US-China Trade Frictions

Below is the video clip of an interview with Gordon Chang, an uber-bear on China, on the country's recent spat with Japan and its recent belligerence. Unlike John Xenakis, Mr. Chang does not think that US-China conflicts are inevitable.

Peak oil now mainstream in UK?

It would appear that the issue of peak oil is coming into the mainstream consciousness in the UK as Energy Secretary Chris Huhne has now asked his ministry to look at the likely impact that 70's style spikes in oil prices would have on the UK economy, as reported by The Telegraph.

I think it is commendable that the UK is paying attention to the issue of energy security despite the problems that their economy and financial system are facing. In 2010, government, industry and academia in the UK have all published studies on the impact of peak oil on the UK economy. As such, they are much further ahead than Singapore is terms of generating awareness of the issue amongst the public.

In terms of mitigation steps, after implementing the largest offshore wind-farm in the world, the UK government is now willing to work on a compromise deal that will promote the use of nuclear energy, another low-carbon energy source.

Now, what can we do here?

Sourcing more food from China

The New York Times reported that Singapore is looking to enhance its food security by engaging in food production projects in the north-east of China. A project by the familiar Singapore Food Industries to operate a pig farm and another by Singbridge International Singapore to develop a large scale food production zone in Jilin was mentioned.

Given that China is a net importer of food and that its own population's diet is improving and thus requiring more food, I wonder how sustainable China's food exports will be. Furthermore, when the effects of peak oil hit, the north-east of China will be considered a very far place from which to import food, which will mean much higher costs. Can we afford such imports in the future?

It will be interesting to watch these 2 projects to see whether or not they are sustainable given the aforementioned constraints.

Asian Farm Projects Stall

The Wall Street Journal reported that a new report released by the the Asia Society and the International Rice Research Institute in the Philippines noted that farm investments in Asia that were started in response to the global food crisis in 2008 have stalled for a variety of reasons, including disputes over land ownership, lack of capital and concerns over environmental issues. This is very unfortunate given that much of the increase in global food demand currently comes from Asia itself.

Sadly, I am not surprised that such a situation should arise. The legal infrastructure in this part of the world is very poorly developed, which makes agricultural investments very risky. As an example, I was involved in a very small-scale project in a neighbouring country to produce certain cash crops. The project ran into problems from the start, as some of the local parties colluded to attempt to cheat us of the money for the land lease, despite the fact that we had hired a reliable local lawyer to complete all the required due diligence. In the end, because we had done all the necessary paperwork, it was easy to prove criminal intent in the other party, and they backed down after being threatened with jail time.

Another problem that I can see from the ground is corruption and cronyism, all too rampant in this part of the world outside of Singapore. In many instances, well-connected people tend to get land concessions from the government, who then turn around to try to extract 'rent' from foreign investors. These cronies are big on talk and small on implementation skills, and thus the boosting of food output end up often being mere pipe dreams.

All these things are unfortunate because there is still plenty of under-utilised fertile land in this part of the world, which can be used to substantially increase food output when combined with the right technology and managerial know-how.

Rice prices could rise

Agri-food analyst Ned Schmidt made some important points during his interview with the Financial Sense Newshour over the weekend, where he noted that higher food prices are coming our way. The following points are what I felt was important:

• 1/3 Russian winter wheat crop this year may disappear and we'd have to wait until Spring 2012 for a decent crop.
• US rice prices have reversed their price action and are now heading up. This could also affect Singapore prices even though our main source of import is Thailand.
• Grain prices on the whole are heading up and this will soon feed into higher meat prices.
• There is a need to determine the damage done by the recent floods in Pakistan to its irrigation system, which in Ned's view is the most sophisticated in the world. Pakistan is the 3rd largest exporter of rice in the world after Thailand and Vietnam. If there is damage to the system, it could well mean that global supplies of rice will be reduced in the coming years, and this will undoubtedly have an impact on us in Singapore.
  
• Famine in some poorer parts of the world cannot be ruled out. For example, the food situation in Egypt is now critical.

In view of this, what I am likely to do is to look at enhancing my family's food storage capabilities to store more staples and also look at putting more money into investments related to agriculture.

What are you going to do for your family?

Debt and Preparedness

The Sunday Times ran a story about the debt problems of young people in Singapore, noting that the debt default rates amongst those below 30 were the highest amongst the various age cohorts while those between 30-39 had the second highest rate of default. An example given in the story was of a woman who ran into trouble servicing her debt when she had to change jobs and take a 40 percent pay cut. The article then provided specific action steps endorsed by financial advisors that aim to help those who are in debt trouble.

Because of the approach taken by the article to the debt issue, one thing that was not highlighted was the fact that taking on debt these days is riskier than say 10 years ago. The reason for this is quite simple: job security is lower now and will continue to decrease in the foreseeable future. With globalisation, outsourcing and the government's current policy of liberally allowing foreign labour into Singapore in order to contain wage pressures, the average Singaporean's risk of losing his job is now significantly higher than even 5 years ago. Unfortunately for the younger adults, many of whom were brought up to have self-esteem that exceed their actual capabilities, the realisation that they can be replaced by cheaper workers of nearly equivalent skills have not made them adjust to the reality that they are likely to have poorer prospects of advancement than their parents.

While unchecked spending on consumer items is one of the causes of the increase in indebtedness, the rising cost-of-living in Singapore has also contributed to this unfortunate situation. For example, a price of a modest new (i.e. 'subsidised') 4-room HDB flat in the outskirts of Singapore has doubled in the last 7 years, while the salaries of those under 30 have definitely not increased proportionately. This significantly increases the cost of new household formation and therefore makes it more likely that the younger adults carry a heavier debt burden.

From a preparedness perspective, this situation requires us to help remind our friends and family members of the risk of diminishing job security when managing their finances, and thus be extra prudent when it comes to taking on debt. In terms of mindset adjustments, this may mean accepting the possibility that we can afford fewer material things, that we have to be more disciplined in terms of distinguishing between our material wants and our needs.

For those of us that are in a debt situation, it is important to work with a qualified financial advisor to resolve it as quickly as possible. Being prepared means moving away from being 1 pay cheque away from financial distress.

Independent thinking and education

I came across this rather interesting speech by a high-school valedictorian in the United States, wherein she criticised the system for failing to encourage students to think and for indoctrination. Having occasionally followed developments in the US education system by listening to critiques of it from the perspective of home-schooling advocates there, I am not in the least surprised to hear the charges of indoctrination, and definitely applaud the young girl for such clear thinking.

For many Singaporeans who are so fond of panning our own education system and at the same time sing unreserved praises to 'Western' education, I would suggest looking into the history of education in the West for the past hundred years or so, and look at how Marxist ideology has infiltrated the system from the time of the Frankfurt School in Europe and the subsequent influence of John Dewey in the US.

Now, this is not a defence of our education system. I merely want to point out the contradiction in thinking that many Singaporeans who think that they are 'liberally-minded' have. While they often rail against the lack of political freedom in the country, they also have this tendency to want to outsource education in all aspects, including moral and sex education, to the school system. As the AWARE saga last year showed, outsourcing education will always tempt some groups who want to advance their own agenda to try to capture the curriculum in order to indoctrinate children, via sometimes subtle means, to their way of thinking. Many of us seem unaware that long gone are the days of the Confucianist ideal of education, where the teacher and parents have shared ideals in what is good for the children. Today, it is an ideological battle where our teachers are trained with textbooks by authors who are Marxist/Socialists and who desire nothing more than to shape society by brainwashing our children. And this is not a Singapore-only phenomenon.

The ONLY way to stop such things is not to complain to the government but to take back control over our children's education. Unfortunately, from speaking with teachers who tell me about the demands that parents place on the school system, this outsourcing is not going to reverse any time soon.

To me, freedom comes first from being able to think for yourself, and not to delegate that important task to others such as the media. If you cannot think independently, what real freedom do you think you can achieve in other areas such as politics and human rights?

"The State did not own men so entirely, even when it could send them to the stake, as it sometimes does now where it can send them to the elementary school." - G. K. Chesterton, The Well and the Shallows.

We have a long way to go in our thinking before there is hope for freedom.

Brazilian Crops suffer

The prices of coffee, oranges, and sugar may soon rise due to the drying of the Amazon in Brazil to its lowest level in 47 years, as reported by Bloomberg. For Brazilian drivers, it will probably also mean higher fuel prices since the country uses sugar-cane to produce ethanol as part of their national efforts at energy self-sufficiency.

While Brazil is suffering from dry weather, the threat of flooding is causing a surge in corn prices in the US, as reported by Bloomberg again.

More reasons to start watching our food prices.

Current Global Economic Conditions

Despite the strong performance of the Singapore economy so far this year, it is prudent to take note that the outlook for the global economy in the next 6-12 months is quite negative.

In the US, despite the NBER's proclamation that the recession was over in the middle of 2009, the reality appears to be that it is still in the midst of a severe economic contraction, to the extent that some US econ bloggers have called it a 'depression'. Consider the following statement put out by the folks at The Automatic Earth:

"77pc of Americans are now living paycheck to paycheck, in 2007 this figure was 43pc. That's 239 Million people one lost check away from ruin"

At present, there are about 43 million Americans who are on food stamps, and the level of desperation was aptly described by WalMart CEO Bill Simon, as reported by the Wall Street Journal:

"And you need not go further than one of our stores on midnight at the end of the month. And it’s real interesting to watch, about 11 p.m., customers start to come in and shop, fill their grocery basket with basic items, baby formula, milk, bread, eggs,and continue to shop and mill about the store until midnight, when electronic — government electronic benefits cards get activated and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher"

Over in Europe, Ireland is now acknowledged as the first country to officially go into a 'double dip', while the German economy has also slowed and the Greek situation is nowhere near resolved.

In Asia, the Japanese are upset with the Chinese buying their bonds, which they feel is a backdoor way of forcing the Bank of Japan to intervene in the FX market to weaken the Yen, so as to divert US Congressional attention away from the Chinese themselves, who are refusing to let the RMB rise. That said, China itself is not in any particularly strong state. In an effort to stave off protectionist measures by the US, Premier Wen Jiabao has stated on Bloomberg that a 20% RMB revaluation would cause social upheaval. Given the amount of excess manufacturing capacity in China and the razor-thin margins of the exporters there, I personally take Mr. Wen's statement as an appeal from a position of weakness rather than strength.

On top of all these, there appears to be a currency war going on globally, as the central banks of all the major economies are trying to avoid a strengthening of their own currencies against the USD, while the US Federal Reserve's intention to weaken the USD is being taken seriously by the markets, as evidenced by the strong performance of gold and silver.

Given the above, I believe it may be prudent to take steps to guard against the systematic currency devaluations that are taking place now. For my fellow Singaporeans, I have this to say: Go easy on the property speculation, there are risks just around the corner. I will write more regarding this in future.

Storing Food at Home

While we Singaporeans fuss a whole lot over food, as evidenced by the plethora of food shows on TV and food review blogs, most of us have taken the available of food for granted. This is not surprising given that most of us don't live too far away from a food outlet where we can have access to food in a relatively cheap and convenient manner. As such, when I mention food storage at home to my friends, some of them look at me like I am a doom-and-gloomer.

Yet, food storage is something prudent even when food is readily available. Consider the SARS epidemic in 2003. If you were served with a Home Quarantine Order (HQO) by the government, you would have been provided food by the relevant authorities. But however, if you had food stored away at home, you would have been able to expand your choice of food without having to rely on the government. Even if you were not served with a HQO, the stored food allows you to minimise leaving your home to eat or purchase food at crowded places, thus reducing your risks of infection.

Apart from this, storing food is also a way to beat inflation. The latest CPI figures published by the Department of Statistics show an annualised increase of 3.3% for the previous month, which suggests that inflation is perhaps trending up. On a more personal note, I bought some muffins whose price had increased from $1.60 last year to $2.00 now, a 25% increase! Food storage allows us to plan for the purchase of excess quantities of food items that have long shelf-life when they are on sale. Given my limited experience with the supermarket, it does seem to me that sooner or later, every item in the supermarket is up for price reduction at some point in time. With some planning, one should be able to buy desired items when they are sold with promotional prices, and with rotation through our food stockpile, it will mean that we are consistently consuming food that is cheaper than what they sell for at the time of consumption.

So, how does one start on food storage? One simple way to start is to follow the guidelines in the Emergency Handbook published by the Singapore Civil Defence Force. After getting up to speed with 2 weeks' of food stored, as recommended by the SCDF, we can then move forward towards storing up to 1 month's worth of food.

World's largest offshore wind farm

The world's largest offshore wind farm is sent to open off the coast of Kent in the UK soon. It will have a generating capacity that is greater than the sum total of all the other offshore wind farms in the world combined, as reported here by Telegraph.co.uk.

Although it does not solve the UK's liquid fuels problem arising from the decline in production from its North Sea fields, it does go some ways towards mitigating its fossil fuel dependence. This is a positive development in my view.

Malaysia's New Economic Blueprint

Malaysia has recently announced a US$ 444 billion economic transformation programme aimed at raising the level of economic development in the country. Part of the plan will be to develop a nuclear power industry, a solar energy industry as well as improvements to its agriculture industry.

I personally feel that given the current cordial ties between Malaysia and Singapore, we should take this opportunity to direct national investment funds towards both the nascent nuclear and solar energy industries, as well as agriculture, should these be open by the Malaysians for foreign investments. Such investments should be made with supply guarantees whereby Malaysia agrees to sell us their surplus production are market prices, which will be a win-win situation for both countries.

Peak Oil Interview with Robert Rapier

Robert Rapier has just posted on his Consumer Energy Report blog an interview he did some time back at the Global Footprint Conference in Siena, Italy. It covers important issues such as why oil is hard to replace and the embedded fossil fuel used in the production of green energy technology.

The blog post can be found here.

Food Security for Singapore?

The recent spate of news about agricultural land grabs highlight an important fact - that countries are concerned about the stability and security of their food supplies. For investor countries like China and India, food security is an issue due to their large populations that are improving their diets due to prosperity from strong economic growth. For countries that are at the receiving end of such investments, their concern is that their own poor peasants may be deprived of land to sustain their subsistence lifestyles.

What has this got to do with us in Singapore? Well, given that we import everything we eat from elsewhere, it is important that we pay attention to developments in the global agriculture industry. So far, the only apparent policy we have in terms of food security is the diversification of our sources of supply. For example, the Singapore government has started to promote the import of vegetables from Indonesia, so as to reduce our dependence on Malaysia for our leafy vegetables. While this is definitely a positive move, it is still far from addressing longer terms issues such as climate change and peak oil.

Take climate change. In an interview with the Financial Sense Newshour, Evelyn Garriss of the Browning Newsletter, the current setup of the Pacific Decadal Oscillation and the Atlantic Multidecadal Oscillation will mean that the type of droughts in Russia and floods in Pakistan are more likely in the coming years, resulting in lower food production in our part of the globe while US farmers who can adapt to this weather pattern will prosper.

As for the coming effects of peak oil, consider the mileage that our food currently travels in order to reach us. Will be be able to afford imports from more distant lands like US apples or NZ beef? And what about the high carbon footprint of our food, for those who are concerned about this area?

Given these concerns, are there things that we can do to mitigate the risks? Personally, I think there are. For example, some time back, I recall watch a documentary on the National Geographic TV featuring a project by Prof. Lee Sing Kong of NTU, where he was growing vegetables on rooftop gardens through aeroponic methods. According to him, with some changes to our urban architecture, it is possible for Singapore to be self-sufficient in leafy vegetables. This will not only improve our food security but also reduce the carbon footprint of our vegetables. The question now is when we as a country will be awaken to the risks in our food supply and start to make a concerted effort to reduce those risks.

The Concept of Peak Oil

I have been using the term 'peak oil' here without defining it, the reason being that this blog is not one dedicated to the discussion of this complex topic with a massive body of literature. For a good introduction to the subject, I would suggest Matt Savinar's great site Life After the Oil Crash. That said, a brief outline may still be useful for our purposes.

According to Wikipedia:

Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. This concept is based on the observed production rates of individual oil wells, and the combined production rate of a field of related oil wells. The aggregate production rate from an oil field over time usually grows exponentially until the rate peaks and then declines—sometimes rapidly—until the field is depleted.

From an economic standpoint, the peaking of oil production is not a problem as long as demand does not exceed supply. Unfortunately, as things now stand, demand in the developing world is steadily increasing and we are quite close to the point where total global demand will exceed total supply. At that point, we are likely to see crazy volatility in the energy markets as demand fluctuates in response to price changes. If we use the OPEC oil embargo in the 1970s as a reference for how economies will react to shortfalls in oil supplies, it can be deduced that we will likely be entering into a period of poor economic performance as we hit peak production.

Since being introduced to the subject in 2005 via the later Matthew Simmons' seminal book Twilight in the Desert, I have been following peak oil almost on a daily basis. Judging from the data that I can see, I personally am convinced of the reality of peak oil. As such, moving forward, I write based on my acceptance of this reality.

The End of Cheap Energy

In an interview recently with the New York Times, Mr. Nobuo Tanaka, the executive director of the International Energy Agency (IEA) had this to say:

"The cost of energy, the cost of electricity is going to get higher and higher no matter what. This is a difficult political reality we have to accept. The age of cheap energy is over."

In addition, Charles Maxwell of Weeden & Co, a very well-regarded energy analyst, in an interview piece with Forbes magazine, expects peak oil production to occur between 2015 and 2020:

"A bind is clearly coming. We think that the peak in production will actually occur in the period 2015 to 2020. And if I had to pick a particular year, I might use 2017 or 2018. That would suggest that around 2015, we will hit a near-plateau of production around the world, and we will hold it for maybe four or five years. On the other side of that plateau, production will begin slowly moving down. By 2020, we should be headed in a downward direction for oil output in the world each year instead of an upward direction, as we are today."

So it looks to me like the voices of Peak Oil are increasingly getting heard in the mainstream media.

Unfortunately for Singapore, there does not appear to be any discussions about how to mitigate the risks arising from more expensive and less available energy. One typical response that I get is this - "Don't worry, as our farsighted government should have some plans to deal with this contingency. It's just that they have not disclosed anything to avoid causing panic". Given that we import 100% of our energy needs, such complacency is most unfortunate.

I would suggest that as individuals, we take a look at the way we are currently using energy in our daily living and find ways to economise as well as to look for feasible alternatives. The latter is challenging given that most of us live in HDB flats and are thus constrained in terms of producing our own energy. That said, we should still keep trying to look for solutions, especially considering the possible downside risks in a peak oil situation.

Translation of the German military's report on peak oil

As noted in an earlier post, the German military has commissioned a report on the impact of peak oil which has been leaked to the media. A translation of the major points of the report from German into English is now available here from Robert Rapier's R-Squared Energy Blog.

Rising global unemployment

According to a joint report by the International Monetary Fund (IMF) and the International Labour Organisation (ILO), 30 million jobs had been lost since the start of the global economic crisis in 2007/08, as reported in this article. Furthermore, with global unemployment reaching 210 million people, long-term unemployment in the richer economies have become very high. Given that consumption is such an important component of GDP in developed countries, one can easily argue that without any meaningful recovery in jobs growth, economic growth in these countries would be tepid at best.

Back home here, we can see this increased concern about economic prospects reflected in the recent debate on immigration after the Prime Minister's National Day Rally speech, which despite attempts by the government to soothe nerves shows no sign of abating. While we have (still) have a relatively strong stock market and a booming property market (not always a good thing!), the middle-class here is increasingly worried about its long-term economic prospects, and this is not helped by what is perceived as unbalanced economic policies. There is, it seems to me, a disconnect between what the markets are saying and what the people are recognising as their reality. Who is right?

Backlash against foreign agriculture investments

The Telegraph UK has an article today about the backlash in Third World countries against investments in farmland by foreign businesses and investment funds. Due to growing populations, increases in demand for meat and slowing growth in output, many richer nations have been busy trying to secure land for the growing of crops for export back to their own people. And given that the recipients of such investments are often poor countries where people do not have enough to feed themselves, the backlash against such investments are understandable. Furthermore, if global food supplies come under more strain, as I believe they will, the chorus of protectionist voices will grow even greater for the safeguarding of food for 'our own people' in many countries.

For Singaporeans, this is not a time for an economic debate on whether free trade is better or otherwise. Like it or not, we are dependent on imported food and this makes us vulnerable to the political reality that protectionism will always rise up in times of economic distress. We need to be aware of this thread and to prepare accordingly. Perhaps it is time for us to consider urban agriculture as a means of supplementing our food supplies.

The Growing Food Crisis

John Xenakis of the site Generational Dynamics has provided a new article on the food shortage situation that we are now facing on a global basis. The following excerpt from the article was an important insight for me:

My own rough estimate is that food production grows by 0.96% per year, while population growth exceeds 1.72% per year (since 1950), and is 2-4% in some countries. (However, the United States population has been growing around 0.92% per year.)

To bring the amount of food per capita back to 1950 levels would require the elimination of some two billion people. That's why I've been using the figure two billion as the estimated number of deaths that will occur in the coming Clash of Civilizations world war. This result is mathematically unstoppable, despite the protestations of politicians and college professors who seek money, in the name of fighting starvation and poverty, for their committees, their pet projects, and their personal bank accounts.

At present, the possibility of food shortages has not entered into the mainstream consciousness of Singaporean society. While we can all help to raise awareness at the individual level by talking to our family members, friends and colleagues, it is also important that we start working on steps like food storage and urban agriculture so as to increase our available food supplies.

Also important is to be conscious that we as a country waste a lot of food, judging from the amount of uneaten food that I have observed at food courts. A big step in helping to improve the food shortage situation would be to waste less, which is far more energy-efficient than to try to convert waste food into usable fuel for cars!

The Germans are worried about Peak Oil

Following a series of high-level reports issued around the world by various groups, it appears that the Germany armed forces is the last to indicate some concern about Peak Oil. In an article found in Der Spiegel's English online website, it was reported that a German military think-tank has warned of the potential for very drastic consequences as the effects of Peak Oil are felt around the world.

The central points of the reports are as follows:

• Oil will determine power
• Increasing importance of oil exporters
• Politics replacing free markets
• Failure of the market mechanism for oil
• Relapse into a planned economy
• Global chain reactions
• Crises of political legitimacy in various countries

From a Singaporean perspective, this has a great due to concern us as we import 100% of the energy we need to run our modern economy. Over time, I will explore the implications of Peak Oil for Singapore and for our own individual lives.

Stay tuned!

Preparing for higher food prices

Based on anecdotal evidence from my mother's trips to the supermarket and wet market, food prices have been increasing recently.

At the macro level, various disasters in Russia, Pakistan and other parts of the world have resulted in lower crop output, and food availability on the global markets is further exacerbated by the recent Russian decision to ban wheat exports until late 2011. On a longer term basis, that there are increasing worries about global food supplies can be seen in the intense M&A battles over top-quality fertiliser companies, such as the Rio Tinto bid for PotashCorp of Canada.

Given the likelihood of pressure on global food supplies, it would be prudent for us to practise food storage at home. The habit of buying and keeping extra food can help to lower our food costs over the longer term, as it allows us to plan our purchases when items are put on sale by the supermarket chains. Of course, storing food implies having a system for tracking expiry dates so that we consume the items on a timely basis, and rotate them periodically, buying new supplies to replenish the stock levels.

Besides food storage, for those who are so inclined, growing a small set of food crops can also be done, even if one is living in an HDB flat. For more information, one can visit the Green Culture Singapore forum, where enthusiasts provide tips for growing food in small areas.

By doing what are within our means, we can hopefully ameliorate some of the effects of the coming food crunch and help protect our families to some extent.