“I read the daily e-mail on energy supply with great interest [Ed December 6 th ]. I wish my humble position allowed me to afford to read the whole article, but I'm afraid I can't justify full subscription at the moment.
“The issue of increased Saudi domestic consumption, and indeed all other oil producing nations, and the upcoming energy crunch is intensely interesting. I've been involved in the environmental debate for 22 years, ever since I converted my farm to organic status. That seems a long time ago. One factor which Chatham House didn't consider is some of the other uses to which oil is used in great quantity, and critical. The major one of these is agriculture. As far as I'm aware, agriculture is globally responsible for around 25% of all hydrocarbon consumption. The range of ways in which we use it includes machinery, fertilisers, chemicals, and more. Then there is of course the energy consumed in the whole food chain, with in the UK over 20% of all goods on the road having a food connection. That's before we consider the ridiculous amount of fuel we are all consuming to get to the out-of-town supermarkets.
"The point I would like to raise that I believe we can cut dramatically this agricultural consumption figure. If we all wasted less (currently around 30% of all food produced), consumed less and therefore reduced obesity and reduced the costs to the NHS of health-related problems from over-consumption, we will be making a massive stride in the right direction. If we also concurrently reduced/removed power consumption of any meat that is produced with the aid of grains and proteins (other than minor strategic requirements), we would also massively reduce the requirement for hydrocarbons in agriculture. With global population is constantly rising, and the dilemmas on how to feed them increasing, making these changes seems unavoidable to me. Instead of which, we have politicians, farming leaders and others constantly exhorting everybody to increase their production, saying we must do it "sustainably". I don't think they have any idea how this can be done "sustainably", and that they're asking for the impossible.
"By making these policy shifts, we would also have two other advantages. Firstly, we would take the pressure off the dwindling supplies of phosphate fertilisers, which have the same finite supply line and therefore pressure points as oil. With phosphate, the key holder of global reserves isn't Saudi Arabia, but North Africa. I've attached a pictorial which was presented at the Oxford farming conference this week, on this.
"The third critical area for resource demand and food production is water. With at least one of the 10 biggest rivers in the world now not reaching the sea, and with friction starting to build alongside key arterial waterways such as the River Jordan, Nile, etc, everything we can do to reduce demand on water has to be good, and agriculture is a massive consumer..
"I've also attached an article that I wrote for a government supported research institutions debate forum.
"I hope you find this interesting and I apologise for sending you this when you weren't expecting it!"
Eoin Treacy's view Thank you for an interesting email highlighting an alternative attitude to the agriculture sector. A number of Fullermoney subscribers are farmers and I suspect share some of your concerns though perhaps not your solutions.
I agree that wastage is a terrible problem in many developed economies. We would all be a lot better off, both personally and economically, by reducing our consumption.
With regard to phosphates, I believe it would be a mistake to rely overly on pessimistic estimates. The Jevons Paradox (also see Comment of the Day on March 8th 2011) is as relevant today as it was 150 years ago. The world will not run out of phosphate. As prices rise, the incentive increases to find more efficient ways of sourcing or replacing the commodity. Prices eventually come back down as innovators succeed. Secular bull and bear markets in commodities have followed this pattern repeatedly and there is no reason to suspect this case will be any different. .
Water is a precious commodity and expensive to manage effectively. Countries with a surfeit have a competitive advantage. They would be mad to ignore this and have a strong incentive to produce as much food as possible, with a view to exports. Policy in the EU and USA over the last decade has been skewed towards either producing less or diverting production away from food requirements. This has had a marked effect on prices.
The challenge for countries currently having difficulty feeding their populations is to increase production, cut waste, maximise efficiency and enhance the supply chain. It is for specifically this reason that so many investors were disappointed with India's flip flop on allowing multi-brand retailers access to its market.
National interests largely pervade the global agriculture industry and this in unlikely to change in the medium term. In our investments, we can only deal with the reality provided by the market.