Let me propose a thought experiment. Are we in a global environment where
food prices can drive energy prices rather than the more typical relationship
where energy prices tend to drive food prices? Key oil producing and/or middle
eastern countries spend disproportionate amounts of household income on food.
Source: FAO, USDA, CIA Factbook - 2010
Consequently, residents in such places are heavily exposed to price increases
in basic food-stuffs. Does this matter? More specifically, does this create
a higher risk of civil unrest? Apparently the answer is yes and it happens
predictictably once prices move beyond a certain level. According to research
by Marco Lagi, Karla Z. Bertrand and Yaneer Bar-Yam (The Food Crises and Political
Instability in North Africa and the Middle East, New England Complex Systems
Institute) - "the timing of violent protests in North Africa and the Middle
East in 2011 as well as earlier riots in 2008 coincides with large peaks in
global food prices. We identify a specific food price threshold above which
protests become likely. These observations are consistent with a hypothesis
that high global food prices are a precipitating condition for social unrest.
...More specifically, food riots occur above a threshold of the FAO price index
of 210."
Where is the FAO index now? 213. It would appear that unrest in the middle
east is set to continue...
... and if it continues and/or grows, does this mean higher oil prices are
ahead as investors are forced to price in even higher risk premiums and importing
nations deal with potential and perhaps real supply dislocations?
Stephen graduated from London Business School and is the founder of one of
Canada's largest farmland investment funds, Agcapita, and Petrocapita Income
Trust an energy investment fund. Petrocapita and Agcapita are built around
the core premise that the world is in a bull market in commodities driven by
inflation and a step-change increase in demand and, accordingly, that investments
with direct or indirect exposure to commodities in a politically stable environment
such as Canada will provide above average returns. Agcapita holds a diversified
portfolio of farmland and Petrocapita holds a diversified portfolio of low
risk, producing energy assets.
Stephen has over 15 years experience as a fund manger - working for organizations
such as the European Bank for Reconstruction and Development, Societe Generale
and Baring Brothers. Stephen has appeared on Business News Network and CBC
News and been quoted in such media outlets as Fortune, the Financial Times
and The Globe and Mail.
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