Food, Fertilizer and the Future

As all drivers know, fuel prices have risen sharply since their 2020 lows.

First, the global economic recovery boosted demand for oil, then the invasion of Ukraine by Vladimir Putin reduced Russia’s oil exports.

But prices at both the pump and at the well have stabilized, at least for now.

By historical standards, real fuel prices (prices relative to the overall cost of living) were not that high; in fact, they are lower than between 2006 and 2014.

And on Tuesday morning, Texas crude oil was back below $ 100 per barrel.

However, even though the energy crisis may be less severe than some think, there is a major crisis in world food supply.

In fact, last year, the increase in the price of wheat was much greater than the increase in the price of oil.

It hurts here in the United States, but it hurts more in poor countries, where a larger portion of household spending goes to food.

What is behind the food crisis?

One part of the story is obvious:

Ukraine is generally a major exporter of agriculture, but it is difficult to do that when Russia is bombing its railways and blocking its ports.

But there is more to the story:

Russia has stopped most of it own export grain, apparently in an attempt to keep domestic prices low.

Kazakhstanthe third largest exporter of agriculture in the region, followed as well.

Then there is fertilizer.

Innovative fertilizer production consumes a lot of energy, and before the war, Russia was the largest exporter in the world; but Russia has now suspended those exports.

However, it’s not just Russia.

As a new analysis by Chad Bown and Yilin Wang of the Peterson Institute for International Economics points out, China, another major fertilizer producer, cut most of its exports last year, again in an apparent attempt to keep domestic prices low.

And, as they point out, such export bans are, if any, a bigger problem than the tit-for-tat tariff hikes of the US-China trade war.

It’s all causal major problems in agriculture around the world, especially in emerging markets such as Brazil.

ang This is bad.

It is also an important lesson about the relationship between geopolitics and globalization.

Many people, I think, think that globalization is a relatively recent development.

Economic historians know, however, that a dramatically integrated world economy emerged between 1870 and 1913, possible thanks to advanced weather technology:

ships, railroads and telegraphs.

In the early 20th century, Brits ate Canadian wheat, Argentine beef, and New Zealand lamb for dinner.

Geopolitics (wars, rise of totalitarianism and protectionism) then killed most of the first wave of this globalization.

Trade was revived only with the establishment of Pax Americana after the war, and it took almost 40 years restore global trade to 1913 levels.

The fact is that the first wave of globalization was relatively simple and was largely an exchange of manufactured products from advanced economies for basic products such as, well, wheat.

The complex value chains that characterize the modern world economy, where, for example, vehicles made in rich countries include chips from Japan and wiring harnesses from Mexico and Ukraine, are in fact a development largely.and after 1990, made possible mainly by containerization and modern information technology, and brought world trade to new heights.

But it turns out that both forms of globalization depend on a relatively stable geopolitical environment, which we seem to be missing out on.

We’re not in the territory of “The Guns of August” (Barbara Tuchman’s 1962 book on World War I), though not yet, but there’s a definite smell of 1914 in the air.

And a surprising aspect of recent economic problems, at least for me, is that so far they seem to be doing more damage to old-fashioned globalization:

should we call globalization 1.0? -the complex economic relations that formed after 1990.

Despite container shortages, port jams and all that, it’s still relatively easy to buy electronics that include components from a dozen countries.

What is really hitting now is more raw stuff, like trade of wheat and fertilizer.

In any case, even before the invasion of Ukraine, there are more and more reasons to wonder about the future of globalization.

We are often told that trade promotes peace, which may or may not be true.

However, one thing is certain is that peace promotes trade.

And as the world becomes a more dangerous place, the things we neglect, like the large -scale food trade, may be more vulnerable than anyone thinks.

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