The New Geopolitics of Food

By Lester R. Brown | Foreign Policy

the largest food bubbles are in India and China. In India, where farmers have drilled some 20 million irrigation wells, water tables are falling and the wells are starting to go dry. The World Bank reports that 175 million Indians are being fed with grain produced by overpumping.

IN THIS ERA OF TIGHTENING world food supplies, the ability to grow food is fast becoming a new form of geopolitical leverage (DR – an OPEC for foodgrains is not a farfetched possibility), and countries are scrambling to secure their own parochial interests at the expense of the common good.

This January [2011], a new stage in the scramble among importing countries to secure food began to unfold when South Korea, which imports 70 percent of its grain, announced that it was creating a new public-private entity that will be responsible for acquiring part of this grain. With an initial office in Chicago, the plan is to bypass the large international trading firms by buying grain directly from U.S. farmers. As the Koreans acquire their own grain elevators, they may well sign multiyear delivery contracts with farmers, agreeing to buy specified quantities of wheat, corn, or soybeans at a fixed price. [DR - I have talked to large grain buyers in India and the Middle East who are eager to adopt such a model, buying cost-plus from farmers]

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Economic Prospects in Peru buoyed by agriculture and mining sectors

TheStreet

For instance, Peru — South America’s fastest-growing large economy — has excellent economic prospects with reasonable valuation levels.

Until last year, investors could only buy into Peru through companies like gold miner Compania de Minas BuenaventuraADR (BVN_), copper miner Southern Copper (SCCO_), or the financial Credicorp ADR (BAP_). But iShares MSCI All Peru Capped Index Fund (EPU_) now offers a new way.

Granted, 20 years ago Peru struggled with raging hyperinflation and violent attacks by communist guerrilla groups. A lot has changed since then, and it’s set to grow 7% this year. Most economists can’t help but notice the difference — so should you.
Peru’s Commodity Advantage and More
Peru can trace its mining ties back to a time before the Inca Empire. That same tradition has helped push it into a successful economy today. Similarly, much of its future success relies on its exports of gold, copper and the like.

Fortunately, global mining companies can’t seem to get enough of any of those. In all, they have $41 billion in investments planned there over the next decade. That should quadruple Peru’s copper exports, putting it neck-and-neck with Chile, the world’s biggest producer right now.

Along with mining, the country has other factors going for it, such as agriculture. In the past decade, such exports have surged from $300 million to $2.5 billion.

* Peru exports the world’s largest amount of asparagus.
* The country produces the most specialty coffees, paprika and organic bananas.
* It also reaps significant amounts of cocoa, sugar, artichokes, avocados and mangos.

Right now, that sector only accounts for 8.3% of GDP, though it employs a third of the workforce. But it should grow fast with the introduction of superior farming methods such as drip irrigation. With strong sales in the first half of the year, revenue rose 19% over the same time in 2009 to $1.37 billion. That highlights Peru’s potential in the global agricultural market.

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India’s imports of milk, grain, beverages in April-July 2010 up 22% over 2009

1 Crore is 10 million. 1 USD – ~~ 44 Indian Rupees. You do the math. If you’re in the business of feeding India, you don’t know what “global recession” people are talking about.
The Hindu Business Line

Import of food grains jumped 3100 per cent to Rs 111.7 crore in April-July 2010 from just Rs 3.5 crore last year. This is mainly due to import of wheat by flour millers in south India.

Import of milk and milk products in the period under review was Rs 370.4 crore, a 324.5 per cent increase
from only Rs 87.3 crore in the same period last year. In March, the Government had allowed duty-free imports of up to 15,000 tonnes of butter oil and 30,000 tonnes of milk powder, anticipating shortfalls in milk supplies to cities ahead of the summer season.

Edible oil import grew 18.9 per cent to Rs 8,763.7 crore during April-July this fiscal from Rs 7,371 crore last year. A significant feature of edible oil import is that import of crude oil has gone up by 25.9 per cent to Rs 7,958.6 crore (Rs 6,319.8 crore), while imports of refined oil have fallen by 23.4 per cent to Rs 805.1 crore (Rs 1,051.3 crore). The increase in edible oil import is mainly due to substantial increase in import of soya-bean crude oil, the statement said.

Among those other sensitive items whose import growth has increased during the period under reference include  fruits and vegetables including nuts (up 10.8 per cent to Rs 2,178.3 crore), spices (11.9 per cent to Rs 302.7 crore), alcoholic beverages (85.2 per cent to Rs 147.4 crore).
Food inflation in India for the week ended September 25 was 16.24 per cent, mainly because of soaring prices of milk, fruits and vegetables.

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Why Prices of Commodities – Oil, Metals, Food and Farmland will skyrocket over the next decade

as investors diversify into assets that cannot be “printed”. People like Jim Rogers and Marc Faber have been saying this for years, and Boston University econ Prof. Larry Kotlikoff says the U.S. is heading towards an Argentina 2001-like sovereign crisis.

Three Horrifying Facts About the US Debt “Situation” | zero hedge

#1 The US Fed is now the second largest owner of US Treasuries.

That’s right, this week we overtook Japan, leaving China as the only country with greater ownership of US Debt. And we’re printing money to buy it. Setting aside the fact that this is abject lunacy, this policy is trashing [the USD} which has fallen 13% since June…

#2: “There are only about $550 billion of Treasuries outstanding with a remaining maturity of greater than 10 years.”

the US has entered a debt spiral: a time in which fewer and fewer investors are willing to lend to us for any long period of time… at the exact same time that we must roll over trillions in old debt and issue an additional $100-150 billion in NEW debt per month in order to finance our massive deficit.

#3: The US will Default on its Debt

… either that or experience hyperinflation. There is simply no other option. We can NEVER pay off our debts. To do so would require every US family to pay $31,000 a year for 75 years. Obviously that ain’t going to happen.So default is in the cards. Either that or hyperinflation (which occurs when investors flee a currency). Either of these will be massively US Dollar negative

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Agriculture has a wonderful future for the next 5 to 15 years

Jim Rogers on CNBC.com


Remember, I told you to become a farmer
I know how I told you to learn to drive a tractor
Farming is still going to be a very good place to be
Agriculture…if I were buying something today rice is probably something I would look at
Agriculture has a wonderful future for the next 5, 10 15 years

It’s been a horrible business for 30 years. Very few people have invested in agriculture. Many countries don’t even have farmers anymore. They’re all old men. In Japan they cannot find farmers cuz all the old men have died and their kids have gone to Tokyo or Osaka. Basic point is there has been no investment in agriculture for 30 years.

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Agriculture Takes Center Stage for Prominent Investors Jim Rogers and Michael Burry

| Wall St. Cheat Sheet

Michael Burry, one of the stars of Michael Lewis’ The Big Short, labeled agriculture as one of his top trades. Burry is a noted value investor who earned strong returns as the Tech Bubble collapsed, and even more out-sized returns on his short bet against the housing market in the time preceding the subprime collapse. Burry provided this insight into his latest trade:

“I believe that agriculture land — productive agricultural land with water on site — will be very valuable in the future….I’ve put a good amount of money into that.”

This weekend on his personal blog, Jim Rogers wrote a quick little note about how “Asia will drive agriculture commodities higher“:

There`s 3 billion people in Asia and most of them have not had a very good standard of living in the past 200 years. That is changing and changing very rapidly. They are going to eat more, they are going to wear more clothes.

Soybeans Rise for Third Day on Concern About Brazilian, Argentine Sowing

Bloomberg

Soy prices are progressing significantly, boosted by weather conditions in Argentina and Brazil,” Paris-based farm adviser Agritel said on its website today. “Mato Grosso lacks water and planting is being delayed, and a return of the rains will be necessary for correct germination of the crops.” Brazil is the world’s second-largest grower of soybeans after the U.S., and Argentina ranks third.

The corn harvest in India, Asia’s second-biggest grower, may exceed 20 million metric tons in the year to June 2011, beating the 19.73 million-ton record in 2009 and increasing exports, after above-normal rains aided crops, Atul Chaturvedi, president of Adani Enterprises Ltd., said yesterday. Adani is the country’s biggest non-state trader of farm goods.

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Palm, Soybean Oils Purchases by India to Reach Record – 9 million tons, for Fourth Year

Every year for the coming decade there will be at least a growing shortfall of 5,00,000 tons each each year. India’s edible oil import bill is next only to its crude oil import bill.
Bloomberg

India, the top buyer of vegetable oils after China, may import a record quantity of soybean and palm oils for a fourth year as growing population and incomes increase demand for processed foods, a processors’ group said.

Purchases may climb to 9.5 million metric tons in the year starting Nov. 1
, compared with 9 million tons this season, Ashok Sethia, president of the Solvent Extractors’ Association of India, said in a phone interview from Kolkata today.

“Imports will need to increase by a minimum 4 to 5 percent annually to meet demand from a growing population in a booming economy,” said Sethia, who is due to speak at a three-day event in Mumbai starting Sept. 24. “Purchases can be more or less depending on prices and the local oilseed crops.”

Imports by India surged 64 percent to a record 1.07 million tons in August from 650,603 tons a year earlier, the association said Sept. 14. Purchases in the November-August period climbed 5 percent to 7.45 million tons from a year ago, it said. [India] relies on imports to meet almost half its annual cooking fat demand.

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India’s water nightmare for agriculture and why Latin America is the place to mitigate that crisis

India vs. LatAm: Water Scarcity vs. Abundance

The Diplomat

Analysts say India’s per capita water availability is set to slip below the critical 1,000 cubic metres mark by 2025, and the country is expected to join China in facing significant water stress.

The turnaround in India’s water situation has been dramatic. In 2005, the Global Water Initiative said India had ‘abundant’ water in 1975 but that by 2000, this happy state of affairs had turned into ‘stress’ even as demand has continued to grow.

‘Water–The India Story’, a widely quoted study by market research firm Grail Research, points out that India’s per capita domestic consumption of water is expected to grow to 167 litres a day by 2050, up from 88.9 in 2000. Factor in the growing population (expected to increase from 1.13 billion in 2005 to 1.66 billion by 2050) and the picture starts to look bleak.

At present, agriculture guzzles nearly 90 percent of India’s water consumption, even though it contributes only about 17 percent of the country’s GDP. This imbalance is, suggests Grail Research’s report, set to grow, with production of water-intensive crops expected to jump by 80 percent between 2000 and 2050, while the volume of water used for irrigation in India is likely to increase by 68.5 trillion litres between 2000 and 2025.

D.R. Sikka, former director of the Indian Institute of Tropical Meteorology, says tough policy decisions need to be taken to ease agriculture’s dangerously insatiable appetite for water. Overall, India isn’t a naturally water-rich country, he explains, noting that it has several dry areas and only two main sources of fresh water—glacier melt, which is restricted to the months of April to June, and the three-month-long monsoon season that runs until September.

‘So 90 percent of our rainwater is available for only 3 to 4 months a year. If the monsoon fails, an entire season is lost,’ Sikka says. ‘But governments haven’t taken a long term view of our water policy. Over the last many decades, political systems have given farmers free electricity. This has enabled them to use electrical pumps at will to extract groundwater.’

India is generally seen as under-legislating its groundwater, with almost anybody being able to extract water with little or no permission. As things stand, the population density supported by India’s river basins is higher than most other developing countries. Yet Grail’s findings suggest that by 2050, groundwater levels in the Ganges basin will be depleted by between 50 and 70 percent; levels in the Krishna, Kaveri and Godavari basins, which provide water to the big southern states, could be depleted by as much as half.

‘Farmers have also been encouraged to produce bumper, water-intensive crops like rice, even in states like Punjab, Haryana and Western UP which aren’t really water-rich,’ adds Sikka, a member of several committees on climate change at the Ministry of Earth Sciences, Indian Space Research Organisation and Indian Meteorological Department. ‘Scientists can only express the dangers we see imminent. Keen political will is required for big changes. (But) the farmer lobby is so strong ‘.

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India among the countries that will be impacted the most by a coming world food crisis

Citizens in a a huge arc of countries ranging from West Africa – Angola, Nigeria to North Africa – Egypt to the Middle East – Iran and the Indian subcontinent, and China will suffer the most during the next food crisis. As I’ve spoken before, food exporting countries in Latin America, specifically in the Mercosur – Argentina, Brazil, Uruguay, Paraguay should profit from this. Still waiting for an Indian company to capitalize on this scenario that will most likely unfold in the near future.

One of the observations that goaded me on the path to promote Agriculture Outsourcing in Latin America, was the fact that many cooks, drivers, maids, cleaning ladies in urban South India suffer from diabetes, and are proud of it – a stark difference from a couple of decades ago. This Nomura paper speaks to that demographic in a section titled “the <$3000 sweet spot” -
“Unlike other commodities, the sensitivity of the demand for food to an increase in income is much greater for low-income earners. In economists’ parlance, the highest income elasticity of the demand for food is in the low-income bracket.  For example, in low-income countries (defined by the World Bank as those with an average Gross National Income (GNI) per capita of below USD1,000), demand for grains rises quickly as income increases – a 10% increase in incomes is associated with a 6% increase in demand for grain
via Business Insider and Nomura Research

India:
GDP per capita in USD: $1,017
Food as a percentage of total household consumption: 49.5%
Net food exports (as percentage of GDP): 0.3%
From the executive summary of Nomura Research paper:
The surge in commodity prices in 2003-08 was the largest, longest and most broad-based of any commodity boom since 1900. The prices of energy and metals surged the most, but it was the agricultural market that saw the most fundamental change. It may not take much of a disruption in food supply to trigger another surge in prices given that the dynamics have become a whole lot more uncertain as a result of new and some increasingly powerful influences acting on both sides of the food supply-demand equation. Indeed, droughts this year in Russia and Kazakhstan and severe flooding in Pakistan and China have sent global wheat prices higher, while meat and sugar prices have hit 20-year highs, despite lacklustre growth in many of the advanced economies.

We expect another multi-year food price rise, partly because of burgeoning demand from the world’s rapidly developing – and most populated – economies, where diets are changing towards a higher calorie intake. We believe that most models significantly underestimate future food demand as they fail to take into account the wide income inequality in developing economies. The supply side of the food equation is being constrained by diminishing agricultural productivity gains and competing use of available land due to rising trends of urbanization and industrialization, while supply has also become more uncertain due to greater use of biofuels, global warming and increasing water scarcity.

The fall in agricultural prices from their H1 2008 highs was caused more by the global recession and the tumble of oil prices than by an expansion in food availability. In most developing countries, despite burgeoning demand, supply did not respond significantly to high food prices (FAO, 2009a, p.4). It may not take much of a disruption in food supply to trigger another surge in prices given that the dynamics have become a lot more uncertain as a result of new influences acting on both sides of the food supply-demand equation. Furthermore, based on the historical pattern of the Southern Oscillation Index, the world is due for another severe El Niño event, which will likely cause big global weather disruptions.
Nomura Global Economics Strategy Sep2010

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