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A perfect storm?

Life is about priorities. Most of us fortunate enough to live in the developed world enjoy secure food and energy supplies and are free to worry about issues such as broadband speed and where to go on holiday. But still, for far too many people, the main priority is much simpler: to be able to grow or afford enough food.

On a broader level, Europe has enjoyed probably its most peaceful seven decades ever. With the notable exception of the Balkan conflicts – very nasty indeed, but also quite localised – the great majority of Europeans have grown up free from conflict. Of course, we have also lived through the Cold War, which certainly threatened to heat up from time to time, and the increasing tensions with Russia cannot be ignored, but this is a historically peaceful period for our corner of the world. And, as for Europe, so for much of the rest of the world, despite such horrors as Syria, the seemingly intractable problems of the whole Middle East, and continuing conflicts in Africa.

With the basics of a secure life assured for the majority of citizens, governments are able to prioritise other issues and listen to other voices. Over the years since the end of World War II, Europe has seen a great emphasis on matters of environmental protection and health and safety. Over that time, both air and water quality have improved dramatically. Yes, there are still real concerns about nitrogen oxides and particulate matter from diesel engines in urban areas, but these are much smaller risks than presented by smoke from domestic coal fires in the 1950s.

Security and prosperity give us the time to worry about things which once may have been considered trivial. They also, fortunately, give us the time and resources to do something about them. Hence the cleaner air and water. Sometimes things can go too far, of course. In the seeming desire to eliminate all risks, we can lose sight of the benefit side of the equation. Thus, a legitimate desire to protect consumers from possible harm has led to ever more stringent legislation on pesticides and newer plant breeding technologies.

The other luxury prosperity gives us is the chance to look further ahead rather than just trying to survive day to day. This helps us to plan for contingencies. But there is also an inherent danger; as the amount of data we can handle gets larger and our analysis more sophisticated, it is tempting to see the results of forecasting as something that can be relied upon.

This undue respect is fraught with dangers and yet, despite repeated failures, we continue to see forecasts as something likely to happen rather than the possible outcome of a given set of starting factors and events. The course of climate change is a particularly controversial current example. Not only are likely average temperatures many years hence regularly referenced, but both their regional impact and the necessary action to be taken to reduce the impact are confidently put forward.

But this is far from the only example. There are plenty of forecasts made by civil servants and respectable experts on which government policies and tax rates are based. It is, however, normal for official bodies to make economic forecasts, issue quarterly figures of actual growth (or whatever) and then revise them quite significantly some way down the line; rarely is the initial data correct. Economic forecasting, despite its long history, often seems something of a lottery.  

And, as we know, governments themselves have limited power to do more than react to broader events. They can certainly make things worse than they would otherwise have been, as populist governments in several South American countries have demonstrated only too clearly, but regional or global trends tend to dominate. Gordon Brown, despite wearing the mantel of the saviour of the global economy, was clearly wrong to call the end to boom and bust.

The fact was that no-one (or, at least, very few) saw the crisis of 2008 coming, despite the objective evidence of an uncontrolled debt bubble which was unsustainable. But the herd instinct is strong and, from the South Sea Bubble onwards, the world has seen a series of markets which were too good to be true founder on the rocks of reality.

Hardly surprising then, that no-one called either the start of the fall in oil prices or their continued slump. A decade ago, we were in a time of high commodity prices and seeming long-term shortages. Peak Oil did finally look like it might be arriving. The struggle to boost food production at the same time as diverting the bulk of the US corn crop to make ethanol to fuel cars did make feeding the world a real and present challenge.

There are a number of interconnected factors which lie behind the slump in the prices of food, oil and other commodities, but ultimately it is a question of supply and demand. The slowdown in the Chinese economy is clearly a big factor, as is the decision of OPEC countries to continue their own low-cost oil production in a move to drive others out of the market. As for food, demand is pretty predictable, and years with few bad regional harvests have led to good stocks. There is also the inevitable cycle of farmers planting more at times of relative shortages and high prices, only to cut back as prices fall.

Forecasts of when prices will rise again can be no more reliable than those which failed to predict the current situation. But we can be sure that food and oil prices will indeed rise. The big question is whether they will cycle with a minimum close to current prices, or whether the whole price range will move to a higher level. At the moment, it would be easy to be complacent, and not think what the situation might be like if demand begins to exceed supply, even by a small margin. The perfect storm of food, energy and water shortages could so easily come to pass.

But this does not have to happen. Supply shortages or price rises catalyse innovation to find solutions to the problem. In the energy field, fracking has enabled the extraction of oil and gas from shale deposits and, while more expensive than production from conventional wells, is now becoming surprisingly competitive (to the chagrin of Saudi Arabia). Continued cheap energy makes synthetic fertilizer more affordable, which helps farmers increase their yields. Biotechnology – including the emerging techniques of gene editing – can help farmers harvest more with lower use of water and other inputs. There could well be a perfect storm over the horizon, but human adaptability and inventiveness should be capable of rising to the challenge as long as it is allowed to.