[OPE-L] Food versus cars - a few newsclips on recent trends

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Mon Jul 09 2007 - 16:28:44 EDT

12/12/2005 - The food industry continues to sit at the bottom of the pile
when it comes to investing in research and development, an annual study
shows. The study, published every year by the European Commission, shows
food producers worldwide are still last on the list of the top 15 sectors
when it comes to spending on R&D, even as their sales continue to show
sluggish growth in many markets. (...) By comparison, the highest spenders
on R&D globally were companies in the automobile and parts sector, which
collectively spent a total of 58.5bn euro on R&D, or an average of 900.3 mn
euro per company.

From an agricultural vantage point, the automotive demand for fuel is
insatiable. The grain it takes to fill a 25-gallon tank with ethanol just
once will feed one person for a whole year. Converting the entire U.S. grain
harvest to ethanol would satisfy only 16 percent of U.S. auto fuel
needs.(...) The stage is now set for direct competition for grain between
the 800 million people who own automobiles, and the world's 2 billion
poorest people. The risk is that millions of those on the lower rungs of the
global economic ladder will start falling off as rising food prices drop
their consumption below the survival level. Soaring food prices could lead
to urban food riots in scores of lower-income countries that rely on grain
imports, such as Indonesia, Egypt, Algeria, Nigeria, and Mexico. The
resulting political instability could in turn disrupt the global economy,
directly affecting all countries. (...) As the leading grain producer, grain
exporter, and ethanol producer, the United States is in the driver's seat.
We need to make sure that in trying to solve one problem - our dependence on
imported oil - we do not create a far more serious one: chaos in the world
food economy. http://www.earth-policy.org/Transcripts/SenateEPW07.htm

Increased demand for bio-fuels is causing fundamental changes to
agricultural markets that could drive up world prices for many farm
products, according to a new report published by the OECD and FAO. The
OECD-FAO Agricultural Outlook 2007-2016 says temporary factors such as
droughts in wheat-growing regions and low stocks explain in large measure
the recent hikes in farm commodity prices. But when the focus turns to the
longer term, structural changes are underway which could well maintain
relatively high nominal prices for many agricultural products over the
coming decade. Reduced crop surpluses and a decline in export subsidies are
also contributing to these long-term changes in markets. But more important
is the growing use of cereals, sugar, oilseed and vegetable oils to produce
fossil fuel substitutes, ethanol and bio-diesel. This is underpinning crop
prices and, indirectly through higher animal feed costs, also the prices for
livestock products. (...) The report points out that higher commodity prices
are a particular concern for net food importing countries as well as the
urban poor. And while higher feedstock prices caused by increased bio-fuel
production benefits feedstock producers, it means extra costs and lower
incomes for farmers who need the feedstock to provide animal feed.

Corn prices have risen about 60 per cent and wheat about 50 per cent over
the last 12 months. Sugar, milk and cocoa prices have also surged, prompting
the biggest increase in retail food prices in three decades in some
countries. The Nestlé chairman cited population growth, rising demand from
"the phenomena of India and China" and the use of food products by biofuel
producers as causes of pressure in international food markets. Reports from
two international organisations this week forecast food price rises of
between 20 and 50 per cent over the next decade. But some analysts believe
the long-term risk of higher food prices is exaggerated. Julian Jessop,
chief international economist at Capital Economics in London, said biofuels
producers would develop technologies that required less raw material or used
non-edible parts of food. "There are good medium-term reasons to think that
the biofuels price shock will pass," he said.

According to the Bureau of Labor Statistics, U.S. families spent fully 43%
of their incomes on food in 1901. By 1929 it had dropped to 24%, and by 2004
the figure was 14%. But as income growth slows and food prices increase,
this happy long-term trend may be coming to an end.
The Chinese government reported on Mar. 13 that February consumer prices
advanced 2.7% year-on-year after gaining 2.2% in January. About one-third of
China's consumer price index (CPI) is weighted toward food prices, which
actually jumped 6% year-on-year. In India, the situation is even more
alarming. The key inflation number in India is the wholesale price index,
which shot up 6.7% year-on-year in February and is also a third weighted to
food. "Primary food articles such as rice, wheat, pulses (used in food
products and animal feed), and oilseeds have been the main driver of
inflation" in India, Lehman Brothers analysts Sonal Varma and Rob Subbaraman
noted in a Mar. 9 report.

This archive was generated by hypermail 2.1.5 : Tue Jul 31 2007 - 00:00:06 EDT