World Bank approves U$4 million grant to Indonesia for geothermal project in Indonesia

Antara 3 Jun 08;

Washington (ANTARA News) - The World Bank`s board of executive directors has approved a US$4-million GEF (Global Environment Facility) Trust Fund Grant for a geothermal power generation development project in Indonesia.

The geothermal power generation development project aims to promote the expansion of economic and environmentally friendly geothermal power generation in Indonesia, and reduce carbon dioxide (CO2) emissions from the power system, according to information on the bank`s official website.

There are four components to the project which was approved on May 29, 2008.

The first component is the policy framework for scaling-up the development of geothermal power.

This component will assist the Indonesian government in developing and implementing an integrated set of policies that will provide sufficient regulatory certainty, risk mitigation, and economic incentives for increased public and private investments toward developing geothermal power in Indonesia.

The second component is transactions management for mobilizing investments in geothermal power generation. This component will assist the Indonesian government , especially the energy and mineral resources ministry, to develop its capacity in planning and transacting geothermal power development in an efficient and transparent manner.

The third component is geothermal sector technical capacity building. This component will help address the limited domestic technical capacity for handling most geothermal related activities, and support the long-term development prospects of the sector.

Finally, the fourth component is project management assistance.
This component will provide the necessary technical consultant support to the directorate of geothermal enterprise supervision and ground water management, the executive implementation unit, for the management and supervision of the project.

Apart from the grant, the Indonesian government also expected to get a program loan from the World Bank amounting to US$1.2 billion to cover the country`s budget deficit of around RP82.3 trillion.

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Challenges for the food summit

Roger Harrabin, BBC News 3 Jun 08;

Politicians struggling to solve the current world food crisis need to find long-term solutions that feed the poorest without reproducing the ills of the recent "cheap food era".

In the late 1990s, the wheat price was at a record low - driven down by inexpensive fuel and taxpayers' farm subsidies in the EU and America.

Cheap food encouraged an epidemic of obesity in which the number of people overweight (one billion) globally exceeded the number of malnourished (0.8 billion).

It sparked an orgy of food waste, with people in some countries throwing away a third of what they buy.

It benefited consumers throughout rich nations, and in cities of the developing world.

But farm surpluses dumped on developing countries drove poor farmers out of business and helped persuade politicians in Africa that supporting domestic agriculture was a low priority.

The UN Food and Agriculture Organisation (FAO) warns that food prices will not return to their previous low level for the foreseeable future. But many analysts doubt that they will ever sink that low again - and regard this as a benefit rather than a curse.

"Food has been too cheap for too long," says Professor Tim Lang at City University, UK.

Already the market is responding to higher prices. Argentina is forecast to profit from a boost in agriculture, and Ukraine will cash in by bringing derelict land back into service.

It is reported that farmers in Afghanistan are turning from opium to wheat because it pays more at current rates.

But as well as providing a short-term safety-net for the hungry poor, the politicians at the UN want to stimulate agriculture worldwide - particularly in Africa where all nations are net losers from high food prices.

Their farmers will benefit from the price rise if they can improve outputs.

Meanwhile, they will try to persuade India which is stock-piling rice to release it on to world markets. But they may struggle.

Economists promote free markets as a solution to high prices but for countries such as India, food security is a key political issue - and food politics may grow more rather than less acute as the century progresses.

This will undoubtedly be so in Europe as we move towards the next great reform of the Common Agricultural Policy in 2012.

The UK has been pushing for freer markets and a complete end to direct payments for farm production - but the French farmers have seized the current crisis as the ideal opportunity to push their ideal of a Europe less dependent on food imports.

British policy on the issue is evolving, too. All this friction is likely to cause further jams to the lurching world trade talks.

The open question is whether the planet will be able to feed a population of nine billion by the end of the century. Some food experts are sceptical about whether this can be achieved.

But Prof David Harvey, from Newcastle University, UK, forecasts: "It's hard to be certain but I think it's far more likely that the world will run out of tolerance before it runs out of food. The problem as always is how the food is distributed."

That means potentially increased conflict between people rich enough to waste food and people so poor that they can't afford to buy it.

A paper from the "think-tank" Chatham House outlines four possible scenarios:

* Just a Blip - the present high price of food proves to be a brief spike with a return to cheap food at some point soon
* Food Inflation - food prices remain high for a decade with oil at $100 a barrel
* New Era - politicians accept that current food production is unsustainable and shift to eco-technological farming
* Food in Crisis - a major world food crisis develops with oil at $200 a barrel; the world in recession and food stocks exhausted

Underlying these scenarios are questions of how the environment will cope with all the increased agricultural demand.



Every farm expansion affects wildlife. Water is already scarce in many areas and will have to be used more frugally.

Computer models of climate change cannot offer good guidance on whether key agricultural areas will become drier or wetter in future. But every hectare of virgin land ploughed for agriculture releases more carbon from the soil.

The Intergovernmental Panel on Climate Change projects that agricultural productivity will increase for the first few decades of the century, but will then begin to fall as temperatures rise further.

There are many uncertainties - except this: one way or another, food is likely to remain a key issue.

The FAO has convened a meeting in Rome, Italy, over the next three days which will discuss world food security, climate change and bioenergy.

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Plant waste biofuels benefit from food debate

Julie Gordon, Yahoo News 2 Jun 08;

In the search for renewable energy, turning low-value materials like switchgrass and corn husks into ethanol to fuel cars is something of a Holy Grail.

In theory, these materials would replace corn as the main feedstock for ethanol in North America, reducing the pressure on farmland that has played a role in rising food prices and put drivers into competition with hungry people.

But scientists on the front lines of this search are finding that making the process commercially and environmentally viable is proving much harder than some of the hype would suggest.

In a greenhouse on the top floor of the science complex at the University of Guelph in southwestern Ontario, microbiologist Anthony Clarke stands next to rows of corn plants sprouting out of black plastic pots.

In them, he sees the future of renewable fuel -- but he's not looking at the corn kernel.

"We have all that other green matter: the leaves, the stalk, the husks even," he said. "So the idea would be to use that material for the biofuel and the grain itself as a food."

But turning plant waste into fuel is not easy. Plant cellulose is woven into a tight grid, making it difficult -- and costly -- to extract the glucose needed to make ethanol.

"There is a technology out there for biofuels from cellulosic material, but it does involve acid and steam," said Clarke. "Both require energy to produce. So more energy is going in, currently, and expense, then is being recovered."

With the current technology, cellulose delivers less energy than corn. But if the scientists can make their dream technology work, cellulosic ethanol could be three to eight times more energy efficient than corn ethanol.

Clarke and his colleagues are using micro-organisms that produce cellulose-munching enzymes -- much like ones that let a cow digest grass -- to try to make the dream a reality.

(Video on cellulosic research http://www.reuters.com/news/video?videoId=83422&videoChannel=74)

The goal is to create an inexpensive and natural way to produce cellulosic ethanol on a commercial scale.

The research is supported by Ottawa-based Iogen, a leader in second-generation biofuels.

Iogen, backed by Royal Dutch Shell and Goldman Sachs Group, has run a demonstration plant in Ottawa for four years, and hopes to soon be pumping out cellulosic ethanol from a C$500 million ($504 million) commercial-scale plant in the Canadian prairie province of Saskatchewan. The company is planning a similar plant in Idaho.

While Canada is on the forefront of cellulosic innovation, its actual ethanol industry is small, producing less than 1 billion liters in 2006, compared with 18.5 billion in the United States and 13 billion in Brazil.

Other companies in the race for next-generation biofuels include DuPont Co and General Motors of the United States. GM has even rolled out 12 models of flex-fuel vehicles, designed to run on an 85 percent ethanol blend.

STILL FIVE YEARS AWAY

"The reality is that next-generation biofuels are the future," said Canadian Renewable Fuels Association president Gordon Quaiattini. "It's taking a waste product and creating value from it."

But economist Al Mussell of Guelph's George Morris Centre think tank said the technology is not yet viable.

"The cellulosic-based ethanol is one of those technologies that about ten years ago they said, 'we're about five years away from having this' and five years ago they said, 'well, we're five years away from having this,"' he said.

"So if you ask someone today it won't surprise me if they say, 'you know, we're just five years away."'

Until the technology for cellulosic ethanol catches up with the demand, grain-based ethanol will continue to be the biofuel standard in North America.

This poses a problem for environmentalists, who believe in the rush to appear "green," governments have pushed forward an environmentally and socially flawed product.

"In theory, biofuels are a good thing," said Greenpeace Canada energy coordinator David Martin, who points out that plants are a cleaner fuel source than petroleum as they do not add new carbon dioxide to the air.

"In reality, though, biofuels are turning out to be a disaster."

Martin blames biofuels in part for the increase in corn prices, which have tripled in the past three years to record levels above $6 per bushel.

But grain-based ethanol producers say they are being made a scapegoat in the global issue of food inflation.

"The high cost of food has everything to do with the cost of energy, and little to do with the actual cost of grain," said Robert Gallant, chief executive of Canadian producer and distributor Greenfield Ethanol.

"The cost of oil has gone up 100 percent. Do the math."

(Audio slideshow on corn ethanol http://int1.fp.sandpiper.net/reuters42/2008/05/publish_to_web/in dex.html)

(Graphic on corn ethanol http://int1.fp.sandpiper.net/reuters/editorial/images/20080507/c mb-ethanolgraphic--450.jpg)

Gallant sees corn ethanol as a stepping stone in the quest for cellulosic ethanol, which he hopes will someday replace corn and wheat ethanol as the primary biofuel source in North America.

"When cellulose comes along it will be able to displace much more of the petroleum-based energy source, so it will have a positive environmental impact," said Gallant. "It truly is part of the wave of the future."

And, despite the research difficulties, countries around the world are betting heavily on biofuels to meet their commitments to reduce emissions.

In Canada the plan is to raise use of second-generation biofuels like cellulosic ethanol to 5 percent by 2010 from 1 percent now.

And European Union leaders have committed to raise the share of biofuels in transport to 10 percent by 2020 from 2 percent, and said that target was based on the assumption that second-generation biofuels would become commercial.

(Reporting by Julie Gordon; Editing by Eddie Evans)

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Brazil says biofuel production not to blame for food crisis

Uncas Fernandez, Yahoo News 1 Jun 08;

With its prodigious farm exports and its major industry making ethanol from sugarcane, Brazil is seeking to show that in the food versus biofuel debate at least in its case the two can co-exist.

President Luiz Inacio Lula da Silva has challenged critics who claim biofuel production is contributing to high food prices and demand, arguing the problem lies instead in poor agricultural and distribution models.

"It is not ethanol that is causing food prices to rise, because Brazil, which produces more biofuel also produces more food," he has said.

That view has support among government analysts.

The food crisis "is a problem of wealth distribution, a political problem," said Giselle Ferreira de Araujo, who works for the state National Council for Scientific and Technological Development.

Renato Maluf, the head of the government's food safety agency, said the demand driving up food prices is largely coming from China, India and other emerging economies.

But the high price of gas, which has raised transportation costs, as well as poor harvests in some parts of the world, and "speculation on food products" were also to blame, he said.

The United States had helped trigger the fears of biofuel production affecting food output by "confusing public opinion to suggest there is no difference between ethanol from sugarcane and from corn," argued Rubens Ricupero, a former head of the UN Conference on Trade and Development.

Brazil's use of sugarcane for biofuel does not replace food crops, its supporters argue, whereas the US use of corn to make its ethanol does.

Biofuel has also won backing from some environmental groups, including the WWF, which sees the carburant as a renewable energy source that can address growing worldwide demand for power.

The WWF estimates that demand for ethanol will reach 100 billion liters by 2012, and that the United States, the biggest producer, will provide 42 percent of that. Gasoline consumption, by way of comparison, was 1.24 trillion liters in 2005.

Currently, the United States produces 28 billion liters of ethanol, followed by Brazil with 22 billion liters.

The WWF did note, however, that sugarcane fields tended to occupy areas once given over to cattle-raising, and even though it rated that factor as insignificant, it did warn that some ancillary effect of displaced ranchers moving into the Amazon, contributing to deforestation, could occur.

Eduardo Leao, the executive director of the Unica federation covering the sugarcane industry, said ethanol production uses just 1.0 percent of Brazil's total arable land. Meanwhile, the country's food production had doubled in the past decade.

The country has 355 million hectares of farmable land, of which sugarcane used to make ethanol fills 3.4 million hectares. Another 105.8 million hectares remained available, which "allows us to increase ethanol production without affecting the environment or food," said Unica president Marcos Jank.

Investment in Brazilian sugarcane processing factories is expected to top 23 billion dollars over the next four years. There are already 22 plants controlled by foreign capital, out of a total 412, and their number is expected to rise to 31 within five years.

The ethanol boom has had repercussions for land prices. A hectare of arable land is now fetching an average 4,135 reals, 16 percent more than a year ago.

Amnesty International has also criticized the sugarcane industry for using "forced labor," though Unica has dismissed that as "wrong and out of context."

Read more!

Smuggler alert at Pulau Pisang

Today Online 3 Jun 08;

KUANTAN — The Malaysia Maritime Enforcement Agency (MMEA) has stationed an intelligence unit at Pulau Pisang in Johor to curb smuggling activities including foreigners and goods from neighbouring countries, reported The Star newspaper.

Its director-general Admiral Amdan Kurish was quoted as saying by The Star: “To date, smuggling activities detected on Pulau Pisang are not as serious as portrayed in the media recently.

“This is because the agency conducts patrols in the area at all times and as far as I know, Pulau Pisang is not used as a transit point for illegal foreigners nor for smuggling goods.”

Admiral Amdan was asked to comment on a news report which appeared in a Malay newspaper claiming that the smuggling of illegal foreigners and goods from neighbouring countries in Pulau Pisang had been going on for the past 10 years.

The activities were said to have occurred as there were no patrol boats from any enforcement agency making their rounds in the area, especially at night, reported The Star.

Separately, Admiral Amdan said the MMEA was waiting for the outcome of a discussion between Malaysia and Singapore on the borders of Pedra Branca and Middle Rocks following a decision made by the International Court of Justice on May 23.

Related article

KL govt told: Make sure two other islands don't fall to Singapore
Straits Times 27 May 08;

Read more!

Best of our wild blogs: 3 Jun 08

Naked with the Bukit Batok Community Centre
on the Chek Jawa boardwalk on the adventures with the naked hermit crabs

Naked in the Living Room
sharing about our shores on the lazy lizard tales blog

Star search on Tanah Merah
on the wonderful creations blog

Reef survey at Kusu Island
amazing underwater world on the colourful clouds blog and on the blue water volunteers blog

Stars and spikes at Changi
on the tidechaser blog

Colourful butterflies and moths: Distasteful to birds?
on the bird ecology blog

Upcoming oil series for Sungei Buloh
on the art in the wetlands blog

Read more!

MediaCorp launches competition to find Singapore's most eco-friendly person

Channel NewsAsia 2 Jun 08;

SINGAPORE: MediaCorp is looking for Singapore's most eco-friendly person. It has launched a competition that is part of its environmental conservation campaign, called 'Saving Gaia'.

The contest calls for participants to spend 24 hours in a see-through box and the winner could walk away with S$10,000.

Hoping that even more people will become environmentally-conscious, MediaCorp's 'Saving Gaia' campaign this year aims to emphasise the role of the individual.

Shaun Seow, Deputy CEO (News, Radio, Print), said: "It is not just big, big campaigns and worldwide superstars talking about saving the environment, but we have to register the fact that each one of us has a part to play."

On it's newly-launched website, some have gone online to pledge how they will do their part for Mother Earth, including re-using water discharged from the washing machine to flush the toilet.

The first 3,000 participants will get Envirosax bags for free.

If you've got even better ideas, and don't mind showing how you'll put them into practice in full view of everyone, you could take part in the Gaia Life Challenge.

Three people will be selected to spend 24 hours in a see-through box. They will be quizzed on their green knowledge and challenged to complete specific tasks. The challenge will take place on June 21 and 22.

Those who are interested can sign up by logging on to the 'Saving Gaia' website at www.savinggaia.sg and submit three of their best green habits. The deadline for submissions is June 14. - CNA/vm

Read more!

Bring Your Own Bag Day' to be weekly affair from June 4

Channel NewsAsia 2 Jun 08;

SINGAPORE: Come June 4, the popular 'Bring Your Own Bag Day' (BYOBD) will become a weekly affair. Every Wednesday will be designated 'Bring Your Own Bag Day' at participating retailers, which include major supermarket chains.

In consumer surveys by the National Environment Agency (NEA), 60 per cent of the 1,000 respondents said they support the campaign.

However, only up to 20 per cent brought their own bags. This was because the majority were confused as to which Wednesday of the month was 'Bring Your Own Bag Day'.

So the Singapore Environment Council and NEA have now decided that the BYOBD movement will be put in place on all Wednesdays.

Retailers said they have sold 510,000 reusable bags since the campaign started last April and saved up to 20 per cent in plastic bags.

Home-Fix is the latest retailer to join the BYOBD movement. Other participating retailers include Carrefour, Cold Storage, Giant, NTUC Fairprice, Prime Supermarket, Sheng Siong, Shop N Save, Autobacs, Rehab Mart and Stamford Tyres. - CNA/vm

New target in drive to cut plastic bag usage: Neighbourhood shops
Tessa Wong, Straits Times 3 Jun 08;

ENVIRONMENTALISTS are pushing into a new frontier - neighbourhood shops - in their uphill battle to persuade Singaporeans to use fewer plastic bags.

By the end of this year, the Singapore Environment Council (SEC) will be rolling out a poster campaign in the heartland starring local celebrities.

The advocacy group aims to encourage housing estate residents to cut down their usage of plastic bags. About 2.5 billion plastic bags are used here every year.

Yesterday, SEC executive director Howard Shaw said television spots could also be in the offing.

The campaign is the next stage in the SEC's two-year-old Bring Your Own Bag Day (BYOBD) programme, which it conducts with 11 retailers, including supermarket chains such as NTUC FairPrice and Carrefour.

Every first Wednesday of the month, shoppers are encouraged to use their own bags, buy a reusable one, or donate 10 cents to charity for every plastic bag taken from retailers.

Getting this message through in the wet markets and provision shops of the heartland will be no piece of cake, according to a Straits Time poll.

Yesterday, a survey of 10 shoppers in Bishan and Toa Payoh found that only two use their own bags when shopping.

'Competition in the heartland is fierce,' said Mr Ng Poh Seng, a medicine hall owner.

'If you refuse to give plastic bags or charge for them, the news will spread among the aunties very quickly. The reputation of the shop will be ruined.'

But it may be only a matter of time before the public comes round.

Figures released by the SEC show that more people are embracing BYOBD. About 20 per cent of customers used their own bags this year, a 10-fold increase over 2006 when the programme began.

To raise awareness even further, BYOBD will become a weekly affair, starting tomorrow.

'We hope, ultimately, that every day will be a Bring Your Own Bag Day,' said Mr Shaw.

ADDITIONAL REPORTING BY DARYL TAN AND JASON HAU

Bag-pooling, anyone?
Bring Your Own Bag Day now a weekly affair
Neo Chai Chin, Today Online 3 Jun 08;

GET ready to give your reusable shopping bag a more rigorous workout: From tomorrow, every Wednesday will be Bring Your Own Bag (BYOB) Day.

But even as the push to cut wastage of plastic bags intensifies four-fold, the Singapore Environment Council’s (SEC) executive director Howard Shaw doesn’t see the number of plastic bags saved increasing by the same proportion.

“People need to be reminded as they’re all so busy; even I forget. Perhaps, the fourth ‘R’ (after Reduce, Reuse and Recycle) should be Remember,” he said.

Said Mr Ong Seng Eng, director of the National Environment Agency’s (NEA) resource conservation department: “We want to make BYOB Day more regular. I think the awareness is there already.”

Through surveys, the NEA found that only one-fifth of shoppers take their own bags along on BYOB Day, although thrice as many are supportive of the campaign. By increasing its frequency, Mr Shaw hopes to “mobilise the converted but inactive”.

The SEC hopes to launch a campaign in the heartlands by the end of the year and appoint ambassadors to front the “anti-wastage campaign”.

It is brainstorming for solutions to tackle the use of plastic bags at wet markets. For example, plastic bags used to contain meats tend to be thrown away aftera single use and this is an issueMr Shaw hopes to address.

The SEC will also study the idea of bag-pooling, where consumers pay a deposit to borrow a bag and redeem the amount upon return.

Part of the heartlands campaign will be funded with collections from the BYOB campaign so far: About $80,000 has been pooled through shoppers’ voluntary donations of 10 cents for every plastic bag taken at participating retailers.

With the funds, the SEC has also produced a five-minute training video for frontline staff at participating outlets. The video, which cost about $10,000 to make, will explain the BYOB campaign to staff and get them to ask customers if they need bags for small items and double bags for fragile items, instead of providing the bags as a standard practice.

Noting the “high turnover rate” for frontline staff like cashiers,Mr Shaw said training “can’t take too much time and has to be turnkey and multilingual”. The video will come in two languages and be distributed to participating outlets next week.

NTUC FairPrice, one of the participating retailers, said the extra time taken by its cashiers to explain the BYOB campaign to customers would be worth it. Since launching BYOB Day last July, it has cut the number of bags used by 12 per cent.

Newcomer to the scheme Home-Fix said BYOB was a first step in the company’s efforts to go green. It hopes to promote its range of eco-friendly products such as energy-efficient light bulbs and water-efficient shower heads, said its advertising and promotions manager Lyne Ong.

It’s all in the bags
Could reusable bags turn out to be non-biodegradable?
Letter from Daniel Lim, Today Online 4 Jun 08;

I REFER to the article, “Bag-pooling, anyone?” (June 3). I applaud this move by the supermarkets and many agencies to embrace a more eco-friendly mentality.

However, I’m now a dilemma. I do most of my grocery shopping at supermarkets and carry my groceries home in plastic bags. I try to be eco-friendly, so all these plastic bags are kept aside for future use — I use them for bagging everyday garbage before throwing them into the rubbbish chute. Being civic-minded, I bag my refuse in consideration of the cleaners, as well as to minimise filth and pests infesting our public rubbish bins and chutes.

For this reason, I will continue to ask for plastic bags when I shop for groceries. But in using plastic bags, does that mean that I am an eco-enemy? Perhaps, should :the approach be to focus more on educating consumers on the use of plastic bags?

On another note, we must also be very careful in the production of reusable bags. Like many other consumers, I have so many reusable bags packed away in my storeroom that I do not know what to do with them. Will they one day become non-biodegradable refuse themselves?

Read more!

Changing motoring habits can help save fuel costs

Channel NewsAsia 2 Jun 08;

SINGAPORE: Petrol prices have risen sharply over the last two years. But the Automobile Association of Singapore says there are ways to cut down on fuel costs by changing one's motoring habits.

For instance, one's petrol bill can be reduced by 15 to 20 per cent by refraining from sudden acceleration or deceleration.

Regular servicing will also make one's vehicle run more effectively and economically. Lightening the load of the vehicle will also help.

And if the weather is cool enough, wind down the windows. This could save as much as 10 to 15 per cent in fuel costs for a 1,600cc vehicle.

Tay Chay Sim, Manager, Automobile Association of Singapore, said: "Singaporeans like to put a lot of things inside the boot - things like golf equipment, bicycles and other things you don't need to use daily.

"As you know, any additional load added onto the vehicle will require you to need more petrol to give the same speed. So try to remove these things. Definitely you will save money on fuel." - CNA/vm

Read more!

Indonesian capital braces for another round of flood

Channel NewsAsia 2 Jun 08;

JAKARTA: Jakarta is bracing for another round of flooding in the next few days, as exceptionally high tides are expected.

Weathermen predicted seasonal high tides reaching two meters or above will hit Jakarta between Tuesday and Wednesday.

Many residents living in the coastal areas north of Jakarta, however, greeted news of an impending flood with a shrug of the shoulders.

"This is a recent phenomenon. If I'm not wrong, major floods have hit us three times this year. It has never happened before," said Madam Cartem, a Muara Baru resident.

Experts said the expected high tides are part of an 18-year cycle. But coupled with land subsidence and higher sea levels, the threat of Jakarta's coastal areas sinking is beginning to look very real.

Jakarta Governor Fauzi Bowo said: "We are reviewing our master plan and we hope we will find the proper way... to protect the coastal areas of Jakarta from any possible threat in the future."

But for now, authorities are raising embankments in the hope of keeping the high tides at bay. Similar preparations are also underway along the toll road that links the capital to the airport.

Besides building embankments, the authorities have brought in mobile pumps to channel floodwater back into a nearby river. Trucks are also being prepared to ferry passengers to the airport in case the roads become impassable for small vehicles.

This year alone Jakarta suffered major flight disruptions on two occasions when flooding cut off access to the airport.

Authorities are hoping weather in Jakarta remains sunny in the next couple of days. Rain would worsen the flood situation because the current flood canals in the capital can no longer accommodate rainwater. - CNA/ac

Read more!

It takes a bubble to make us change

Matthew Lynn, Business Times 3 Jun 08;

ANYONE filling up the tank of their car right now will be cursing oil speculators. Likewise, anyone loading up a shopping cart with food for a family may feel angry with hedge fund managers pushing the cost of wheat, rice and other basics through the roof.

Prices of oil, commodities and food have exploded in recent months. Although there are some solid foundations to that, the boom has now turned into a bubble. Prices are starting to race far ahead of anything that can be justified by the fundamentals of supply and demand. Predictably, that is creating a backlash against the financial markets that are pushing prices up.

We should all leave the speculators alone. The world needs a massive change in the way it uses raw materials. Politicians are too timid to bring that about. The markets are doing the job for them, and if it takes a bubble to change people's energy consumption, then so be it.

Oil now costs more than US$130 a barrel. Nobody expects the price to come down fast anytime soon. Instead, it may go higher. Goldman Sachs Group Inc analyst Arjun Murti has said that the price may reach US$200. So has Svein Rennemo, the chairman of Norway's StatoilHydro ASA, according to the Finansavisen newspaper. After the increase over the last three years, it would be a brave investor who bets against US$200 oil.

What is true of oil is true of many other basic commodities. Copper and iron have soared in the past few years. Wheat, corn, rice and soya beans all peaked this year: At one point, rice was a record US$25.07 for 100 pounds. That has sparked riots from Haiti to Egypt. Some people may go hungry.

Not surprisingly, that has triggered action against speculators. This month, India expanded its ban on trading of food futures, including soya bean oil, potatoes and chick peas, in an attempt to curb price increases. In the US, Joseph Lieberman, chairman of the Senate Homeland Security and Government Affairs Committee, has said that legislation may have to be passed to limit big investors taking positions in commodities.

Plenty of Germans would like to do something similar. 'The biggest cause of the soaring food prices is the financial speculators, and in this case they truly are locusts,' Gerd Sonnleitner, the president of the German farmers association, said last month. 'The locusts don't care about rice or milk or people. They only care about the fluctuations in the market.' In one sense they are right. The 'locusts' - shorthand for hedge funds - have been at work. As Organisation of Petroleum Exporting Countries (Opec) Secretary-General Abdalla el-Badri pointed out last month, speculators are playing an 'important role' in surging oil prices. The same is true of commodities and food.

Yet, they are wrong in thinking it's a bad thing. Here's why. First, oil production needs to expand. The International Energy Agency (IEA) estimates that global oil consumption will rise to 98.5 million barrels a day by 2015 from 84.6 million in 2006. By 2030, it will be up to 116.3 million. To get that out of the ground and into the pumps is going to involve more exploration, production, refining and distribution. There is only one way that scale of investment will be mobilised: by causing a price increase that starts a buying frenzy in oil assets.

Next, the developed world has to start making itself more fuel efficient. If China and India begin using as much oil as Europe and the US, we won't just need more supply - we'll need lower consumption in rich countries. And if we are to combat climate change, we'll need to cut down on pollution as well.

To make that happen, behaviour must change. That means that petrol-guzzling sport-utility vehicles (SUVs) will have to be replaced with hybrids. High-speed trains should take over from planes as the standard way of covering distances of as much as 1,500 km. Our houses have to be redesigned to use less energy, and more of it should come from solar and wind power.

All of that is expensive and hard work. Politicians are too nervous to impose the taxes to bring that about. With oil at US$50 or US$100 a barrel, it wouldn't happen. At US$200 a barrel, the only place we'll be driving an SUV is to the scrap-metal merchant.

Lastly, agricultural policies need to change. Again, if India and China are to become as wealthy as Europe and the US, the world will need a lot more food. That means modifying the way we run agriculture, which, in Europe at least, has been more about preserving farming jobs, and caring for the landscape, than maximising output. Countries such as Germany with lots of fertile land and falling populations should be turning themselves into major food exporters. But, again, it's not going to happen unless a massive price increase forces it.

It always takes a big shock to the system to change behaviour. That is just what the speculative bubble in commodity prices is delivering. It may not be pretty, or comfortable, but it is the market doing the job - which is why we should celebrate the bubble, and not condemn it. -- Bloomberg

Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own

Read more!

A 10-point plan for the food crisis

The nexus between high energy and food prices is unlikely to be broken and will be exacerbated by climate change
Robert B Zoellick, Business Times 3 Jun 08;

AS LEADERS gather in Rome to discuss the global food crisis, our task is clear, but not simple: to help those in danger today and ensure that the poor do not suffer this tragedy again.

What has been described as a silent tsunami is not a natural catastrophe, but is man-made. The nexus between high energy and food prices is unlikely to be broken, and will be exacerbated by global climate change. The results have been rising production and transport costs for agriculture, falling food stocks and land shifted out of food production to produce energy substitutes. This is a 21st century food-for-oil crisis.

In April, ministers from 150 countries, meeting at the World Bank, endorsed a new deal for global food policy. The United Nations summit this week in Rome, the Group of Eight leading industrialised nations' finance ministers meeting in June and the G-8 summit in July offer opportunities for action. We need coordinated steps on policy, backed by resources. Let me suggest a 10-point plan.

Fund emergency needs fully

First, we should agree in Rome to fund fully the World Food Programme's emergency needs, support its drive to purchase food aid locally and ensure the unhampered movement of humanitarian assistance.

Second, we need support for safety nets, such as distributing food in schools or offering food in return for work, so that we can quickly help those in severe distress. The World Bank, working with the World Food Programme and the Food and Agriculture Organisation (FAO), has already made rapid needs assessments for more than 25 countries. In Rome, we should agree on coordinated action.

Third, we need seeds and fertiliser for the planting season, especially for smallholders in poor countries. Together, the FAO, the International Fund for Agricultural Development, regional development banks and the World Bank can expand this effort by working with civil society groups and bilateral donors. The key is not just financing, but fast delivery systems.

Fourth, we need to boost agricultural supply and increase research spending, reversing years of agricultural underinvestment. We must be neither Luddite nor advocates of a single scientific fix. The Consultative Group on International Agricultural Research has been receiving about US$450m a year. We should double this investment in research and development over the next five years.

Fifth, there needs to be more investment in agribusiness so that we can tap the private sector's ability to work across the value chain: developing sustainable lands and water; supply chains; cutting wastage; infrastructure and logistics; helping developing country producers meet food safety standards; connecting retailers with farmers in developing countries; and supporting agricultural trade finance.

Sixth, we need to develop innovative instruments for risk management and crop insurance for small farmers. This week, the World Bank's board will consider weather derivatives for developing countries, with Malawi being identified as a likely first client. Should Malawi suffer a drought, it would receive a payout to offset the price of imported maize.

Seventh, we need action in the US and Europe to ease subsidies, mandates and tariffs on biofuels that are derived from corn and oilseeds. The US's use of corn for ethanol has consumed more than 75 per cent of the increase in global corn production over the past three years. Policymakers should consider 'safety valves' that ease these policies when prices are high. The choice does not have to be food or fuel. Cutting tariffs on ethanol imported into the US and EU markets would encourage the output of more efficient sugarcane biofuels that do not compete directly with food production and expand opportunities for poorer countries, including in Africa. We need to find ways to advance to second-generation cellulosic products.

Eighth, we should remove export bans that have led to even higher world prices. India has recently relaxed its restrictions. But 28 countries have imposed such controls. Removing these could have a dramatic effect. With only 7 per cent of global rice production traded on markets, if Japan released some of its stocks for humanitarian purposes and China sold one million tons of its rice, we could damp the price immediately.

Ninth, we should conclude a Doha World Trade Organisation deal in order to remove the distortions of agricultural subsidies and tariffs and create a more adaptable, efficient and fair global food trade. The need for rules that are agreed multilaterally has never been stronger.

Tenth, there should be greater collective action to counter global risks. The interconnected challenges of energy, food and water will be drivers of the world economy and security. We might explore an agreement among the G-8 and key developing countries to hold 'global goods' stocks, modelled on the International Energy Agency (IEA), governed by transparent and clear rules. This would act as insurance for the poorest people, offering affordable food.

To support this agenda, the World Bank is launching a global food crisis response facility. We will fast-track US$1.2 billion to address immediate needs arising from the crisis, including US$200 million of grants for especially vulnerable countries such as Haiti, Djibouti and Liberia for seeds, fertiliser, safety net programmes and budget support. Overall, the World Bank Group will expand assistance for agriculture and food-related activities from US$4 billion to US$6 billion over the coming year.

The danger is now clear to everyone. The Rome and G-8 meetings need a clear plan to overcome it.

The writer is president of the World Bank Group

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