World on the Edge
The global economy’s most pressing challenge is not so much a diminishing supply of fossil fuel, but rather food shortages, climbing prices and the unrest that can follow. Food security emerges as a new priority for nations, complicated by long-distance transportation and an over-reliance on fossil fuels.
Suddenly, the practice of pushing costs of fossil energy onto future generations is no longer a foolproof way to avoid today’s sacrifices. The world is already stretched to supply food for a fast-growing population, and prices are rising. Developing economies certainly cannot afford business as usual or trust the blithe promises from economists or climate skeptics that necessity will lead to adequate technologies or new avenues of trade.
Unnerving weather events, competition over fresh water, desertification and soil erosion, add new disruptions in food security, and Lester R. Brown in his book, “World on the Edge: How to Prevent Environmental and Economic Collapse” shows a well-honed grasp of the intricate connections between food and energy.
The title is more alarmist than the book’s contents, and if anything, Brown is optimistic that the worst of the planet’s climate woes could be prevented with fast mobilization, as accomplished by the US with its entry into World War II.
Brown knows that any policy change creates winners and losers among industries and investors – and he offers straightforward analysis and numerous examples on emerging global trends. As president of the Earth Policy Institute, he’s not so crass with his analysis, but the investment opportunities are clear for investors seeking policy change and trends in agriculture, architecture, engineering, insurance and transportation. Like energy, food is just another commodity for profit-hungry investors, and Brown expects them to confront crisis by investing in commodities, seeking profits and hedging against inflation.
Another apt title for Brown’s book would be “12 Investment Mega-Trends for the 21st Century.”
Governments rich with fossil fuels already hedge their bets. Saudi Arabia holds the world’s largest oil reserves, and embraces solar energy. Oil-rich Texas, leading oil and gas producer in the United States, also leads in generation of electricity from wind. China is the world’s top energy consumer, and its sovereign wealth fund cashes in with increasing investments in commodities. Innovative nations like Japan and Germany invest in green technology and efficiency, working to reduce energy and transportation costs.
Investing in real estate is another way to hedge against inflation, and Brown explains that farmland acquisitions have become a lucrative investment for net food importers. Sovereign wealth funds, investment firms and corporations from China, South Korea, Saudi Arabia, Libya, Bahrain, Qatar and the United Arab Emirates purchase or lease cheap land in the Republic of Congo, Sudan and Ethiopia, clearing the way for factory farms. “One of the little noticed characteristics of land acquisition is that they are also water acquisitions,” Brown writes, though he cautions that long-distance farming could get costly as oil prices rise and hungry local residents protest diverting crops.
Not surprising, intense competition is underway for water within and among countries. Brown points out that water use has tripled in the last 50 years, as urban communities demand more water. Wells go unreplenished as farmers pump deeper for water with diesel or electric drills. Water tables are falling in the three nations that produce half the world’s grain. “Among the big three grain producers, roughly a fifth of the U.S. grain harvest comes from irrigated land,” Brown writes. “For India, the figure is three fifths, and for China, roughly four fifths.”
Population growth and water shortages already collide in the Middle East, reducing grain yields and fueling unrest. Given the critical role of water in agriculture, John Anthony Allan from King’s College London has described grain and livestock as “virtual water,” so Brown agrees that grain imports essentially represent water imports for the Middle East.
Most consumers don’t understand the full costs of food products when government-subsidized energy aids transportation of ordinary crops – not just exotics, but apples, grains or beef – for a thousand miles or more, adding to carbon emissions that wreak havoc with soil and climate. Brown points out that governments spend about $500 billion annually to subsidize fossil fuels versus $46 billion on alternative fuels. Pressures in the United States and Europe to reduce taxes and government spending could make renewables more affordable.
“Whereas the twentieth century was marked by the globalization of the world energy economy, as countries everywhere turned to oil,” Brown writes, “this century will see the localization of energy production as the world turns to wind, solar, and geothermal energy.” As energy prices rise, nations and consumers will secure local sources of food.
If government policy emphasizes future technologies rather than those of the past, carbon emissions could be reduced by 80 percent by 2020, Brown insists. Population stabilization would increase wealth. Improving efficiency, redesigning communities, retrofitting buildings, investing in high-speed rails and restoring the earth’s natural support systems would reduce carbon emissions and also boost agriculture and the economy. He proposes that governments reduce income taxes and instead hike taxes on carbon, and concludes, “It is tax shifting, not additional appropriations, that is key to restructuring the energy economy in order to stabilize climate.”
The onset of climate change is gradual, with policy changes slow to follow. But natural disasters can speed policy momentum – gas-line explosions in California and Pennsylvania, bursting coal-ash dams in Hungary and Tennessee. With every disaster, investors instantly calculate risks to their portfolios.
After the partial meltdown of nuclear reactors in Japan following the devastating earthquake and tsunami, some analysts have bemoaned the loss of public confidence in nuclear power. In the wake of sharp rises in the price of oil, the nuclear industry has enjoyed a renaissance as the alternative of the future. Now many nations, especially Germany, review their commitment to nuclear power.
Yes, there are profits to be made in the upcoming food shortages and public desperation for low-cost alternatives to oil, gas and uranium. Brown’s book and others like it – exploring the complex relations of climate change, energy and food – cast light onto investment mega-trends for the 21st century.