Archive for June 2011
From ‘India and the Global Financial Crisis What Have We Learnt?’, by Dr Duvvuri Subbarao, Governor, Reserve Bank of India, as the K R Narayanan Oration, at the South Asia Research Centre of the Australian National University, Canberra on June 23, 2011.
A few months into the crisis [the 2008-09 financial crisis], the Queen happened to be at the London School of Economics and asked a perfectly sensible question: ‘how come none of the economists saw the crisis coming’. The Queen’s question resonated with people around the world who felt that they had been let down by economics and economists. As economists saw their profession discredited and their reputations dented, the economic crisis soon turned into a crisis in economics.
What went wrong with economics? It now seems that by far the most egregious fault of economics, one that led it astray, has been to project it like an exact science. The charge is that economists suffered from ‘physics envy’ which led them to formulate elegant theories and models – using sophisticated mathematics with impressive quantitative finesse – deluding themselves and the world at large that their models have more exactitude than they actually did.
Admittedly, in a limited sense there may be some parallels between economics and physics. But similarity in a few laws does not mean similarity in the basic nature of the academic discipline. The fundamental difference between physics and economics is that physics deals with the physical universe which is governed by immutable laws, beyond the pale of human behaviour. Economics, in contrast, is a social science whose laws are influenced by human behaviour. Simply put, I cannot change the mass of an electron no matter how I behave but I can change the price of a derivative by my behaviour.
The laws of physics are universal in space and time. The laws of economics are very much a function of the context. Going back to the earlier example, the mass of an electron does not change whether we are in the world of Newton or of Einstein. But in the world of economics, how firms, households and governments behave is altered by the reigning economic ideology of the time. To give another example, there is nothing absolute, for example, about savings being equal to investment or supply equalling demand as maintained by classical economics but there is something absolute about energy lost being equal to energy gained as enunciated by classical physics.
In natural sciences, progress is a two way street. It can run from empirical findings to theory or the other way round. The famous Michelson-Morley experiment that found that the velocity of light is constant led to the theory of relativity – an example of progression from practice to theory. In the reverse direction, the ferocious search now under way for the Higgs Boson – the God particle – which has been predicted by quantum theory is an example of traversing from theory to practice. In economics, on the other hand, where the human dimension is paramount, the progression has necessarily to be one way, from empirical finding to theory. There is a joke that if something works in practice, economists run to see if it works in theory. Actually, I don’t see the joke; that is indeed the way it should be.
Karl Popper, by far the most influential philosopher of science of the twentieth century, propounded that a good theory is one that gives rise to falsifiable hypotheses. By this measure, Einstein’s General Theory was a good theory as it led to the hypothesis about the curvature of space under the force of gravity which indeed was verified by scientists from observations made during a solar eclipse from the West African islands of Sao Tome and Principe. Economics on the other hand cannot stand the scrutiny of the falsifiable hypothesis test since empirical results in economics are a function of the context.
The short point is that economics cannot lay claim to the immutability, universality, precision and exactitude of physics. Take the recent financial crisis. It is not as if no one saw the pressures building up. There were a respectable number of economists who warned of the perilous consequences of the build-up of global imbalances, said that this was simply unsustainable and predicted a currency collapse. In the event, we did have the system imploding but not as a currency collapse but as a melt down of the financial system.
We will be better able to safeguard financial stability both at global and national levels if we remember that economics is a social science and real world outcomes are influenced at a fundamental level by human behaviour.
Under the presidency of France, the G20 called a meeting of its member countries’ agriculture ministers to consider the food production and food price problems. They have releaed a “ministerial declaration”. This declaration is being called a “renewed commitment” to tackling hunger by part of the financial media, or is being called “weak” and a mere restating of positions by the more critical, or is being called an empty document full of vague promises and no reform by some activists.
In fact, it is a strong statement alright. It supports the current model of agri-business, of international investment in arable land, it supports the operations of the global agriculture commodity markets and trading systems, and it ensures that the flows of finance and capital between the world’s financial markets and the commodity markets will continue with less restrictions rather than more control.
All this is done in the name of small farmers and poor consumers. They have talked about a new global agriculture market information system (Amis) so that governments can share better data about the state of food stocks and global production. This is nonsense – it is the bankers, food traders, commodity funds, retail food industry and foodgrain exporters who will use this new knowledge and data. They imply that the Food and Agriculture Organisation (FAO) will run the Amis and they will exploit the new data. Private sector players, such as the large grain traders for whom knowledge of stocks and harvests represent a key competitive advantage, are simply ‘urged’ to participate – they will, at a profit which further loots the urban and rural poor.
There are five main objectives the G20 ministers made commitments to. However, like earlier inter-governmental statements over the last few years concerning agricultural production and access to food, it’s always safer I find to consider what is being meant here.
If we look at the five objectives and take the first:
“i. improve agricultural production and productivity both in the short and long term in order to respond to a growing demand for agricultural commodities”
There is a growing demand for “agricultural commodities”. So investment and research and trade arrangements and enabling policy are to be deployed to help fulfil this kind of demand?
“ii. increase market information and transparency in order to better anchor expectations from governments and economic operators”
Do governments and “economic operators” (what are these? food traders? commodity funds? integrated retailers?) have the same kinds of expectations? Is better “market information and transparency” to benefit only government and “operators” or do food producers and consumers also require them?
“iii. strengthen international policy coordination in order to enhance confidence in international markets and to prevent and respond to food market crises more efficiently”
Confidence in international markets may be a concern for governments and economic operators, but in what way are they essential for food producers and consumers, who have since late 2007 suffered through price spikes amplified by these same international markets? The implication here is that responses to “food market crises” can be provided by – among other measures such as policy direction – these markets, which I find troublesome especially given the evidence since 2007.
“iv. improve and develop risk management tools for governments, firms and farmers in order to build capacity to manage and mitigate the risks associated with food price volatility, in particular in the poorest countries”
What are these risk management tools? Are they commodity hedge funds? Are they trading agreement? Are they bilateral agreements and FTAs? Are they commodities exchanges? Who will wield these tools? In poor and the poorest countries farmers have little or no capacity to manage and mitigate existing risk – they surely cannot bear the additional risks brought about by price volatility, but in what way will these tools help and function?
“v. improve the functioning of agricultural commodities’ derivatives markets.”
To what end? Agricultural commodities derivatives markets tie up crop production and food-in-stock, but for whom do they do this? If the functioning of these markets is to be “improved”, who will benefit from this improvement? Will it be the smallholder farmer and if so in what way? How many farmers of the South are directly connected to the agricultural commodities derivatives markets as beneficiaries? Are consumer coops connected?
These are some questions that come to mind when reading these five objectives. I see that Sarkozy has stated, “”We all know that agricultural production is insufficient to meet demand”. This may be so, for certain crops in certain regions, but against the background of these five objectives, I have to question: demand from whom or what and to what end?
Here are a few sentences from paras 18 and 19 of the ‘ministerial declaration’:
“18. We commit to creating an enabling environment to encourage and increase public and private investment in agriculture. In particular, we stress the need to support public-private partnership on investments, based on a value-chain approach, for services (such as access to financial services, agricultural education and extension services), and for infrastructure and equipment for production (such as irrigation), for agroprocessing, for access to markets (such as transport, storage, communication) and for reducing pre and post-harvest losses.”
“19. We encourage countries, international organizations and the private sector to increase investment in developing countries agriculture, and in activities strongly linked to agricultural productivity growth, food security and generation of income in rural areas, such as agricultural institutions, extension services, cooperatives, research, roads, ports, cold chain, power, storage, irrigation systems, information and communication technology, climate change mitigation and adaptation. We also encourage them to enhance public-private partnerships in this field, in particular to improve market and value-chain operators’ cooperation and procurement from smallholders.”
This is a direct and unambiguous call for greater industrialisation of agriculture, for the strengthening of the tools of globalisation that have given rise to the agri commodity markets and products like derivatives, for the intensification of corporate R&D in agbiotech and with the support of national agricultural reseach systems in various countries – and at the likely cost of traditional knowledge and ecological approaches to cultivation. This sounds to me like an unambiguous statement of support for the food trading and food retail industries and their vast ‘verticals’ (as they call the integrative links these days), and finally for the systems of finance and banking that undergird the globalisation of food.
The Special Report on Renewable Energy Sources and Climate Change Mitigation (SRREN), agreed and released by the Intergovernmental Panel on Climate Change (IPCC) on 09 May 2011, has assessed existing literature on the future potential of renewable energy for the mitigation of climate change. It covers the six most important renewable energy technologies, as well as their integration into present and future energy systems. It also takes into consideration the environmental and social consequences associated with these technologies, the cost and strategies to overcome technical as well as non-technical obstacles to their application and diffusion.
The chapters are dense, but there is a Summary for Policy Makers which provides an overview of the SRREN. It summarises the essential findings concerning the report`s analysis of literature on and experiences with the scientific, technological, environmental, economic and social aspects of the contribution of six renewable energy sources to the mitigation of climate change.
The IPCC has said that on a global basis, it is estimated that renewable energy accounted for 12.9% of the total 492 Exajoules (EJ) of primary energy supply in 2008. The largest RE contributor was biomass (10.2%), with the majority (roughly 60%) being traditional biomass used in cooking and heating applications in developing countries but with rapidly increasing use of modern biomass as well.
Hydropower represented 2.3%, whereas other RE sources accounted for 0.4%. In 2008, RE contributed approximately 19% of global electricity supply (16% hydropower, 3% other RE) and biofuels contributed 2% of global road transport fuel supply. Traditional biomass (17%), modern biomass (8%), solar thermal and geothermal energy (2%) together fuelled 27% of the total global demand for heat. The contribution of RE to primary energy supply varies substantially by country and region.
Deployment of RE has been increasing rapidly in recent years. Various types of government policies, the declining cost of many RE technologies, changes in the prices of fossil fuels, an increase of energy demand and other factors have encouraged the continuing increase in the use of RE.
Despite global financial challenges, RE capacity continued to grow rapidly in 2009 compared to the cumulative installed capacity from the previous year, including wind power (32% increase, 38 Gigawatts (GW) added), hydropower (3%, 31 GW added), grid-connected photovoltaics (53%, 7.5 GW added), geothermal power (4%, 0.4 GW added), and solar hot water/heating (21%, 31 GWth added). Biofuels accounted for 2% of global road transport fuel demand in 2008 and nearly 3% in 2009. The annual production of ethanol increased to 1.6 EJ (76 billion litres) by the end of 2009 and biodiesel to 0.6 EJ (17 billion litres).
Of the approximate 300 GW of new electricity generating capacity added globally over the two-year period from 2008 to 2009, 140 GW came from RE additions. Collectively, developing countries host 53% of global RE electricity generation capacity. At the end of 2009, the use of RE in hot water/heating markets included modern biomass (270 GWth), solar (180 GWth), and geothermal (60 GWth). The use of decentralized RE (excluding traditional biomass) in meeting rural energy needs at the household or village level has also increased, including hydropower stations, various modern biomass options, PV, wind or hybrid systems that combine multiple technologies.
Climate change will have impacts on the size and geographic distribution of the technical potential for RE sources, but research into the magnitude of these possible effects is nascent. Because RE sources are, in many cases, dependent on the climate, global climate change will affect the RE resource base, though the precise nature and magnitude of these impacts is uncertain. The future technical potential for bioenergy could be influenced by climate change through impacts on biomass production such as altered soil conditions, precipitation, crop productivity and other factors. The overall impact of a global mean temperature change of less than 2°C on the technical potential of bioenergy is expected to be relatively small on a global basis. However, considerable regional differences could be expected and uncertainties are larger and more difficult to assess compared to other RE options due to the large number of feedback mechanisms involved.
For solar energy, though climate change is expected to influence the distribution and variability of cloud cover, the impact of these changes on overall technical potential is expected to be small. For hydropower the overall impacts on the global technical potential is expected to be slightly positive. However, results also indicate the possibility of substantial variations across regions and even within countries. Research to date suggests that climate change is not expected to greatly impact the global technical potential for wind energy development but changes in the regional distribution of the wind energy resource may be expected. Climate change is not anticipated to have significant impacts on the size or geographic distribution of geothermal or ocean energy resources.
The levelized cost of energy for many RE technologies is currently higher than existing energy prices, though in various settings RE is already economically competitive. Ranges of recent levelized costs of energy for selected commercially available RE technologies are wide, depending on a number of factors including, but not limited to, technology characteristics, regional variations in cost and performance, and differing discount rates. Some RE technologies are broadly competitive with existing market energy prices.
Many of the other RE technologies can provide competitive energy services in certain circumstances, for example, in regions with favourable resource conditions or that lack the infrastructure for other low-cost energy supplies. In most regions of the world, policy measures are still required to ensure rapid deployment of many RE sources. Monetising the external costs of energy supply would improve the relative competitiveness of RE. The same applies if market prices increase due to other reasons. The levelized cost of energy for a technology is not the sole determinant of its value or economic competitiveness. The attractiveness of a specific energy supply option depends also on broader economic as well as environmental and social aspects, and the contribution that the technology provides to meeting specific energy services (e.g., peak electricity demands) or imposes in the form of ancillary costs on the energy system (e.g., the costs of integration).
India’s meteorological department has issued its second long range forecast for the 2011 monsoon and has lowered its estimate. Rainfall will be 95% of the 50-year average in the June-September season, which are the monsoon months. In April, the Indian Meteorological Department predicted a monsoon that would be 98% of the long-term average. Normal precipitation is considered to be 96%-104% percent of the long-term average.
India’s agriculture-dependent population has been hoping for adequate rainfall to harvest good quantities of foodgrain and lentils for a second year and bring down inflation, which has led the Reserve Bank of India – the central bank – to raise rates for a 10th time in 15 months. Agriculture accounts for 14% of the economy and a reduced harvest can further lower rural incomes and send food inflation higher than it already is. Inflation in India is the highest among Asia’s major economies.
Bloomberg reported that the wholesale price index in India accelerated 9.06% in May after having increased 8.66% a month earlier, according to official data released on June 14. An index measuring wholesale prices of farm products including milk and lentils rose 8.96% in the week ended June 4 from a year earlier, according to the commerce ministry. India imported record quantities of sugar, lentils and oilseeds in 2009 following the weakest monsoon that year since 1972.
The IMD’s ‘long period’ is 1951-2000 and the department considers probabilities for the country (all-India) and four major regions: north-west India, central India, north-east India and south peninsula. “Over the four broad geographical regions of the country, rainfall for the 2011 Southwest Monsoon Season is likely to be 97% of its LPA over North-West India, 95% of its LPA over North-East India, 95% of its LPA over Central India and 94% of its LPA over South Peninsula, all with a model error of ± 8 %.”
The IMD also employs a six-parameter statistical forecasting system to prepare probability forecasts for five pre-defined rainfall categories. These are deficient (less than 90% of LPA), below normal (90-96% of LPA), normal (96-104% of LPA), above normal (104-110% of LPA) and excess (above 110% of LPA). The forecasted probabilities for the 2011 southwest monsoon season based on this system in percentage for the above 5 categories are 19%, 37%, 37%, 6% and 1%
The department’s ‘Summary of the Update Forecasts for 2011 Southwest Monsoon Rainfall’ has said:
(1) Rainfall over the country as a whole for the 2011 southwest monsoon season (June to September) is most likely to be below normal (90-96% of LPA). Quantitatively, monsoon season rainfall for the country as a whole is likely to be 95% of the long period average with a model error of ±4%. The Long period average rainfall over the country as a whole for the period 1951-2000 is 89 cm.
(2) Rainfall over the country as a whole in the month of July 2011 is likely to be 93% of its LPA and that in the month of August is likely to be 94% of LPA both with a model error of ± 9 %.
(3) Over the four broad geographical regions of the country, rainfall for the 2011 Southwest Monsoon Season is likely to be 97% of its LPA over North-West India, 95% of its LPA over North-East India, 95% of its LPA over Central India and 94% of its LPA over South Peninsula, all with a model error of ± 8 %.
According to Reuters, government officials played down concerns that lower rainfall could fan inflation and dampen growth. “There is no need to press the panic button, as June rains are still above normal,” said Shailesh Nayak, the top civil servant in the ministry of earth sciences which controls the country’s weather office.
While rains could be slightly lower than normal in July, India’s chief forecaster said distribution was key. “There are chances the monsoon will pick up after July 15 once it covers the entire country,” said D. Sivananda Pai, director at the state-run National Climate Center. “Don’t go by the numbers, it is the distribution (of the rains) which we are still hoping to be good.” The weather office predicted 27 centimetres of rain in July compared with long-term average rainfall of 29 centimetres, and rains at 24 centimetres in August, when seeds start maturing, compared with long-term averages of 26 centimetres.
Weather office chief Ajit Tyagi remained optimistic. “Ninety five percent is a good forecast,” Tyagi said. “Had it been 90% of the long-term average then it would have been a cause for concern,” he said, adding that in the past slightly below normal monsoon rains had also seen adequate farm output because they were well distributed in the major crop growing regions.
Explaining climatic conditions over the equatorial Pacific and Indian Oceans, the department’s second long range said moderate to strong La Nina conditions that prevailed in the equatorial Pacific during mid-August 2010 to early February 2011 weakened during subsequent months and dissipated to neutral conditions around mid-May 2011. The latest forecasts from a majority of the dynamical and statistical models indicate strong probability for the present ENSO-neutral conditions to continue during the current monsoon season and the remaining part of 2011.
It is important to note that in addition to El Niño and La Niña events, other factors such as the Indian Ocean Sea surface temperatures (SSTs) have also significant influence on India monsoon. However, the latest forecasts do not suggest development of either a positive or a negative Indian Ocean Dipole event during the 2011 monsoon season. In the absence of strong monsoon forcing from both Pacific and Indian Oceans, intraseasonal variation may become more crucial during this southwest monsoon season and lead to increased uncertainty in the monsoon forecasts.
How far will the culpable go to deny the dangers of atomic energy, even when confronted with the evidence day after day for three months? Far enough to shock us over and again, every single one of those days. There has been melt-through – not just meltdown – at Fukushima, widespread contamination by radiation of water, the ifrst medical evidence of the impacts of airborne radiation, and still the nuclear industry and its political partners deals out lies. They do this even when the humanitarian crisis of the Tohoku earthquake and tsunami continues.
A variety of news reports have said that the Tokyo metropolitan government has decided to take radiation readings at 100 sites around the city and to measure at ground level and near ground level. The city was previously taking readings only from a 19-meter high monitoring station in Tokyo. The action was prompted after citizens began finding higher readings that those released by the city government.
ABC news has reported: “Highly toxic radioactive strontium has been found in groundwater near the crippled Fukushima nuclear plant. It is the first time the substance has been detected in groundwater near the plant’s No. 1 and No. 2 reactors. The operator of the Fukushima plant has also confirmed strontium up to 240 times the legal limit has been found in seawater near the facility. Strontium tends to accumulate in bones and can cause bone cancer and leukaemia. “Last week, soil samples from outside the Fukushima plant also revealed concentrations of strontium.” Fukushima city officials say they will distribute radiation readers to 30,000 children between the ages of four and 15. News reports vary as to when the children will receive the badges.
The Japanese government has prepared a report on the accident at the Fukushima I nuclear power station (NPS) of Tokyo Electric Power Co., Inc. (TEPCO) and submitted it to the International Atomic Energy Agency (IAEA) on June 7. According to the Denki Shimbun the findings will be reported at the IAEA ministerial conference due to start on June 20. The 750-page report outlines several facts and observations including the developments of the accident, Japan’s nuclear safety regulatory framework, radiation exposure situations and lessons learned from the accident, and states at the conclusion that “Japan has recognized that a fundamental revision of its nuclear safety preparedness and response is inevitable.” As part of plans for the fundamental revision, the report declares that the Japanese government will separate the Nuclear and Industrial Safety Agency (NISA) from the Ministry of Economy, Trade and Industry (METI) and start reviewing the administration of nuclear safety regulations.
The report consists of 13 themes. In the introduction, it points out that “the situation has become extremely severe” in dealing with the Fukushima I accident, due to the circumstances where the accident had to be dealt with in parallel with reconstruction work following the disaster caused by the great earthquake and tsunami. The report also includes an apology in relation to the nuclear accident, stating, “Japan sincerely regrets causing anxiety for people all over the world about the release of radioactive materials.”
In ‘Silent Crisis in Tohoku’, Ex-SKF and Tokyo Brown Tabby have said that with the rainy and typhoon seasons approaching and temperature rising, there are serious concerns that infectious diseases might spread in the earthquake/tsunami-struck areas. From what? Rotten fish. When the earthquake and tsunami destroyed the refrigerated storage and processing facilities for fish, the fish started to rot.
“Conditions are already bad for the residents and evacuees in Tohoku: lots of dust rising from debris and rubble; awful smell of wet and mouldy piles of wooden debris and tatami mats; awful smell of sludge; and now awful smell of rotten fish (mostly from many devastated seafood processing plants) and smell of bird faeces feeding on those rotten fish; and finally the threat of mosquitoes as summer approaches, as well as rats and cockroaches.”
“They have been spraying insecticides and deodorizers in vain, since huge amounts of rotten seafood products are still under piles and piles of rubble. Unless all the debris and rubble, rotten fish and all that are completely removed, there is no stopping the hideous smells and mass breeding of those pests that could transmit diseases.”
On June 12, on a night news program called “Mr. Sunday” (Fuji TV), it was reported that more than 20,000 temporary houses have been built, but only about 45% of them are occupied, because once evacuees move to these temporary houses, all the food supply would be cut off and they would have to pay for utilities even though many of them are still unemployed. In one city in Miyagi Prefecture, the number of drunk driving has doubled, since alcoholism has increased due to mental depression.
Last week, Japan’s government announced a shake-up of the country’s nuclear regulatory agencies that would separate NISA from the Ministry of Economy, Trade and Industry (METI), which is also responsible for promoting the nuclear industry. The World Socialist Web Site has said that these cosmetic changes will do little to alter the incestuous relationship between Japan’s regulators and energy giants like TEPCO. There is a well-worn path trodden by senior NISA and METI officials from the state bureaucracy into corporate boardrooms. NISA’s response to the latest revelation that eight TEPCO employees had received radiation doses above the legal limit was typical. The agency described the situation as “extremely regrettable” and issued a formal warning to TEPCO—in other words, a slap on the wrist, as it has done on previous occasions.
The cover-up is not confined to Japan, however. On June 1, the International Atomic Energy Agency (IAEA) issued an interim report on the Fukushima disaster that listed the most obvious deficiencies in TEPCO’s safety measures but had nothing but praise for the official response. It said the government, regulatory agencies and the company had been “extremely open” in sharing information. TEPCO management at the site had been “exemplary” under arduous conditions. The government’s protection of the public had been “impressive and extremely well organised”.
The purpose of this IAEA whitewash was elaborated quite openly by deputy director general Denis Flory, who told the media: “There is a need to rebuild the confidence of the public towards their government, when their governments have decided to use nuclear energy.” Like Japan’s regulatory authorities, the IAEA is intimately bound up with the nuclear industry, which is expanding internationally and is tasked with regulating energy giants that are driven by profit, not the welfare of ordinary people.
In the US, physician Janette Sherman MD and epidemiologist Joseph Mangano published an essay that talks about a 35% spike in infant mortality in northwest cities that occurred after the Fukushima meltdown, and may well be the result of fallout from the stricken nuclear plant. The eight cities included in the report are San Jose, Berkeley, San Francisco, Sacramento, Santa Cruz, Portland, Seattle, and Boise, and the time frame of the report included the ten weeks immediately following the disaster.
“There is and should be concern about younger people being exposed, and the Japanese government will be giving out radiation monitors to children,” Dr MV Ramana, a physicist with the Programme on Science and Global Security at Princeton University who specialises in issues of nuclear safety, told Al Jazeera. Dr Ramana explained that he believes the primary radiation threat continues to be mostly for residents living within 50km of the plant, but added: “There are going to be areas outside of the Japanese government’s 20km mandatory evacuation zone where radiation is higher. So that could mean evacuation zones in those areas as well.”
Arnold Gundersen, who has 39 years of nuclear power engineering experience, managing and coordinating projects at 70 nuclear power plants around the US, points out that far more radiation has been released than has been reported. “They recalculated the amount of radiation released, but the news is really not talking about this,” he said. “The new calculations show that within the first week of the accident, they released 2.3 times as much radiation as they thought they released in the first 80 days.” According to Gundersen, the exposed reactors and fuel cores are continuing to release microns of caesium, strontium, and plutonium isotopes. These are referred to as “hot particles”.
Higher agriculture commodity prices here to stay – this is the overall message of the OECD-FAO Agriculture Outlook 2011-20. I will add material to this post from the main report. There is a database attached to the report which will also yield spreadsheets, to be posted here in the weeks ahead.
The OECD-FAO Agriculture Outlook 2011-20 has said that a good harvest in the coming months should push commodity prices down from the extreme levels seen earlier this year. However, the Outlook said that over the coming decade real prices for cereals could average as much as 20% higher and those for meats as much as 30% higher, compared to 2001-10. The press release has more of the big picture message from the Outlook.
Some key questions and concerns have been mentioned. One of these is: what is driving price volatility? The Outlook takes a look at the key forces driving price volatility, which create uncertainty and risk for producers, traders, consumers and governments. About a period of higher commodity prices, the Outlook said commodity prices will fall from their 2010-11 levels, as markets respond to these higher prices and the opportunities for increased profitability that they afford. In real terms, agricultural commodity prices are likely to remain on a higher plateau during the next decade compared to the previous decade.
All commodity prices in nominal terms will average higher to 2020 than in the previous decade. In real terms, prices are anticipated to average up to 20% higher for cereals and 50% higher for some meats, compared to the previous decade. On the forecasts of net agricultural production, global agricultural production is projected to grow at 1.7% annually on average compared to 2.6% in the previous decade. Slower growth is expected for most crops, especially oilseeds and coarse grains, while the livestock sector stays close to recent trends.
Where biofuels and agricultural outputs are mentioned, the Outlook has said the use of agricultural output as feedstock for biofuels will continue its robust growth, largely driven by biofuel mandates and support policies. By 2020, 12% of the global production of coarse grains will be used to produce ethanol compared to 11% on average over the 2008-10 period.
Key points from the summary are:
(1) Commodity prices rose sharply again in August 2010 as crop production shortfalls in key producing regions and low stocks reduced available supplies, and resurging economic growth in developing and emerging economies underpinned demand. A period of high volatility in agricultural commodity markets has entered its fifth successive year. High and volatile commodity prices and their implications for food insecurity are clearly among the important issues facing governments today. This was well reflected in the discussions at the G20 Summit in Seoul in November, 2010, and in the proposals for action being developed for consideration at its June 2011 meeting of Agriculture Ministers in Paris.
(2) This Outlook is cautiously optimistic that commodity prices will fall from their 2010-11 levels, as markets respond to these higher prices and the opportunities for increased profitability that they afford. Harvests this year are critical, but restoring market balances may take some time. Until stocks can be rebuilt, risks of further upside price volatility remain high. This Outlook maintains the view expressed in recent editions that agricultural commodity prices in real terms are likely to remain on a higher plateau during the next ten years compared to the previous decade. Prolonged periods of high prices could make the achievement of global food security goals more difficult, putting poor consumers at a higher risk of malnutrition.
(3) Higher commodity prices are a positive signal to a sector that has been experiencing declining prices expressed in real terms for many decades and are likely to stimulate the investments in improved productivity and increased output needed to meet the rising demands for food. However, supply response is conditioned by the relative cost of inputs while the incentives provided by higher international prices are not always passed through to producers due to high transactions costs or domestic policy interventions. In some key producing regions, exchange rate appreciation has also affected competitiveness of their agricultural sectors, limiting production responses.
(4) There are signs that production costs are rising and productivity growth is slowing. Energy related costs have risen significantly, as have feed costs. Resource pressures, in particular those related to water and land, are also increasing. Land available for agriculture in many traditional supply areas is increasingly constrained and production must expand into less developed areas and into marginal lands with lower fertility and higher risk of adverse weather events. Substantial further investments in productivity enhancement are needed to ensure the sector can meet the rising demands of the future.
The OECD (Organisation for Economic Cooperation and Development) has just released its Survey of India, and has said that “India now has the opportunity to move towards sustained and socially inclusive double-digit growth if the right policies are put in place”. The OCED survey said India’s economy has ranked among the best performers over the past decade, and poverty has been falling faster than in many other emerging economies. Pending a detailed reading of the report I can’t see how “best performer” and “falling poverty” can be applied to India, but the social and environmental dimensions of India’s so-called eocnomic growth may not be within the OECD’s scope in such a survey.
OECD Secretary-General Angel Gurría presented the Economic Survey of India in New Delhi and there said: “Policymakers are to be commended on the remarkable catch-up achieved in recent years, making India one of main driving forces of the global economy. The priority given to more socially inclusive economic growth is appropriate and further reforms are needed to achieve it.” There are more such conceptual conundrums here – catch up with who? And for what? What “socially inclusive” growth is Gurria talking about – India has the world’s largest population of malnourished children and the world’s largest population of hungry people. This has been so for the entire period that the OCED said India was “catching up”.
To ensure strong growth continues and is sufficiently inclusive, the government needs to target public expenditure better on the poor, the OECD has said. “Although high growth has reduced poverty, progress could have been faster. Hundreds of millions of people still live below the official poverty line. Malnutrition and poor health are still widespread.” Evidently the OECD India Survey 2011 team saw no contradiction between what they have praised and what exists. Against this backdrop, the report advocates a strengthened welfare system and improved access to health care. “Government spending on health is only around 1% of GDP – among the lowest rates in the world. Private health care provision is increasing but quality is highly variable. Better regulation and oversight is needed.” This is true, but the Survey’s objectives lead all solutions away from more and better public healthcare.
The report said that around 9% of GDP is spent on energy and other subsidies, most of which fails to reach the poor, and that diesel subsidies should be phased out. For other energy products, such as kerosene and LPG, susbidies should be transformed into cash payments targeted to the poorest people in society. The government needs to ensure that its plan to shift kerosene and fertiliser subsidies into direct cash transfers is implemented quickly. Here the roll-out of a Universal Identity Number will help ensure payments go to the right people.
The recommendations in this para are full of threat. A quick look at the full Survey itself shows that there is special mention made of the fuel subsidy and the targeted public distribution of foodgrain. If the free marketeer reformists were to have their way, these would both be scrapped overnight, to be replaced by a weekly or monthly dole, transferred electronically and validated by a new national identification number which is in theory supposed to prevent fraud and exclusion. This is dangerous for the poor, because it makes them directly vulnerable to the worst symptoms of profiteering and corruption – already rampant despite safeguards – and because it removes the responsibility from the state for providing good quality and cheap social services and provisions of daily living. In this, the OECD Survey sounds exactly like the IMF.
The OCED report has otherwise welcomed the planned introduction of a nationwide goods and services tax and suggested that in order to keep the overall rate low, the base should be as wide as possible (there go more paisas from the cash transfer to the poor). “Further fiscal consolidation is also called for, making more funds available for private investment” – which means more cutting of the health, education and rural development programmes. “Cutting red tape for businesses and further lowering barriers to trade and investment will help both companies and households. The report also notes that while progress has been made to improve infrastructure, even greater investment in this area is necessary to boost growth.”
The Survey has said that strengthening the financial system and promoting access to financial services is essential for strong and inclusive growth. (We’re quite sick and tired of hearing about ‘inclusive growth’ when the Indian government and its foreign advisers do all they can every single day to prevent it.) The report noted that many Indians still lack access to bank accounts although microfinance is improving opportunities in many communities. “The financial sector proved resilient during the global downturn but there remains scope for greater competition.” Hear, hear.
The Survey has said that education has been given high priority by India’s central and state governments and enrolment continues to grow fast – we call them degree factories for the globalisation mill. The report recommends more effective government regulation and funding. Incentives and professional development opportunities for teachers need to be strengthened while student loans for higher education should be more widely available.
Now I expect the usual round of endorsement, referencing and studious quoting to begin. Within a few months, the recommendations of the OCED India Survey 2011 will assume an oracular hue, never mind the reactionary and anti-poor real nature of its advice. The multilateral lending institutions – the World Bank, the IMF and the Asian Development Bank – will cite the Survey repeatedly. So will state governments in India and the central government. The armoury of those who assault the poor and the marginalised of India has been strengthened by a new weapon – this is the OECD contribution to the people of India.
What is the impact of the drought in China on the country’s economy and its growth rate? A Reuters news feature has attempted to provide a few answers. China’s economy is big enough to absorb this drought without slowing overall growth. But experts said the tenacious dry-spell has bigger lessons. After it passes, there are sure to be new floods and new droughts, and China’s economy will increasingly be affected by the country’s limited and unevenly spread water sources. “A single drought this year won’t lead to the collapse of China’s economy but this will have an impact, one that shows the threat that China faces from water stress,” said Xia Jun, a hydrologist at the Chinese Academy of Sciences in Beijing told Reuters.
The months-long drought parching middle and lower parts of the Yangtze River basin is the latest reminder of the risks that China’s limited and heavily used water sources pose for the world’s second-biggest economy. Even before this drought, smaller lakes around Lake Honghu were disappearing, taken over for fields and fish farms.
Water from the Yangtze will be diverted to Beijing and other thirsty northern cities, but the Danjiangkou Dam that will deliver that water in coming years along the vast South-North Water Transfer Project is at its lowest for over a decade. Victims of the latest dry spell also range from the Three Gorges Dam, the world’s largest hydropower project, to millions of poor farmers like Wang and Xiao, an elderly couple.
“I’m 70 and it’s never been this bad,” Xiao, a browned and balding man, said of the 348-sq-km (134-sq-mile) lake in central Hubei province. “You can walk across and it only comes up to your knees.” The lake has shrunk to about 207 sq km of water and is mostly no deeper than 30 cm or so, according to the China News Service — at a time of year when residents said the water should be up to their chins. “We used to always worry about floods, not droughts,” said Xiao. “Not ones as bad as this.”
That sentiment is echoed by many residents on the middle and eastern stretches of the Yangtze, which is China’s biggest river and an the artery feeding much of China’s farming and industrial heartlands. Officials have said those parts are enduring their worst drought in 50 years, and rainfall has shrunk by 40 to 60 percent of normal. Around Lake Honghu, thousands of farmers risk losing more crops, fish farms, and even drinking water if big rains fail to arrive soon. Many rice fields in the surrounding countryside are yellow or barren. Farmers use scarce water for keeping alive fewer fields or for the ponds used to raise lucrative fish, crab and shrimp. Dry lotus ponds with wilted plants dot the landscape. In other areas near the Yangtze, there is still enough water to sustain swathes of green rice stalks.
China has six percent of the globe’s fresh water resources but a fifth of the world’s population. Global warming could stoke pressures, said Xia and other experts. “There have been even worse droughts before, but now these episodes can be increasingly serious, because economic development is bringing increasing pressure on water resources, and the effects of disaster spread out wider and are felt in more ways,” said Xia.
AlertNet has reported that torrential rains battered central and southern China. Quoting local reports, AlertNet said the rains led to floods and landslides that killed more than 100 people, turning areas enduring drought just over a week ago into scenes of muddy destruction. Forecasters warned that intense rain was likely to keep striking some areas through Monday and beyond.
In Yueyang in Hunan province in the south, weather stations recorded more than 200 millimetres (eight inches) of rain in six hours, the kind of downpour that hits once every 300 years, the China News Service reported, citing local officials. In Maojiazu Village in Yueyang, the pelting downpours triggered a mudslide that crushed 24 homes and killed at least 20 residents, with another seven missing under boulders and dense mud, most likely dead, the Xinhua news agency reported.
“The concentrated scope, intensity and short duration of these recent rains have caused grave casualties and damage to property in some areas,” said Chen Lei, the Minister of Water Resources who also oversees the State Flood Control and Drought Relief Headquarters, according to a report on its website.
The office warned that heavy rains along the middle and lower reaches of the Yangtze River basin could trigger floods in an area gripped by drought less than two weeks ago. By late Saturday, the floods across parts of 13 provinces had killed 94 people with 78 missing, damaged 465,000 hectares (1,800 square miles) of crops, and toppled 27,100 houses and other buildings, the flood and drought office said. By later on Sunday, Hunan province lifted the number of people killed by floods and mudslides there to 36, up from an estimate of 19 given on Saturday, meaning the updated nationwide death toll could have reached at least 111.
Stranded in the desert of Kenya’s northeastern province, surrounded by mile upon mile of sand and scrubby bushes, 30,000 people are living in makeshift shelters under a burning sun. The families – having crossed the border from neighbouring Somalia, 80 km away – are headed for the refugee camps of Dadaab. But the three camps in the Dadaab area are already full, and there is nowhere for them to stay.
This is the story of the world’s biggest refugee camp, told by Medecines Sans Frontieres. On arrival, the refugees – most of whom are women and children – have no money, no food, no water and no shelter. It takes 12 days, on average, to receive a first ration of food1, and 34 days to receive cooking utensils and blankets from the UN’s refugee agency, the UNHCR, which runs the camps. Until then they have to fend for themselves in a hostile environment.
In temperatures of 50 degrees, and fearful of attack by hyenas, the families are building fragile shelters in the desert on the camps’ fringes. They use whatever materials they can find: mostly branches and brushwood, tied together to form domed structures, which they cover with cardboard, polythene or torn fabric – anything to provide some shelter from the unrelenting sun and the choking dust.
The camps of Dadaab are surrounded by barren desert. The three camps – Dagahaley, Hagadera and Ifo – known collectively as the ‘biggest refugee camp in the world’ – were established 20 years ago to house up to 90,000 people escaping violence and civil war in Somalia. With no end to the conflict in sight, there are now more than 350,000 people2 crowded into the camps’ perimeters, while the number of new arrivals is surging. This year, 44,000 new refugees have already been registered, and by the end of 2011 the camps are likely to be home to 450,000 people3, twice the population of Geneva.
As more and more people crowd the camps and the surrounding desert, the availability of essential services – such as water, sanitation and education – is shrinking, and living conditions are getting rapidly worse. An extension to one of the camps, known as Ifo Extension, which has space for 40,000 refugees and could provide a temporary solution to providing shelter for new arrivals, lies half-built and empty due to a breakdown in negotiations between the Kenyan authorities and the UNHCR.
In a report on the camps The Guardian said that 20 years after the first Somali refugees fled the crisis that ousted President Siad Barre, thousands of people continue to pour across the border from Somalia into north-eastern Kenya into the largest refugee complex in the world. Today, the three refugee camps – Dagahale, Ifo and Hagadera – that make up the overcrowded and chronically underfunded Dadaab complex are home to more than 300,000 people and three generations of refugees.
Mohamad Ali was one of the first to arrive from Somalia when civil war broke out in 1991. He didn’t expect to stay long, but in 20 years he hasn’t set foot outside the complex. Refugees aren’t allowed to leave the camps unless they receive special movement passes. If caught without a pass, they risk arrest, detention or expulsion. Special buses can be taken between each of the complex’s three camps, which are separated from one another by a few kilometres of dust and dry heat.
This is the second time Ali has been made a refugee. Ethnically Somali, he was driven out of his home in Ethiopia to Somalia by the war between the two countries in 1977. He is now 79 years old, and calls Dadaab his home. It’s Kenya’s fourth-largest city, although no Kenyan lives there, he says. The camps were originally designed to house 90,000 people, but with the ongoing crisis in Somalia, official estimates suggest that around 5,000 new refugees arrive each month. Richard Floyer-Acland, the UNHCR representative in Dadaab, put the number closer to 9,000.
Here it is, just released. The World Agricultural Supply and Demand Estimates (WASDE) of the USDA, 09 June 2011. Highlights and key points for the major crop groups follow:
Global wheat supplies for 2011-12 are projected slightly lower this month as an increase in beginning stocks is more than offset by lower production. Global beginning stocks are projected 4.9 million tons higher mostly reflecting increased stocks in Russia as feeding is reduced 2.0 million tons and 5.0 million tons, respectively, for 2009-10 and 2010-11. Beginning stocks for 2011-12 are also raised 0.5 million tons each for Argentina and Canada with the same size reductions in 2010-11 exports for each country. Partly offsetting is a 1.5-million-ton decrease for 2011-12 beginning stocks for Australia with higher 2010-11 exports.
World wheat production is projected 5.2 million tons lower for 2011-12. At 664.3 million tons, production would be the third highest on record and up 16.1 million from 2010-11. This month’s reduction for 2011-12 mostly reflects a 7.1-million-ton decrease for EU-27 wheat output. Persistent dryness, particularly in France, but also in Germany, the United Kingdom, and western Poland, has reduced yield prospects for EU-27. Production is also reduced 1.0 million tons for Canada as flooding and excessive rainfall, particularly in southeastern Saskatchewan and adjoining areas of Manitoba, are expected to reduce spring wheat seeding. Production is increased 1.5 million tons for Argentina and 0.5 million tons for Australia, both reflecting favorable planting conditions and strong producer price incentives to expand area. Production is also raised 0.5 million tons for Pakistan as increased use of higher quality seed and adequate water supplies resulted in higher-than-expected yields.
Global wheat trade for 2011-12 is projected slightly higher reflecting a 0.5-million-ton increase in expected imports by EU-27. Exports are lowered 3.0 million tons for EU-27. Export increases of 2.0 million tons and 1.0 million tons, respectively, for Australia and Argentina offset the EU-27 reduction. Exports are raised 0.3 million tons for Pakistan with the larger crop. Global wheat consumption is projected down 3.3 million tons, mostly reflecting a 2.5-million-ton reduction in EU-27 domestic use.
Global coarse grain supplies for 2011-12 are projected down 7.8 million tons this month with lower beginning stocks and production. Reduced U.S. corn production, lower EU-27 barley production, and reduced corn beginning stocks in China, more than offset increases in China corn production. EU-27 barley production is lowered 2.2 million tons as prolonged dryness across western and northern Europe has sharply reduced yield prospects in the major producing countries. China corn area is raised for 2010-11 in line with the most recent official government area estimates with the year-to-year percentage increase for 2011-12 largely maintained.
China corn production increases 5.0 million and 6.0 million tons, respectively, for 2010-11 and 2011-12 with yields unchanged month-to-month. More than offsetting the higher production levels is higher estimated corn consumption for both feeding and industrial use. China corn consumption is raised 8.0 million tons and 13.0 million tons, respectively, for 2010-11 and 2011-12. Together these changes leave projected 2011-12 corn ending stocks down 12.0 million tons for China. At the projected 51.0 million tons, China’s stocks would be down 2.7 million tons from 2010-11 and just below the levels of the preceding 2 years, better reflecting the continuing rise in domestic corn prices as production struggles to keep pace with rising usage. Although China’s stocks represent 46 percent of the world total for 2011-12, China is not expected to be a significant exporter.
Global 2011-12 corn trade is raised slightly this month with higher imports for EU-27 and higher exports for Ukraine. Ukraine exports are raised 1.0 million tons with higher production and stronger expected demand from EU-27. Russia exports are lowered 0.5 million tons with lower production. Other important trade changes this month include a 0.2-million-ton increase in sorghum imports by Mexico, driving the U.S. export increase, and a 1.5-million-ton reduction in EU-27 barley exports with lower production and tighter supplies. Barley imports are lowered for Saudi Arabia and China. Global corn ending stocks for 2011-12 are projected down sharply this month, falling 17.3 million tons mostly reflecting the usage revisions in China. The projected 5.2-million-ton drop in U.S. ending stocks accounts for most of the rest of the decline. Global corn stocks are projected at 111.9 million tons, the lowest since 2006-07.
Global 2011-12 rice supply and use are lowered from a month ago. Global production is projected at a record 456.4 million tons, down 1.5 million from last month’s forecast, primarily due to a decrease for China. Additionally, production projections are raised for Egypt and Guyana, but lowered for the United States and Cuba. China’s 2011-12 rice crop is projected at 138.0 million tons, down 2.0 million from a month ago; primarily due to the impact of prolonged drier-than-normal weather in the Yangtze River Valley affecting mostly early rice. Egypt’s crop is increased 0.9 million tons to 4.0 million due to a 33 percent increase in area—based on a recent report from the Agricultural Counselor in Cairo. The global import and export forecasts for 2011-12 are little changed from last month. Global consumption for 2011-12 is lowered 0.8 million tons, primarily due to lower consumption expected in China, but partially offset by increases for Egypt, EU-27, and Vietnam. Global ending stocks for 2011-12 are projected at 94.9 million tons, down 1.3 million from last month, due primarily to reductions for China and the United States which are partially offset by increases for Egypt, the Philippines, and Vietnam.
Global oilseed production for 2011-12 is projected at 456.9 million tons, down 2.3 million from last month, mainly due to lower rapeseed production. EU-27 rapeseed production is reduced 1.2 million tons to 18.8 million mainly due to lower yields resulting from dry conditions in April and May in major producing areas of France and Germany. Rapeseed production for Canada is lowered 0.5 million tons to 13.0 million due to reduced area planted resulting from excessive moisture this spring. China soybean production is reduced 0.5 million tons to 14.3 million reflecting lower area as producers shifted to corn. Other changes include increased sunflowerseed production for Russia, and reduced cottonseed production for Australia, Pakistan, and the United States. Brazil’s 2010-11 soybean production is increased 1.5 million tons to a record 74.5 million, reflecting yield and production increases reported in the most recent government survey. [Get the full WASDE report here.]