When Giants Fall

A Growing Relationship

A recent Economist daily chart, "The Chinese Are Coming...to Africa," highlights the Asian power's growing relationship with the world's second largest and second most populous continent:

And why is that?

To paraphrase bank robber Willie Sutton, "Because that's where the resources are!"

The Challenges, Charted

Three charts highlight some of the biggest challenges we'll face in the years ahead.

Water

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Food

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Energy

(Image: Source)

An Important Distinction

Up until recent years, many commodity bulls haven't made much of the distinction between investing in resource producers or the commodities themselves. But two recent reports highlight the potential risks involved in owning the former if and when governments decide to retain -- or even contemplate retaining -- ownership and the means of production for themselves.

"Ivory Coast President Nationalizes Coffee and Cocoa Industry" (CNN.com)

Ivory Coast President Laurent Gbagbo, who is fighting to keep a political title the United Nations says isn't his, on Monday nationalized the nation's two main cash crops, coffee and cocoa, according to state-run television.

In a statement read on air, the government announced that "the purchase of coffee and cocoa from producers and producer groups is done exclusively by the state on the entire national territory."

"The export of products of the coffee-cocoa sector is carried out by the state, by any legal person mandated by the state or holder of an exporter license," the government announced. "Approved exporters get their cocoa beans and green coffee from the state or any legal person mandated by the state."

The Ivory Coast is the world's largest supplier of cocoa beans.

"South Africa Slips in Mining Rankings" (Wall Street Journal)

Africa's ranking among major mining regions fell in a closely watched survey that assesses a region's attractiveness to mine investors and operators, leaving it just a few ranks above Zimbabwe.

Its poor performance comes as a segment of South Africa's ruling party is making more aggressive calls to nationalize the country's mines, and a dispute over a major iron ore mining-right is progressing through the courts.

South Africa leads the world in platinum and ferrochrome output and is a major coal, gold and other mineral producer.

The Fraser Institute's Survey of Mining Companies for 2010-2011 ranked South Africa 67th out of the 79 jurisdictions it tracks. That's down from 61 out of 72 from last year and down from 49 out of 71 from 2008-2009. Zimbabwe, where President Robert Mugabe has threatened to expropriate foreign-owned mining operations, ranked 71 out of 79. The province of Alberta in Canada ranks number one.

...

Recent mine-right disputes and calls to nationalize the mining industry by the Youth League of South Africa's ruling African National Congress party are making many investors and operators nervous. Over the weekend, Youth League leader Julius Malema reiterated his demand for the government to take a minimum of 60% of all mines.

More to It

Some might describe it as MTV-generation myopia: the notion that the sweeping events that grab headlines for days on end can readily be explained by near term developments.

A politician is caught red-handed doing something he shouldn't; members of a minority group are victimized in a random attack; a protestor sets himself on fire -- and suddenly things go haywire. But is that all there is to it?

While such events can serve as catalysts or wake-up calls, history suggests the disruptive forces have usually been brewing for some time. Then, as with the build-up between two tectonic plates, the pressure erupts into an earthquake.

With that in mind, the following Christian Science Monitor report, "West Africa Rising: Could Rising Food Prices Spark Egypt-Style Revolt in Africa?" gives a better sense of where things stand nowadays than one can find in other mainstream publications:

Soaring food prices – such as wheat, which has hit a 2-1/2-year high – could feed political tumult in Africa, despite earlier proclamations that an Egypt-style revolt would not spread to sub-Saharan Africa.

Egypt's revolution was triggered by many sparks, one of which was bread; or rather wheat, a staple whose soaring price and insufficient supply could become the dry wood for political tumult across the African continent this year.

Prices for that staple crop now sit at a 2 1/2-year high, and Egypt – currently the world's biggest exporter of televised scenes involving young men waving flags – just happens to be wheat's biggest importer. And while academics will have semesters ad infinitum to weigh the relative importance of Twitter vs. bread in the fall of ousted President Hosni Mubarak, the more immediate question could be what comes next across Egypt's backyard: sub-Saharan Africa.

Thirty African countries are scheduled to hold elections over the next 12 months. The list includes food-scarce nations like Chad and Madagascar, alongside terminally unstable lands like Nigeria or the Democratic Republic of the Congo.

Think you know Africa? Take our geography quiz.

And yet, as of last month, food prices are already sitting on a record high. Last week, the United Nations announced average food prices climbed 25 percent in the past year, including a 3.4 percent jump in January alone.

"It's easy to see how the food supply can translate directly into political unrest," Lester Brown, founder of the Earth Policy Institute think tank in Washington, told The Guardian.

What's not easy to see, he added, is how the economy of what we eat will fundamentally improve over decades and elections to come.

To be sure, some of 2011's costly cuisine has been caused by short-term disasters, like erratic weather in Russia or bad crops in Canada.

But the affordability of food is also being undermined by longer-term trends, such as the growing chunk of farmland now dedicated to cultivating biofuels, or the emergence of China as a net food importer.

Underground water reserves in drylands like Saudi Arabia, Mr. Brown added, are on the wane. Plus, given the vagaries of climate change, Russia's wheat-withering changeable weather could prove to be a new norm.

"This isn't just about the Muslim Brotherhood and it isn't just about politics," the economist Jefferey Sachs told Reuters. "This is about hunger, about poverty, about food production, about a change of world economy. This is one large swathe of 10,000 miles of potential instability."

Short-Changed

One theme I discuss in When Giants Fall is the geographical mismatch between supply and demand for many essentials, including energy, food and water.

Simply put, the biggest consumers aren't necessarily the biggest producers.

Knowing this, it's not hard to see why Africa, the "source of at least one-third of the world’s commodities," has attracted the interest of nations like China, where domestic consumption of various resources is outstripping what can be produced locally.

Unfortunately, that doesn't necessarily mean the people living there are reaping great rewards, as The Christian Science Monitor reports in "Hunger and Food Security: Is Africa Selling the Farm?"

Foreign investors see Africa as a breadbasket. Done well, investment could help with African hunger but create food security for the rest of the world.

In March 2009, civilian protesters led by a baby-faced former disc jockey swarmed through the streets of this hilly capital city. They were calling for the ouster of then-President Marc Ravalomanana for what they saw as literally giving away the farm, selling out his impoverished nation.

The anger was about food. Mr. Ravalomanana reportedly had leased 3.2 million acres – nearly half the island nation's arable land – to a South Korean conglomerate, Daewoo, for 99 years. In theory, it should have been a win-win deal: Daewoo would pay Madagascar $6 billion to grow corn and oil palm, helping South Korea meet both its food-security and bio-fuels needs, while providing Madagascar with revenues and desperately needed jobs.

But the protests, ultimately backed by the military, showed that the Madagascan people – 70 percent of whom live in rural areas and nearly 50 percent of whom suffer chronic malnutrition – saw the deal as a "land grab" and a threat to their country's survival. Ravalomanana fled the country within days, and a military-backed junta led by the young DJ, Andry Rajoelina, took control. The Daewoo deal was promptly scuttled.

"There was no process," says Hajo Andrianainarivelo, Madagascar's new minister for land management. "The head government official of the region just received an order from the president of the country to help the Korean people to find the most fertile land. That was it. You can't do that in Madagascar."

Perhaps not. But the attraction of Africa's last great resource – its fertile land – is drawing dozens of foreign corporations and even national governments to the African mainland, developing the same kind of agricultural plots contemplated by Daewoo in Madagascar.

Africa is drawing dozens of corporate giants like Daewoo and even governments of such nations as Saudi Arabia, the United Arab Emirates, Brazil, Japan, and even India (which is food self-sufficient) to grow the food and biofuel crops they need back home. The coup in Madagascar and food riots in Mozambique last August – which followed news of a similar food and biofuels deal with the European Union and Brazil – are a warning sign of the volatility of the global balance of wealth and poverty that foreign investors and African leaders face.

Click here to read the rest.

Taste of Clashes to Come

One key theme of When Giants Fall is that the world is going to witness more instability and conflict -- both within and across borders -- than has been seen during the past 60 years or so. In fact, the book's third chapter is entitled "A Future of Violence." One factor contributing to the change in circumstances will be increasing competition for resources. In "The War Over Ivory Coast's Cocoa Heats Up," the Christian Science Monitor provides us with a taste of the clashes that oil, foodstuffs, strategic minerals, and many other commodities will likely inspire in the years ahead.

Some day or another, the tug-of-war for control of Ivory Coast had to come down to chocolate, or more specifically, cocoa: the cash crop that bankrolled forty years of economic boom, mass immigration, and eventually war across this tropical garden, West Africa’s lushest agricultural zone.

The former French colony is the world’s top contributor to the global chocolate supply, and the vagaries of its climate – especially its political climate – sway the going rate for Mr. Goodbars and Butterfingers more than any single other variable.

Now, eight weeks after the country’s incumbent President Laurent Gbagbo barricaded his opponent in an Abidjan hotel – and two weeks before Valentine’s Day – the treats Americans savor, crave, and wrap in ribbons are primed to become bargaining chips in a power struggle that has already cost at least 260 lives by United Nations figures.

On Monday, Alassane Ouattara, recognized by the UN and Ivory Coast’s electoral commission as the winner of the nation’s Nov. 28 presidential election, asked the world’s cocoa movers to stop buying his country’s cash crop for the month to come.

The Gbagbo administration’s proceeds from the cocoa trade, Mr. Ouattara says – from taxes stamped at the Abidjan port to bribes extorted by gun-brandishing roadside soldiers – are being used to pay the motley of uniformed troops and unruly pro-Gbagbo militias that Human Rights Watch has accused of organized “rape, torture, extra-judicial killings, and forced disappearances.”

By begging the ocean’s container ships to scoop their cocoa from ports in Ghana or Guatemala instead of Ivory Coast, Ouattara is hoping to financially asphyxiate Gbagbo out of his presidential palace – one underpaid, disillusioned soldier at a time.

Most of Ivory Coast cocoa flows through European ports, and with the backing of the European Union, analysts say Outtara is likely to have success.

A Strong Link

In When Giants Fall, I highlighted remarks by the Financial Times' chief economics commentator about what I and others see as a key driver of prosperity:

According to Martin Wolf, cheap and abundant energy has played a major role over the past two centuries in creating a “positive-sum world economy,” where everybody “can become better off.” This, he believes, “is why democracy has become a political norm, empires have largely vanished, legal slavery and serfdom have disappeared, and measures of well-being have risen almost everywhere....Consistent rises in real incomes per head have transformed our economic lives,” Wolf added, but they have also “transformed politics.”

By the same token, he writes, “a zero-sum economy leads, inevitably, to repression at home and plunder abroad. In traditional agrarian societies the surpluses extracted from the vast majority of peasants supported the relatively luxurious lifestyles of military, bureaucratic, and noble elites. The only way to increase the prosperity of an entire people was to steal from another one....In a world of stagnant living standards the gains of one group came at the expense of equal, if not still bigger, losses for others. This, then, was a world of savage repression and brutal predation”—and of empire building and war.

For Wolf, “the biggest point about debates on climate change and energy supply is that they bring back the question of limits....If there are limits to emissions, there may also be limits to growth. But if there are indeed limits to growth, the political underpinnings of our world fall apart. Intense distributional conflicts must then re-emerge—indeed, they are already emerging—within and among countries.” In such an environment, it is only natural that the prospective and, to some great extent, hypothetical gains from greater integration with nations that are competing for a share of a shrinking pie are called into question. Rather, the natural tendency will be toward protectionism, isolationism, xenophobia, and conflict.

As it happens, a recent article in the American Institute of Biological Sciences peer-reviewed journal, BioScience, "Study Finds Energy Limits Global Economic Growth," details the strong link between energy and economic activity.

A study that relates global energy use to economic growth, published in the January issue of BioScience, finds strong correlations between these two measures both among countries and within countries over time. The research leads the study's authors to infer that energy use limits economic activity directly. They conclude that an "enormous" increase in energy supply will be required to meet the demands of projected world population growth and lift the developing world out of poverty without jeopardizing standards of living in most developed countries.

The study, which used a macroecological approach, was based on data from the International Energy Agency and the World Resources Institute. It was conducted by a team of ecologists led by James H. Brown of the University of New Mexico. The team found the same sort of relationship between energy consumption per person and gross domestic product per person as is found between metabolism and body weight in animals. Brown's group suggests the similarity is real: Cities and countries, like animals, have metabolisms that must burn fuel to sustain themselves and grow. This analogy, together with the data and theory, persuades the BioScience authors that the linkage between energy use and economic activity is causal, although other factors must also be in play to explain the variability in the data.

The study goes on to show that variables relating to standard of living, such as the proportion of doctors in a population, the number of televisions per person, and infant mortality rate, are also correlated with both energy consumption per person and gross domestic product per person. These correlations lead the authors to their conclusions about the increases in energy production necessary to sustain a still-growing world population without drops in living standards. To support the expected world population in 2050 in the current US lifestyle would require 16 times the current global energy use, for example. Noting that 85 percent of humankind's energy now comes from fossil fuels, the BioScience authors point out that efforts to develop alternative energy sources face economic problems of diminishing returns, and reject the view of many economists that technological innovation can circumvent resource shortages.

Click here to read the full article (in PDF form).

Remember the Last Time?

What's this -- CNBC is reporting bad news?

Global food prices rose in December, with the FAO Food Price Index at a record high, the U.N Food and Agriculture Organisation said on Wednesday, past 2008 highs when rising food prices sparked riots in a number of countries.

 

Up for the sixth month in a row and fuelled by surging sugar prices and rises in cereals and oils, the index was the highest since records began in 1990, in nominal terms, and topped the high of 213.5 in June 2008, during the food crisis of 2007/08.

The index, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, averaged 214.7 points last month, up from 206.0 points in November.

Of course, we should all remember what happened the last time that food prices reached such lofty levels:

Uh-oh.

Not to Be Taken Lightly

Although I've often said that water will be a major stress point in future, my admitted focus has been on the potential for conflicts that stretch across borders. In some respects, it is easier to envisage such a scenario, where citizens of one country quickly find common ground against an outside "enemy" competing for a resource as essential as this one. That said, those same pressures would likely lead many to consider taking up arms against people in neighborhoods, towns, and provinces close by if they believed their very survival was at stake. Indeed, a report by Voice of America, "Water Shortages Could Trigger Mideast Unrest," highlights a study that suggests the latter threat should not be taken lightly.

Water is a scarce resource in the desert regions of the Middle East. Though disputes over water have come close to triggering wars between nations of the region in the past, diplomats intervened to keep tensions to a minimum.  Now a new study suggests that, over the next 20 years, water shortages could trigger unrest within national borders instead of between the nations of the Middle East.

In the past, Middle East scholars have often pointed to shared river basins and disputes over underground water rights as causes for potential conflict between nations. That may not be surprising, because 10 of the 15 most water-poor countries in the world are in the region. However, according to a new study by the Center for Strategic and International Studies (CSIS) in Washington, limited supplies of underground water within national borders of the Middle East pose a more immediate challenge.

Rising tension

"Water is deeply tied in to how all these governments work. Water is a way to reward people. Water is a way to build allegiances and water is a sign that a government can actually do things," says Jon Alterman, director of the Middle East Program at CSIS and author of the new study. "If the water goes away, then, suddenly the whole deal that holds the government together goes away. That is a fundamental problem for these governments and the people who live under them."

Alterman argues that the water problem in the Middle East grew out of the "green revolution" that swept the region between 1980 and 1992. During that period, underground water was heavily used to sustain agriculture, feed the growing populations and irrigate the desert as a form of national pride. He says the depletion of such groundwater resources will have lasting consequences for how Middle Eastern governments function and deal with their citizens.

A new study suggests water shortages could trigger unrest within national borders in the Middle East over the next 20 years.
Another problem related to water supplies is the movement of people from rural areas the cities. This migration, he says, further reduces groundwater supplies and increases tensions among ethnic or national factions.

"The first thing is to understand that there is a problem.  The principal problem, the real problem, is access to water within countries," says Alterman. "Countries' water resources are going dry. It requires individual national governments to think not only about supply but also of ways to diminish the demand for water."

Click here to read the rest.

Looking North and South

I've noted on more than one occasion that the threat of increasing resource constraints is encouraging governments, businesses, and other parties to seek out and secure new sources of essential commodities such as food, water, and energy.

A good part of the focus thus far has been on the Arctic region, which experts estimate may hold as much as 20 - 25 percent of the world's remaining untapped oil and gas reserves. In fact, I've highlighted issues that have arisen as a result of this quest in various posts, including "A Matter of Coincidence?" "Big Changes Up North," "Zone of Peace?" "No Surprise from Russia," Friction Up North," "Gearing Up for Something Big," "Russia Sees Things Differently," and "Energy Battle Lines Being Drawn."

That doesn't mean, however, that the focus is solely on the polar region to our north. As Klaus Dodds notes in a commentary for World Politics Review, "India, China Turn Sights on Antarctica," there is also growing interest in the relatively unexplored continent to our south.

In October, India announced its inaugural scientific expedition to the South Pole, with the news well-received by the Antarctic Treaty nations, according to the Times of India. At about the same time, the Chinese icebreaker Snow Dragon embarked on its 27th expedition to the Antarctic, with one aim of its voyage to allow a team of Chinese engineers and logistical staff to renovate one of the country's two main research stations in the southern polar region.

The two stories reflect the increasing attention that the two countries are paying to the Antarctic region.

India has been involved in the Antarctic since 1981, but its interest in the political status of the continent dates from the 1950s, when it first raised the "question of Antarctica." Since the early 1980s, when it joined the Antarctic Treaty System, India has established two scientific bases: Dakshin Gangotri, abandoned in 1989, and Maitri, still in operation. It also plans to build a new station in the Larsemann Hills called Bharati, to be operational in 2012.

Its expedition to the South Pole, however, is hugely symbolic. As North Americans and Europeans have long recognized, the South Pole represents more than just the geographic heart of Antarctica. The United States' Amundsen-Scott station at the pole is as much a geopolitical expression of the power to be at the center of things as it is a scientific outpost. India's expedition is, therefore, a sign of intent.

China joined the Antarctic Treaty System in 1983. Its first scientific base, Great Wall Station, opened in 1985 and was subsequently joined by Zhongshan. A third station, Kunlun, opened in 2009. Notably, Kunlun is located on Dome A, the highest ice feature in Antarctica.

Scientific stations and research expeditions in the Antarctic all occur under the rubric of the 1959 Antarctic Treaty. The treaty, of which China and India are signatories, relates to all landmasses and ice shelves south of 60 degrees south latitude -- a line that cuts through the southern oceans. It stipulates that the Antarctic should be kept free of conflict and that the continent shall remain demilitarized and denuclearized. It also demands that disputes over territorial ownership be put aside for the purpose of scientific and other cooperation.

Seven countries -- Argentina, Australia, Chile, France, New Zealand, Norway and the United Kingdom -- have substantial and at times overlapping territorial claims in the Antarctic, all made before the Antarctic Treaty entered into force. Russia and the United States reject these claims, as do China and India.

The treaty defers the question of ownership indefinitely, and while all signatories have agreed to set aside their claims to the polar continent, they use science -- and in particular, scientific stations -- to reinforce their continental presence. The United States deliberately located its research stations in a multitude of locations, while the then-Soviet Union, now Russia, established Vostok Station near the Southern Pole of Inaccessability alongside other bases around the continent. Some 30 countries operate scientific stations -- some permanent and some summer-only.

Claimant states such as Australia -- the largest claimant -- have reacted uneasily to China and India's growing Antarctic presence. The Australian Antarctic Territory (AAT), home to three permanent Australian research stations, is roughly 2.2 million square miles, or three times the size of Mexico. But Russian and Chinese stations are also located within the AAT, and by 2012, India's will be as well.

Claimant states have recently used the U.N. Convention on the Law of the Sea (UNCLOS) to extend their sovereign rights over the Antarctic seabed. In deference to the Antarctic Treaty, Australia and others asked the U.N. Commission on the Limits of the Continental Shelf not to consider their claimed Antarctic territories in their submission materials for seabed rights. However, in a controversial move, Argentina did include the Argentine Antarctic Territory in its official submission.

Although it is perfectly legitimate for coastal states to use UNCLOS to delimit outer continental shelves, thereby acquiring sovereign rights to the resources found on and below the seabed, the question remains whether there are any coastal states in Antarctica. Australia and other claimants behave as if they were recognized as such, but countries such as Russia and the United States contend that there are in fact no coastal states in the region and reject the legitimacy of Australia's claim to the AAT.

The question also arises whether such efforts to lay claim to the Antarctic continental shelf will wreck the Antarctic Treaty. For the past 50 years, the treaty has used science to promote international cooperation while deferring the ownership issue. But as a result, science became the preferred vehicle both for claimants to project their claims and for nonclaimants to register their intent and purpose. The creation and maintenance of a research station is a way of registering an interest in the Antarctic that goes well beyond mere scientific and logistic concerns. So establishing new research stations and/or initiating new expeditions to the South Pole should be seen as efforts by China and India to continue registering their high-profile interest in the Antarctic.

The Antarctic's living resources -- fish, seals and whales -- have long been exploited. But for the last 60 years, the fundamental question of Antarctica has revolved around the ownership of mineral resources, with particular interest in coal, gas, oil and uranium reserves. In 1998, the Protocol on Environmental Protection entered into force, by which all Antarctic Treaty signatories agreed that there would be no mining or resource-extraction in the Antarctic. But there is a potential for a review of the protocol's provisions starting in 2048.

That leaves less than 40 years to find a more-permanent arrangement to keep the Antarctic from becoming the next prize in the global race for resources.

Klaus Dodds is professor of Geopolitics at Royal Holloway, University of London. He is a specialist in the changing geopolitics of the Polar Regions.

Fast Approaching

Although it's not really a new story, it seems apparent that the moment of truth regarding who will control the vast store of mineral wealth to our north is fast approaching. Al Jazeera provides a useful overview of where things stand in "A Scramble for the Arctic":

With one fifth of the world's oil and gas at stake, countries are struggling to control the once-frozen arctic.

From her office in the frozen north, Delice Calcote has watched big powers vie for control over the Arctic with little concern for its original inhabitants. 

"This is our land," said Calcote, a liaison with the Alaska Inter-Tribal Council, an advocacy group representing the region's indigenous peoples. "We aren't happy with everyone trying to claim it."

But as the planet warms, as northern sea lanes become accessible to shippers, as companies hungrily eye vast petroleum and mineral deposits below its melting ice, a quiet, almost polite, scramble for control is transpiring in the Arctic.

"Countries are setting the chess pieces on the board. There are tremendous resources at stake," said Rob Huebert, director of the Centre for Military and Strategic Studies at the University of Calgary.

The frozen zone could hold 22 per cent of the world’s undiscovered conventional oil and natural gas resources, according to the US energy information administration.

Competing claims

Canada, the US, Russia, Norway and Denmark have competing claims to the Arctic, a region about the size of Africa, comprising some six per cent of the Earth's surface.

The 1982 United Nations Convention on the Law of the Sea is supposed to govern resource claims in the region.

"At this point, everyone is following the rules and say they want cooperation; behind the scenes developments are happening that suggest it may not be so cooperative," Huebert said.

Now that's what I call an understatement.

Click here to read the rest.

Coming Around

A number reports have highlighted efforts by China and America, among others, to address the issue of resource constraints. But one region seems to have been somewhat absent. Not any more. As Spiegel Online reports in "EU Plans Measures to Tackle Resource Crunch," the world's largest economy is fast coming around.

European companies are facing serious shortages of vital raw materials. China is holding back the export of rare earths, which are needed for high-tech products. A new EU strategy paper, which has been obtained by SPIEGEL ONLINE, seeks to address the resource crunch. But critics say it does not go far enough.

Metal, wood or fuels are the source of our prosperity -- but the supply of some of these is faltering. Geologists have long warned that certain natural resources are becoming scarce and that they are not being extracted in sufficient quantities. As a result, businesses face the threat of serious shortfalls in production. Some German companies are already facing problems relating to the supply of rare earths, which are used in high-tech appliances. "A supply crisis has begun," says geologist Harald Elsner of Germany's Federal Institution for Geological Sciences and Raw Materials (BGR).

To ensure that the supply of raw metals continues uninterrupted, European Union experts have spent years working on a new strategy. In two weeks' time, Antonio Tajani, the European commissioner for industry and entrepreneurship, will present the paper -- titled the "Raw Materials Initiative" -- to the European Parliament.

The draft EU strategy for raw materials, which SPIEGEL ONLINE has obtained, includes the following measures:

• Industrial and household waste contains a vast treasure trove of metals. For example, UN experts have reported that 41 mobile telephones contain the same amount of gold as a ton of gold ore. "A large part of the EU's yearly production of almost 20 million tonnes of waste electrical and electronic equipment and end-of-life vehicles, is not recycled," the EU strategy paper says. These so-called "urban mines" should therefore be tapped by recycling metals. "Germany must assist to ensure that these resources do not disappear because of the illegal exporting of electronic scrap," says Reinhard Bütikofer, rapporteur for raw materials in the European Parliament, where he is also vice chair of the Greens/European Free Alliance group. According to the EU strategy paper, "precise and workable inspection standards" will be developed.
• The EU will support companies who work in extracting raw materials with loans and guarantees.
• European geologists will "help developing countries increase their geological knowledge." Additionally co-operation between geologists inside the European Union needs to be improved, in order to gain a better understanding of Europe's own mineral resources.
• A €17-million ($23-million) EU project known as ProMine, which started last year and which seeks alternatives for imports of metals and minerals to Europe as well as to encourage and aid the extractive industry, will have funding "made available for projects on advanced underground technologies for intelligent mining, on substitution of critical raw materials such as rare earths and platinum group metals, and on coordination of activities in member states." The paper estimates that Europe possesses unexploited mineral resources worth around €100 billion ($135 billion). Using new technology like a satellite-based mineral resources database and a detailed 4D computer modeling system, the real value of the EU's mineral resources will be assessed. In the case of large deposits, environmental protection organizations must also be brought into the planning process, the strategy paper says. Although each EU nation's autonomy would be respected, extraction efforts must be better monitored, it notes.
• The EU wants to access most of its raw materials from outside its own borders and plans to do so through the development of new trade agreements. To overcome dependence on existing suppliers, the EU wants to strengthen its relationships with third countries, especially in the case of "primary raw materials." It also wants to use what the strategy paper calls a "dispute settlement mechanism" to combat trade barriers.

"Forthcoming negotiations" with suppliers of raw materials from South America, India and Canada will proceed, and dialogue with other suppliers, such as China, Mongolia, Russia, Kazakhstan, Belarus or Azerbaijan should also continue, the paper says.

The paper says the EU plans to encourage a "win-win situation" when it comes to dealing with African nations. "Many developing countries -- especially in Africa -- have often not been able to translate their resource wealth into sustainable growth," it says. The new EU raw materials strategy is intended to help African nations achieve growth while simultaneously assuring the security of Europe's supply of raw materials.

Click here to read the rest.

Suddenly Less Than Adequate

Most discussions about resource scarcity include the usual suspects: oil, water, food, and more recently, rare earths. But it's relatively rare (no pun intended) that they include a mineral with an available supply estimated by some experts to be more than 200 hundred years worth of demand. Nonetheless, even commodities that many thought were readily available are suddenly less than adequate in a resource-constrained world, as the Wall Street Journal reports in "China's Coal Crisis":

SYDNEY—The idea of peak oil—the point at which global production reaches its maximum—has fixated the energy industry for years. Now, China is grappling with a new worry: peak coal.

State-run media reported that Beijing is considering capping domestic coal output in the 2011-2015 period, partly because officials worry miners are running down reserves too quickly to meet the needs of a rapidly expanding economy.

"China accounts for around 14% of global coal reserves but its share of global coal consumption is already over triple that at 47%, which is unsustainable," Hong Kong-based brokerage CLSA Asia-Pacific Markets said in a report last month.

Imposing a cap would be significant as China's mining sector is already finding it hard to keep up with domestic coal demand, which has grown around 10% annually over the past decade.

Its net coal imports exceeded 106 million metric tons in the first nine months of the year—higher than the level for 2009 as a whole—and state companies have been aggressively acquiring overseas coal assets to secure long-term supply.

In the three years to September 2010, Chinese companies spent $20.96 billion on overseas coal-sector acquisitions, according to Dealogic.

An output ceiling would also underpin regional coal prices, which are near six-month highs on expectations that China will import record volumes of coal this month and in December.

While China hasn't declared publicly it will impose a coal production cap, the idea is gathering momentum.

Zhang Guobao, head of China's National Energy Administration, said in a speech on Oct. 27 that he doesn't favor the country's coal output expanding above four billion tons a year.

Policy makers are mulling an annual cap of between 3.6 billion tons and 3.8 billion tons in the next five-year plan, running from 2011 to 2015, the state-run Xinhua news agency reported earlier.

This would be unlikely to hurt large state-owned miners, such as China Shenhua Energy Co., as they have invested in modern equipment and can generate economies of scale. Shenhua aims to double its annual coal output capacity to 400 million tons in the 2009-2014 period.

However, small mines and township operations will be under increasing pressure. Shanxi province has closed scores of small mines in a bid to improve safety and efficiency, and Inner Mongolia region and Henan province are taking similar steps.

Even if no official limits are introduced, China can't keep growing coal output much beyond another decade, analysts say. The mining sector is constrained by chronic infrastructure bottlenecks, especially road and rail, and those coal deposits that are easiest to mine have already been tapped.

Experts are starting to predict when China's coal reserves will run out—a nightmare scenario in a country where 70% of its energy is derived from coal.

Businesses Are Assessing Exposure to Water-Related Threats

Up until now, concerns in the business community about resource constraints and the impact that rising prices and supply disruptions might have on day-to-day operations have largely focused on oil, gas, coal, and other energy sources. But not anymore. In a QFINANCE post, "Water Wells Up Corporate Agenda to Become Issue for CFOs," Ian Fraser argues that a growing number of companies are also assessing their exposure to water-related threats.

To a large extent, water has traditionally been taken for granted by the world's largest corporations. They have seen it as just another (usually free or cheap) abundant natural resource, the usage of which goes largely uncosted, unrecorded and unaccounted for.

That is all going to have to change. According to a McKinsey report, demand for water is projected to outstrip supply by up to 40% by 2030 and according to Nature, approximately 80% of the world’s population already lives in areas where fresh water supply is insecure.

The Carbon Disclosure Project, which has until now focused on pushing the reporting of carbon emissions and energy use up the corporate agenda, has decided to grapple with the challenges surrounding corporate interaction with H2O by launching a major new initiative - the CDP Water Disclosure Project.

Basically CDP aims to mobilize the power of institutional investors worldwide to galvanize corporates into behaving in a more environmentally sustainable manner. It has already achieved this with carbon, now it wants to achieve the same with water.

CDP Water Disclosure earlier this year mailed questionnaires to 302 leading global corporates, asking for information on their water use and other water-related business issues. The UK-based registered charity received responses from more than 150.

The findings, unveiled at Bloomberg's London offices today (Friday November 12) "provide an insight into the strategies deployed by many of the largest companies in the world in relation to water use and should help drive sustainability," said CDP.

Gregory Wade, global chief supply chain officer for brewers Molson Coors, a lead sponsor of the water disclosure project, said:

“As we move forward, companies must accept the responsibility for their own transparency and join in this effort to help advance what will hopefully emerge as a common water reporting standard benefiting all stakeholders.”

One of the main findings of the research was that, among companies that were able to identify whether they are exposed to water risk, 96% said water and water-related issues are already having a significant impact on their business and operations.

Two-fifths admitted that they're facing water-related problems - including their operations being disrupted by drought or flooding, declining water quality, and rising water prices.

Sixty-seven percent of respondents said responsibility for water and water-related matters is now at board level or executive committee level. The majority (89%) said they had specific water policies in place, while 60% had already set water-related performance targets.

Companies showing best practice in water management included Anglo American, Colgate-Palmolive, Ford, GE, PG&E and Taiwan Semiconductor Manufacturing.

Anne Kvam, global head of ownership strategies, Norges Bank Investment Management (NBIM), another lead sponsor of the program, said:

“Companies that fail to consider the impact of water scarcity and other water-related risks pose a financial risk to investments.”

The CDP Water Disclosure project intends to make the survey annual, so that companies' aqueous performance can be benchmarked from year-to-year.

The organization also said that its research (of both water and carbon emissions) is unique thanks to its global nature. Other surveys of corporate interactions with water and of carbon emissions tend to be confined to national borders.

A Serious Threat

Although many people, including some oil industry executives, have their doubts about the notion of "peak oil," a recent Business Insider post, "The Military Is Preparing For Peak Oil, And Civilian Authorities Are Not," suggests certain individuals and organizations take the threat quite seriously:

Various military reports have come out recently that analyze the apocalyptic threat posed by peak oil. The most notorious of these, from a German military think tank, warned of market failures and a crisis of political legitimacy and proposed ways to manage the risk.

Nothing comparable, however, has been issued by U.S. civilian authorities, like the FDA and the DoT.

Energy Securities Analyst Rick Munroe made these claims in an awesome presentation at the recent ASPO-USA conference.

He says we're ignoring a major strategic shock that has been visible for decades.

Here is a slide from Mr. Munroe's presentation that details a number of key supply concerns:

Click here to view the rest.