[R-G] The Battle for Food, Oil and Water

[Yoshie Furuhashi]

<http://www.ft.com/cms/s/0/c6f6f012-ce0b-11dc-9e4e-000077b07658.html>
The battle for food, oil and water

By Gideon Rachman

Published: January 29 2008 02:00 | Last updated: January 29 2008 02:00

Soccer crowds in England like to abuse match referees by chanting:
"You don't know what you're doing." If protesters had been able to get
near the World Economic Forum in Davos last week, they could
justifiably have aimed the same chant at the world leaders who
assembled in the Alps.

These people are meant to be the "masters of the universe":
presidents, prime ministers, bankers, billionaires. If anybody can
make sense of world events, it should be them. But the air of
confusion in Davos was both palpable and alarming.

The meeting took place against a background of crashing stock markets,
panicky interest-rate cuts and a massive bank fraud. The global
financial system is now so complicated that nobody really knows how
deep its problems run. This central "known unknown" means that all the
subsequent big questions are much harder to answer. Will America face
a serious recession? It all depends. How bad will the knock-on effects
be for the rest of world? Search me. How should politicians and
regulators react? Difficult to say.

At Davos a year ago, the business and finance crowd were still full of
the joys of globalisation, while it was the people dealing with
international politics who were spreading alarm and despondency. This
year the roles were reversed. While the financiers are frightened, the
politicians and diplomats are going through a relatively calm period.
There is less bloodshed in Iraq; the chances of war between the US and
Iran have receded; Middle East peace talks have begun. The situation
in Afghanistan looks bad, but not yet catastrophic.

Without a big short-term crisis to distract them, the international
politics crowd were able to look at longer-term trends. They too are
trying to understand the consequences of globalisation. But while the
bankers grapple with the top end of the process - the movement of
billions of dollars around the world financial system - the political
analysts are increasingly preoccupied by the way globalisation is
affecting people at the bottom of the pile.

The costs of food and energy are rising fast. The availability of
water is also becoming an issue, from Australia to Africa. The
struggle for these three basic commodities - food, energy and water -
came up repeatedly in Davos.

Globalisation - in particular the rise of China and India - is driving
a lot of these changes. The world oil price has risen by 80 per cent
over the past 12 months and - since 2001 - China alone has accounted
for about 40 per cent of the increase in oil demand. Global food
prices have gone up by about 50 per cent this year. There are
short-term reasons for this, such as a drought in Australia and pig
disease in China. But the biggest long-term driver of increased prices
is growing wealth in China and India.

Urbanisation and industrialisation are both increasing demand for
water, at a time when climate change is disrupting supply. The rains
in China are moving north and becoming more intense. The level of the
Yangtse river is falling. Other important rivers around the world are
suffering in the same way: the Murray in Australia, the Colorado in
the US, the Tagus in Spain and Portugal. Businessmen can see the
problem growing. Andrew Liveris, chairman of Dow Chemical told the
Davos meeting that: "Water is . . . the oil of the 21st century."

The food, energy and water problems all touch on each other. America's
pursuit of alternatives to oil has led to massive investment in
biofuels made from maize. That in turn has cut the amount of maize
being used for food production and so contributed to rising food
prices. The production of biofuels is also very water-intensive.
Meanwhile, increased demand for agricultural land to grow more food is
leading to the clearing of forest in Brazil - which could worsen
global warming - leading to further stress on the world's water
supplies.

The potential for political conflicts increases along with the rise in
food, energy and water prices. Ban Ki-Moon, the United Nations
secretary-general, told the Davos meeting that water shortages had
helped to cause the conflict in Darfur.

Jami Miscik, head of global sovereign risk at Lehman Brothers, points
to a series of less dramatic events, which highlight the political
strains caused by rising food and energy prices: riots in Mexico last
summer, after sharp increases in the price of maize flour; mass
protests in Indonesia this month, provoked by the rising price of
soyabeans; a deadly stampede in western China last November, caused by
a rush for subsidised cooking oil; a food-price freeze in Russia,
introduced just ahead of the parliamentary elections in December; gas
and petrol rationing in Iran; blackouts in Argentina and South Africa.

This month Hugo Chávez, the president of Venezuela, raised milk prices
by 37 per cent and threatened military intervention and
nationalisation if food producers did not sell more to the government.

All of these examples are confined within national boundaries. But
competition for food, water and energy could also provoke conflict
between countries. One session at Davos was devoted to the prospect of
drilling for oil and gas in the Arctic. It heard that military
activity in the area is increasing, as eight rival countries -
including Russia, the US, Canada and Norway - gear up to assert their
claims over the fossil fuels that lie beneath the melting Arctic ice.

The theme of this year's World Economic Forum was meant to be
"collaborative innovation". It is difficult to think of anything less
collaborative or innovative than a new era of resource wars.

gideon.rachman at ft.com

--
Yoshie
<http://montages.blogspot.com/>