Tuesday, January 22, 2008

We'll think of something...

A brilliant post on FuturePundit (citing the Oil Drum*) about oil, agriculture and the future encapsulates threads of imagination that I have entertained and read elsewhere better than I have seen to date. Even in my most charitable mood, I have sensed an apocalyptic anticipation in some adherents to the agrarian movement that causes them to embrace with scarcely contained glee the idea of modern agriculture being forced back to muscle power or something at least 1950's.

The image of the multi-product, labor-intensive farm is seductive and to our shame, has been the mask behind which we farmers have panhandled for subsidies. The problem is we sold it too well. Now combine that manufactured nostalgia with sudden rise in end-of-times fascination, and those who argue our fossil fuel binge is about over also seem to have a goal for how that development will make me run my farm.

There are several problems with the idea of energy shortages (peak-oil) causing a reversal to high-labor agriculture. Some of the main ones are clear:
But what I would argue is that if oil gets to $200/barrel, industrial agriculture is likely to do very well. I pointed out in Fermenting the Food Supply that corn-ethanol has been profitable even without subsidies at times in the last few years, and that whenever oil prices go up sharply, there is a huge spurt in the growth of the biofuel industry. This creates an arbitrage between food prices and fuel prices, and mean that the former must go up whenever the latter go up (since the biofuel industry can very easily use most of the global food supply without adding more than a modest fraction to the fuel supply).

Take away the government corn ethanol subsidies and that profitability picture probably wouldn't have changed much. Farmers would have planted less corn and less of the corn would have been bought for corn ethanol. The supply and demand would have intercepted at a lower price point at which corn ethanol would have achieved about the same level of profitability.

Stuart's argument has more merit if farms are net energy producers. If the Energy Return On Energy Invested (EROEI) is a ratio much higher than 1 for highly mechanized farms then farmers can produce more energy from what they grow than they use as inputs. In that case farmers can create the energy they need to run their operations and so the odds of survival for the large scale mechanized farms becomes very high. A lot of debate surrounds the question of EROEI of agriculture. I'm inclined to believe at this point that some types of grain agriculture have positive and rising EROEI. Here's an intuitive illustration of why that's probably true. North Dakota vegetable oil production is a few times greater than the amount of oil needed to operate all of North Dakota agricultural equipment.
The more accurate prediction, I believe, is the same answer that has been propelling our productivity for the last half-century or so: technology. While this could be my engineer bias, I can find no reason we will not adapt as oil becomes progressively more expensive. Fuel, despite the recent run-up continues to be a minor expense by itself, and the added costs bundled into our inputs will cause new values for manure to offset fertilizer, thus encouraging smaller, more distributed CAFOs, for one example.

The greater possibility could be the use of military power to protect or acquire supplies at the expense of weaker nations. This troubling vision arises both from the ready availability of the means of power (we've got the bombs, etc.), the cultural divide between "have-oils" and "have-nots", and simple historical precedent (altogether too recent). Societies do not slide back down the development ladder with a cheerful sigh - they are beaten down by power or catastrophe.

There is also something dismally low-spirited about the "reversalist" view. It suggests our ability to evolve our social and economic systems to meet energy constraints has been exhausted. It also posits that we have exhausted our ingenuity as a species and a culture. While it could be much was lost in the march of progress - social capital, stability, and lower stresses - much needed to be lost - racism, ignorance, and isolation.

We are already adjusting the course of our culture to include many of those allegedly lost values. We are improving our attitudes about food and its consumption, to name one prominent trend. And soon energy prices will bend our judgments on things like mass transit, entertaining at home, and how big houses should be. These adjustments will doubtless continue at every level as the market prompts changes in consumption and production.

Both articles are well worth the time to read for any producer who is looking farther ahead than today's closing prices. And the comment threads are enlightening as well. But if nothing else consider the well-rounded summary below.

*Conclusion from Stuart Staniford's thorough analysis:
I've argued in this piece that industrial agriculture is likely to be stronger and more profitable when oil prices are high, not weaker. So the reversalist future of local food production on smaller farms with higher labor input will not come to pass as a result of peak oil. The industrial agricultural sector owns most of the land, and will be in an excellent position to increase their land holdings as remaining subsistence farmers fail or consolidate in the face of high food prices. Industrial farmers will have no reason to sell out to improverished urban dwellers. Thus the industrialization of the land is not a reversible process any time soon - it is a fallacy to think so. The reversalists are expressing wishful thinking and nostalgia for the past, not a reasoned analysis of how the future is likely to play out. And urbanites worried about their future should not be looking to buy or rent a smallholding as a solution to their problems - industrial farmers are extremely efficient, and there is no way to compete with them except by becoming one. [More]

3 comments:

tomson said...

John, what makes you think that oil will become progressively more expensive? The history of the price of oil is one of progressively LESS expense. Blips of high prices like the present one spur new technology and investment which result in lower prices. The volume of the outer five miles of the earth's crust is about 240 million cubic miles. The world uses less than 1.5 cubic miles of oil a year. There's a lot left out there and we'll develop new ways to find and exploit it. As Julian Simon said, "The supply of crude oil is, for all intents and purposes, infinite."

I enjoy your work.

John Phipps said...

tomson:

Thanks for reading. I find it persuasive that oil production can expand much, and I know demand will continue to grow - ergo: higher prices.

If you check earlier posts under "energy" there are some longer explanations about the supporting evidence.

I am also heavily influenced by the expertise on the Oil Drum and Energy Blog.

tomson said...

John, thanks for the reply. I'm glad you're blogging. Great selection of subjects and your opinions are valuable, though I don't know how you do it all. Plan on this blog sucking up more and more of your time.

As for oil, and corn, and the rest of the commodities, demand has always grown. Fortunately, we've also always, sooner or later, been able to outpace it with supply. Ergo, lower prices. I'm backing historical precedent and betting that 3, 5, or 10 years from now, prices for all these commodities will be lower in real terms than they are now. We'll see. In the meantime, if ya ask me, it makes for good entertainment.

In case you haven't seen it, there's an excellent editorial in the WSJ today by Holman Jenkins. It's here:

http://online.wsj.com/article/SB120165424414527037.html