage of "Event X was a true watershed" articles turn out to be crap, but this one on U.S.-Brazil relations (via MR) is pretty good. (Maybe because that narrative device is totally extraneous - this change has been coming for years and Obama's visit didn't actually change that much). Worth reading in full, but the punch line is:
Let me back up a bit to build up the logic. Brazil has historically been commodity-dependent...
The premise continues that Brazil has demonstrated a successful new model...
This is very much a preliminary perspective and I would welcome debate and pushback on it.
... the major strategic interests of the US and Brazil are so closely aligned that cooperation between the two countries will be one of the building blocks of the new century... [Brazil’s] its instinct for “order and progress” (the slogan appears on its flag) dovetails very closely with what the United States wants to see in the world.I agree except for a nagging doubt - with Brazil's economic ascendancy so dependent on commodities, how much of this unravels if resource scarcity isn't all it's cracked up to be and prices crash? After all, we've heard the same arguments before (ahem Paul Ehrlich).
Let me back up a bit to build up the logic. Brazil has historically been commodity-dependent...
In the 19th century Brazil was part of Britain’s ‘informal empire’; Britain was the dominant foreign investor in the country and Britain controlled the markets for the primary commodities (sugar, rubber, cotton, coffee) whose falling and rising prices set the tempo for Brazil’s growth. But the system seemed rigged in Britain’s favor; Brazil could never escape its role as a commodity producer — a hewer of wood and a drawer of water in the international community. Brazil did the backbreaking labor; Britain grew rich.... but isn't it still? I don't have the stats on hand about how much soy, iron ore, etc. etc. Brazil exports, but it's a lot; it's not clear to me that the economy has fundamentally transformed, rather than simply ridden the latest commodity wave on the way up.
The premise continues that Brazil has demonstrated a successful new model...
Lula’s Brazil stuck up for Venezuela at international gatherings and danced with it at parties. But all the while, Lula’s Brazil was destroying the political logic of the Bolivareans by demonstrating that a pluralistic democracy integrated into the global market can do more for the poor than incompetent populist blowhards. Chavez talked; Lula delivered(again, on the back of a commodity boom...)
What that means is that Brazilians, even those on the left like former president Lula, are now less inclined to think that Brazil needs to overturn the global economic system.I have lived in Brazil and I agree with this sentiment, and that "Brazilians have an immense capacity for hard and focused work." But in a world with lower commodity prices (and, again, I don't think this is the most likely scenario, but remember it's been less than 30 months since crude oil was in the low $30s), how will the Brazilian economy hold up, and if it falters, won't that popular support as well?
This is very much a preliminary perspective and I would welcome debate and pushback on it.
Ethanol fact(?) of the day
I hadn't heard this before, but a colleague told me today that 2/3 of the corn that goes into ethanol comes out in a form that can be used as animal feed (probably DDGS). If that's true, if we use 30% of our corn crop for ethanol it's more like 10% out of the food system, etc.
Issues with Howarth paper
Open season has opened on Robert Howarth's paper claiming that shale gas emits more GHGs than burning coal; I like CFR's Michael Levi's take:
Howarth’s basic question is an important one: what happens to the claimed emissions benefits of natural gas once you include the methane leaked in its production and transport? Alas, his analysis is based on extremely weak data, and also has a severe methodological flaw (plus some other questionable decisions), all of which means that his bottom line conclusions shouldn’t carry weight. But someone else, with better data and more careful calculations, ought to address this important set of questions that he raises properly.He cites four main issues; the first three are:
First, the data for leakage from well completions and pipelines, which is where he’s finding most of his methane leaks, is really bad.
Second, Howarth’s gas-to-coal comparisons are all done on a per energy unit basis... Here’s the thing: modern gas power generation technology is a lot more efficient than modern coal generation, so a gigajoule of gas produces a lot more electricity than a gigajoule of coal. The per kWh comparison is the correct one, but Howarth doesn’t do it. This is an unforgivable methodological flaw; correcting for it strongly tilts Howarth’s calculations back toward gas, even if you accept everything else he says.
Third, the problems with gas that Howarth flags have cheap technological fixes (green well completion techniques, better pipeline care), though there may be institutional barriers to implementing them. If we scale up gas and realize we have an emissions problem, there are things we can do. The only technological fix for coal, in contrast, is CCS, which isn’t commercial yet; if we decide we want to fix our coal problem, it’s not clear we have any options.The fourth is around the time horizon used - a 20-year horizon makes methane look worse than a 100-year horizon, because it decays much faster than CO2. This one is really more of a judgment call than a serious flaw in the paper (at least it is transparent). But well said, Michael Levi - you've earned your RSS feed entry into my closely guarded Google Reader.
What crop supply response looks like
Stealing the link and title wholesale from Michael Roberts:
When prices for corn and soybeans surged last fall, Bill Hammitt, a farmer in the fertile hill country of western Iowa, began to see the bulldozers come out, clearing steep hillsides of trees and pastureland to make way for more acres of the state’s staple crops. Now, as spring planting begins, with the chance of drenching rains, Mr. Hammitt worries that such steep ground is at high risk for soil erosion — a farmland scourge that feels as distant to most Americans as tales of the Dust Bowl and Woody Guthrie ballads.
Study says fracking emits GHGs
More ammunition for those who oppose the recent explosion of shale gas exploration and production (e.g. local environmentalists, coal companies):
Cornell University professors will soon publish research that concludes natural gas produced with a drilling method called “hydraulic fracturing” contributes to global warming as much as coal, or even more.
The study concludes that shale gas developed through fracking carries a higher greenhouse gas footprint because the “fugitive” methane emissions at the fracking sites are greater than releases from conventional gas wells.I'm not really in a position to evaluate the credibility of the study, although one might read into the fact that industry groups are pushing back on the study's assumptions about the GHG potency of methane (the range is fairly well-established), whereas I would have thought that the quality of measurement of "fugitive methane emissions" would have been much more suspect.
Commodity dependence of Brazil
The Globalizer, via MR:
This article on Lula, also via MR, is also worth reading - it starts:
When Lula won the presidency in 2002, Brazil’s main trading partners were the United States (25.5%), the Netherlands (5.3%), Germany (4.2%) and China (4.2%).Brazil is currently a darling of economic and political progress, but lots (most? >100%?) of the underlying growth has been driven by commodity exports, and that story has ended badly before.
Over the eight years, the U.S. share collapsed, while the Chinese share more than tripled. By 2009, Brazil’s main trading partners were China (13.2%), the United States (9.6%), Argentina (7.8%) and the Netherlands (5.0%).
The writing was on the wall. As long as demand in these two nations continued for commodities, Brazil will continue to grow — but if demand were to fall abruptly, the situation could get difficult.
This article on Lula, also via MR, is also worth reading - it starts:
... in democratic conditions, to be more popular at the close than at the outset of a prolonged period in office is rare. Rarer still – indeed, virtually unheard of – is for such popularity to reflect, not appeasement or moderation, but a radicalisation in government. Today, there is only one ruler in the world who can claim this achievement, the former worker who in January stepped down as president of Brazil, enjoying the approval of 80 per cent of its citizens. By any criterion, Luiz Inácio da Silva is the most successful politician of his time.
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