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Food, fertilizers and the future

2022-05-15T03:51:13.600Z

As the world becomes more dangerous, the things we take for granted can become much more fragile. As anyone who drives a car knows, gas prices have risen sharply from their 2020 low due to the pandemic. First, the global economic recovery boosted oil demand, and then Vladimir Putin's invasion of Ukraine cut off Russian crude exports. But prices, both at the pump and at the wellhead, have stabilized, at least for now. From a historical perspective, real gas prices—that is, prices relative to th



As anyone who drives a car knows, gas prices have risen sharply from their 2020 low due to the pandemic.

First, the global economic recovery boosted oil demand, and then Vladimir Putin's invasion of Ukraine cut off Russian crude exports.

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

From a historical perspective, real gas prices—that is, prices relative to the general cost of living—are not that high;

in fact, they are lower than between 2006 and 2014. West Texas crude [the benchmark in the United States] fell below 100 dollars a barrel in early May, but has since rebounded and is already at 107 dollars .

However, while the energy meltdown may be a little less severe than some imagine, in the global food supply the crisis is enormous.

Indeed, over the past year, wheat prices rose much more than oil prices.

This hurts in the United States, but much more so in poorer countries, where a much larger share of household spending goes on food.

What is behind this crisis?

One part of the story is clear: Ukraine is normally one of the world's leading agricultural exporters, but it's hard to stay that way with Russia bombing the country's rail lines and blockading its ports.

But there is something else: Russia has stopped much of its grain exports, apparently in an attempt to keep prices low in the country.

As if that were not enough, Kazakhstan, the largest exporter of agricultural products in the area, has followed suit.

Then there are the fertilizers.

Its current system of production consumes a lot of energy and before the war Russia was the world's leading exporter, but now it has suspended exports.

However, it is not just about Russia.

As new analysis by Chad Bown and Yilin Chang of the Peterson Institute for International Economics shows, China—another major fertilizer producer—sharply cut its foreign sales last year, also apparently in an attempt to keep them from rising. prices in the country.

And as the authors point out, banning these exports is arguably a more serious problem than the tit-for-tat of tariff hikes from the US-China trade war.

All of this is causing major problems for world agriculture, especially in emerging markets like Brazil.

That's bad.

He also teaches us an important lesson about the relationship between geopolitics and globalization.

Many people, it seems to me, assume that globalization is a fairly recent phenomenon.

Yet economic historians know that between 1870 and 1913 or so, a remarkably integrated world economy emerged, made possible by the advanced technology of the day: steamships, railroads, and telegraphs.

At the beginning of the 20th century, the British were already eating Canadian wheat, Argentine beef and New Zealand lamb.

Then geopolitics—wars and the rise of totalitarianism and protectionism—ended much of this first wave of globalization.

Trade relations only recovered with the establishment of Pax Americana and it took some 40 years to return world trade to 1913 levels.

It is true that this first wave of globalization was relatively simple and, in large part, an exchange of manufactured goods from advanced economies for primary products such as, precisely, wheat.

The complex value chains that characterize today's global economy, in which, for example, cars made in rich countries carry chips from Japan and wire harnesses from Mexico and the Ukraine, is essentially a post-1990 phenomenon, possible largely thanks to the widespread use of containers and modern information technology, and has taken world trade to new heights.

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

We are not in the field of The August Guns, at least not yet, but, without a doubt, there is a whiff of 1914 in the air.

And one surprising aspect of the recent economic problems, at least to me, is that, at the moment, they are doing more harm to old-fashioned globalization—shall we call it globalization 1.0?—than to the complex economic relationships developed after 1990. Despite container shortages, port jams and all that, it's still pretty easy to buy electronics that include components from a dozen countries.

What is really getting hit hard now is something more rudimentary, like the wheat trade and the fertilizer trade.

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 fosters peace, which may or may not be true.

Now, what is certain is that peace fosters trade.

And as the world becomes a more dangerous place, the things we take for granted, like the large-scale food trade, may be far more fragile than anyone imagined.

Paul Krugman

is a Nobel laureate in economics.

© The New York Times, 2022. Translation of News Clips.

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Source: elparis

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