Commodities and the New Imperialism

Monday, May 19th, 2008

In Commodities and the New Imperialism, Dennis Mangan notes that one reason why commodities have climbed in price is that many are produced in “developing” countries, which are rationing power:

Chile’s worst drought in five decades and power rationing from South Africa to China mean the price of aluminum, gold, copper and platinum will keep climbing as the lights go out in the world’s biggest mines.

Those governments are being forced to choose whether to reduce power to their 1.4 billion residents or curtail energy supplies to the world’s biggest copper, aluminum, platinum and gold factories. The energy used by China’s aluminum smelters each week could provide enough power for more than 2 million people for an entire year.

Runaway growth in emerging markets that’s squeezing world oil supplies has led to electricity shortages, cutting output of commodities needed for ever-rising demand. Platinum jumped to a record in January after mines in South Africa closed for five days as utilities rationed power. Cobalt gained 58 percent in the past year as production growth in the Democratic Republic of Congo was limited by electricity supply.

Food is also climbing in price, of course, and the Chinese seem to be securing enough lebensraum to feed their people:

Chinese companies will be encouraged to buy farmland abroad, particularly in Africa and South America, to help guarantee food security under a plan being considered by Beijing.

A proposal drafted by the Ministry of Agriculture would make supporting offshore land acquisition by domestic agricultural companies a central government policy. [...]

The move comes as oil-rich but food-poor countries in the Middle East and north Africa explore similar options. Libya is talking with Ukraine about growing wheat in the former Soviet republic, while Saudi Arabia has said it would invest in agricultural and livestock projects abroad to ensure food security and control commodity prices.

China is losing its ability to be self-sufficient in food as its rising wealth triggers a shift away from diet staples such as rice towards meat, which requires large amounts of imported feed.

China has about 40 per cent of the world’s farmers but just 9 per cent of the world’s arable land. Some Chinese scholars argue that domestic agricultural companies must expand overseas if China is to guarantee its food security and reduce its exposure to global market fluctuations.

Of course, if things get ugly, “owning” farm land overseas might not mean much.

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