Speculations stir up energy and food crisis

The Jakarta Post ,  Jakarta   |  Fri, 05/02/2008 1:33 PM  |  Business

Speculations on the financial market, including futures trading, have exacerbated the energy and food crisis by inflating prices in spite of a global economic slowdown, a discussion forum was told Wednesday in Jakarta.

In a seminar organized by the International NGO Forum on Indonesia Development, Agustinus Prasetyantoko of Atmajaya University said food and energy prices were expected to rise for years ahead due to increasing demand and shrinking outputs.

"With predictions of a slowing global economy and crisis fears, oil demand and prices are expected to fall.

"But what has happened is the price keeps on increasing. So this is a contradiction. It shows market speculation now plays a big role in determining prices."

Crude oil for June delivery was traded at $113.23 a barrel on the New York Mercantile Exchange on Thursday, 11:49 a.m. London time, as reported by Bloomberg. Oil futures, which have gained 76 percent in the past year, touched a record $119.93 a barrel on April 28.

The International Monetary Fund predicts world economic growth will slow to 3.7 percent this year, 1.25 percent lower than in 2007.

Commodities, Augustinus said, including food and oil, had become the anchors of financial derivatives and more and more commodities contracts were being traded in the futures market.

"When the futures are speculated to increase in price, the agricultural outputs as well as the price are expected to increase as well," he said.

Rice, soybean, wheat, corn and crude oil futures are traded on various American stock exchanges, including the Chicago Board of Trade and New York Mercantile Exchange, rubber on the Singapore Stock Exchange and palm oil on the Malaysian Stock Exchange.

The effect on commodity markets has been more intense recently due to the crisis is the U.S. financial market.

"The investors need to find new fields. Firms like Dow Jones that usually invest in traditional markets now are also heavily focusing on financial products tied to agriculture commodities," he said, adding that Indonesia could do little in the short term to ease the impacts.

However, he said one solution was to prevent capitals from flowing out of the country through monetary and investment policies, but that the solution depended on farsighted strategies to secure energy and food self-sufficiency.

"Why is Indonesia a net oil and grain importer now? I think there have been flaws in our long-term strategies in the past.

"If we had managed our oil production properly, we may have escaped the negative impacts of the oil crisis. We may even have enjoyed the benefits like oil-producing countries in the Middle East."

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sadashivan (not verified) — Sat, 05/17/2008 - 5:51pm

Food grain shortage may have many reasons but two main reasons we are not taking into consideration. They are excessive urban growth and pruning agricultural lands and agriculture as non profitable business any more. One of the richest states (KERALA) in India has turned as consumer state rather than producing. 25 years back it produced rice and sold to other states now as the land converted to urban and houses has resulted shortage of agricultural land the main culprit for this issue is non profitable business. This situation will further aggravate if state government does step up for immediate action.

Similar situation is now with entire world, demand is more and production is less due to imbalanced economic policies. More attention is given to urban economic growth than the rural research and development. A day will come when a slogan or will find ad “Buy one kg of rice and get a laptops free” as computers and other electronic products will be much cheaper. Economic growth has to be balanced considering social condition of the country. Banning exports of essential items is only temporary solution to overcome present situation but for future food grain shortage will further aggravate as
• Global warming (even excessive urbanization has role to warm our globe). Excessive human population, Excessive concrete buildings - industries, carbon fuel based transportations heat up environment to reduce moisture in land results shortage and uncertain rain, river shrinkage, draught, shortage of water and so on.
• 25 years back there was more agricultural land than of today many of them converted to more and more housing and industrial lands; whereas population growing fast, feeding will become challenge to most countries even developed countries will not escape. Nature’s priority is water, food and then shelter. Economic and scientific growth need to be first based on human needs.
• Urban related economic growth thrusts agricultural land conversion to cities and building to accommodate urban population and industries. Over 20% of farm lands of developing countries have been converted to cities and buildings for the past decade and Over 50% of farmlands of villages (close to cities) got merged with cities.
• Non profitable food grain production (international organization and appropriate governments shall have to reconsider bring back agricultural subsidies). Also make agriculture more profitable by linking customer and farmers by way of direct procurement by large stores, and other agencies so mediators and brokers are kept away.
• Escalation of essential food prices by “Satta” future trading helps hording so less and less mediators between producer and final customer. Present system of trading agricultural goods only helps middlemen from wholesalers to brokers. Their financial power helps them hold back stock to create artificial shortage.
• Irrigation and water shortage (In fact water crisis is there but in some states and countries water is excessive causing disaster or consumed by sea. If scientists of missiles or warplanes work on how river water reaches sea after consumed by entire world, would convert desert land to fertile land).

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