Back in 1997, a barrel of crude oil cost only $20. The price has since exploded and today stands at $144 on the global market. Diesel prices in Bangladesh have risen by one-third to about 80 US cents per liter; the price of natural gas has risen by two-thirds. Of the country’s population of 145 million, 58 million must make ends meet with less than $1 per day. In India, protests are becoming ever more frequent. Train lines are being blocked. Schools are being closed. And last week millions of truck drivers went on strike after the government in New Delhi reduced fuel subsidies, a new policy which affects not only diesel prices, but also those for cooking oil.
Oil is a major factor in agricultural production, particularly in industrialized countries, where agriculture is both mechanized and highly input-intensive. Rising oil prices obviously affect the cost of transport, but also of fertilizers, irrigation by pumping, and agri-food processing. They therefore also have an impact on agricultural commodity prices.
The capacity of citizens earning limited incomes to absorb these high prices of fuel is limited. This citizen will start to feel the impact of prices on his family budget and will start wondering, if he has not already done so, about the percentage of his income that he can spend on the family food, gas, heating fuel, and electricity.
Oil has been highly correlated to stocks and the dollar. Rising prices will have serious consequences for security and food supplies of needy and poor families in both urban and rural areas in developing countries. It is those countries that import huge quantities of food products to feed their population that have been hardest hit. Food shortages and conflicts over the control of and access to natural resources could endanger democratization, destabilize states and spiral into international security problems.
In addition to demographic and economic growth, and changing consumer eating habits in the Third World, the authors also attribute the ever-expanding farming of plants for fuel as a culprit behind the price explosion. Finally, the devaluation of the dollar and speculative trading with futures are also having a significant influence on the level of and fluctuations on food prices. Since imported product prices are rising, families will no doubt switch to local products.
Increasing oil prices has increased the demand for renewable resources, and heightening the demand in diversifying energy supplies from our environment. Wind is the fastest growing source of renewable power. Over the past five years, large scale wind farms have been built in Texas, California, Kansas, Wyoming and other states.
Advocates point to wind’s numerous advantages: Wind is free and inexhaustible, it doesn’t generate smog or greenhouse gas, and its price is more stable than its chief competitor, natural gas. The downside is that the wind doesn’t always blow, and not all regions and countries have strong wind resources.
Despite renewed attention on renewable energy, some analysts say the current spike in fossil fuel prices won’t significantly boost the alternative energy market. They say governments must promote renewable energy, raise fuel efficiency standards and encourage investment in research.
The aim now is to invent a form of agriculture and an agri-food processing and marketing system that are less energy-intensive. This is a huge challenge. Although developing countries use less fossil energy in their farming systems, they are also hard-hit by oil price rises. Those rises affect local commodity production, processing and marketing costs.