Tags: barry | elias | Food | Engineering | Financial

Food Engineering Trumps Financial Engineering

By    |   Friday, 10 Jun 2011 07:56 AM

Which would you prefer: food or a financially engineered derivative of food?

For nearly 1 trillion people, who currently experience severe hunger, I suspect the former would be the unanimous choice.

Oxfam, an international consortium that seeks to reduce world hunger, estimate that people in Africa, India, and Southeast Asia spend 40 percent to 50 percent of their income on food.

The June 2011 Oxfam study suggests that inflation-adjusted food prices are expected to increase 70 percent during the next 20 years. If the anticipated climate change occurs, the price increase may range from 120 percent to 180 percent.

The rationale: an increase in demand and a decrease in supply.

Demand is expected to rise as the population increases 30 percent, from 7 billion to 9 billion. In addition, the supply is expected to decline roughly 40 percent.

The anticipated price increase can be offset by increasing productivity 70 percent during the ensuing two decades. This can be achieved by reducing wasteful demand, increasing crop yields, and optimizing land access and allocation.

Wasteful demand reductions: households in developed countries waste 25 percent of food expenditures.

Supply has been diminishing due to unfavorable weather conditions (drought and flood), lower crop yields, and suboptimal land-resource management.

Ironically, carbon emissions were expected to increase productivity, since plants utilized carbon dioxide in the photosynthesis process to generate energy and mass for food. Unfortunately, the projected growth was half the anticipated amount, which was more than offset by unfavorable weather conditions (e.g., drought, floods).

Efforts to increase crop yields include the following:

• Micro-irrigation: efficient, targeted water application to plant root zones;

• Water harvesting: rain storage;

• Agroforestry: biodiversity, species integration and synergy);

• Intercropping: Non-competing crops species grown on same general land mass);

• Near zero tillage farming: increase soil efficacy;

• Water management: efficient usage (e.g., micro-irrigation).

In addition to an increase in crop yields, more competitive access to arable land is essential.

Nearly half the arable land in the United States is controlled by 4 percent of the farmers. In Brazil, 1 percent control nearly 50 percent of the land, and 8 percent of Central American farmers manage 80 percent of farm land.

Globally, several hundred companies control 70 percent of all food choices.

Four firms — DuPont, Monsanto, Syngenta, and Limagrain — dominate more than half the global seed industry. Three companies — Cargill, Bunge, and ADM — control almost 90 percent of the world grain sales. In Peru, Nestle controls 80 percent of milk production.

The creation of a more effective and efficient global food-distribution system will require a synergistic relationship among business, consumers, and government.

Prudent land-resource management will help optimize the production and distribution of water and food: life-sustaining commodities. Other activities and markets are dependent on this long-term success.

A financial industry alert: Value is derived by consuming a life sustaining commodity, not by engineering its financial derivative.

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Elias
Which would you prefer:food or a financially engineered derivative of food? For nearly 1 trillion people, who currently experience severe hunger, I suspect the former would be the unanimous choice. Oxfam, an international consortium that seeks to reduce world hunger,...
barry,elias,Food,Engineering,Financial
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2011-56-10
Friday, 10 Jun 2011 07:56 AM
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