Common Enemy Alliances

This data was brought to my attention in a newsletter titled Food for Thought a while back by a well regarded independent analyst by the name of John Mauldin, whom I’ve referenced before.  Mr. Mauldin is a bit of a seer with a strong sense of economics and market function, two fulcrums often at odds. He tends to be a little ahead of the curve, and as such a little removed from the conventional thinking.  He has an excellent network of analysts who he often cites in his regular newsletters.  One such colleague of his is Niels Jensen of Absolute Return Partners.

In all fairness to John and Niels, the purpose of the newsletter I am citing, which I highly recommend reading, was vastly different from my contextualization of the data I unearthed through them.  In that newsletter, Mr. Mauldin introduces the letter with:

What countries are truly the have and have nots of the world? Good friend and business partner Niels Jensen of Absolute Return Partners suggests we look at the old equation in a new way? Food and energy resources may be at least part of the definition in the future. In this week’s Outside the Box we continue a them I mentioned a few weeks ago: agricultural needs are going to be a new and important force in the world and when coupled with energy may shift the balance of power in the world in strange a different ways.

When, as Niels points out, Afghanistan poppy farmers are shifting to wheat farming, the world is truly a different place. I think you will find the research he has done to be truly worth a few minutes of your thinking time.

And as a preface, I was reminded a little while ago that a Financial Times headline story last Friday mentioned that China is buying African farmland and building massive amounts of railroads and infrastructure to get grains to the market. I have long been bullish on African farmland. This week’s OTB will tell you why.  (Source: Investors Insight)

With proper reference and context aside, now consider the bottom 25 countries on this list below, versus the top 25, and the implications for US foreign relations. Most of the names in the bottom 25 already represent “delicate” situations.  As the global economy unwinds, and decoupling of independent emerging economies is proven wrong, we ought to be looking at the implications to global unrest, beginning with the most basic of needs, the availability and affordability of food.

While a great many Americans will be facing uncertain economic times over the next couple of years, including but not limited to higher unemployment and housing difficulties, few Americans will find it truly impossible to afford food.

A look to the implications of the global slowdown, however is in tall order if we are to consider that the citizens in dozens of countries were just two years ago spending one quarter or more of their income on food.

While food and energy prices have come down dramatically over the last few months, so too will global economic growth.  In addition, the costs of food and fuel in real terms remain dramatically higher today, higher than they were just two years ago.  Two years ago, in 2008 dollars oil was approximately $60 versus over $90 today.  In addition, in real 2008 dollar terms, the price of wheat tripled from the beginning of 2006 to the beginning of 2008, only to have “moderated” to being 50% higher today than it was two years ago.

With one more real or perceived weakness in American hegemony, regarding our current financial crisis, it is not inconceivable that the numbers of countries who hold disdain for America and for American Capitalism may grow.  It is imperative that despite our own contraction, in an election year, that we do not dramatically cut our international aid.  This has not been a “hot issue” of the debates, but I imagine it will become one for the next US president.  If we do not continue to support the world’s poor, we ought to hope that our common enemies don’t unite.

Expenditures on Food, by Selected Countries, 2006

USDA/ERS - Food CPI, Prices and Expenditures: Expenditures on Food, by Selected Countries, 2006

Food for Thought
John Mauldin, Investors Insight, May 14, 2008

Crude Oil Prices 1861 – 2008
Paul Maidment, Tania Puell & Shlomo Reifman, Forbes, May 9, 2008

Food CPI, Prices and Expenditures: Expenditures on Food, by Selected Countries, 2006
ERS/USDA, September 3, 2008


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