Wednesday, July 30, 2008
THE GASOLINE- FOOD NEXUS
The spiraling prices of gasoline across the world seem to be having ripple effects on many other fronts also. The inflationary tendencies witnessed in many Asian and African countries are attributed to the petroleum prices going north, at one time almost touching $150 a barrel. With many countries including those who were net exporters of oil are dependent on oil produced in the Middle East, Russia and South America. Most dramatic case is that of Indonesia, one of the major producers of oil becoming a net importer since 2004 because of increased consumption and production declines to the extent of 40% as the sources of oil are drying up. India has always been an importer of oil meeting 70% of its needs by imports and naturally the consequent escalation in the cost of imports is bound to be felt in all spheres of life. The rise in inflation from 4% just a year back is approaching 12% now causing severe strains on the national economy and untold miseries to the less affluent section of the society. If staple foods like rice, wheat, pulses and edible oils are becoming costlier by more than 50-70% compared to the prices prevalent last year, one can imagine the plight of population in the country whose income rise is way behind the inflation.Though this is a global phenomenon the effect is more dramatic and debilitating to developing countries whose capacity to withstand the inflationary monster which challenges their right to survive, is practically nil. On one hand the rise in oil prices is being attributed to rabid speculation associated with forward trading, but many economists feel it is simply a situation responding to the classic demand-supply distortions in the world market. As a support to the latter argument, it is pointed out that practically all commodities including food, cement, steel and a host of others have been climbing the price ladder independent of the rise of oil prices during the last one year. Interestingly, a critical analysis of demand profile for oil during the last few months indicates that more than 90% of the consumption of increased oil production originated in developing countries like India and China where automobile density is increasing faster than before and purchasing power is growing significantly with GDP rises of 8-10%during the last few years. The moot question is who should curb oil consumption if the exhaustible energy sources like petroleum are to be conserved? The developing countries with very high per ca pita income or the less fortunate fellow countries coming under the umbrella of developing world with larger aspirational goals to achieve? It is a valid case for some to argue that the huge petroleum subsidies being doled out in many developing countries in Asia and Africa do not discourage consumption and if the the market price distortion is set right demand for oil could go down. Even the subsidized kerosene distribution in countries like India is being held responsible for rise in Aviation Fuel prices. However if Kerosene prices in these countries are to reflect market realities, the alternative would be massive deforestation in many countries to meet the need for cooking fuel in the form of firewood, an ideal recipe for environmental disaster that will not recognize any mundane national boundaries in spreading chaos and misery all around. According to Al Gore the Nobel Laureate and a passionate advocate of renewable energy tapping of solar and wind energy can alleviate most of the ecological disasters that the world is facing to day if only adequate attention and investment is made. Where there is a will, there is of course a way out for any thing and every thing man confronts. The resources are there, technologies are there, money is there but what is lacking is the conviction and the will to look for changes that are earth-friendly. Brazil had set the earliest example of using renewal energy by using ethanol; from sugar cane in the gasoline blend to extend the available fossil fuels.Use of spent plant oils in Europe was another welcome initiative as long as virgin palm oil and other edible oils were not diverted for use in automobiles. The mandated use of ethanol in gasoline in USA has already diverted 20% of its corn crops, a valuable edible material sufficient to ward off hunger and keep alive millions of human beings, for producing ethanol exclusively for blending automobile fuel. It is cruel for George W Bush, the President of USA, to blame countries like India and China for the escalating prices of food grains and edible oils in the world market because of small increases in food consumption in these countries due to marginally higher per capita income, implying that aspiring to eat better and more nutritious food is a crime! He can only ignore at his peril that almost 30% of the population in his country is courting disaster day by day by becoming obese due to food over-consumption, 50-200% more than that required by a normal human being for a healthy life. If only 10% of what is wasted in USA is spared, it can feed 30 million famished people on the earth besides influencing global food prices in a positive way. Globalization will lose its meaning and relevance if it exposes more and more people, especially in developing countries to the pangs of hunger with each passing day, widening the already existing wide divide between the haves and the have-nots. . .