There was the usual hype before the recent G20 summit meeting about the hope to resolve the stalemate of the Doha Round of the WTO. It seems every time there is a G-something meeting we get served up the same futile hopes.
When the G20 met in Seoul two weeks ago it concluded nothing more than a statement that 2011 (Doha’s 10th anniversary) presents a narrow window of opportunity to complete the long-running Doha saga. It has been so long since we’ve seen any progress in the process, it’s hard to remember what the major players are actually stuck on. There was something about coloured boxes, a few latin terms but the rest was yada yada.
Why is 2011 a window? Nobody important is having an election and the worst of the global financial crisis seems to be over. Well just try telling the Europeans that the crisis is in the past!
The ever-optimistic head of the WTO, Pascal Lamy said he’d seen “strong signals of political resolve” to finish the round in the coming year. Of course “finish” might mean “scrap”. If that happens he said that the entire discipline and structure of the WTO might start to erode and the existing historical agreements have less meaning without the credibility that he attaches to (dare I say) “moving forward”.
But failure to agree on unilateral trade is one thing. The head of the US Central Bank – Bernard Bernanke – reckons there is a far greater threat to freedom in global trade that lies ahead of the world at present as it struggles to recover from the asset bubbles of 2008. Bernanke reckons the under-valuation of currencies of some key exporting countries – read China, India - poses a bigger problem to the stability of the world economy.
The US banker is reflecting the frustration of trying to revive an economy with very low inflation and interest rates and high long-term unemployment. Distorted money flows are going to hamper an even recovery around the globe. He reckons that if exchange rates were allowed to move freely, developing export-led economies would raise their interest rates and allow their currencies to appreciate. This might curb their trade surpluses and reduce their dependence on export expansion for the growth of their economies – something China has said that it would like to achieve. It’s just that the team of central bankers in China have some very delicate policy dials to play with as inflation is haring away and interest rates are already nudging up.
The disagreement between the US and China on how to manage currency values has almost reached “diplomatic row” proportions. China allowed a small float of its yuan in the middle of 2010 but the change was minor.
The US criticism is that self-interest that comes from strong export growth may risk global stability, and hence rebound on China if the distortions created by its own bubbles aren’t reined in.
The hard part here is who will lead the world to sort this unholy mess out. The Europeans are a little preoccupied trying to plug their own leaks, and Barack Obama has lost so much self-confidence after his party’s hammering at the polls that his “fighting words” are even more esoteric and ideological than ever. This mess will get deeper.
Monday, November 22, 2010
Monday, November 15, 2010
US Ethanol market
You can sue someone for just about anything in the US to choke up an overweight legal system. Despite this environment, there are some interesting cases that pop up, and this week one has come to light that will be worth watching.
The food and fuel industries in Europe and the US have a tenuous relationship over the role that ethanol plays in the fuel market – a position that has been significantly helped by strong government mandates in those regions to support ethanol demand. The US livestock and poultry industries are especially vocal in their opposition to government support for ethanol, claiming it drives up the cost of feed, and food costs generally. Those sectors face fairly complex market dynamics and in the US have seen some major business failures, consolidations and restructurings due to the cost pressures. People haven’t been keen to pay more for food as they’ve tried to weather a tough recession, yet the pressures on food producers have heightened as they cope with volatility in commodity conditions. The growing demand for ethanol and in turn for feed stock is just one of those pressures.
The US environmental regulator is also a player in the ethanol game. Their wide powers and decisions have far-reaching effect on this issue. Farm and food industry bodies last week filed a lawsuit against the US Environmental Protection Agency (EPA) over its recent controversial decision to allow for greater use of ethanol in motor vehicle fuel. The EPA decided that in enforcing the Clean Air Act it would allow fuel companies to develop and sell petrol with up to 15% ethanol – an increase from the prevailing 10% which they had previously mandated. The EPA said that cars made in 2007 and later could run on E15 fuel. It is working on extending this back to cars built after the year 2000.
The food industry says the EPA had no right to overstep its authority. The bigger question it challenges is the effect that replacing a “zero” with a “five” in the fuel regulation will have on food costs and consumer prices. It is estimated in the US that up to 40% of the motor fleet could access 15% ethanol mix.
The damages that the food industry advocates – which include Grocery Manufacturers Association, Snack Food Association, and the National Meat Association - wish to prevent through their action are the effects that higher ethanol demand will have on food prices. They think that with this greater stimulus to ethanol demand, greater volumes of corn will be diverted to fuel production, pushing up prices for corn, other grains and oilseeds used in food and livestock production.
The ethanol industry bats this straight back and reckons the gains in corn yields will result in plenty of corn for food and fuel. Ethanol already consumes about 40% of the US corn crop. Creating a market for E15 fuel may add significantly to this demand – provide cars can cope with the mix, and the fuel refiners and retailers decide to implement the change. Fuel companies so far they haven’t welcomed the EPA’s actions – they are also part of the lawsuit against the EPA!
There probably haven’t been as many cars made and sold in the US since 2007 to create a major problem, but back dating the effect will certainly kick up the demand. It’s a development to keep an eye on for those in the feed market.
The food and fuel industries in Europe and the US have a tenuous relationship over the role that ethanol plays in the fuel market – a position that has been significantly helped by strong government mandates in those regions to support ethanol demand. The US livestock and poultry industries are especially vocal in their opposition to government support for ethanol, claiming it drives up the cost of feed, and food costs generally. Those sectors face fairly complex market dynamics and in the US have seen some major business failures, consolidations and restructurings due to the cost pressures. People haven’t been keen to pay more for food as they’ve tried to weather a tough recession, yet the pressures on food producers have heightened as they cope with volatility in commodity conditions. The growing demand for ethanol and in turn for feed stock is just one of those pressures.
The US environmental regulator is also a player in the ethanol game. Their wide powers and decisions have far-reaching effect on this issue. Farm and food industry bodies last week filed a lawsuit against the US Environmental Protection Agency (EPA) over its recent controversial decision to allow for greater use of ethanol in motor vehicle fuel. The EPA decided that in enforcing the Clean Air Act it would allow fuel companies to develop and sell petrol with up to 15% ethanol – an increase from the prevailing 10% which they had previously mandated. The EPA said that cars made in 2007 and later could run on E15 fuel. It is working on extending this back to cars built after the year 2000.
The food industry says the EPA had no right to overstep its authority. The bigger question it challenges is the effect that replacing a “zero” with a “five” in the fuel regulation will have on food costs and consumer prices. It is estimated in the US that up to 40% of the motor fleet could access 15% ethanol mix.
The damages that the food industry advocates – which include Grocery Manufacturers Association, Snack Food Association, and the National Meat Association - wish to prevent through their action are the effects that higher ethanol demand will have on food prices. They think that with this greater stimulus to ethanol demand, greater volumes of corn will be diverted to fuel production, pushing up prices for corn, other grains and oilseeds used in food and livestock production.
The ethanol industry bats this straight back and reckons the gains in corn yields will result in plenty of corn for food and fuel. Ethanol already consumes about 40% of the US corn crop. Creating a market for E15 fuel may add significantly to this demand – provide cars can cope with the mix, and the fuel refiners and retailers decide to implement the change. Fuel companies so far they haven’t welcomed the EPA’s actions – they are also part of the lawsuit against the EPA!
There probably haven’t been as many cars made and sold in the US since 2007 to create a major problem, but back dating the effect will certainly kick up the demand. It’s a development to keep an eye on for those in the feed market.
Monday, November 8, 2010
The changing US political tide
It was pretty difficult to miss the news last week that President Barack Obama’s Democratic Party copped a hiding in the US mid-term federal elections. What is less apparent from the dramatic turnaround in fortunes is what the development means for readers of The Weekly Times – specifically how it might affect trade in food and agricultural products.
The reaction of US voters to their unhappy lot has been swift and unforgiving, returning majority support to Republicans whom they deserted in droves just two short years ago after George W Bush exited. As we see time and time again, when people are hurting, they kick the incumbents.
The US economy is still drifting in the doldrums, despite some better news last week that retail sales were starting to show some life and that consumers now feel about as happy as they did before the GFC gutted the values of their homes. Sure Obama didn’t take the US into the gloom, but there are clearly a lot of people in his country that think that by now he should’ve done something more decisive about getting the nation back to work (and house prices back into forward gear) other than make inspiring speeches. Where new spending has been applied, it hasn’t been effective in pulling along investment and employment. The Obama rhetoric about the “challenges we face” has worn thin and it is now the time for his machinery to get things done. Maybe his “moving forward” slogan was a turn-off too?
Of course now that his party have lost control of the lower House of Reps and seen their Senate majority clipped, doing things will be much harder. He had a hard enough time convincing his own party to change, but he’ll battle the other side of politics that wants him out of office in 2012.
Some would say it really won’t matter what happened in US politics, as the world is headed for another tight shortage in food supply and therefore selling prices for agricultural commodities should keep rising.
But will this result help with the freeing up of trade if a global food crisis is averted this time around? There hasn’t been any progress on global free trade agendas in the past 4 years since the shift control in US politics towards the Democrats in 2006. Democrats thwarted Bush pushing for any progress on an effective and meaningful WTO trade deal.
The Republicans are typically more liberal in their views on trade, but that doesn’t mean much given the increasing factionalism within the US system. The ardent conservative movement – the Tea Party - which has gained momentum in this election campaign has more of a protectionist ring about it than anything, although meaningful policies to turn around the nation have been had to discern amongst the media fear-mongering. The gut-feel is that the new disciplines of American values will be trying to find and protect US jobs at home rather than find ways of trading fairly with the world.
The other factor in the trade equation is the heady value of our currency, to which a lethargic US financial system and a lifeless economy have contributed, but not solely to blame. We have higher interest rates, a hungry China and fears of inflation to that for that.
The reaction of US voters to their unhappy lot has been swift and unforgiving, returning majority support to Republicans whom they deserted in droves just two short years ago after George W Bush exited. As we see time and time again, when people are hurting, they kick the incumbents.
The US economy is still drifting in the doldrums, despite some better news last week that retail sales were starting to show some life and that consumers now feel about as happy as they did before the GFC gutted the values of their homes. Sure Obama didn’t take the US into the gloom, but there are clearly a lot of people in his country that think that by now he should’ve done something more decisive about getting the nation back to work (and house prices back into forward gear) other than make inspiring speeches. Where new spending has been applied, it hasn’t been effective in pulling along investment and employment. The Obama rhetoric about the “challenges we face” has worn thin and it is now the time for his machinery to get things done. Maybe his “moving forward” slogan was a turn-off too?
Of course now that his party have lost control of the lower House of Reps and seen their Senate majority clipped, doing things will be much harder. He had a hard enough time convincing his own party to change, but he’ll battle the other side of politics that wants him out of office in 2012.
Some would say it really won’t matter what happened in US politics, as the world is headed for another tight shortage in food supply and therefore selling prices for agricultural commodities should keep rising.
But will this result help with the freeing up of trade if a global food crisis is averted this time around? There hasn’t been any progress on global free trade agendas in the past 4 years since the shift control in US politics towards the Democrats in 2006. Democrats thwarted Bush pushing for any progress on an effective and meaningful WTO trade deal.
The Republicans are typically more liberal in their views on trade, but that doesn’t mean much given the increasing factionalism within the US system. The ardent conservative movement – the Tea Party - which has gained momentum in this election campaign has more of a protectionist ring about it than anything, although meaningful policies to turn around the nation have been had to discern amongst the media fear-mongering. The gut-feel is that the new disciplines of American values will be trying to find and protect US jobs at home rather than find ways of trading fairly with the world.
The other factor in the trade equation is the heady value of our currency, to which a lethargic US financial system and a lifeless economy have contributed, but not solely to blame. We have higher interest rates, a hungry China and fears of inflation to that for that.
Monday, November 1, 2010
Trade imbalance?
Food industry chiefs have repeated their calls for urgent attention from the Governments about the state of the trade balance in the food and grocery industry, with the release last week of the peak grocery manufacturer Australian Food and Grocery Council’s (AFGC) annual “state of the industry” document. AFGC sounded the alarm bells on the state of the trade balance, which for the first time has seen Australia slip to be a net importer of food and groceries.
AFGC is a peak body for food manufacturers. It represents companies that import the grocery raw materials, ingredients and processed food items, and so is effectively calling for the government to do something to correct the practices of its own members!
The release led to quite a bit of mis-reporting of the state of the food industry itself, due to a confusion in several reports of all that is “grocery” is not necessarily “food”. Food and groceries also includes medical and pharmaceutical products, of which we are net importers to the tune of $5.3billion. In non-food groceries, we have a total trade deficit of just over $8billion, which has in fact slipped out only $1billion in the past 5 years.
These are manufactured products. It is a bit late for a wake-up call that Australia is uncompetitive in grocery and consumer goods manufacturing.
Let’s be clear about what the numbers actually show. The figures are for processed foods only, so commodities such as bulk grains and livestock exports are excluded. Australia was a net exporter of processed food and beverages to the tune of about $5.4billion in the year to June 2010. But the size of that trade surplus has been gradually coming down, and was more than $10billion five short years ago. Imports of food and drinks have been rising at the average rate of 6% for that period, while exports have been knocked around in 2010 by our stronger dollar, and prior to that by drought. Volumes have declined slightly.
The news is not all bad. The value of dairy exports fell sharply in 2009/10 because the Australian dollar was about US20c higher than it was in the previous year. Dairy exports held up in the prior couple of years with high commodity prices, despite a small decline in exportable volumes as drought cut production. The value of beef exports was also hit by the dollar, lower beef production and lower processing throughput – ironically because a lot of rain in the major northern production areas slowed cattle getting to markets. Wine exports also fell with the glut conditions in world markets, while prices to Australian exporters of wine have been declining for many years as more of the world’s trade becomes commoditised and is forced to compete with cheap producers.
The weaker spots are horticulture, seafood and other processed foods, where the reliance on imports are increasing. Processed fruit and vegetable exports have gradually increased over the past 5 years – the trouble is the imports of these lines have expended at a faster pace. And we can’t catch anywhere near enough seafood to feed Australia.
The AFGC report is worth a read, but much of the analysis in the book about changing values of industry sectors is based on two-year-old numbers. If Governments are to do something better for the food industry, quicker numbers would be a start!
AFGC is a peak body for food manufacturers. It represents companies that import the grocery raw materials, ingredients and processed food items, and so is effectively calling for the government to do something to correct the practices of its own members!
The release led to quite a bit of mis-reporting of the state of the food industry itself, due to a confusion in several reports of all that is “grocery” is not necessarily “food”. Food and groceries also includes medical and pharmaceutical products, of which we are net importers to the tune of $5.3billion. In non-food groceries, we have a total trade deficit of just over $8billion, which has in fact slipped out only $1billion in the past 5 years.
These are manufactured products. It is a bit late for a wake-up call that Australia is uncompetitive in grocery and consumer goods manufacturing.
Let’s be clear about what the numbers actually show. The figures are for processed foods only, so commodities such as bulk grains and livestock exports are excluded. Australia was a net exporter of processed food and beverages to the tune of about $5.4billion in the year to June 2010. But the size of that trade surplus has been gradually coming down, and was more than $10billion five short years ago. Imports of food and drinks have been rising at the average rate of 6% for that period, while exports have been knocked around in 2010 by our stronger dollar, and prior to that by drought. Volumes have declined slightly.
The news is not all bad. The value of dairy exports fell sharply in 2009/10 because the Australian dollar was about US20c higher than it was in the previous year. Dairy exports held up in the prior couple of years with high commodity prices, despite a small decline in exportable volumes as drought cut production. The value of beef exports was also hit by the dollar, lower beef production and lower processing throughput – ironically because a lot of rain in the major northern production areas slowed cattle getting to markets. Wine exports also fell with the glut conditions in world markets, while prices to Australian exporters of wine have been declining for many years as more of the world’s trade becomes commoditised and is forced to compete with cheap producers.
The weaker spots are horticulture, seafood and other processed foods, where the reliance on imports are increasing. Processed fruit and vegetable exports have gradually increased over the past 5 years – the trouble is the imports of these lines have expended at a faster pace. And we can’t catch anywhere near enough seafood to feed Australia.
The AFGC report is worth a read, but much of the analysis in the book about changing values of industry sectors is based on two-year-old numbers. If Governments are to do something better for the food industry, quicker numbers would be a start!
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