Financial markets and food prices

food protest in MexicoLast year, we have had a flavor of things to come when the prices of oil and of agricultural commodities skyrocketed, creating inflation and in many places food related riots, even in Western countries’ supermarkets.
On the contrary to the “official” version that the media were presenting us about population increase, emerging countries economies growing, the spike in price was not all that linked to supply and demand of the commodities.
What was exploding was the demand for future contracts for these commodities, and that is demand for contracts on paper. Many players who were trading these future contracts were investment banks, financial institutions and private investors, mainly hedge funds. These people are not physically involved in the trade of the commodities. I cannot remember any oil tanker with a bank’s name on it, nor on trucks transporting corn or wheat.
Wall Street-NYSEMoreover, such transactions were highly leveraged. For oil, I have seen numbers varying between 11 to 22 times leverage. This means that the demand was artificially boosted on paper by people who are not physical buyers of the commodity they trade, but who want to create a momentum in the market so that the prices of the contracts increase significantly, with as only goal to take as much profit on the paper transaction as possible.
This would not be bad if the futures prices were not becoming the “official price” in the real economy. We have seen the result: strong inflation and social unrest for very fictive reasons, because we were not close to actual shortages.
Future contracts had been introduced as a tool for the producers of commodities to fix a price in advance for their production. As such, this is a very good system that offers more security, and especially more market predictability to producers.
The problem is that these futures contracts have now become an investment product that is not connected anymore to the real market numbers. They live a life of their own and they are priced by the market on paper with high leverage levels, but they can directly influence the prices of goods to consumers, and therefore skew the economic situation.
At some point in time, governments shut down a number of markets for basic commodity, in particular in India.
For the future, we can expect that a drop in the US dollar will encourage financial investors to “hedge” against inflation by rushing into futures markets; therefore, they will create inflation by giving the impression that there is a strong surge in demand for commodities. For investors (or more accurately I should say speculators), commodities have now become currencies, they do not represent actual products and the investors do not link them to the consequences that will hit the real economy because of that.
This will translate in major inflation, which combined with a very slow economic recovery could cause two recessions back to back, or extend this one much longer. In such a scenario, especially the USA will be hit quite hard.
Unfortunately, it probably will take much longer for governments to see how this loophole works and to act firmly to regulate the futures market. We might have a bumpy ride ahead of us.

Copyright 2009 The Happy Future Group Consulting Ltd.

Recycling and cleaning: the economic drivers of tomorrow?

Here is an article I wrote a little more than a year ago.

With an increasing population, years of throwaway goods consumption, landfills full of garbage, the pollution of our drinking water reserves and a deteriorating of our air and atmosphere, there is no doubt that our survival will largely depend on our ability to clean and to recycle the waste we produce.

The recycling business has already been developing for quite some years already and the next step should be an increasing part of their products and services as the main source of raw materials for many industries.

What indeed would be the point of trying to get resources in more and more difficult conditions and at higher and higher costs and with more and more energy use while we are sitting on a mountain of metals, plastics, glass, wood, paper, etc… Those are available in many places literally in the open air. The raw materials for the raw materials industries are there. All it takes it to sort them all.

This potentially offers many jobs opportunities as the value of this waste will increase as a result of a growing population’s demand. More machinery will also become necessary to handle this waste in a faster and more importantly safer manner. Images of kids browsing on landfills in order to get a miserable income to feed their siblings and parents are not acceptable, and I bet that one day they will do this in better conditions and for decent wages, as we will have grown from a waste gathering approach to a structured and systematic waste treatment and recycling.

Down this chain, new industries will develop in the area of processing the sorted waste. Some will have as a function to clean, others to recover the main raw material, and others to transform it into semi-finished products or even reprocessed into finished goods. Most of such industries already exist, either as active waste processors or as goods producers that will over time have to adapt and just change the origin of their raw materials and use recycled products instead of “first production” raw materials.

The other main area of need is water treatment. More and more of our water reserves are being polluted by increasing industrial activity and by more intensive agriculture and animal husbandry. In many areas, water is no longer suitable for infants as the mineral content has reached dangerous level.

The level of pollution has created a strategic need to insure health and safety, and thus preserve the sustainability of the populations depending on these water supplies.
A growing need is in sight for water treatment facilities, either for large scale centralized ones as also for smaller scale even individual local solutions. Further, industries will need to provide us with more solutions on how to use less water. There already are many systems on the market to reduce water use in kitchens and toilets. Although, these systems have brought some solutions and relief, more must be done.
Just to name one example, I would like to make you think on how ridiculous, and therefore unacceptable, the amount of water that we flush in the bathroom every time compared with the amount of liquid we produce when we visit those premises. Clearly, this is out of balance, and imagine that by saving a gallon of flush water a day, we save more than our individual need for drinking water!

Copyright 2009 The Happy Future Group Consulting Ltd.

The Ocean, not Mars is the next frontier

Sorry to crush George W.’s and Star Trek’s fans’ illusions, but I believe that colonizing oceans could offer more interesting possibilities than outerspace. Mars… well that’s another story…
OK, so, let’s start daydreaming!
First, a look at the scenery.
Close to 70% of the Earth is covered by water.
Most of that volume is left unexploited, with exception of fisheries, which unfortunately deplete stocks, mostly because there is no efficient plan to manage fish stocks in a sustainable manner.
The timid colonization efforts are limited to fairly coastal activities.

Natural resources
While on the land, it has become more and more difficult to extract metals and minerals, there is a vast hardly explored potential for these natural resources lying at the bottom of the sea. Many open-sky mines have been exploited to almost full potential. Drilling and mining at deeper and deeper levels have resulted in higher and higher costs. All things considered, it is probably cheaper to drill through a layer of (soft) water than hard rock, and there are areas known where metals are available on the surface of the oceans bottom.

Tremendous energy potential is available in and over the oceans.We have huge reserves of hydrogen in there. Of course, to produce it we will have to produce the necessary energy to split the water molecules. Using fossil fuel cannot be an option, as the gas emissions would defeat the purpose.
The great thing is that the energy needed can be found in the oceans themselves. Why not think of having large wind or solar farms located on oceans (probably not too far offshore), dedicated to splitting water and producing hydrogen and oxygen. The hydrogen could be used in fuel cells, and the oxygen could be used to allow the people involved in underwater activities and settlements to breathe.
Further, more electricity can be produce by using the strong currents to run through turbines.
It could be also interesting to consider the possibility to create floating solar energy farms.
It such a scenario, it is not unthinkable that all our energy needs for cars, factories and industries could come from clean emission-free electricity.

Water, and especially clean drinking water will be one of the biggest challenges that mankind is going to face in the future.
Of course, there is plenty of water in the oceans, but the main problem will be to make it drinkable.
Considering that in the fantasy I am writing here, I envision human settlements on (or in?) the oceans, there will have to be drinking water available.
Next to desalinization, the other most obvious source of drinking water is collecting rain.

Capturing carbon
There are projects of using minerals to change the pH of the sea with the hope that this would help absorb CO2 much faster than it naturally currently happens. Although, this might be our last resort if we do not get our emission under control. The problem is that we have about no idea on what the side effects on the ecosystems might be, and that is a scary thought.
Here, I want to focus on more positive ways to use ecological methods.
On the land, we are losing more and more trees as a result of our need for more and more land, and therefore we are losing the natural capacity to capture CO2.
Then why not think of replacing these lost trees by cultivating the oceans and develop large vegetal populations, in other words, grow aquatic meadows and forests?
This must be done with care of course as the ocean life is a three dimensional thing with depth playing a significant role, while on land it looks more like two dimensional (limited depth/height significance).
Another area of attention when developing such vegetal populations is to make sure they do not get out of control and impact the oceans ecology as many other species with interact with them, creating complete ecological systems and food chains.

Developing a whole new aquaculture
Here, I use this term in its literary meaning, which is cultivating the water, not just restricting it to the production of a few commercial aquatic species, as it is the case today.We should be able to cultivate the water en develop it in a similar way as we did with agriculture, but also by learning from the mistakes we have made in agriculture.The only way that the current aquaculture farms can survive is to produce (cultivate) the foodstuffs it needs in the oceans as well. Keeping on doing as today has probably not that much future, as the need for fish meal, and mostly fish oil will exceed by far the current production possibilities, and exhausting the wild stocks used for that clearly could not work. Further, replacing these foodstuffs by vegetal protein and fat from agricultural crops will not work, either, because there will be too much competition from the needs for land-based animal productions and the needs for human food. Clearly, the only way to meet the increasing needs for seafood is to grow the foodstuff in the sea.
This opens a tremendous project of picking which foodstuffs to produce in the sea, how to manage them, how to combine the mix of production and ensuring the sustainability of this new aquaculture, and at the same time ensuring that the marine ecosystems recover and function properly as well.
This will require an aquaculture of plankton, of algae, of aquatic plants, of fish, of shellfish, of mammals en maybe more.
So far we have depleted the food chains in the sea, now is the time to restore them, next to increasing our ocean-based food supplies.

The challenges
Well, you will say: that sounds all very nice but is it realistic?
And I would answer, maybe it is not quite realistic today, but if we work on it, quite a few things named above can be achieved. Actually, some have already started.
The main challenge I see is to cope with the tremendous forces that oceans can unleash, such as currents, storms, waves and pressure in the depths; and we would need to build in a way that can deal with such forces, if we want to avoid disasters.
But you have to agree that there is lots of space available on our planet this way and it here right here “at home”.

Copyright 2009 The Happy Future Group Consulting Ltd.

Bioethanol: Solution or Problem?

Opinions seem to be quite diverse about using bioethanol as a fuel.
So is bioethanol a solution or a problem?

My view is that it will not solve the CO2 emission problem. All it can do is to reduce dependence on fossile fuel, but that is a very temporary relief, which has more to do with politics.
It is quite likely that a massive production of bioethanol will have more negative consequences than positive ones.
Using agricultural land to feed our cars instead of meeting the increasing demand for food as the world population increases strongly rises questions, especially ethically ones. Of course, a way of coping with this would be to turn more land from its current use into agricultural land, but that probably will result in more environmental discussable practices such as excessive deforestation.
I would love to see a thorough and comprehensive study of all the consequences, positive as well as negative, to know where bioethanol might lead us. What will the impact be on gas emissions? What will be the impact on fuel costs? What will be the impact on agricultural and food prices? So far, I have only read opinions and I haven’t found such research.

As long as this stays this way, I will choose the principle of precaution and favor policies that encourage people to cut their energy use instead of getting massively and blindly in something that appears to me as an illusion.

Copyright 2009 The Happy Future Group Consulting Ltd.