To Infinity and Beyond

To infinity and beyond. That’s the line from the famous Pixar movie “Toy Story”. Here in the West we are concerned with climate change and the impact that our relentless consumption is having on the planet. We’re talking about some finite resources on our planet.

But we have a moral dilemma. Those countries who are living with first world luxuries are consuming more than their fair share of energy. In fact, we have 40% of the world’s energy being consumed by 15% of the world’s population.

So why are we talking about energy? After all, this is a real estate podcast. Well it turns out that energy and a few other critical resources are the underpinning of the entire economy. For every unit of GDP, there is a corresponding unit of energy consumed somewhere in the world to product that economic output. It’s everywhere. Energy affects the production of food. Without burning of fossil fuels, you can’t manufacture synthetic fertilizer. Without fertilizer, agriculture yields would be 50% or less than they are today.

We can expect to see the linkage between energy security, cascading to food prices, and eventually food insecurity in many parts of the world. One of the principal inputs to fertilizer is ammonia. Back in 2020, the European spot price for ammonia was around 200 Euros per tonne. Today, that same metric ton of ammonia is pricing at 1450 Euros. Ammonia and lots of energy is critical to the nitrogen component of synthetic fertilizer.

Brazil is getting its last wave of much-needed fertilizer from Russia before supplies plunge due to the Ukraine war, potentially hurting harvests in the biggest grower of crops from coffee to sugar to soybeans.

A fertilizer shortage in Brazil could result in smaller harvests and higher food costs globally, given the importance of the South American nation to world crop supplies.

When you look throughout history, every time there has been a spike in energy prices, it leads to price increases in food, which leads to food insecurity, which ultimately leads to social unrest.

The armed conflict is making headlines. Interest rates are making headlines. What’s not making headlines is the impact to global food security from the conflict. The reality of globalization is that the world is far more interdependent than it has been at any time in history. The impact of these disruptions will be far greater than ever before.

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Host: Victor Menasce

email: podcast@victorjm.com