The Relation between Food and Oil

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The current global food system is highly fuel- and transport-dependent. Fuels will almost certainly become less affordable in the near and medium term, making the current, highly fuel-dependent agricultural production system less secure and food less affordable. It is therefore necessary to promote food self-sufficiency and reduce the need for fuel inputs to the food system at all levels.

The connection between food and oil is systemic, and the prices of both food and fuel have risen and fallen more or less in tandem in recent years. Modern agriculture uses oil products to fuel farm machinery, to transport other inputs to the farm, and to transport farm output to the ultimate consumer. Oil is often also used as input in agricultural chemicals. Oil price increases therefore put pressure on all these aspects of commercial food systems.

Moreover, as oil prices rise, so does demand for biofuels, which are the only non-fossil liquid fuels able to replace petroleum products in existing combustion engines and motor vehicles. But biofuels are often made from corn and other agricultural products. As demand for these alternative fuels increases, crop prices are forced upwards, making food even less affordable.

Export-led agricultural strategies also increase the world’s vulnerability to high oil prices. Most donor agencies have encouraged the less industrialized countries to focus on the production of cash crops at the expense of staples for local consumption. As a result, people in these countries are forced to rely increasingly on imports of often subsidized cereals or those funded by food aid programs. However, rising transport costs contribute to rising prices of food imports, making them ever less affordable. Fuel costs represent as much as 50 to 60 per cent of total ship operating costs. From early 2007 to mid-2008, as fuel prices soared, the cost of shipping food aid climbed by about $50 per ton – a nearly 30 per cent increase.

Meanwhile, many poor farmers who cannot afford machinery, fuels and commercial farm inputs find themselves at a disadvantage in the global food economy. Compounding this are agricultural policies in industrialized food-exporting countries that subsidize domestic producers and dump surpluses onto developing countries, thus adding to the economic disadvantages of the small holder farmers in those countries. As a result, millions of those farmers are being driven out of business annually, those countries are giving increasing priority to production for export and they are witnessing a burgeoning landless poor urban class (whose immediate ancestors were subsistence farmers) that is chronically malnourished and hungry.

Soaring food and fuel prices have a disproportionate impact on developing countries and on poor people in developed countries. Americans, who, on average, spend less than one tenth of their income on food, are able to absorb the higher food prices more easily than the world’s poorest 2 billion people, who spend 50 to 70 per cent of their income on food.

Why are oil prices so high? Speculative investment in commodities plays a role, though there is a persuasive case to be made that oil prices would be rising even if oil futures speculation were entirely curtailed. The oil industry is changing, and rapidly. As Jeremy Gilbert, former chief petroleum engineer for BP, has put it, “The current fields we are chasing we’ve known about for a long time in many cases, but they were too complex, too fractured, too difficult to chase. Now our technology and understanding are better, which is a good thing, because these difficult fields are all that we have left”.

The trends in the oil industry are clear and undisputed: exploration and production are becoming more costly, and are giving rise to greater environmental risks, while competition for access to new prospective regions is generating increasing geopolitical tensions. According to the International Energy Agency, the rate of world crude oil production reached its peak in 2006. The IMF has joined a chorus of energy industry analysts in concluding that scarcity and high prices are here to stay.

A collapse in demand for oil resulting from sharply declining global economic activity could cause oil prices to fall, as happened in late 2008. Indeed, this is a fairly likely possibility. But while it would make oil cheaper, it would not make fuel more affordable to most people. It is theoretically possible for the world to curb oil demand through policies that limit consumption, and it is also conceivable that some unexpected technological breakthrough could rapidly result in a cheap, effective alternative to petroleum. However, these latter two developments are rather improbable. Thus there is no likely scenario in which the services provided by oil will become more affordable within the context of a stable global economy at any time in the foreseeable future.

While wealthy consumers are able to absorb incremental increases in food prices, a sudden interruption in the availability of fuel (due to geopolitical events) or a significant gradual curtailment of fossil fuel production (due to the continuing depletion of world hydrocarbon reserves) could lead to a breakdown of the food system at every level, from farmer to processor to distributor to retailer and finally to consumer.

By post carbon

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