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Corn Prices, Land Values And World Population
Pat Westhoff provides perspective Aug. 2, 2013 David Bennett | Delta Farm Press What is in this article?: Producers and ranchers take notice: Corn prices are about to settle back down. Corn prices, land values and world population Farmland values, ethanol Corn prices likely to hold steady after dip. World population indeed growing, but leveling off. Farmland around the world still available for production. U.S. ethanol exports to rise? In a wide-ranging mid-July conversation with Farm Press , Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri, said he wouldn’t “paint an overly pessimistic picture of the future outlook. The corn price is certainly much higher than we’ve had in the past – just not as high as in the last couple of years.” Westhoff, who recently spoke at a Kansas City Federal Reserve forum on global agriculture, told the crowd “that a lot of people are bit too willing to assume that (prices) can only go up from here, that a rising population and other factors mean that prices will continue to go up and up. “I don’t think that’s at all a safe assumption. If we were to have a larger than expected crop this year, or some other year, we could see a pretty serious downtown in prices.” While world population continues to rise to an estimated 9 billion by 2050, Westhoff said predictions show the number of people added to the world population each year “is expected to decline.” Based on U.S. Census Bureau estimates, “the number of people added to the world’s population averaged about 77 million people per year between 2000 and 2010, and we are projected to add about 76 million per year this decade. That drops to 69 million per year in the 2020s and 48 million per year by the 2040s.” The common belief is that projected population growth itself creates some unprecedented challenge. In fact, “population growth will probably decline in importance as a driver of future demand growth as population growth rates continue to decline around the world. “The real difficult questions are how much per-capita consumption will change in the future, and whether productivity growth will continue at the current rate, speed up or slow down. “To oversimplify a bit, if per-capita consumption levels off but productivity continues to grow at the current pace or even faster, then we should expect lower prices in the future; if per-capita consumption grows rapidly (with income growth and/or biofuel demand) and productivity growth slows, then we should expect higher prices.” Another commonly held belief is that the world’s available farmland is all currently in production. Not so. “There’s additional land which could come into production,” said Westhoff. “We’ve seen a big increase in the overall amount of land used for producing the four major crops over the last 10 years. That’s led to a pretty astounding increase on a global basis. Part of the increase occurs because USDA statistics count double-crop acres. “Get two crops off the same acre, that’s even more production. “That’s happening not just (in the United States) but in China, Brazil and India. I was rather surprised when looking at the numbers that the largest increase in reported acres harvested is actually in India. That isn’t because they’ve found more dirt to farm but because they’re doing a much better job of double-cropping and managing their crops. “Going forward, Ukraine is a place where there has already been some growth and there could be more. The same is true in Russia, where there is land that was in crop production in the past and could come back in with incentives like higher prices and favorable government policies.” Don’t forget Africa. “Nations in southern Africa are also poised to bring increase acreage if the political situation were to improve. “Unless there’s some new driver for demand out there that we don’t currently know about, it isn’t obvious to me that we need to bring in lots and lots of additional land for the next 10, 20, or 30 years. Just ordinary yield growth – if it continues at the recent pace – might be able to accommodate a lot of the demand increase we’re likely to see.” Farmland values, ethanol So, what is Westhoff’s take on farmland values in the United States? Is there really a bubble that some are worried is set to pop? “It’s not just all speculation. We have, indeed, had very strong fundamentals in recent years. There have been very good returns to crop production along with low interest rates. That combination has made cropland worth a lot more than it would’ve been worth 10 years ago. “But it does raise the question of what happens if and when crop prices come back down and interest rates go back up? “I know there are people out there who are firm believers that there has been too much of a price run-up in too short of a time in ways that are not generally justified.” At the Kansas City forum, “this was discussed a fair amount. One of the speakers, Michael Swanson (a senior vice president and consultant with Wells Fargo), talked about this and one of his points was that even if there are arguments for why land prices have come up, we’re not seeing people being as discerning as they should be. Lower-quality land is perhaps being sold for more than it should be relative to good-quality land. “One of (Swanson’s) arguments is that people should perhaps put more money into improving the quality of their land instead of buying more land — tiling, irrigation and the like to make the land more productive. That would provide a better return on investment in the future instead of simply buying more land.” Another of Westhoff’s points is that the future rate of growth depends on public and private investments. Has he looked at that in terms of research funding in the farm bills passed by the Senate and House? “The farm bill itself doesn’t provide a lot of money for research. The actual money for USDA research comes from annual appropriations bills. The farm bill does set the rules of the road for those appropriations. “There have been concerns with the annual appropriations. We haven’t seen the increase in public funding (of agriculture research) that a lot of people like to see. That’s why there are many folks concerned about what future productivity will be in the United States and elsewhere. “There has been an increase in private sector research. But a lot of people are concerned about public sector funding be maintained to ensure that all portions of agriculture receive the support needed to develop future productivity.” If the price of corn drops to, say, $3, how would the ethanol market respond? “For domestic consumption, the real question is whether we’ll be able to satisfy the RFS (Renewable Fuel Standard) in 2014. “And look at the value of a RIN – the certificate required to show compliance with RFS. After the last couple of weeks, the value has been about $1.35 per gallon. That implies we are being forced to discount ethanol sharply to try and get anyone to buy a blend higher than 10 percent. Trying to change that in the near-term is very difficult because of the lack of flex-fuel cars and E-15 or E-85 pumps. “A question that’s been below the radar screen so far is: if corn prices come down sharply, will there be a big increase in ethanol exports? We were a net exporter of ethanol for several years recently. Those exports were rather significant until the drought hit. That could happen again in 2014, although I don’t see us exporting billions and billions of gallons.” Continue reading
Renewable Energy: Romania And Legislative Instability
de Rubin Meyer Doru & Trandafir The Romanian Digest Miercuri, 7 august 2013 http://www.hotnews.r…icleId=15334553 The Romanian business environment is currently in turmoil due to the recent series of legislative acts amending Romanian law in the field of energy, specifically renewable energy. This is keeping investors far from Romania and has driven already established investors away. The most recent legislative amendment, nominally in force since July 1, 2013, in the form originally adopted by the Government, the Emergency Ordinance 57/2013 (“EGO 57”), has not been discussed in the Parliament which postponed discussing it to September 2013. However, like many earlier laws in this field, many of the recently enacted provisions will not be enforceable, at least until they receive a proper approval from the European Commission. Although coming down hard on renewable energy obtained from certain energy sources such as wind, solar and hydro , the new legislation, when enforceable, could bring about an advantage for biomass, bioliquids, biogas and waste fermentation. This is especially true, considering Romania’s great resources and capacity for biomass. Background Romania has implemented a support system for the production of energy from renewable energy sources based on green certificates awarded monthly to electricity producers based on (i) the types of facilities used, (ii) the sources of energy engaged, and (iii) the actual production from the respective month. This support scheme had received the approval of the European Commission in July 2011 under the State Aid Case SA.33134. Any amendment to the approved support scheme also has to be put before and approved by the European Commission, in order to avoid constituting illegal State Aid under Article 108 of the Treaty Regarding the Functioning of the European Union. The list of laws in this field that have been enacted but were not enforced, or at least did were not enforced immediately after passage, begins in 2008 with the famous Law 220/2008. This law deals with the establishment of a support system for the production of energy from renewable energy sources which, although passed and nominally in force in October 2008, was only enforceable after October 2011. This is due to the fact that the law was passed before the support scheme gained approval of the European Commission. The approval was only obtained in 2011 and all the relevant supporting legislation was enacted from then on. Law 220/2008 was later amended in July 2012 by Law 134/2012, approving and amending the Government Emergency Ordinance 88/2011, the act responsible for the actual enforcement of Law 220/2008. With the enactment of Law 134/2012, it seems the Romanian Legislature failed to learn from its previous mistakes. Law 134/2012 is still not enforceable even today, one year later, due to the fact that most of the measures provided thereunder have not been approved by or even put before the European Commission. The Most Recent Amendments The most important amendments brought about by EGO 57 concern (i) the suspension of granting a certain number of green certificates until 2017, (ii) the possibility for the Romanian Government to change the support scheme at any point in the calendar year, and (iii) a maximum of electricity certified by the green certificate support scheme per annum. In addition to the amendments above, EGO 57 contains many other amendments affecting different sources of electricity or different aspects of the business. It provides that the electricity generated by photovoltaic power plants located on plots of land which, were in the agricultural circuit as of July 1, 2013 shall not qualify for green certificates. This provision is redundant in light of the relevant construction and urbanism laws in Romania, which stipulate that photovoltaic power plants can only be erected on buildable land, which should be intra murros and rededicated from the agricultural circuit. Therefore, theoretically, there should be no photovoltaic power plants located on agricultural land. It is true, however, that cases of photovoltaic plants on agricultural land exist in Romania, mostly due to the incompetence of local authorities, an inconsistent interpretation of the construction and urbanism law or local influence. However, there are other remedies to this situation which are more efficient than continuously amending the legislation in the field of energy. The most controversial amendment has been the postponement from July 1, 2013 to March 31, 2017 of granting a number of green certificates for every megawatt hour (“MWh”) produced and delivered by the electricity producers from the following renewable sources: (i) one green certificate for new hydro-electric power plants, with a maximum capacity of 10 MW; (ii) one green certificate for wind power plants; and (iii) two green certificates for solar power plants. EGO 57 does not mention how these green certificates will be recovered by producers after 2017. It only says that the process will start on April 1, 2017 for solar plants and hydroelectric power plants and on January 1, 2018 for wind plants and will last until December 31, 2020. The recovery method is not provided, but shall be established by the National Regulatory Authority in the Field of Energy (“ANRE”). The solution chosen by the Romanian Government of postponing granting these green certificates appears to be a desperate stop-gap crisis measure that has not been fully considered. Its intention is to alleviate the burden of the green certificates prices on consumers, specifically on big industrial companies. However, this is solely a stop-gap measure that seems to merely shift this burden into the future. If the consumers and industrial companies cannot cope with the green certificates system now, what guarantee is there that they will be able to cope with it later and to a greater extent? Nonetheless, the sudden postponement has done damage to the industry, as the producers will no longer be able to fulfill their financing commitments, profit and income estimates have completely shifted, and new investors are already looking elsewhere to more stable legislations. However, as the electricity produced from refurbished hydroelectric power plants and biomass is not affected by the postponement, this provision clearly incentivizes entry into this domain. The first exception is most likely targeted at offering Hidroelectrica SA an advantage so that it can sell its micro hydroelectric power plants, and the second exception could bring about a welcome development of biomass exploitation in Romania. Significantly, Law 220/2008, as further amended, provides that: (i) electricity produced in new hydroelectric plants with a maximum capacity of 10 MW is entitled to 3 green certificates per MWh; (ii) electricity produced in refurbished hydroelectric plants with a maximum capacity of 10 MW is entitled to 2 green certificates per MWh; (iii) electricity produced in hydroelectric power plants with maximum capacity of 10MW that are not new and not refurbished is entitled to one green certificate for each 2 MWh produced; (iv) electricity produced in wind plants benefits from 2 green certificates per MWh until 2017 and one green certificate per MWh starting in 2018; (v) electricity from geothermal sources, biomass, bioliquids and biogas is entitled to two 2 certificates per MWh produced; (vi) electricity produced from waste fermentation gas and mud fermentation gas from the water treatment plants is entitled to one green certificate for each MWh produced; and (vii) electricity from solar sources is entitled to 6 green certificates per MWh produced. EGO 57 provides for the ability of Romanian authorities, subject to the approval of the European Commission, to exempt a certain percentage of electricity supplied to certain final consumers from the application of the green certificates support scheme, meaning that these consumers will not have to pay for the green certificates applicable to the exempted quantity of electricity. This provision allows the Romanian Government to submit for the approval of the European Commission exemptions regarding big industrial consumers in order to lower the price they pay for electricity. It remains to be seen whether any such submission will be successful. Another controversial provision under EGO 57, applicable since July 1, 2013, deals with trading green certificates. Under this law trading green certificates is allowed only to electricity producers and suppliers, prohibiting middlemen, and only on the centralized markets managed by the commercial operator of the electricity market. This means that any private green certificates purchase agreements concluded after July 1, 2013 are null and void and that any such agreements where the purchasers are not electricity suppliers are useless. Grid operators are now entitled to request financial guarantees for issuing technical grid connection approvals. The amount of the financial guarantees and their method of use will be established ANRE. This provision aims at diminishing the number of technical grid connection approvals obtained for speculative purposes by so-called investors that do not actually intend to develop a power plant or do not have the resources to do so. The Government shall establish by an annual Government Decision the level of the total annual values of the capacities installed in renewable generation power plants each year. The accreditation by ANRE of power units/plants benefiting of the green certificates support system will be limited to these levels. This measure will slow investment in the field. There is no procedure by which the Government is to establish the yearly maximum level, except that it must consider the updated data of the National Renewable Energy Action Plan. Therefore, at this point, this provision seems to create discretionary power in the Government to decide the capacity to be accredited. Any producers unable to receive the accreditation during one year will have to wait until the next year. Finally, the most controversial provision of EGO 57 is the Government ability to change the support scheme for newly accredited electricity producers anytime during a certain year, rather than at the beginning of the next year as previously provided by the legislation. ANRE monitors on a half-yearly basis the producers benefiting from the promotion system by green certificates and drafts and publishes on their own webpage a half-yearly monitoring report within 90 days of the end of the monitored period. If the parameters specific to each technology for producing electricity significantly differ from the ones considered in the computation performed for the authorization of the support system provided by Law 220/2008, ANRE proposes measures to reduce the number of green certificates for the respective technologies that should adjust the internal rates of return down to the values considered in the authorization of the support scheme to the Government within of 30 days of publishing the monitoring report,. The measures of reducing the number of green certificates will be approved by way of a Government Decision within 60 days of the communication from ANRE and will apply to the power plants/units held by producers of electricity from renewable energy sources, accredited by ANRE after the effective date of this Government Decision. A Time for Biomass It is worth mentioning that, in addition to the green certificates mentioned above, for electricity produced in high efficiency cogeneration plants that use geothermal sources, biomass, bioliquids, biogas, waste fermentation gas or mud fermentation gas from the water treatment plants one extra green certificate for MWh is granted. ANRE certifies the plants as having a high efficiency. Additionally, Law 134/2012 provides for one extra green certificate for biomass originating from energetic crops and forest waste. This last provision, as mentioned above, will only become applicable upon the approval of the European Commission. However, once it does, it will mean that electricity from biomass could obtain up to 4 green certificates per MWh which could be a great incentive to investors. Biomass producers that are able to identify close by sawmills and furniture factories will have a great advantage in producing electricity using forest/wood waste effectively. Moreover, producers that identify customers for their thermal energy resulting from cogeneration plants will be able to benefit even more: they will achieve an income from selling the thermal energy, the electricity as well as the 3 or 4 green certificates they receive per MWh depending on the energy source they use. Therefore, using wood waste seems to be a great solution for small and mid-sized communities located inland near forest areas. In order for electricity producers to benefit from the green certificates support scheme for using energetic crops or wood/forest waste, their sources need to be certified by obtaining origin certificates. Origin certificates for wood/forest waste (branches, exploitation waste, round wood, sawdust, wood chipping, etc.) are issued by the central public authority in charge with forests. The procedure for obtaining such origin certificates is provided by the Procedure issued by the Ministry of the Environment and Forests on May 3, 2012, published in the Official Gazette of Romania no. 360/28.05.2012. Origin certificates for biomass deriving from agriculture and related industries, used as fuel or as raw material for the production of electricity are issued by Ministry of Agriculture and Rural Development. The procedure for obtaining such origin certificates is provided by the Procedure issued by the Ministry of Agriculture and Rural Development on May 3, 2012, published in the Official Gazette of Romania no. 162/12.03.2012. Therefore, producers of electricity from biomass have a slightly more burdensome and must identify precise locations and opportunities for their investments, however, the results should be worth the extra effort since Romania has great biomass resources and large areas of agricultural land suitable for energetic cultures. Conclusion EGO 57 certainly provides for a lot of changes that materially affect this field of industry and it was allowed to enter into force in this form. There are hopes that the Parliament will significantly amend EGO 57 as it does not agree with many of the changes enacted by the Government, however, in the meantime, some of these are in force and will be applied. For example, since there is already a lawful monitoring report drawn by ANRE for the year 2012, the Government could already amend the support scheme effective immediately and not wait until January 1, 2014. Therefore, it is understandable that, in this legislative uncertainty, investors are either declining to enter Romania or actively pulling their investments. However, this is not absolute and, looking closer, there are many opportunities for profitable investments in this industry which could be exploited. Continue reading
Agriculture Is The Future Of Nigeria
Editor’s Note: This article is part of a series by the Financial Times’ This Is Africa publication on realizing Africa’s agricultural potential, in partnership with the Rockefeller Foundation . The Skoll World Forum is a proud media partner for the initiative, and you can find the whole series here . Adam Robert Green is a senior reporter at This is Africa, focusing on trade and investment, development policy, energy and social service delivery. In the 1960s, before it turned to oil, Nigeria was one of the most promising agricultural producers in the world. Between 1962 and 1968, export crops were the country’s main foreign exchange earner. The country was number one globally in palm oil exports, well ahead of Malaysia and Indonesia, and exported 47 percent of all groundnuts, putting it ahead of the US and Argentina. But its status as an agricultural powerhouse has declined, and steeply. While Nigeria once provided 18 percent of the global production of cocoa, second in the world in the 1960s, that figure is now down to 8 percent. And while the country produces 65 percent of tomatoes in west Africa, it is now the largest importer of tomato paste. Nigeria’s minister for agriculture, Akinwumi Adesina, reels off these statistics with regret as he discusses the country’s deteriorating agriculture sector. “Nigeria is known for nothing else than oil, and it is so sad, because we never used to have oil – all we used to have was agriculture,” he says. Nigeria’s oil has come at the detriment of the agriculture sector, he claims, “and that is why we had a rising poverty situation. We were having growth but without robust growth able to impact millions of people because it is not connecting to agriculture.” That might explain why Nigeria’s economic statistics are so puzzling. While the country has been posting high growth figures, and makes it into Goldman Sachs’ ‘Next 11’ emerging markets group, absolute poverty is rising, with almost 100 million people living on less than a $1.25 a day. The National Bureau of Statistics says 60.9 percent of Nigerians in 2010 were living in absolute poverty, up from 54.7 percent in 2004. But it is not just oil that has hollowed out the agriculture sector, with knock-on effects on poverty rates. Restrictive trade policies also had an effect, especially in the late 1970s and early 1980s. Tariff increases, a rise in import licenses and duties, and export bans and tariffs – as well as a centralisation of marketing of agricultural produce through the formation of crop-specific commodity boards – all created a lumbering, inefficient private sector, as well as opening up many opportunities for corruption. Today, Nigeria has transitioned from being a self-sufficient country in food to being a net importer, spending $11bn on imports of rice, fish and sugar. “It just makes absolutely no sense to me at all,” says Mr Adesina. “My job is to change that.” Not everything is in the minister’s hands, of course. Climate change poses a threat to Nigerian agriculture – the World Bank recently predicted an up to 30 percent drop in the country’s crop output due to erratic rainfall and higher temperatures. But when it comes to achievable changes, Mr Adesina seems well placed to act on what lies within reach, combining an encyclopaedic knowledge of his country’s agriculture sector with a clear strategic vision. While ministers’ portfolio’s are often fast-changing, giving them limited time to develop expertise in any given sector, Mr Adesina has a strong background as vice president of policy and partnerships at the Alliance for a Green Revolution in Africa (Agra), and a decade at the Rockefeller Foundation. He was appointed by UN secretary-general Ban Ki-moon as one of 17 global leaders to spearhead the Millennium Development Goals. His energy is palpable, and he looks well positioned to engineer a major turnaround in Nigerian agriculture. The change needed, he says, requires a shift in mindset. “We were not looking at agriculture through the right lens. We were looking at agriculture as a developmental activity, like a social sector in which you manage poor people in rural areas. But agriculture is not a social sector. Agriculture is a business. Seed is a business, fertiliser is a business, storage, value added, logistics and transport – it is all about business.” He wants to change the sector’s image, putting it at the forefront of national development. “Agriculture is the future of Nigeria. And agriculture that is modernised, that is productive, that is competitive. We must be a global player,” he says. Nigeria’s respected finance minister, Ngozi Okonjo-Iweala, speaks positively about Mr Adesina’s reforms to date – especially in cleaning up the corrupt fertiliser industry. Now, rather than directly participating in the delivery system for fertiliser, the government leaves that to the private sector and only provides the subsidy. This change has tackled 40 years of corruption, and ended it – Mr Adesina claims – in 90 days. Ms Okonjo-Iweala says it has been easier to work with Mr Adesina than previous ministers. “It is not only about doling out subsidies which do not reach farmers,” she says. “That was frustrating for me the first time [I was finance minister]. Now he came and cleaned up the fertiliser issues.” Nigeria is now seeking to add 20m metric tonnes to the domestic food supply by 2015 and to create 3.5 million jobs through agriculture. This requires more sophisticated thinking about the value addition of individual crops – cassava being but one example. “We are the largest producer of cassava in the world, at 40m metric tonnes, but I want us to become the largest processor of cassava as well,” Mr Adesina claims. “We can focus on using cassava for starch, dry cassava chips for export to China, cassava flour to replace some of the wheat flour that we are importing. So we are restructuring the space for the private sector to add value to every single thing.” Continue reading
