Stimulus Spending- Green Economy?

The year 2007 witnessed a worldwide food prices hike and drop of supplies. The United Nations Food and Agriculture Organization warned that the changes represent an “unforeseen and unprecedented” shift in the global food system, threatening billions with hunger and decreased access to food. 

Severe food shortages, price spikes threaten world population

By Naomi Spencer
22 December 2007

Worldwide food prices have risen sharply and supplies have dropped this year, according to the latest food outlook of the United Nations Food and Agriculture Organization. The agency warned December 17 that the changes represent an “unforeseen and unprecedented” shift in the global food system, threatening billions with hunger and decreased access to food.

The FAO’s food price index rose by 40 percent this year, on top of the already high 9 percent increase the year before, and the poorest countries spent 25 percent more this year on imported food. The prices for staple crops, including wheat, rice, corn and soybeans, all rose drastically in 2007, pushing up prices for grain-fed meat, eggs and dairy products and spurring inflation throughout the consumer food market.

Driving these increases are a complex range of developments, including rapid urbanization of populations and growing demand for food stuffs in key developing countries such as China and India, speculation in the commodities markets, increased diversion of feedstock crops into the production of biofuels, and extreme weather conditions and other natural disasters associated with climate change.

Because of the long-term and compounding nature of all of these factors, the problems of rising prices and decreasing supplies in the food system are not temporary or one-time occurrences, and cannot be understood as cyclical fluctuations in supply and demand.

The world reserves of cereals are dwindling. In the past year, wheat stores declined 11 percent. The FAO notes that this is the lowest level since the UN began keeping records in 1980, while the US Department of Agriculture (USDA) has reported that world wheat stocks may have fallen to 47-year lows. By FAO figures, the falloff in wheat stores equals about 12 weeks worth of global consumption.

The USDA has cautioned that wheat exporters in the US have already sold more than 90 percent of what the department had expected to be exported during the fiscal year ending June 2008. This has dire consequences for the world’s poor, whose diets consist largely of cereal grains imported from the United States and other major producers.

More than 850 million people around the world suffer from chronic hunger and other associated miseries of extreme poverty. According to the FAO, 37 countries—20 in Africa, 9 in Asia, 6 in Latin America, and 2 in Eastern Europe—currently face exceptional shortfalls in food production and supplies.

Those most affected live in countries dependent on imports. The poorest people, whose diets consist heavily of cereal grains, are most vulnerable. Already the poor spend the majority of their income on staple foods—up to 80 percent in some regions, according to the FAO. Ever-rising prices will lead to a distinct deterioration in the diets of these sections of the population.

The food crisis is intensifying social discontent and raising the likelihood of social upheavals. The FAO notes that political unrest “directly linked to food markets” has developed in Morocco, Uzbekistan, Yemen, Guinea, Mauritania and Senegal. In the past year, cereal prices have triggered riots in several other countries, including Mexico, where tortilla prices were pushed up 60 percent. In Italy, the rising cost of pasta prompted nationwide protests. Unrest in China has also been linked to cooking oil shortages.

In addition to the cost of imports, war and civil strife, multiple years of drought and other disasters, and the impact of HIV/AIDS have crippled countries’ food supply mechanisms.

Iraq and Afghanistan both suffer severe shortfalls because of the US invasion and ongoing occupation. North African countries are hard hit by the soaring wheat prices because many staple foods require imported wheat.

Countries of the former Soviet Union are facing wheat shortages. People there spend upwards of 70 percent of their incomes on food; the price of bread in Kyrgyzstan has risen by 50 percent this year and the government released emergency reserves of wheat in the poorest areas to temporarily ease the crisis.

In Bangladesh, food prices have spiraled up 11 percent every month since July; rice prices have risen by nearly 50 percent in the past year.

Central American countries saw a 50 percent increase in the price of that region’s staple grain, corn. Several countries in South America have also been impacted by the high international wheat prices, compelling national governments to dispense with import taxes. The government in Bolivia, for example, has dispatched the military to operate industrial-scale bread bakeries.

All national governments are keenly aware of the possibility of civil unrest in the event of severe food shortages or famine, and many have taken minimal steps to ease the crisis in the short term, such as reducing import tariffs and erecting export restrictions. On December 20, China did away with food export rebates in an effort to stave off domestic shortfalls. Russia, Kazakhstan, and Argentina have also implemented export controls.

But such policies cannot adequately cope with the crisis in the food system because they do not address the causes, only the immediate symptoms. Behind the inflation are the complex inter-linkages of global markets and the fundamental incompatibility of the capitalist system with the needs of billions of poor and working people.

The volatility of the financial markets, driven by speculation and trading in equity and debt, intersects with the futures and options markets that have a direct bearing on agricultural commodity markets. As the housing market in the United States collapsed, compounding problems in the credit market and threatening recession, speculation shifted to the commodities markets, exacerbating inflation in basic goods and materials. The international food market is particularly prone to volatility because current prices are greatly influenced by speculation over future commodity prices. This speculation can then trigger more volatility, encouraging more speculation.

Future grain prices are a striking example of this disastrous cycle. On December 17, speculation on wheat and rice for delivery in March 2008 forced prices to historic highs on the Chicago Board of Trade. Wheat jumped to more than $10 a bushel on projections of worsening shortages and inflation. This level is double the $5-a-bushel price of wheat at the beginning of 2007.

Japan, the largest wheat importer in Asia, announced December 19 that it may raise wheat prices by 30 percent. The same day, Indian government officials warned of impending food security problems. These were due, according to Prime Minister Manmohan Singh, to “clouds on global financial markets following the sub-prime lending crisis.”

Soybean and corn prices have also been pushed up to 34-year and 11-year highs, respectively, on the projected shortages and demand for biofuel. These new trading levels become the agricultural benchmarks for subsequent trading, and, as the Financial Timesput it December 17, have the consequence of “raising inflationary pressure and constraining the ability of central banks to mitigate economic slowdown.”

Higher fuel costs ultimately lead to higher food prices, via higher shipping charges, particularly for nations that import a large proportion of their staple foods. Shipping costs for bulk commodities have increased by more than 80 percent in the past year and 57 percent since June, according to the Baltic Exchange Dry Index.

The FAO report noted that the enormous increase in freight costs has had the effect of dis-integrating the world market in certain regions because many import-heavy countries have opted to purchase from closer suppliers, resulting in “prices at regional or localized levels falling out of line with world levels.”

The rising oil price not only affects the costs of transportation and importation. It also has a direct impact on the costs of farm operation in the working of agricultural and industrial processing machinery. Moreover, fertilizer, which takes its key component, nitrogen, from natural gas, is also spiking in price because of the impact of rising oil prices on the demand and costs of other fuels. By the same token, as oil prices rise, the demand for biofuel sources such as corn, sugarcane, and soybeans also rises, resulting in more and more feedstock crops being devoted to fuel and additives production.

In the US, the use of corn for ethanol production has doubled since 2003, and is projected by the FAO to increase from 55 million metric tons to 110 million metric tons by 2016. The US government is more ambitious. On December 19, President Bush signed a new energy bill into law which contains a mandate for expanding domestic biofuel production five-fold over the next 15 years, to more than 36 billion gallons a year. Already a third of the US corn harvest is devoted to ethanol production, surpassing the amount of corn bound for the world food markets.

As more US cropland is devoted to ethanol-bound corn, other major agricultural regions are struggling with weather disasters associated with climate change. Australia and the Ukraine, both significant exporters of wheat, have suffered extreme weather that damaged crops. A prolonged drought in southern Australia has curtailed farming to such a degree that many farmers have sold their land.

Current research suggests that as temperatures rise over the next fifty years by 1 to 2 degrees Celsius, poor countries may lose 135 million hectares (334 million acres) of arable land because of lost rainfall. In new studies published earlier this month in theProceedings of the National Academy of Sciences, researchers have cautioned that this estimate may be conservative, and that the impact of climate change on food production has been over-simplified.

According to NASA/Goddard Institute of Space Studies researcher Francesco Tubiello, complications of climate change on the world food supply may be far worse than previously predicted: “The projections show a smooth curve, but a smooth curve has never happened in history. Things happen suddenly, and then you can’t respond to them.”

Tubiello’s research focuses on extreme weather events that have devastated entire crops when they coincided with germination and blossoming periods, as was the case with Italy’s corn crop in 2003. Tubiello noted that corn yield in the Po valley growing region fell to 36 percent following a heat wave that raised Italy’s temperatures 6 degrees over the long-term average.

In addition to the survival thresholds of plants, researchers have begun studying the effects of higher temperatures on the physiology and diseases of livestock, as well as the spread of pests, molds and viruses native to tropical zones. Goddard Institute research has suggested that bluetongue, a viral disease of cattle and sheep, will move outward from the tropics into regions including southern Australia. According to the Earth Institute at Columbia University, higher temperatures will lead to higher infertility in livestock and lower dairy yields.

The implications of these studies are that farming adaptations such as hardier crops and shifts in planting times may initially mitigate anticipated global warming. Yet over the coming decades, the stress of climate change on the food supply will also intensify in abrupt and catastrophic ways for which the capitalist system and its ruling elites are entirely unprepared and which they are unable to prevent.

 In spate of the fact, our leaders continue to turn a blind eye to agriculture sector when come to stimulus spending. Even when foreign direct investments run dry and the nation is reeling into an economic downturn, our leaders still in favor of export orientated manufacturing. 

The New Economic Vision for Penang and Malaysia

 Speech of Penang Chief Minister, The Rt. Hon. Lim Guan Eng At An International Conference on “The New Economic Vision for Penang and Malaysia” December 5 & 6, 2008 (Friday & Saturday)Traders Hotel, Penang 

1. When I took over the helm of the State Government on March 9, 2008, I made a pledge to the people of Penang that we will be fair, just and not discriminate against anyone. The people of Penang had created history by allowing the opposition parties to form the State Government and we have formed a government based on unity and respect for basic human rights and political equity.

2. The new State Government will not disappoint the people of Penang and we want to turn a new chapter. We were determined to do better in drawing in more investments. 

Projects Approved by State, 2008 and 2007 ( Ringgit Malaysia ,RM )

US – USD

2007 : US$1 = RM3.44 2008 : US$1 = RM3.49

3. For the whole of 2007, Penang drew in RM 4.77 billion in investments comprising RM 3.14 billion in foreign investments and RM 1.63 billion in domestic investments. We have exceeded that figure with RM 8 billion for the first nine months of the year comprising RM 4.8 billion in foreign investments and RM 3.2 billion in domestic investments (MIDA figures). Penang placed third this year as compared to 5 th last year. Were it not for the global financial crisis. I am confident that we would have hit the RM 10 billion mark.

4. As it is Penang has already broken all records in attracting the highest number of foreign investments in history. And these investments are high quality investments focusing on the main high-tech sectors in electrical and electronics industry such as LED and wafer fabrication as well as biotechnology in genetic testing for cancer detection with branded companies such as Honeywell, National Instruments and Ibiden. On top of that we have existing foreign MNCs reinvesting billions of ringgit for expansion purposes.

5. We believe that the quality investments in Penang, whether new or existing ones In this regard we want to pull in investors that are capital intensive, offer high-paying jobs, high-technology focused, centered on knowledge workers in sunrise industries. To help us determine the type of investors we want, there are eight characteristics of highly successful companies we look out for that I describe as the 8S- Standards (in the forefront of creativity innovation and research), Segmentation(diverse products in the marketplace), Scalability, Service, Schedule Adherence, Security of products, Sustainability and Corporate Social Responsibility.

6. We realize that we Penang is a land and resource scarce state, we must focus on our human resources, our strong work ethic and human talents to grow and prosper. We are therefore pleased that software solution companies have made Penang their prime target such as the No. 1 business solution provider SAP through their local franchise holder AXON has decided to to invest RM 100 million to create.250 high paying professional IT engineers in Penang.

7. We will continue such efforts which must be now redesigned and refocused to deal with the oncoming recession brought about by the global financial crisis. The Penang state government is adopting an expansionary budget for 2009 with a higher budget deficit of RM 39.4 million or 8.3% of the total budget as compared with 8.1% for 2008. The three key thrusts are pro-growth, pro-jobs and pro-poor.

8. With increased social programmes and public works, we will try to mitigate the effects of the economic slowdown. For a start, we aim to eradicate poverty in the State of Penang by March 2009, that is, a year after we have taken over the State Government. To achieve this aim, I would like to urge the private companies to join us as “Partners Against Poverty” through your companies’ corporate social responsibility (CSR) programmes.

9. However, presently, we have more urgent matters at hand. The global financial system is in shambles and recessions in the United States and Western Europe now seem unavoidable. People will lose their jobs and it is anticipated that additional jobs will not be created even after a few quarters subsequent to the economic recovery.

10. This is indeed a challenging time for economic management in Penang, Malaysia as well as the rest of the world. As we have to identify appropriate short-term measures to offset the coming economic downturn, we should also treat this downturn as a wakeup call for us to reconsider our development strategies to ensure that the forthcoming strategies respond to the desired growth path for Penang.

11. The future economic vision for Penang rests on continuing to develop our human resources, especially the cutting edge high-tech and computer segment. In other words, knowledge workers will be our key contributors of economic growth. This is in line with services sector contributing 57% of Penang GDP followed by 39.5% from the manufacturing sector.

12. If we can transform Penang’s economy from being a being a sweat-shop of the world to a smart shop, we have succeeded in moving up the value chain. We need to concentrate on the best knowledge-workers in Penang where we have the best engineers, doctors, nurses, accountants, pharmacists, lawyers, town planners, surveyors and architects. That is why Penang launched our free wireless initiative where we hope that in 2 years time, when you open your notebook or computer you can be connected to the internet, any time, any place, anywhere but only in Penang.

13. Making Penang a smart shop will go a long way towards transforming Penang an international city that is a location of choice for investors, a destination of choice for tourists and a habitat of choice for those who desire sustainable living.

14. For Malaysia to face the challenges of economic recession, we need an expansionary budget that is significant enough to make a difference. China’s foreign/international reserves are almost USD 2 trillion and yet they are willing to spend USD4trillion or double their international reserves to revive their economy and perhaps the world economy. In comparison, Malaysia’s foreign reserve is USD100 Billion and we are suggesting a USD2 Billion (Rm7Billion) economic stabilization plan which is only 2% of our foreign reserves. Why spend only 2% when China can spend double. Malaysia should spend RM50billion (USD14billion) of fiscal and monetary measures comprising

(1). Financial aid to distressed families of RM6,000 annually for those earning less that RM6,000/month amounting to RM35billion
(2). Monetary measures of cutting the corporate tax rate from 25% to 17% costing RM13billion
(3). RM2billion spending to provide wireless services and facilities to all key towns and cities.

15. We need a strong expansionary budget and economic stimulus program to counter the economic slowdown and also improve our infrastructure and education fundamentals so that we can take advantage of any economic recovery. A bigger expansionary budget is necessary with the latest Bank Negara figures showing a negative portfolio investment outflow of RM41.3 billion for the first 9 months of the year.

16. An expansionary budget must be implemented in a manner that is significant and speedy or else it will help no one.

17. In close, we must look beyond the recession by boldly spending on job retraining, increase the number of knowledge workers, upgrade our ICT infrastructure and strengthen our education structure as a center of excellence. Make Penang the smart shop of Malaysia and the region – that’s our future.

  

The Penang Economy 

The economic growth of Penang has been driven by  the manufacturing and the  service sectors, which accounted for about 95 per cent of the state GDP in the 1990  - 2000 period (Table 1).  The remaining 5 per cent was shared between the other three major sectors comprise, mining and construction.  The economic structure has somewhat stabilized although the manufacturing sector seemed the registering some gains in 2000.  This structural composition of the economy differs substantially from the national economy,  where the manufacturing and the service sectors contributed to about 85 per cent of the GDP and the other 3 major sectors still accounted for 15 per cent of the GDP.  As such Penang is much ahead in its industrialization as compared the rest of the country.  This also means that the role played by the agr icultural sector in the state economy is very much less as compared to the rest of the nation.  This may make the task of revitalizing the sector more difficult as resource structure and allocation has favored the others sectors much more than the agricultural sector.  

 

The Agricultural Sector in Penang 

 The agricultural sector in Penang currently contributed to just 1.3 per cent to the total GDP.  During the last decade the sector’s share has shrunk by more than 55 per cent, from 2.9 per cent in 1990.  The contribution of the sector had not only decreased in percentage terms but also in absolute terms, from RM228.4 million in 1990 to RM227.7 million in 2000. 

It is the only sector that recorded negative growth in the state (Table2).  It is obvious productivity gains in this sector were not able to match the productivity gains in the other sectors resulting in the outflow of resources from agriculture to the other sectors.  

(Source: The Agriculture Sector in Penang:  Trends and Future Prospects by Tengku Mohd Ariff Tengku Ahmad2)

 To build sustainable and self-reliant communities, the agriculture sector should assume a versatile and important role in regards to the social and economic development as well as the stable living of the general public, including the maintenance of vitality in regional society and the conservation of the national land and natural environment.

 As we come face to face with an imminent economic recession, we have to come to grips with the possibility of mass unemployment and hyper-inflation. We just can not afford to depend on imported food which bound to burden the people with escalated price. We should also exploit the potential of the agriculture sector for future employment opportunities. It is high time for the state government to review the present agriculture policies.

 The agriculture lands have been declined from 51,344 hectares (2001) to 49,339 hectares in 2006. This showed there is a fierce competition for land from other sectors of the economy. Only about 13697 hectares of land is use for vegetables and paddy cultivation. Where as about 6812 hectares of land is use for the production of local fruits. The rest of the agriculture lands are use for agribusiness that guarantee maximum short term financial return.

 

(Source:  Penang Statistics)

 

A fundamentally new approach towards sustainable agriculture should be adopted to rectify the inadequacy of present agriculture policy. The state government should adopt the following action plan which seeks to promote:- 

1.      Environmentally conscious agriculture

Applying a maximum level of environmentally friendly qualities of agriculture as material circulating industry, in addition to further enhancing the environmental conservation functions of agriculture, the government should comprehensively promote the following activities, and establish environmentally conscious agriculture, from the perspective of reducing environmental load as much as possible.

·        The state government should properly assess the functions of agriculture and rural communities in the conservation of the state land and the environment, and should maintain and increase these functions,

·        The state government should develop and spread technology for environmentally conscious agriculture, which is not greatly dependent on chemical fertilizers and agricultural chemicals, and through which the conservation of the environment and sustainable agricultural reproduction is possible,

·        Recycled use of agricultural wastes, including the manure of livestock and paddy husk. 

2.      Brake on downward trend in food self-sufficiency

The state government should seek to maintain and increase the domestic agricultural production as much as possible, by means of improving the quality and cost of domestic production, such as accelerating the increasing productivity in the domestic agriculture, and to put the brake on downward trend in food self-sufficiency rate. 

3.      The improvement of agriculture and rural areas

The state government should promote comprehensive improvements in rural regions, including improvement of production infrastructure, which includes that for larger farmland, farm roads, and main facilities for irrigation and drainage for the purpose of realizing attractive agriculture, and improvement of facilities for rural sewerage for the purpose of forming pleasant and beautiful pastoral spaces, as well as improvements for maintaining and creating safety in regards to the national land. 

4.      The activation of agriculture and rural areas

The state government should promote activities to contribute to the activation of agriculture and agricultural districts in mainly hilly areas which are put under unfavorable natural and economic conditions, and are confronted with hard conditions from the standpoint of maintaining a sound regional society, due to decreasing population, mainly among the young, the aging population, and stagnation in activities for agricultural production.

For this reason, in addition to promoting agriculture which puts to use special regional characteristics, improving the structure of agriculture, and making improvements in the living environment in fields for which there have been delays in rural areas, when compared to urban areas, the state government should engage itself in promoting the culture and history of rural regions, the practical application of resources and technologies which are peculiar to individual rural regions, the acceleration of exchange between rural and urban areas, and creating scenic rural spaces. 

5.      The development of  energetic agricultural production

In order to achieve advanced agricultural production, in addition to promoting the fostering of management bodies to conduct efficient and steady management, as well as excellent human resources, including youth among the farming sector, to support these management bodies, the state government should promote the realization of high-productivity and high-quality agriculture through the creativity of the various local areas, as well as measures for the furtherance of stockbreeding, and the production of fruit and vegetables.

In addition to promoting the prevention of epidemics among vegetation, with due consideration given to soil conservation and the environment, the state government should also develop new varieties of crops and adopt superior seeds and seedlings, using biotechnology.

6.      The provision of a steady supply of food, and the promotion of food industry

As regards such food as rice, meat and vegetables, which are essential to the general public in everyday life, in addition to securing stabile prices, supply and demand. The state government should also promote comprehensive environmental measures throughout the stages of the production, distribution and consumption of food. 

7.      The development  and the spreading of technology

The state government should promote the development of technology for improving agricultural productivity, fostering new varieties of crops, the creation and use of a gene bank for collecting and storing genetic resources which make up the basis for the development of a variety of crops, and technological development for the furtherance of the use of the biomass. In particular, the state government should promote the development of technologies on sustainable agriculture, such as integrated pest management technology incorporating the biological pest control whose environmental effect is sufficiently considered as well as the introduction of resistant varieties of crops to pests, etc., and management technology for the appropriate fertilization and cultivation for the purpose of conserving land fertility and the soil of farmland. The state government should also seek to develop maintenance and management technology for farmland in order to make agriculture demonstrate its functions of environmental conservation.

Also, in order to achieve the diffusion and permeation of technology among the farming sector, the state government should promote dissemination activities through facilities for the spread of agriculture improvement. 

8.      Wholesale and Distribution Center

Wholesale market and distribution center should be established to facilitate the sustainable management, development and expansion of agriculture sector. This will help eliminate market exploitation by middlemen through facilitating or exploring marketing channels for the produce of the farmers.

 In addition to promoting efficiency in the use of energy in the farming sector, the state government should promote the practical application of natural energy in regions, conduct research to stop soil pollution on farmland, and devise measures to deal with polluted soil.

 The South-West district should be promoted as the Green Belt of the island to produce more of our own food, and to provide a healthy diet, timber and fibres, and ultimately all renewable resources, by means which are sustainable, non-exploitative and ecologically benign.

 NGO like Organic Farm should be encouraged to play an active part to promote organic agriculture which seeks to work with ecological processes. Organic farming methods should be integrated with the culture of ecologically suitable trees with a multiplicity of uses  and policy measures to achieve other objectives, such as the stability and prosperity of rural areas, conservation of wildlife habitats , equity of income distribution , recreational, landscape, water and energy policies. 

This write-up was originally written for Penang DAP in 1999 as an attempt to rejuvenate its image. Since Penang DAP finally  come to power, it is time for Penang DAP to  swallow its own medicine, which was originally  prescribed to the standout incompetent among the failures, Koh Tsu Koon.