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The New Oil?
By Mariano Turzi
In the coming years, access to edible
commodities will become a key strategic
source of power, bringing back to the
forefront an old fault line in international
relations: food geopolitics.
The strategic relevance of agricultural
products has been undervalued
relative to other natural resources such
as gold, silver and oil. Since the mid-
20th century, an age of abundance and
economic development, oil has been
regarded as the most critical commodity.
But agricultural commodities are much
more vital goods: One can substitute
driving for public transportation but
cannot help eating and drinking on a
daily basis. If energy scarcity can disrupt
the normal functioning of a society, the
absence of food and water can cause its
sudden breakdown.
As the geopolitical balance between
the emerging and the developed world
shifts, several trends will combine to
intensify competition for food products.
Decision-makers will face new
national security dilemmas and foreign
policy challenges. Some will come from
increased demand and others from the
nature of the supply system.
World demand for agricultural commodities
is driven by three Fs: food, feed
and fuel.
The first leg, food, is the result of an
impressive background demographic
dynamic: The global population, which
grows by around 80 million people per
year, was expected to surpass the 7 billion
mark by late 2011 and to reach
9 billion by the end of the century.
Renowned agronomist Norman Borlaug
estimated in 2009 that over the next 50
years, the world will have to produce
more food than it has in the past 10,000
years. This means a structural upward
shift in food demand.
The second component, feed,
answers to the rise of the emerging
world, with particular focus on Asia.
When living standards rise, so does
demand for meat and dairy products.
As people from Brazil, China and India
abandon poverty and move into the
Year of
Agriculture
atSAIS
burgeoning middle class, they diversify
their diets to include more vegetable
oils, meat and dairy products. There are
not only more people, but also more
people eating pork, chicken and beef.
The third element is fuel. Expectations
of oil price hikes and supply
shortages have triggered a growing
demand for energy from the biofuels
industry. Supported by policy mandates,
countries are seeking to diversify
their energy sources by incorporating
renewables. When the international
price of corn soared in 2007, Mexico
underwent a period of social unrest and
political instability due to the “tortilla
wars.” When corn demand from U.S.
ethanol plants soared in 2007, prices
spiked across the border. In the “tortilla
wars,” tens of thousands of protesters
took to the streets of Mexico City and
demanded a solution to the 50 percent
increase in the price of corn tortillas, a
staple of Mexican diet and culture.
On the supply side, climate change is
generating increased temperature volatility
and alteration of precipitation patterns.
In 2010, for example, a drought
and heat wave decimated the Russian
wheat harvest, leading to a rise in the
price of flour and bread worldwide. Second,
there are severe price distortions
due to global investors’ hunting for
safe hedges to diversify their portfolios
in times of financial turmoil, turning
commodities into an asset class. New
investment products—food derivatives
and indexed commodities—open speculative
opportunities that put upward
pressure on prices. Third, as urbanization
grows—in 2010 more than half the
world’s population became urban—land
available for cultivation decreases.
Finally, water mismanagement and
overproduction are leading to increasing
desertification, destroying previously
arable land. Although not immune to
criticism, biotechnology developments
have the potential to counter these
supply-reducing trends.
Desperate for Land
The nature and composition of world
agricultural demand and supply are
fast becoming important dimensions
of international relations, opening up a
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