WcP.SystemThinker's blog

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ROME — Russia's adventure in Georgia has been described as a "warlet," a contained firing spree that wound up and down within a week. But to Europe's energy markets, it was the equivalent of wide-scale carpet bombing. With the North Sea oil and natural gas fields running out of puff, Europe, in particular the European Union, is more dependent than ever on imported energy. The biggest single supplier is Russia, whose pipelines snake across Ukraine, Belarus and Moldova before poking into central and western Europe.

Russia's energy supplies are cherished. Germany, France and Italy have almost no oil and gas of their own. Russia's Gazprom, the world's biggest gas company, supplies 40 per cent or more of Europe's gas imports. The company, controlled by the Russian state and led by Dmitry Medvedev before he became Russia's President, is the equivalent of a one-country gas OPEC. By 2020, Gazprom's exports to the EU are expected to rise by more than 50 per cent. The company is unafraid to wield its mighty power. For four days in 2006, it stopped supplying gas to the Ukrainian market because of a contract dispute.

Since keeping the lights on is the minimum requirement to stay elected, Europe's governments were doing two things. They were buying every molecule of Russian energy available and were working hard to ensure that Russia alone did not control the entire show. Enter Georgia. The pro-Western country became a convenient bit of non-Russian real estate on which to plunk pipelines to funnel non-Russian (and non-OPEC) oil and gas to the outside world. No fewer than three pipelines originating in Azerbaijan cross Georgian territory.

Thanks to Russia's invasion of Georgia on Aug. 8, Georgia's role as a secure energy transit point to Europe has been shattered. Suddenly the risk premiums on oil and gas pipelines that pass through Georgian soil went through the roof. So much for Europe's energy diversification plans. New, independent pipelines from Central Asia seem like a lost cause. With Georgia reined in, Moscow's grip on energy supplies to Europe must be close to complete.

What is Europe to do? Time for Diversification Plan B. A big part of the plan would have to see Europe turning the Mediterranean into mare nostrum - our sea - as the Romans called it in the empire years. The North African countries of Libya and Algeria, and Syria in the Eastern Med to a lesser extent, have vast, undeveloped oil and gas fields. Energy companies with an appetite for political risk have been pouring billions into these countries. One of them is Petro-Canada, which is already hauling 50,000 barrels of oil a day out of Libya and has targeted the country for significant growth. Algeria's gas reserves are mammoth. Last year, Italy and Algeria agreed to construct a 900-kilometre pipeline to take Algerian gas to Sardinia, then on to the Italian mainland. Other pipelines will have to be built. Speed is of the essence, because Gazprom's ambitions are boundless. Last month it offered to buy all of Libya's gas exports.

Medi- terranean gas cannot be the entire solution. Europe will have to rethink its nuclear strategy. Germany and Spain have committed to phase out nuclear power. Surely, that strategy will have to be reversed. Italy has no nuclear power plants. That will have to change, too. A few nuclear plants are under construction in Europe after a moratorium that began with the Chernobyl nuclear disaster in 1986. The number will have to soar if Europe is to take energy diversification seriously. Coal might make a big comeback, too, in spite of the horrendous amounts of soot and carbon dioxide produced by coal-fired electricity plants. Fortunes will have to be plowed into "clean coal" technology, which so far is more myth than reality.

Before the Georgian crisis, Europe seemed to be doing all the right things, with little Georgia at the centre of a sensible energy diversification plan. A column of Russian tanks wrecked that strategy in an instant. Europe is learning quickly that the only way to curtail Russia's energy control is to compete with it. A new energy war is about to begin.

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Photos courtesy of Jeremy Nicholl/Polaris, Dmitry Kostyukov-AFP/Getty Images, Mikhail Metzel-AP, and Chris Hondros-Getty Images

Original Source: globeandmail.com

Slideshow: Days After Cease-fire, Russian Troops Remain in Gori

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SACRAMENTO - On Thursday, July 31, California’s Republican Governor Schwarzenegger signed an executive order cutting the pay of up to 200,000 state employees to the federal minimum of $6.55/hour and firing over 10,000 part time and temporary workers until the state’s budget impasse is resolved. The order exempts public safety agencies but will have an immediate effect everywhere else: Hiring, overtime and contracting will be halted, and tens of thousands of employees will feel the squeeze. It covers 22,000 retired state employees who work under contract, temporary and part-time workers such as those who fill in at the Department of Motor Vehicles, seasonal employees and student assistants. The order affects the approximately 10,000 state employees in San Diego and Riverside counties. They work at Department of Motor Vehicles offices, highway offices, state parks and beaches, unemployment offices, fish hatcheries and agriculture inspection stations.

The state controller, who cuts the checks, has said he will not comply with it. State Controller John Chiang, a Democrat, sent a letter to Schwarzenegger on Thursday saying he will defy the order and issue employees their regular paychecks. He said the governor's executive order was based on "faulty legal and factual premises."

Controller John Chiang challenges the governor’s claim of legal authority in ordering the cut, and warns the move will cause payroll problems for months after a budget is finalized. Speaking to 100 union members outside the Ronald Reagan State Office Building in Los Angeles, Chiang called them "innocent victims of a political struggle." "The state of California, the elected leadership, cannot put the important public servants of California in harm's way," he said. "We put people first, we make sure we protect their interests, and that's why I have to tell the governor, with all due respect, I am not going to comply with this order." Even if he wanted to comply, Chiang said, it would take 10 months to configure the agency's outdated computer systems to do what the governor is asking.

The Democratic controller and the Republican administration also differ over the state's financial condition. Chiang maintains that California has enough money to meet all its expenses through September. If it's later determined that California has insufficient money, Chiang said he is authorized to borrow until a budget is approved. Chiang's refusal to comply sets up a potential legal skirmish between his office and Schwarzenegger's. If the administration decides to sue, Chiang said it would be a waste of taxpayer dollars.

Democratic and Republican lawmakers remain divided over how to close a $15.2 billion deficit, with Democrats favoring $8.2 billion in new taxes on corporations and the state's wealthiest residents. Republicans want a spending cap and oppose tax increases. Adding to the fiscal mess has been an unprecedented number of wildfires this year, costing the state far more for emergency response than it had budgeted.

State Treasurer Bill Lockyer this morning criticized Gov. Arnold Schwarzenegger's plan to cut state worker pay via executive order on Thursday. He listed four reasons that the plan is a bad idea: "legal challenges, logistical challenges, bad management, and no political punch".

The workers, members of Service Employees International Union Local 1000, were dressed in purple and chanted in protest against the governor's move. "People are going to get put out of their homes," said Debra Martin, a union steward. The group is filing a lawsuit to fight the governor's executive order. Derek Pettersen, 21, a student who was working full time this summer for the Commission on Teacher Credentialing in Sacramento, was told not to show up Thursday. "It's not my fault that the budget hasn't been signed yet, and I'm the one paying for it," said Pettersen, who will forgo $1,600 if he remains unemployed for all of August. "I don't really understand why I had to lose my job temporarily because someone else isn't doing their job."

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Photos courtesy of Al Seib/LA Times, AP /Rich Pedroncelli, and California State Controller's Office

Original Source: North County Times, LA Times

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WASHINGTON - The White House predicted yesterday that President Bush would leave a record $482 billion deficit to his successor, a sobering turnabout in the nation's fiscal condition from 2001, when Bush took office after three consecutive years of budget surpluses.

The worst may be yet to come. The deficit announced by Jim Nussle, the White House budget director, does not reflect the full cost of military operations in Iraq and Afghanistan, the potential $50 billion cost of another economic stimulus package, or the possibility of steeper losses in tax revenues if individual income or corporate profits decline.

The new deficit numbers also do not account for any drains on the national treasury that might result from further declines in the housing market. The White House forecast was prepared before passage of the huge housing assistance package that Bush has promised to sign. That legislation would put taxpayer money at risk in numerous ways, especially if housing prices continue to decline.

Next year's record figure includes only $70 billion for the wars in Iraq and Afghanistan, which could cost three times that much, and it is based on economic assumptions that could prove unrealistic. The White House is assuming economic growth next year of 2.2 percent, down sharply from the 3 percent estimate of February but still brighter than the 1.7 percent growth estimate of many private-sector economists. The White House is also assuming rosier numbers for inflation and unemployment rates. "That's not the real number," former Bush Treasury secretary Paul H. O'Neill said of the $482 billion deficit forecast. "It's upward of $500 billion and counting. It's a mind-boggling number."

Nussle predicted yesterday that the deficit would more than double in the current fiscal year - to $389 billion, from $162 billion in 2007 - before shooting up to $482 billion in fiscal 2009, which begins in about two months. "We are not happy about the deficit," Nussle conceded.

The deficit projected for 2009 would be the largest in absolute terms, easily surpassing the record of $413 billion in 2004. The White House and many economists prefer to measure the deficit as a share of the economy. Measured against the size of the economy, next year's mark is still eclipsed by the deficits of Bush's first term, as well as the deficits of George H.W. Bush and Ronald Reagan. The projected 2009 deficit would be 3.3 percent of the economy. That is the largest share since 2004, but well below the percentages recorded in the 1980s and early 1990s. In 1983, the deficit was 6 percent of the overall economy.

The new estimate of the 2009 deficit was $74 billion higher than Bush and Nussle had predicted in the president's budget six months ago. Bush had expected the impact of the tax rebates and war funding to begin subsiding in 2009, reducing the deficit by $3 billion. Instead, Nussle said, the slowing economy will push the deficit to a level that would easily beat the record $413 billion deficit of fiscal 2004.

The bleak outlook for the budget will crimp the ability of the next president to carry out ambitious spending plans. And it adds to fiscal pressures that were already building because of the growth of Medicare and Social Security.

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Photos courtesy of Brendan Smialowksi / Bloomberg News, AFP, Stuff.co.nz

Original Source: Boston Globe and Washington Post

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GENEVA (Reuters) - Major world powers will sound out Iran's readiness to negotiate an end to the long dispute over its nuclear program on Saturday. The unprecedented participation of a senior U.S. official in the one-day meeting in Geneva, together with Iranian comments playing down the likelihood of an attack by the United States and Israel, have raised hopes of progress.

Arriving for talks with officials from the United States, Russia, China, France, Britain and Germany -- the so-called sextet -- chief Iranian nuclear negotiator Saeed Jalili said he had "positive intentions". Jalili has a mandate from Iran's Supreme Leader Ayatollah Ali Khamenei and President Mahmoud Ahmadinejad to take any decision needed, a senior Iranian official told Reuters, adding that the meeting "will clarify the fate of the negotiations".

Iran, the world's fourth-largest oil producer, rejects suspicions that it wants the atom bomb, saying the aim of the program is to generate electricity so that it can export more crude oil and gas. Western diplomats say they want the talks to clarify Iran's response to an enhanced sextet offer, delivered last month, of technical and commercial incentives to suspend uranium enrichment. "We are interested in creating conditions in a creative manner to start negotiations," said a spokeswoman for EU foreign policy chief Javier Solana, who presented the offer to Tehran.

The EU foreign policy chief's spokeswoman says the EU wants 'solid relations' with Iran in different areas, including the nuclear technology. Cristina Gallach, who discussed the Saturday meeting in Geneva with Press TV, said that "the EU position is that we want very much a solid relationship with Iran, one that encompasses all areas, including the nuclear issue, political and economic relations." EU foreign policy chief Javier Solana will meet Iran's top nuclear negotiator Saeed Jalili in Geneva on Saturday. The meeting will also bring together envoys from the five permanent members of the UN Security Council and Germany.

Gallach stressed that the world powers that have offered "a generous package of incentives" to Iran last month want to see what the response of Iran is to the package to start a new round of negotiations with Tehran. She expressed hope that an 'appropriate framework' for the negotiations with Iran would be worked out in the Geneva talks. Pointing to Washington's decision to send a top diplomat to Geneva to attend the talks on Iran's nuclear program, Gallach said that the US and other countries that have sent envoys to the meeting want Iran's nuclear issue to be solved through negotiation.

Tension has intensified since Tehran tested missiles last week, alarming Israel and unsettling energy markets on fears that conflict could disrupt supply. Yet oil prices slipped on Friday, ending 13 percent down from last week's record of over $147 a barrel of crude. Traders cited as factors the attendance of Burns -- a career diplomat who helped restore U.S. ties with Libya in 2006 -- and a comment by Iranian Foreign Minister Manouchehr Mottaki that the chances of an Israeli or U.S. strike were "almost zero".

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Photos courtesy of BBC News, EPA, and Press TV

Original Source: Reuters and Press TV

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July 10 (Bloomberg) -- A third of the world's corals could be dead within a few years, a shocking new report warns today. The biggest study of its kind has found that 200 out of 700 species of coral are on the brink of extinction - far more than was previously thought. If they die, some of the most beautiful and colourful reefs - home to millions of species of marine life - could be devastated. The speed of decline has shocked the 39 scientists who carried out the survey. Just 10 years ago only 13 species of coral were endangered. Researchers, who published their findings in the journal Science, say they have been badly hit by climate change, coastal development and overfishing.

A team of 39 researchers assessed the state of 704 coral species and found 32.8 percent are threatened with extinction. The study results, published today in the journal Science, are "worse than expected," said co-author Suzanne Livingstone, a marine biologist at Old Dominion University in Norfolk, Virginia. "When we began this process, we didn't think it would be anywhere near as high as that," Livingstone, also a marine species assessor for the International Union for Conservation of Nature, said yesterday in a telephone interview. "Climate change is the overarching threat which comes in on a much larger, global scale," adding to localized disturbances, she said. Death of corals can lead to the collapse of entire ecosystems.

Reefs in the Caribbean are among the most severely at risk. Co-author of the report, Elizabeth Wood, of the UK Marine Conservation Society, said: "The proportion of threatened coral species greatly exceeds that of most terrestrial animal groups apart from amphibians. Coral reefs are some of the planets most incredible and diverse living systems and provide local communities in over 100 countries with food and other natural resources. " The spectacular reefs that lie in the world's shallow, tropical seas are made by tiny organisms only a few millimetres long. These coral polyps live in huge colonies, secreting calcium carbonate to form a hard skeleton over millions of years. Only the top layers of a reef are "alive". But the holes and crevices in the reefs provide shelter for thousands of different species of marine life.

The new study looked at 845 tropical reef-building coral species. Of the 704 corals for which detailed information was available, 231 species were at high risk of extinction, while 407 were threatened or near-threatened. Hundreds of millions of people depend on coral reefs for food, livelihoods and coastal defences. Coral reefs are home to around two million species - including a quarter of all sea fish. The fate of corals is crucial to the livelihoods of millions of coastal dwellers around the world. Reefs are worth about $30 billion a year to the global economy, through tourism, fisheries and coastal protection, according to the Millennium Ecosystem Assessment, a United-Nations supervised study published in 2005.

Higher levels of carbon dioxide in the atmosphere are warming surface temperatures and making seas more acidic, they said - "bleaching" corals. Sewage, destructive fishing, agricultural chemicals and building on coasts were adding to the destruction. Dr Rogers, senior research fellow at the Zoological Society of London's Institute of Zoology, said it was "death by a thousand cuts". "The resilience of corals to bleaching and ability to recover is heavily influenced by other stresses the corals are under, such as over-fishing or destructive fishing, declining water quality and nutrient loading from agrochemicals," he said. Even if they recover from bleaching events, corals are still more susceptible to disease and other problems.

While the best way to help preserve corals is to cut the emissions of greenhouse gases blamed for rising temperatures, tackling local threats by tightening regulations on fishing, coastal building and marine protection will reduce stress to corals, Livingstone said. "One of the big problems is these localized disturbances from human activities in conjunction with climate change,'' Livingstone said. "They are much more resistant and able to adapt if there are no other stresses acting on them."

Results of the Gland, Switzerland-based IUCN's assessment will be included in the group's Red List of endangered species in October. In addition to the 704 species rated by the scientists, insufficient data existed on a further 141 reef-building corals.

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Photos courtesy of Reuters, PhysOrg.com, Sydney Morning Herald

Original Source: Bloomberg and Daily Mail, UK

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They are not usually used to the limelight. In fact you might imagine them blinking as they emerge into the sunshine. The political directors of the foreign policy departments of the great powers are the archetypal bureaucrats - more used to influencing policy behind closed doors, than appearing before the glare of television lights.

But in the stylish residence of the German ambassador to Iran, they took their place alongside the EU foreign policy envoy Javier Solana, in what was, not for the first time in Tehran, a rather bizarre news conference. The aim was to demonstrate the unity of the international community, in the face of Iran's nuclear programme. In the event, it showed rather the opposite.

Mr Solana's mission was to bring a new package of incentives, designed to encourage Iran to suspend the enrichment of uranium - the process the West fears could be used to make a nuclear bomb.

Diplomatic optimism

But while he was in the process of delicately explaining his offer to various Iranian officials, US President George W Bush jumped the gun, and announced that Iran had already rejected the package "out of hand".

In fact, as Mr Solana quietly explained later on, Iran has agreed to take away the ideas and think about them.

It was more than just a misunderstanding on Mr Bush's part.

What was so striking was the difference in tone. President Bush was quick to condemn the Iranian government at the earliest opportunity.

Mr Solana came full of diplomatic optimism, with a mission to charm and persuade the Iranians of the merits of this proposal. Not that anyone ever expected any miracles.

The package brought to Tehran by Mr Solana includes a series of proposals designed to help Iran develop a civilian nuclear programme. There are economic incentives as well. All available to Iran if it suspends the enrichment of uranium.

Direct talks

Mr Bush was quite correct that the Iranian government spokesman did announce, just as the talks were beginning, that Iran was not willing to accept that condition. It is something that Iranian Mahmoud Ahmadinejad or one of his officials probably repeats almost every day of the year. So it was not exactly a surprise.

And that was not the only flaw in this initiative.

The countries represented alongside Mr Solana were Britain, France, Germany, Russia and China. Nobody from the US.

Washington does not hold direct talks with Tehran. Yet if there is a solution to this crisis, surely relations between Iran and the United States are pivotal.

Is it really credible to believe, as this offer proposes, that the US would co-operate in helping to build a nuclear reactor in Iran, while the many other arguments between the two countries remain?

Would the US Congress really vote money for the project, while American generals complain of Iranian weapons being used against their troops in Iraq, and Israel complains of Iranian rockets being delivered to Hamas and Hezbollah?

Equally, for any deal to be attractive to Iran, it would surely have to include the lifting of American economic sanctions, much more important than the relatively light UN embargo.

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Photo courtesy of AFP and AP

Original Source: BBC News

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Russia is taking in an extra $11.4 billion a month above its normal oil revenues, according to data from the U.S. Energy Information Administration. Russia's state-controlled oil firm, Rosneft, just reported that its revenues have tripled over those a year ago. That can only strengthen the confidence of Prime Minister Vladimir V. Putin, analysts said. Putin has resisted the Iran sanctions, is rolling back democratic reforms at home and has threatened his neighbors with nuclear attacks and cut-offs of energy supplies.

"Any time you have a sudden change in the distribution of wealth, things become rocky," said Rachel Bronson, an international petroleum expert at the Chicago Council on Global Affairs. "The Persian Gulf states, Russia and Venezuela all of a sudden have huge cash surpluses. ... It's destabilizing. You see a bolder Putin, and an emboldened Chavez, who really didn't need to be emboldened," she said.

Back in Oct. 16, 2007, President Vladimir V. Putin of Russia said at a summit meeting of five Caspian Sea nations in Iran on Tuesday that any use of military force in the region was unacceptable. In a declaration, the countries agreed that none would allow their territories to be used as a base for military strikes against any of the others.

Mr. Putin was the first Kremlin leader to travel to Iran since 1943, when Stalin attended a wartime summit meeting with Churchill and Roosevelt.

“We should not even think of making use of force in this region,” Mr. Putin said. Mr. Putin’s comments and the declaration come at a time when the United States has refused to rule out military action to halt Iran’s nuclear energy program, which it believes masks a desire to develop nuclear weapons.

“Not only should we reject the use of force, but also the mention of force as a possibility,” Mr. Putin said.

With an on-going war with Iraq, Bush has refused to rule out any action in Iran, saying "all options" were on the table - a phrase he has used that has been interpreted as not precluding military strikes.

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Images Courtesy of Mikhail Klimentyev/Agence France-Presse/Getty Images and Times Magazine

Original Source: The Baltimore Sun and The New York Times

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Spanish lorry drivers blocked the border with France to all goods traffic yesterday as fuel-price protests in Spain, France and Portugal raised fears of food and petrol shortages. Spanish and Portuguese hauliers began indefinite strikes, and queues of lorries up to five miles long formed on the French side of the border after Spanish picketers smashed the windscreens of foreign goods drivers who tried to enter Spain. French and Spanish hauliers also staged go-slow protests, causing 20-mile tailbacks in Bordeaux, France, and 15 miles or more around Madrid and Barcelona. The hauliers were all demanding action to offset the effect of oil prices, now at record highs of over $139 per barrel.

Spaniards fearing fuel shortages queued to fill their tanks and 40 per cent of petrol stations ran out of supplies in Spain's hardest-hit region, Catalonia. Long queues formed at Spanish and Portuguese supermarkets after hauliers said they could run out of fresh food in days. "No-one is earning enough money to eat any more: not the truckers, not the fishermen, nobody, and someone has to find a solution," said Jaime Diaz, the president of Spain's national road transport confederation. Jose Luis Rodriguez Zapatero, the Spanish prime minister, postponed a major speech on the economy to grapple with the first big strike to hit Spain during its worst economic slowdown in 15 years. But his Socialist government said there would be no electricity or petrol shortages as drivers picketed distribution centres and called for a minimum haulage tariff to counter a 35 per cent rise in fuel costs over the past 12 months.

In Portugal, one group of drivers threatened to block the main roads running south to the Algarve tourist region to prevent goods reaching the area. Yesterday, a French military official said the soaring fuel prices had forced the French navy to cancel three of its scheduled summer missions. Pascal Subtil, a spokesman for the navy, said missions "that were the least crucial" were cut.

Exacerbating French problems, striking workers at the country's largest oil terminal of Fos-Lavera yesterday entered their third day of action, stepping up pressure on the government over its plan to privatise state-run ports. The strike at the Fos-Lavera in the southern port of Marseille blocked 29 oil tankers from leaving or entering the hub.

However, few places in Europe are suffering more than Spain, the eurozone's fourth largest economy, where fuel costs have soared as recession looms. Spanish consumer demand is shrivelling as the end of a decade-long housing boom coincides with the global credit crunch and soaring inflation. Mr Zapatero on Saturday blamed the European Central Bank for a recent jump in oil prices and market interest rates, saying its president, Jean- Claude Trichet, had to show more prudence. Mr Zapatero has offered hauliers emergency credit and early retirement incentives. But he refuses to set minimum tariffs, saying hauliers have to adapt to fierce competition in Spain and Europe.

Small Spanish hauliers are worst hit. Strike leaders have dismissed government proposals and want price guarantees to stop large firms undercutting them. Spain's development ministry said it would present measures today to take the sting out of fuel price rises, and saw a chance of reaching a deal with the hauliers by midweek.

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Images courtesy of AFP/Raymond Roig, EPA/Javier Etxezarreta, and EPA/Javier Lizon

Original Source: Scotsman

In Photos: Spain Fuel Transport Strike

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Oil prices surged to a record level of more than $139 a barrel last Friday, following analysts’ predictions that the price will soon hit $150 and could go as high as $200.

Ryanair boss Michael O’Leary said he expected several European airlines to go out of business thanks to high oil prices.The industry would restructure into a handful of strong players, he said. O’Leary predicts that just three European “network” airlines - British Airways, Lufthansa and Air France/KLM - will survive, and one low-cost airline, Ryanair. Budget rival Easyjet would be bought by one of the big three, he said.

United Airlines, a unit of UAL symbol, said Wednesday it will close Ted, a low-fare airline within an airline, in 2009 and reconfigure its 56 A320 aircraft with first-class seats. Ted serves leisure destinations from Denver and other United hubs.

Continental Airlines said Thursday that it would cut 3,000 jobs and retire 67 Boeing aircraft, becoming the latest airline to announce capacity reductions in the face of high prices for jet fuel. This announcement came a day after United Airlines said it was discontinuing Ted, its low-fare airline, cutting 1,100 more jobs on top of previously announced cuts and retiring a total of 100 aircraft. Delta Air Lines and American Airlines have announced similar steps. “The airline industry is in a crisis,” Continental’s chief executive Lawrence W. Kellner and president Jeffery A. Smisek said in a message to employees.

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Photos courtesy of Times Online, Mark Lennihan/Associated Press, and Justin Sullivan/Getty

Original Source: Times Online, TheStreets.com and NY Times

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Higher food prices may be here to stay as demand from developing countries and production costs rise, says an report by the UN's Food & Agriculture Organization (FAO) and the body for rich nations, the OECD. In its annual Outlook report, the FAO predicted beef and pork prices might be 20% higher by 2017, wheat could be up to 60% more expensive and the cost of vegetable oils might rise by 80%. World prices for wheat, maize and oilseed crops doubled between 2005 and 2007, and while the FAO expects these prices to fall, the decline may be slower than after previous spikes. As well as key factors such as weather, supply and demand and energy costs, speculators are also to blame for making commodity prices more volatile, the FAO says. It is also concerned about the increasing use of crops for biofuels. Looking ahead, climate change may also affect crop harvests, pushing up prices further.

But the hardest-hit by rising food costs will be the poorest people on the planet, where a large share of income is spent on food, the FAO warned. The FAO believes the commodity boom has forced some in the developing world to spend more than half their income on food, particularly those countries that have to import much of their food. But even then, its outlook may be too conservative, says BBC international development correspondent David Loyn, since predicting future oil prices is a near-impossible task. One key assumption made is that crude oil prices will peak at $104 a barrel by 2017 says our correspondent. But as he points out, the price is already well above that, and some reputable analysts are now predicting oil will go to $200 a barrel. And he added that while there may be a drop in food prices in coming years, "there is a sting in the tail. "Prices will level off at a far higher average level than seen before the crisis erupted," he said. "The long era of cheap food is over."

Earlier this month, the FAO calculated the amount of money being spent globally on importing food was set to top $1 trillion (£528bn) in 2008, a 26% rise on the previous year. However, the food crisis could also shift the epicenter of global agriculture from developed to developing countries and the FAO predicts that emerging economies will dominate in the production and consumption of most basic foods in 10 years.

World leaders will meet in Rome next week to seek ways of reducing the suffering for the world's poorest people and ensure the Earth can produce more food to sustain an ever growing population. World Bank President Robert Zoellick underlined the urgency of the problem, announcing $1.2 billion in loans and grant financing for countries struggling with food and fuel costs. 40 heads of state or government are expected at the meeting on Tuesday to Thursday next week. U.N. Secretary-General Ban Ki-moon, who has set up his own task force, will attend, as will the leaders of France, Spain, Japan, Brazil, Argentina and some African nations. Delegates from 151 countries can be expected to make worthy statements on beating poverty, but the talks may reveal divisions on several underlying food and hunger-related issues: free trade, biofuels and genetically modified organisms.

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Photos Courtesy of AFP

Original Source: BBC News and Calgary Herald

Related Post: 8 Ideas to Fix the Global Food Crisis