Thursday, 3 March 2011

Serious shortages

Business Mirror

With gasoline and other crude-oil products rising, it is inevitable that the “experts” would rise to the occasion with their solutions. Of course, the primary suspects to blame for increased consumer prices are the evil, greedy oil companies.

What the political oil experts do not seem to understand is that the oil companies—in fact, all companies— must price their finished goods based in large measure on the cost of their raw material. The other important factor about consumer pricing is that the oil industry has one of the lowest net-profit margins globally of almost any industrial sector. Oil companies, the refiners and distributors, operate on low margins and high volume.

The sad thing is that experts are never there when something productive could be done, say, when oil was trading at $20 per barrel in 2000, but only when the price threatens to go to $200. Far-thinking problem-solving for solutions is not one of the prominent character traits of the political class. For example:

I will use this silly story once again. I do not own a piggery, but I have provided a lifetime supply of pork meat for my family at a price I can afford. How? By making sure I have the funds necessary to purchase that lifetime supply by doing things like writing this column. (You didn’t think I did this for free, did you?)

The Philippines will never have a domestic source of crude oil. But the country does have the capability to get all the money it needs to buy all the oil it needs and even be able to subsidize those purchases. How? Through developing our mineral resources.

In January 2004 the price of copper was about $1 per pound. Now copper is trading at about $4.50 per pound. And the Philippines has an abundance of untapped copper resources. And take careful note of this: global demand for copper over the next 25 years will be so large that we will need to mine as much copper between now and 2035 as the total amount of copper mined throughout history. And when copper prices double and there are shortages, the oil “experts” will switch to copper and blame somebody else rather than themselves.

Long-range problems must be solved with long-range plans. Everything else is merely putting a bandage on a bullet wound. And the government is infamous for short-term, politically expedient thinking. If the Philippines had begun developing its mineral resources 10 years ago, those projects would be in full production now, generating billions of pesos annually for both the public and private sector. Instead, even countries like Mongolia will overtake the Philippines in mineral-resources contribution to economic growth.

But enough of my ranting about mineral development. I started looking at other commodities that are destined to be in short supply in the coming years, wondering about the effects on the Philippines and if we could take advantage of these shortages.

The price for cocoa in 2000 was about $1,000 per metric ton. Now the price is $3,444 per ton. If you are a chocolate lover, be prepared to pay increasing prices for your favorite treat, if it is available at all. Supply and pricing problems are so acute, that global chocolate manufacturers are trying to take cocoa butter out of their products, creating a synthetic chocolate. And the problem is not going away. Cocoa beans are produced within 10 degrees of the equator, most coming from the politically unstable areas of West Africa.

Producing cocoa beans is not economically profitable for farmers in Africa. In fact, much of this labor-intensive business is done by children and farmers make less than a dollar a day. But that is Africa.

In 1980 the Philippines supplied 20 percent of the world’s cocoa beans. Then the pod borer, an insect that infests the cacoa pods, arrived. Most of the trees were cut down and, of course, the government did virtually nothing. But Catholic Relief Services has provided training and trees to hundreds of farmers in Mindanao over the last few years to revive the industry.

To deal with the next global shortage, I am afraid I have to go back to mining. Antimining fanatics apparently long for a simpler life, without all the modern conveniences made of steel, copper and gold. And also food.

The world is facing a major shortage of phosphorus. Without phosphorus there is no fertilizer, and without fertilizer there is no food. From 2007 to 2008, phosphate-rock prices went up 700 percent, and the demand might continue to rise 2.3 percent a year. As to be expected, China is hoarding all the phosphorus it has. Major producers are the US, China and North Africa. Not a major producer, both Cebu and Bohol are found significant areas suitable for phosphate-rock production. Of course, the Philippines is forced to import about 60 percent of our fertilizer needs. It would be nice to dig some of our own fertilizer (by way of phosphate rock) out of our own ground before the global supply becomes too high and in short supply.

I discovered some other commodities that are facing future severe shortages. Unfortunately, the Philippines cannot supply. Let me leave you with this very sobering and disturbing thought.

If you like a particular kind of hard liquor, you may soon be out of luck. The Mexican cactus tequila has been in trouble for the last couple of years, and high demand and diseased crops have seriously threatened its supply in the past. But now, we might actually be looking at a possible eradication of tequila as a worldwide commodity. Thanks to the US pushing the nonsense of biofuels, Mexican farmers destroyed their agave cactus crops to plant crops to fuel American cars. The blue agave cactus grows only at high altitude and preferably in red volcanic soil. You may want to acquire a taste for Filipino lambanog to replace your tequila.

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