Grub for the World

So the U.S. farmer is expected to plant a lot of corn for the 2007-08 farming season (starting Spring 2007) with corn acreage at a record level not seen since WW2. Fairly random factoid, especially for someone who grew up in a non-agrarian urban island state on the other side of the world, far away from the croplands of the American midwest. Yet this development may actually have far ranging effects on everyone across the world, or rather it is symptomatic of the evolution of resources being reallocated globally. And a trend which should even impact a faraway country such as Singapore.

To cut a very very long story short, here's the linkage via a summary chain of events:

1) In the last 2 years, oil has climbed dramatically from US$20+/barrel and has been hovering around US$60/barrel recently (hitting as high as US$70+ last year). Depending on who you talk to, US$55/barrel is the new US$20/barrel of yesteryear. Oil is a depleting resource and in increasing demand not only here in the U.S., but everywhere else including the growing economic behemoths of China and India.

2) Alternative fuels come into play. Ethanol in particular has become a real product response in the U.S. - although still uneconomic without subsidies - for overall gasoline demand as a blend with crude-based gasoline. And ethanol production is expected to continue growing. U.S. policy on ethanol is guided by the goal of reducing reliance on foreign-based energy sources.

3) Corn is one of the key inputs for ethanol. Traditionally, U.S. corn is grown primarily for export to countries such as Japan, Taiwan, etc., and for feedstock into the food industry domestically. With the ethanol sector becoming a major and growing demand driver for corn, exports may be impacted in the long-run unless farm yields can improve dramtically (and there is only a fixed amount of farm acreage in the U.S.), and costs for domestic food producers have spiked.

4) Concurrently, global diets are increasingly larger and more protein-rich. For example, the average Chinese and Indian citizen (those two countries alone account for over 2 billion of the people of the world) is getting wealthier and will increasingly look to more meat-based foods, requiring greater amounts of feedstock for poultry, cattle, hogs, etc.

5) Food costs globally will become more expensive and in many ways, more scarce. Countries such as Brazil, Argentina, Australia, etc. should see a massive boom in agricultural activities to become the new farmlands to the world.

6) Water resources, already a massive constraint globally and a major requirement for increased crop agreage, could become the new commodity for competition.

So many moving pieces but the long-term big picture aspect is there. At the risk of oversimplifying the corresponding factors above, there nevertheless is already tremendous data around the current fuel vs food debate in the U.S. which can also be extended to other critical resources on a more global level. Whether by coincidence, necessity or outright urgency, methinks public policy around the world needs to be geared towards improving our energy and water resources.

For Singapore, some recent moves seem to be in the right direction even if they are not necessarily part of an overall concerted national strategy. However, given the country's resource-deficient position, a strategic policy for the future may be needed. Water is already a life-and-death issue for Singapore, so recent moves on Newater, desalination, etc. are important pieces not just for local purposes, but also to tap into increasing demand for such technologies and expertise abroad. As for food costs, material inflation should undeniably kick in in the near future and is a factor policymakers may have to seriously (re)consider when weighing policies that will impact the lower and middle income.