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Up Against Hard Limits – Food And Finance


We are reaching hard limits in food production and financial engineering.

In the first 25 years after World War II (1946-1970), an abundance of cheap oil and plentiful opportunities (low-hanging fruit) for global development led to rapid urbanization and economic growth in much of the world. As oil became more expensive and the demands for more resources by an expanding middle class rose, limits on available resources became visible. These were explored in the famous Club of Rome report, Limits to Growth (original 1972 paperback); Limits to Growth: The 30-Year Update (2004).

For roughly forty years (since the report was published in 1972), technology has pulled one magic rabbit after another out of the hat, making a mockery of the claims that there were limits on consumption and resource extraction: the green revolution and fossil-fuel fertilizers expanded food production, new supergiant oil fields and improved drilling technologies opened up vast new energy reserves, and improved technologies led to more efficient use of resources.

The success of the past four decades in pushing back looming limits has created a widespread confidence that technology can solve any apparent limits. For example, if the seas have been stripped of fish, then aquaculture will fill the desire for fresh fish. Presto-magico.

But what if the technological improvements are entering a terminal phase of diminishing returns? What if the “solutions” don’t really replace what has been destroyed? For example, the ecology of the open ocean is not restored by aquaculture; rather, it is further harmed by poor aquaculture practices.

The analogy is cutting down a rain forest, which is a diverse habitat for a variety of life, and replacing it with a monoculture tree farm. Economically, the tree farm may appear superficially to have the same “value” as the forest, but this reveals the poverty of our economic models that only value what can be commoditized for human consumption in the global marketplace.

Everything that doesn’t fit that definition is discounted as worthless–for example, the air in Beijing. Since it can’t be monopolized, marketed and sold, it is not valued. the external cost of millions of cases of lung cancer are not included in the “cost of production.”

A trusted correspondent recently emailed me this sobering commentary:

“I recently spoke with a longtime friend and former colleague in international aid and development work from “back in the day” with 30 years of experience in the field, and he notes from his work that global food production per capita has peaked (not coincidentally with crude oil extraction per capita), and growth of consumption against supplies could result in acute shortage conditions in the marginal areas as soon as this year or next, with China and parts of Southeast Asia experiencing intractable shortages as soon as 2015-2018. He estimates the risk of “permanent drought and famine” in parts of Africa now at well over 50%.”

Crops still need water and healthy soil; no amount of GMO magic or fertilizer can replace water and soil. It certainly seems the planet may be pushing up against hard limits in food production.

Why China’s Explosive Economic Growth Could Trigger a Global Food Crisis

Global Food Crisis: The Struggle to Satisfy China and India’s Hunger

Climate change feared to create global food crisis: Price shocks, swelling populaces may bring political destabilization

I see the same complacent confidence in global finance: it is widely assumed that the world’s central banks can create money and credit with abandon and manipulate currencies and stock/bond markets, with no limit on their activities and no consequences that escape their control.

It seems “impossible” there could hard financial limits when credit creation is unlimited, and the central banks’ ability to manipulate and control global markets also appears unlimited. But it seems to me that there is a financial ecosystem that is an analog of a natural ecosystem, and therefore there are analogous hard limits on financial engineering. That these limits are not yet visible does not mean they don’t exist.

For more on the hard limits of financial engineering:

The Source of Systemic Crisis: Risk and Moral Hazard
(August 21, 2013)

The Grand Experiment: Offloading Risk onto the State (August 22, 2013)

The Grand Experiment Part 2: Unlimited State Creation of Credit and Cash (August 23, 2013)

Of Two Minds

9 Comments on "Up Against Hard Limits – Food And Finance"

  1. actioncjackson on Sun, 25th Aug 2013 9:35 pm 

    There are still people left in the world who have never seen a car, much less heard of peak oil. That makes me happy. This epic cataclysm threatening to tear the world apart means nothing to them.

  2. bobinget on Sun, 25th Aug 2013 10:41 pm

    Today some 18 countries, containing half the world’s people, are overpumping their aquifers. Among these are the big three grain producers—China, India, and the United States—and several other populous countries, including Iran, Pakistan and Mexico.

    During the last couple of decades, several of these countries have overpumped to the point that aquifers are being depleted and wells are going dry. They have passed not only peak water, but also peak grain production. Among the countries whose use of water has peaked and begun to decline are Saudi Arabia, Syria, Iraq, and Yemen. In these countries peak grain has followed peak water.

    Nowhere are falling water tables and the shrinkage of irrigated agriculture more dramatic than in Saudi Arabia, a country as water-poor as it is oil-rich. After the Arab oil export embargo in 1973, the Saudis realized they were vulnerable to a counter-embargo on grain. To become self-sufficient in wheat, they developed a heavily subsidized irrigated agriculture based heavily on pumping water from fossil aquifers.

    After being self-sufficient in wheat for over 20 years, the Saudis announced in early 2008 that, with their aquifers largely depleted, they would reduce wheat planting by one eighth each year until 2016, when production would end. By then Saudi Arabia projects it will be importing some 15 million tons of wheat, rice, corn, and barley to feed its 30 million people. It is the first country to publicly project how aquifer depletion will shrink its grain harvest.

    Syria, a country of 22 million people riddled by civil war, is also overpumping its underground water. Its grain production peaked in 2001 and during the years since has dropped 32 percent. It, too, is becoming heavily dependent on imported grain.

    In neighboring Iraq, grain production has plateaued over the last decade. In 2012 it was dependent on the world market for two thirds of its consumption. In addition to aquifer depletion, both Syria and Iraq are also suffering from a reduced flow in the Tigris and Euphrates rivers as upstream Turkey claims more water for its own use.

    In Yemen, a nation of 24 million people that shares a long border with Saudi Arabia, the water table is falling by roughly 6 feet a year as water use outstrips aquifer recharge. With one of the world’s fastest-growing populations and with water tables falling throughout the country, Yemen is fast becoming a hydrological basket case. Grain production has fallen by nearly half over the last 40 years. By 2015, irrigated fields will be a rarity and the country will be importing virtually all of its grain. Living on borrowed water and borrowed time, Yemen could disintegrate into a group of tribal fiefdoms warring over water.

  3. Wheeldog on Sun, 25th Aug 2013 11:19 pm 

    Ultimately potable water is far more precious than oil. Indeed, might clean water one day be traded for oil? Mega water tankers heading to northern Africa could cross paths with oil tankers in route to North America.

  4. Norm on Mon, 26th Aug 2013 12:35 am 

    “Financial Engineering” what a cool phrase for swindles, ponies schemes and scams. Its right near start of article. Kinda like when they call a garbage man, a sanitation engineer.

  5. BillT on Mon, 26th Aug 2013 3:53 am 

    All the money in the world cannot make potable water out of nothing without energy. Energy is the limiting factor in everything. Not money. Money will only cause the capitalist system to collapse eventually. But there is a lot of pain before that happens and even more pain after.

  6. J-Gav on Mon, 26th Aug 2013 2:19 pm 

    Hard limits indeed … and the fact that there are several of them doesn’t help matters: fossil fuels, fresh water, available investment capital, viable eco-systemps (whether terrestrial or oceanic).
    The pain BillT mentions is already unavoidable – it’s just a question of how much of it and for how long before some semblance of a new equilibrium is reached, if that ever happens.

  7. bobinget on Mon, 26th Aug 2013 3:12 pm 

    Just in:

    Corn futures for December delivery surged 5.5 percent to $4.9575 a bushel in Chicago, after touching $4.9675, the highest since July 22.

    Production will be 13.46 billion bushels, less than the 13.76 billion estimated this month by the USDA, Pro Farmer said Aug. 23.

    “The prediction of continuing hot and dry weather in growing areas of the U.S. is responsible for the rising prices,” Eugen Weinberg, the head of commodities research at Commerzbank AG in Frankfurt, said in an e-mailed report. “These conditions could have a significant impact on crop yields, especially since sowing was delayed this year and plants are lagging behind the normal growth pattern.”

    STORY: Give Me Your Yuan: Chinese Are Eager for U.S. Assets
    Wheat futures for delivery in December rose 3.5 percent to $6.6875 a bushel, heading for the biggest gain since April 3.

  8. bobinget on Mon, 26th Aug 2013 3:36 pm 

    Instead of knee jerk “it’s global warming” run for the hills, don’t waste your time trying to convince AGW deniers. That won’t help grow more corn or beans.
    Instead, think of ways we can deal with hot dry weather conditions in North and South America .

    These are the ugly facts we will be facing in the future.
    Too many people, too few arable lands. Simple like borsht.

    THis may not seem important here but in India, because of drought last growing season and terrible floods this, is facing a major onion shortage. Indian housewives are frantic as the price of onions has quadrupled this year making them unaffordable to all but the rich. Revolutions have been made of less.

    Instead of railing against fracking, GMO, pipelines,
    offshore wind power, abortion, “ugly” solar panels, clotheslines, birth control for all,
    newer nuclear power plant design, recycling sewer water, wetland waste treatment, waterless urinals,
    ‘conventional’ agriculture AKA “inorganic”, support
    regulations based on peer reviewed science.

  9. GregT on Thu, 29th Aug 2013 3:09 pm 

    “Ultimately potable water is far more precious than oil. Indeed, might clean water one day be traded for oil? Mega water tankers heading to northern Africa could cross paths with oil tankers in route to North America.”

    One day, there will be no more ‘oil tankers’ heading to North America. There will be no more oil, at least, not oil that most North Americans can afford. Water shortages will not be limited to Africa, they will be much closer to home. It has already begun, and will continue to get much worse in the near future.

    Ignoring reality, will not make reality, go away.

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