Jeremy Grantham on ‘Welcome to Dystopia': We Are ‘Entering A Long-Term And Politically Dangerous Food Crisis’
"Jeremy Grantham on ‘Welcome to Dystopia': We Are ‘Entering A Long-Term And Politically Dangerous Food Crisis’"
Summary of the Summary: We are five years into a severe global food crisis that is very unlikely to go away. It will threaten poor countries with increased malnutrition and starvation and even collapse. Resource squabbles and waves of food-induced migration will threaten global stability and global growth. This threat is badly underestimated by almost everybody and all institutions with the possible exception of some military establishments.The yield per acre for wheat in England, France, and Germany and the yield for rice in Japan. These top-producing countries for the two most important cereals for direct human consumption have failed in the last 10 or more years to increase productivity.
Uber-hedge fund manager Jeremy Grantham has released another important discussion. Grantham, a self-described “die hard contrarian,” is one of the few leading financial figures who gets both global warming and growing food insecurity, two cornerstones of Climate Progress analysis.
I’m going to excerpt his analysis, which comprises the entire quarterly newsletter from the former Chairman and now Chief Investment Strategist of GMO Capital, which has more than $100 billion in assets under management. Grantham’s work makes very clear that the global economy is a Ponzi scheme.
In Grantham’s blunt 2Q 2010 letter (see “Grantham: Everything You Need to Know About Global Warming in 5 Minutes“), he wrote “Global warming will be the most important investment issue for the foreseeable future.” Then in his January 2011 newsletter he wrote about “Things that Really Matter in 2011 and Beyond”: “Global warming causing destabilized weather patterns, adding to agricultural price pressures.” Later that year, he wrote another blunt analysis “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever.”
In his new discussion, he warns we are in a “chronic global food crisis that is unlikely to fade for many decades, at least until the global population has considerably declined from its likely peak of over nine billion in 2050.” Why? “There are too many factors that will make growth in food output increasingly difficult where it used to be easy”:
- Grain productivity has fallen decade by decade since 1970 from 3.5% to 1.5%. Quite probably, the most efficient grain producers are approaching a “glass ceiling” where further increases in productivity per acre approach zero at the grain species’ limit (just as race horses do not run materially faster now than in the 1920s). Remarkably, investment in agricultural research has steadily fallen globally, as a percent of GDP.
- Water problems will increase to a point where gains from increased irrigation will be offset by the loss of underground water and the salination of the soil.
- Persistent bad farming practices perpetuate land degradation, which will continue to undermine our longterm sustainable productive capacity.
- Incremental returns from increasing fertilizer use will steadily decline on the margin for fertilizer use has increased five-fold in the last 50 years and the easy pickings are behind us.
- There will be increased weather instability, notably floods and droughts, but also steadily increasing heat. The last three years of global weather were so bad that to draw three such years randomly would have been a remote possibility. The climate is changing.
- The costs of fertilizer and fuel will rise rapidly
He points out something I have reported on many times here, “Talk privately to scientists involved in climate research and you find that they believe that almost everything is worse than they feared and accelerating dangerously.” The good news/bad news is:
On paper, though, the energy problem can be relatively easily addressed through very large investments in renewables and smart grids. Those countries that do this will, in several decades, eventually emerge with large advantages in lower marginal costs and in energy security. Most countries including the U.S. will not muster the political will to overcome inertia, wishful thinking, and the enormous political power of the energy interests to embark on these expensive programs. They risk being left behind in competiveness.
The devastating food crises to come will, however, largely affect the United States indirectly, through much higher prices and the terrible global instability they causes. He notes that:
For Fortress North America (ex-Mexico), or what we might call Canamerica, these problems are relatively remote. When corn crops fail we worry about farmers’ income, not about starvation. In the long run, the truth is that Canamerica seen as a unit is in an almost unimaginably superior position to the average of the rest of our planet. Per capita, the U.S. alone has five times the surface water and seven times the arable land of China! And Canada has even more.
But the staggering immorality of our food, energy, and climate policies will become increasingly indefensible. As but one example:
Despite corn being almost ludicrously inefficient as an ethanol input compared to sugar cane and scores of other plants, 40% of our corn crop – the most important one for global exports – is diverted away from food uses. If one single tankful of pure ethanol were put into an SUV (yes, I know it’s a mix in the U.S., but humor me) it displaces enough food calories to feed one Indian farmer for one year! To persist in such folly if malnutrition increases, as I think it will, would be, to be polite, ungenerous: it pushes the price of corn away from affordability in poorer countries and, through substitution, it raises all grain prices. (The global corn and wheat prices have jumped over 40% in just two months.)
Our ethanol policy is becoming the moral equivalent of shooting some poor Indian farmers. Death just comes more slowly and painfully.
Once again, why single out Indian farmers? Because it was reported last month in Bloomberg that the caloric intake of the average Indian farmer had dropped from a high of 2,266 a day in 1973 to 2,020 last year according to their National Sample Survey Office. And for city dwellers the average had dropped from approximately 2,100 to 1,900.
The whole discussion — “Welcome to Dystopia! Entering a long-term and politically dangerous food crisis” — is a must read. Below is just the discussion on climate change.
The negative effect of climate change on grain production
I used to think that “climate change” was a weak, evasive version of “global warming” but not anymore, for weather extremes – drought, floods, and bursts of extreme heat – have turned out to be more devastating for food production than the steady rise in average global temperatures. Droughts and floods were off-the-scale awful three growing seasons ago, and I forecasted some improvement. But with impossibly low odds – based on the previous weather distribution pattern – severe weather events kept going for two more growing seasons. Just as with resource prices, detailed last year, when the odds get into the scores of thousands to one, it is usually because the old model is broken.
So in the resource case, the old model of declining resource prices was broken and a new, very different era had begun. Similarly, the odds of three such disastrous years together are just too high to be easily believed and the much safer assumption is that the old weather model is broken and a new era of rising temperature and more severe droughts and floods is upon us. All-time heat records in cities across the world are falling like flies and the months of March through May this year were the hottest in U.S. history. As with the equally unpleasant fact of rising resource prices, this new, less desirable climate has to be accepted and adjusted to. Once again, the faster we do it, the better off we will be. Several industries like insurance are already deep into the study of the new consequences. Farming must also adjust, and not just to the rising prices. With skill, research, and, above all, trial and error, farmers will adjust the type of crop and the type of corn seed they use to the changing weather. And I have no doubt that they will mitigate some of the worst effects of increased droughts and floods. But the worst shock lies out quite far in the future: grains have developed over many thousands of years in an unusually moderate and stable climate (moderate, that is, over a scale of hundreds of thousands of years); and selective breeding of the last few hundred years also was done in that moderate environment. Grains simply do not like very high temperatures. By the end of the century, the expected rise in temperature globally is projected by the IPCC to reduce the productivity of grain in traditional areas by 20% to 40% – numbers so high that the heart sinks given the other problems. Yes, northern climates will benefit (so Canada once again looks like a good ally) but more world-class grain land will be lost than is gained. And do not for a second think that the scientists can be dismissed as exaggerators in the pay of evil foundations as right-wing think tanks would have you believe. The record so far has been one of timid underestimation. Much the majority of scientists hate being in the limelight and live in dread of the accusation of the taint of exaggeration, so severe a crime in the academic world that it is second only to faking data. What the timid scientists forget (this is all driven by career risk just as with institutional investing) is that in this unique case it is underestimating that is dangerous! To put the science clearly in the public domain – a task so far totally failed at – is left to a brave handful of scientists willing to be outspoken.
Talk privately to scientists involved in climate research and you find that they believe that almost everything is worse than they feared and accelerating dangerously. A clear example is in the melting of the Northern ice, now down in late summer by 30% from its recent 30-year average to 2005. It is at a level today (and last month was the least ice cover of any June ever) that was forecast 15 years ago for 2050! Dozens of ships last year made commercial voyages across the Northern waters where none had ever gone before 2008. A dangerously reinforcing cycle is at work: the dark ocean absorbs heat where ice reflects it, so the water warms and more ice melts. Other potentially more dangerous loops might also start: the Tundra contains vast methane reserves and methane acts like supercharged CO2. It warms the air and more Tundra melts and so on. For agriculture, which is very sensitive indeed to temperature shifts, it has become a very dangerous world. There is now no safety margin to absorb unexpected hits as we are seeing in the global crisis playing out in the Midwest today.