The fuel-food-water crisis

Scene one. US. This year about 30 per cent of the grain harvest will go to feed the 100 ethanol plants in operation. A further 350 plants are under construction or being planned. The Midwest's "corn belt", which accounts for the production of half of America's corn, will soon become a "biofuel tank". Environmentalists are now worrying about the impact this will have on the region's aquifer which is already under stress.

Scene two. Brazil. Over eight million acres of forest will be lost in 2008. Only seven per cent remains of the Atlantic Forest, which used to run along Brazil's long coast. Instead, there have merged two mega-cities: Sao Paolo and Rio de Janiero. Tropical forests are critical for rainfall and global climate.

Scene three. The UK. Ongoing price hikes in utility bills are creating millions of "energy poor" households (those that spend more than 10 per cent of their disposable income on utility bills). Charity organisations are lobbying hard for the government to force companies to introduce a standard fuel-poor tariff.

Scene four. Egypt. Thousands of people are queuing for hours to get hold of a loaf of bread. Ten people have been killed during riots that broke out at bakeries. Violent protests are increasing as bread, rice, sugar and cooking oil shortages become more acute and their prices continue to rise.

These are but a few snapshots of a new reality that seems to have taken the world by surprise. Food-fuel-water: the trilogy upon which humanity's lifeline depends. Slowly it is being acknowledged that global threats require global responses. Too much is at stake for humanity to rely solely on the "invisible hand".

The mermaid's serenade surrounding globalisation is fast turning mute. No one believes that globalisation can be reversed; it surely needs to be managed. The key question is: In the absence of a world authority who will put the bell around the cat's neck?

The post-World War II era was dominated by Keynesian economists and public policymakers who believed in "big government". It was a time for national reconstruction and expansion and governments were expected to take the lead and show the way. The emphasis was on stimulating demand, ensure full employment and avoid another Great Depression. Unfortunately, governments proved more amenable to political expediencies than economic ones. Productivity in the public sector plummeted while public debt shot up.

"Big government" came to an end in the 1980s at the hands of Ronald Reagan and Margaret Thatcher. It was time to roll back the state and push laissez-faire. Henceforth, market forces were to drive the economy. The collapse of the Soviet Union consecrated the triumph of neo-liberal thinking. Western-style capitalism had won and paved the way for faster and deeper globalisation. Many Third World countries sought to jump on the bandwagon, opening up their economies in the belief that they would become part of the "global village". Global agencies such as the World Bank and the International Monetary Fund re-enforced this "free market" talk and dispensed remedies accordingly. The United Nations' Millennium Development Goals stipulated that, by 2015, all hunger and poverty in the world were to be eradicated.

In 2001, the World Trade Organisation embarked on a new round of trade negotiations, known as the Doha Development Round. Special attention was to be given to the needs of poorer countries. These negotiations are presently stalled due to the protection and subsidies that the US and the EU give to their farmers. Ever since the 1960s, the poorer countries have been insisting that such measures distort international markets and stifle the growth of their agro-business. The "real" price of staple commodities such as wheat, corn and rice has been falling for ages. Now, over the last 18 months, the prices of these commodities have practically doubled, leading to a food crisis that is triggering riots from Africa to Latin America.

What has led to this change? In this age of knowledge, how is it that it was not foreseen? For a number of reasons, recently, this sector drew the interest of investors whose sole interest is to make a quick buck. There is no immediate grave global shortage of grains just as much as there is no shortage of oil reserves. While it is true that climatic conditions, coupled with increased demand for grains (and meats) in fast-growing economies such as China and India, has put pressure on supplies, the hike in prices has been mainly due to speculation and hoarding.

There has been a lot of talk about biofuels. Both the US and the EU have set ambitious targets so as to push the use of biofuels for transport purposes. And both governments have been offering attractive incentives for farmers to switch to fuel crops. So, yes, unless additional grain supplies are secured over the next few years, meeting these targets could indeed threaten the survival of an estimated two billion poor people.

Some analysts see this as an opportunity for Africa to become a significant food producer. Africa has the land. The challenge is to find and pump the water. Current fuel prices are a deterrent. Supplies of fresh water in many parts of the world are threatened and could lead to serious conflicts between, and within, countries.

The world economic order is undoubtedly under severe pressure. Governments have been told to steer away from interfering with the economy but they can still go to war. And this impacts and distorts economies much more than any Keynesian prescription. "Big government" has given way to "big money". The fuel-food-water crisis is a real threat to global economic and political stability. The situation is further complicated by the free fall of the US dollar and the global credit crisis. We are far from "the end of history".

Fms18@onvol.net