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Rising Resource Costs Escalate Odds of Global Unrest

Tyler Durden's picture




 

Submitted by Chris Martenson via Peak Prosperity,

The critical 40% income-to-food threshold

As we observe the growing unrest in Ukraine, there is the usual rush to ascribe a cause. Was it meddling by the West? Russia? Was it corruption by prior leaders? Simmering resentments that stretch back centuries that finally erupted?

The answers to these questions apply to Ukraine as well as to many other countries. Which is why having an accurate framework, a clear 'lens' for seeing what is actually transpiring, will prove far more useful to you than 99% of what you will hear on the nightly news.

In response to my recent report on the devolution of events in Ukraine, a veteran reader asked:

  • Which snowflake causes the avalanche?
  • Why are the people in Ukraine are angry enough to start a civil war, while the people in Greece are upset but ultimately willing to go along with years of Troika diktat in order to save the German and French banks? In other words: why was the avalanche in Ukraine so ready to happen?
  • Martin Armstrong attributes the high degree of Ukraine unrest to the populace crossing its tolerance level for corruption, after years of rising discontent. Is it that straightforward?
  • How about the Arab Spring: Do we blame the policewoman who slapped that fruit seller in Tunisia? Or Facebook and Twitter for facilitating communication among the populace in a manner outside of the control of the State?

Was it any of these reasons? All of them? Perhaps some others, too?

Why people in country A are ready to revolt, while those in country B are not, is worth exploring; especially for those considering moving to another country. If you plan to re-locate to a "better" society, you really need to make sure you fully understand the community and culture you'll be placing yourself into -- and whether its benefits are indeed extended to new-coming 'outsiders' such as yourself.

The 40% Rule

If you were going to try and understand why revolts happen, but wanted to limit yourself to a single variable, you’ll be hard-pressed to find something better than the price of food.

There's quite a bit of research to support the idea that people who spend above a certain percent of their income on food are more likely to protest, riot, or otherwise become restive. That number seems to have a minimum threshold of 40% of income to food costs, give or take:

Since the beginning of 2014, riots have occurred in countries including Thailand and Venezuela. Although they’re different cultures on different continents, these mass protests movements may all have one commonality; increasing food prices may have contributed to their occurrence. The cost of food has been steadily increasing in both Thailand and Venezuela; last month demonstrators in Caracas took to the streets marching with empty pots to protest food shortages. According to Dr. Yaneer Bar-Yam and fellow researchers at the New England Complex Systems Institute (NECSI), events such as these may be anticipated by a mathematical model that examines rising food costs.

 

The events of 2014 aren’t without precedent; the price of food has provoked (and placated) throughout history, beginning in Imperial Rome when Augustus introduced grain subsidies. In recent years, the Middle East has been particularly affected by the cost of grain. Centuries after Egypt developed bread as we recognize it, the nation experienced a bread intifada – the country rioted for two days in January 1977 following Anwar Sadat’s decision to drastically decrease food subsidies. More recently, under the rule of Hosni Mubarak, the price of grain rose 30 percent between 2010 and 2011. Then, on January 25, 2011 a new revolution began in Egypt.

(Source)

While the study used data through 2011, so much has happened since that I strongly expect the results are even stronger now. To wit, if we were to update the above chart we'd have to add Thailand, Argentina, Ukraine, Greece and Venezuela to the list.

It’s delightfully intuitive that food prices and people’s sense of contentment are tightly linked. Where the various meddlers in the Ukrainian situation were able to obtain quite large reactions from relatively simple efforts, it might be nearly impossible to incite a similar reaction in Switzerland, even with 50x more provocation and propaganda.

This conforms to my views on terrorism which I see as a very rare occurrence that results when a group feels they have literally zero other options left. Usually what governments call terrorism is not even that; rather, it's the type highly asymmetrical warfare that one gets when a vastly weaker party believes it has to react to a stronger foe.  That is, it's a tactic not a genetic defect or cultural ideology.

The main connection between these points on social unrest and terrorism is that people are generally very slow to react, and will only resort to unrest and violence if they already have their backs against a wall. A very effective wall is the lack of access to affordable food.

But there are others. From the same article as linked above:

Of course, man cannot riot off bread alone; factors such as unemployment, oppression, economic instability and corruption also contribute. Still, there is something so fundamental about food, and the implications of not having it, that makes people react. As Bar-Yam explains, “The analysis suggests the doubling of food prices we have seen since 2005 pushed many in the greatest poverty across the line from bare subsistence into desperation and starvation. When people are not able to feed their families, they have little to lose and become willing to take strong actions.”

Certainly one popular story in the West is that the people of Ukraine rose up against a corrupt president, Yanukovych, and that’s certainly true to an extent. Instead of viewing the corruption as the only factor at work, though, those willing to do a modicum of digging will soon realize it was merely one of several final straws.

Under- and unemployment contributed, as did oppression and a generally poor economy. Heavy fuel costs were mixed in there, too. And all of these threaten to get worse under the terms of the IMF ‘loan’ to Ukraine.

Rising Oil, Rising Food

Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world.

- Henry Kissinger

There are numerous research studies showing that rising food prices are highly correlated with oil. Analysis reveals that the price of oil influences the price of food but that, in reverse, the price of food does not influence the price of oil. That is, there’s more than correlation, there’s causation -- with oil driving the price of food over the long haul. Specifically, the price of corn, soybeans and wheat, with rice not showing much of an effect possibly because so much of it is planted and harvested with muscle-power vs. oil.

Here’s a long run view showing this relationship:

(Source)

What’s interesting is that the obvious effect of rising oil prices is on the supply side. All of the inputs costs more: fertilizer, diesel for the tractors, chemicals and transport. The less obvious part of the story is on the demand side, as higher fuel costs end up diverting cropland to energy production in the form of corn-based ethanol and palm oil. This removes land for food production and creates competing demand for the same edibles in the case of corn.

In 2005, the price of oil began its volatile rise to the current worldwide price of over $100 per barrel. Correspondingly, the world price for food has also risen over the same period and is now above the levels that ignited the so-called Arab Spring, which really could be renamed the Hungry Uprising:

(Source)

Food prices are high by historical standards and this is one of the key flashpoints for so many of the recently afflicted countries. The reason energy prices and food prices are so tightly coupled is because there are anywhere from 10 to 20 energy calories embedded in each 1 food calorie.

It seems quite likely that food prices will only continue to rise from here for a number of reasons, high oil prices being just one. There’s also increasingly chaotic weather impinging on harvests, which seem to be a part of our new normal. Already driving the price of food is a fair degree of speculation on the possibility of the emergence of El Nino in the Pacific later this year (2014); previous similar weather patterns have proven to be especially damaging to global grain harvests.

Droughts, as well, have been particularly vexing to several regions of the world, including the US. One that began in 2008 is almost certainly a main contributor to the Syrian uprising:

Lebanon Prays for Rain to Avoid Syria’s Fate

May 9, 2014

 

Three years ago, on the cusp of the Arab Spring, a devastating drought sparked anti-government protests in Syria, which eventually devolved into a grinding civil war. Now a new drought has arrived—one that’s expected to be theregion’s worst in decades. Only this time, the parched country in peril is Lebanon.

 

Things are so bad in this nation of 4 million that snow was largely absent from the country’s famed ski resorts this year—a vital source of groundwater during the summer—and some villagers near the Israeli border have even reportedly turned to the ancient ritual ofshish balli, or praying for rain. And asthe dry monthsapproach, some worry thatLebanon, as well as Syria, is on the brink of a severe water crisis.

(Source)

Perhaps droughts have always been a staple in the global climate tool kit but when you combine drought with high population densities, ruined soils, and generally dim economic prospects they can be quite destabilizing as has proven true across the Middle East - North African belt.

In the case of Syria, there’s no good news yet on the horizon.

UN warns of Syria food shortage due to looming drought

Apr 8, 2014

 

The UN has warned that a drought in Syria could lead to a record low wheat harvest and put millions of people at risk.

 

The World Food Programme (WFP) said rainfall since September has been less than half the long-term average.

 

At the same time, WFP food aid has been cut by a fifth due to a lack of funds from international donors.

 

"WFP is concerned about the impact of a looming drought hitting the northwest of the country, mainly Aleppo, Idlib, and Hama," WFP spokeswoman Elisabeth Byrs told reporters in Geneva.

"A drought could put the lives of millions more people at risk," she said.

 

Up to 6.5 million Syrians could need emergency food aid as a result, up from the current figure of 4.2 million, Byrs said.

 

As a result of the drought, Syria could be forced to import more than the 5.1 million tonnes of wheat it needed last year, the WFP said in a report.

 

Syria was last hit by a drought in 2008, three years before the outbreak of the civil war.

 

On Monday, the WFP announced that it had to cut the size of its food parcels to Syrian families by 20 per cent.

(Source)

It’s pretty obvious that part of the tension that led to uprisings in Syria was related to both this drought and generally high food prices, even before poor harvests added to the misery.

Importing Water

An additional factor in my prediction for rising food prices stems from the gross over-withdrawal of water from aquifers that has been ongoing for decades.

If you compare the map below with a list of trouble spots in the world you will note a high degree of overlap:

(Source)

Some of those countries are not yet in revolt, but are on a very dangerous path that may well take them there. India is badly over-pumping its main aquifers and is hugely dependent on the food that comes from those efforts.

Saudi Arabia’s main aquifer is slated to run out as early as 2016. Because it has abundant energy resources Saudi Arabia will be able to turn to desalination plants, but for how long and at what costs to their ability to export oil as that same oil is being used to power those plants?

It takes up to 1,000 tons of water to grow one ton of wheat. Therefore, when China imports grains, like corn, soybeans and wheat, it is actually importing water, something it increasingly needs to do because of aquifer depletion and surface water pollution.  

Given the trends in world food production, energy prices, droughts, El Ninos, depleting aquifers, and the like -- we actually have to work very hard to come up with any scenarios wherein food prices might fall instead of rise.

The only one that really makes sense is an economic accident of such grand proportions that it causes a deflationary impulse so strong that it drags pretty much everything down with it, including food prices. But then, we’d expect literally everything to be cheaper in price; from real estate to stocks to bonds to politicians to used cars.

It remains our view that such an outcome, while possible, will be fought tooth and nail by the world's central banks. They'll print and distribute additional rounds of ‘deflation fighting’ money to keep the system afloat.

And, just as none of the central bankers have given one thought to the savers they have tossed under the bus wheels to ‘save the system’, they will give about as much thought to the immense pain that exporting food inflation will meant to dozens of countries and billions of people.

Conclusion (Part 1)

In Part 2: What To Avoid When Relocating we apply the framework above to understand why Ukraine was actually a very likely candidate for the unrest that's broken out there, and why the math strongly indicates the situation is likely to get considerably worse. 

Dwindling resources produce the least admirable human behaviors, something science has tested and understands quite well. Ukraine is a bellwether; we will see other conflicts like it elsewhere in the world, and likely, in time, within our own nation. Which is why understanding the nature of social unrest is so important, particularly to those considering relocation (within or outside of their home country). You certainly don't want to leap from the frying pan into the fire as resource scarcity and conflicts are now part of the global equation.

Click here to access Part 2 of this report (free executive summary, enrollment required for full access).

 

 

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Wed, 05/14/2014 - 20:08 | 4761125 Latina Lover
Latina Lover's picture

Of course the USSA wants to conquer Russia. The overthrow of the Ukrainian president Yanukovich and government, and replacing them with the Yatzi's, is a major step towards destablizing Russia.

 

It is all about stealing resources and dominating the world, democracy be damned. Globalism = USSA Fascism

Wed, 05/14/2014 - 20:24 | 4761152 zaphod
zaphod's picture

The US could not handle it if food even remotely approached 40% of income.

Payroll taxes, state and local sales taxes, fees for just about everything, artificially high housing costs caused by the FED, artificially high education costs caused by the FED, etc. etc. etc. comprise vastly more than 60% of income. Most of these are various forms of debt that can not be cut back on (taxes, fees, mortgage debt, school debt, etc).

This means that people could never pay 40% of income for food because after paying for all the manditory costs lower and middle classes never have 40% left over. As a result if the FED takes inflation and food to 40% of income people are going to go hungry. This was the end result of Germany's printing and will be the end result of ours.

Wed, 05/14/2014 - 21:22 | 4761309 Tao 4 the Show
Tao 4 the Show's picture

"In Part 2 we apply the framework above to understand why Ukraine was actually a very likely candidate for the unrest that's broken out there"

Is this like saying, after it starts to rain, "you know, there really was a 80% chance of rain today. If you pay us, we will tell you why we think so. And with this proof that we are such good forecasters, we might even tell you we think it is likely to rain tomorrow."

If these guys are ever so unlucky as to live on a piece of real estate that is wanted by the various PTB, somehow they won't be able to drool out words like "unrest" to describe a living hell like the Ukrainians are experiencing.

Wed, 05/14/2014 - 23:44 | 4761578 markmotive
markmotive's picture

"The global food supply relies heavily on fossil fuels. Before WW1, all agriculture was Organic. Following the invention of fossil fuel derived fertilisers and pesticides there were massive improvements in food production, allowing for increases in human population.The use of artificial fertilisers has fed far more people than would have been possible with organic agriculture alone."

The oil wars unfolding in Asia are ultimately food wars globally.

http://www.planbeconomics.com/2013/05/introductory-documentary-theres-no...

Fri, 05/16/2014 - 13:53 | 4767080 Monty Burns
Monty Burns's picture

That's right.  How often do we see insights along the lines of 'xxxx was always likely to happen for the following reasons'...  If it's so obvious the 'experts' in question should have told us beforehand.  It takes no genius, and it's not worth paying for a report as suggested here, to retrofit an after-the-event explanation onto known outcomes.

Wed, 05/14/2014 - 23:30 | 4761552 Serfs Up
Serfs Up's picture

It's plain as day that 'we' - and that means all of us humans - are on an unsustainable path.

How this resolves will be a collosal tug of war between those of us here with the capacity for common sense, and those in power who promote such idiocy as the 'common core' curriculum in public school, which is about the dumbest thing that could be pursued.

Wed, 05/14/2014 - 20:19 | 4761149 ebworthen
ebworthen's picture

It has to hit the EU and the U.S.S.A.

Bullish for EBT increases and ZIRP forever.

Wed, 05/14/2014 - 20:30 | 4761180 JR
JR's picture

When the EBT reservoir swells to keep the economy alive, that money has to come from somewhere… and it’s being taken from the American middle class in taxes and inflation.

Thus, consumerism in America has come to mean impoverishment of the middle class producers replaced by the profligacy of the non-producers.  This type of consumerism is certain to have a short shelf life.

Inflation is a tax upon the community inflicted by a profligate, out-of-control government in partnership with a privately owned Leviathan central bank bent on transferring middle class wealth to Third World entrants.

The consumer explosion in food stamps, EBT cards and government cash assistance cards is being paid for by consumer inflation (CPI), now running at nearly 10% and easily eclipsing wage increases and interest payments to savers and retirees. Such a monumental tax is paid by all American earnings on every monetary transaction.

This phenomenon is the most spectacular of wealth transfer from one group of people to another in history, filled to the brim with corruption and graft and abuse. It gets the support of both political parties in Congress, the Administration, the Federal Reserve bankers and, of course, the major corporations who are desperate to hold the critical customer base that is receiving this flow of wealth coming from America’s middle class.

These customers, some deserving but millions obviously undeserving, buy drugs, alcohol, cigarettes, junk food of every description, porn, gasoline, packed food and world class groceries, travel luxuries, prostitution, electronics, and send massive amounts of the money back to Mexico; they have turned government assistance programs, once well intentioned, into an economic and criminal disaster. And America’s producers must pay the bill, not only in higher prices, but in future lost purchasing power and higher taxes.

As a result, the inflation tax on wage earners and savers to pay for all this ill-gotten profligacy, using the government’s 1980-based methodology for computing Consumer inflation, was nearly 10% on April 15. 2014, according to Shadowstats.

Such an inflation tax is the result of the deliberate printing of excess dollars in the trillions by the Federal Reserve central bank, diluting the value of all the dollars for Americans.

Says G. Edward Griffin, author of The Creature from Jekyll Island, A Second Look at the Fed, “So by throwing more and more money into the economic soup out there the money gets weaker and weaker and weaker and we have the phenomenon called inflation which is the appearance of rising prices. I emphasis the word "appearance" because in reality prices are not rising at all. What we're seeing is that the value of the dollar is going down, that's the real side of the equation…

“The price of these items hasn't changed in thousands of years (in terms of a one ounce gold coin for suit, belt and pair of shoes in ancient Roman times to present) when expressed in terms of real money but when expressed in terms of these things we carry around in our pockets called Federal Reserve notes which is not really money at all, fiat money anyway, the prices keep going up and up and up because the value of those units keeps going down and down and down because they keep making more and more and more of them and dumping them into the economic soup.”

In short, the American middle class is losing its purchasing power through the process called inflation. So “who got it”?

The answer is Wall Street, Easy Street, Leviathan government, the private bankers who own the Fed and earn interest on money printed out of nothing, the corporations who use taxpayers to finance low-wage labor, and borrowers who borrow dollars today and pay back in dimes tomorrow.

What America needs to restore faith in her government to is junk the FRN  for a legitimate exchange medium; to close down the money manipulators at the Fed; to remove the international bankers’ domination over America and restore national sovereignty, and to find a third party, nonpolitical means whereby the Congress computes a scientific means to see that money or the exchange-medium is a stable measure of value, i.e., that stabilizes the price-level.

Else, as Ron Paul warned, without sound money American civilization will degenerate into tyranny under the flagrant abuse of paper money without no protection for economic stability and balance growth.

http://www.shadowstats.com/alternate_data/inflation-charts

Wed, 05/14/2014 - 22:00 | 4761387 deflator
deflator's picture

 Somebody needs to walk on the sunny side of the street and get off the shady side.

 My best effort at being a troll.

 

 Can't we say what side of the street the sun should shine on?

 My definition of Fiat.

Fri, 05/16/2014 - 13:58 | 4767102 Monty Burns
Monty Burns's picture

Anyone wh tried to do what you suggest would be Kennedyed.

Wed, 05/14/2014 - 20:22 | 4761158 potato
potato's picture

So what are the best place to which one can relocate, get some acreage, and raise a family. I was thinking Switzerland if you're an engineer. South America seems good but no jobs. Everyone is packed like sardines in Singapore. Qatar/UAE area seems perfect; install solar panels and pump ground water to water your garden. Canada is too cold. Mexico could be perfect too, away from the cartels.

Wed, 05/14/2014 - 20:32 | 4761187 Kirk2NCC1701
Kirk2NCC1701's picture

Speaking of over-pumping water... How have the water rights of Israeli farmers improved since the Syria "crisis"?  Got pumps?  Got water?

Funny how no one (besides Kirk) has talked about this "hidden" issue that is far more critical to them than a pipeline via Syria.

Wed, 05/14/2014 - 20:34 | 4761192 Kirk2NCC1701
Kirk2NCC1701's picture

You can keep over-revving that engine only so long, before she bl...

Wed, 05/14/2014 - 20:38 | 4761201 XRAYD
XRAYD's picture

This price manipulation is all a part of a scam to grow and sell genetically modified foods, and with patented seeds, lock in high prices and profits forever - specially in the new economies where the future of "food" and medicine (think diabetes, obesity) is!

Long: Monsanto, DuPont! Pfizer, JNJ, MRK, etc.

Wed, 05/14/2014 - 20:55 | 4761243 Duc888
Duc888's picture

 

 

We can spend trillions over the course of 20 years murdering millions of humans and overthrowing governments to get to the oil but we can't spend 1/100th of that on Desal plants.

 

We do in fact live on a water planet, everyone seems to forget that.

 

Time for some new management on this rock.

Wed, 05/14/2014 - 21:11 | 4761283 max2205
max2205's picture

It takes 250 million years for our solar system to complete one orbit around the Milky Way galaxy......how much water will there be then. Huh?

Wed, 05/14/2014 - 21:34 | 4761338 Tao 4 the Show
Tao 4 the Show's picture

Great diversionary comment. So in that spirit, let's have some science fun:

The solar system weaves above and below the galactic plane on its journey around the galaxy. When it goes through the plane, there is a much higher probability of interactions with other stars, dust, supernovas, etc. All these, not to mention galactic core explosions, may press on our solar system in various ways and slightly alter the orbits of comets in the Oort cloud.

The result is that more comets are jiggled out of their orbits and pulled in to near solar passes, increasing the probability of collisions with earth. So the answer to your question is, we may well have more water as the cometary ice bombards the earth!

Wed, 05/14/2014 - 22:16 | 4761430 AdvancingTime
AdvancingTime's picture

The modern economy that has evolved over the last several decades is loaded with interwoven contracts reeking of contagion. If faith drops in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation will soar. Never before has mankind diverted such a large percentage of wealth into intangible products or goods.  I contend this is the primary reason that inflation has not raised its ugly head or become a major economic issue. Like many of those who study the economy I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.

The timetable on which events unfold is often quite uneven and this supports the possibility of an inflation scenario. A key issue being one of timing. If the price of gas jumps to $8 a gallon overnight do you buy gas and not make your car payment or stop driving the twenty miles to work? Answer, it could be months before your car is repossessed so you buy gas. It is important to remember that debts can go unpaid and promises be left unfilled. Is this possible and if so where would that leave us? Chaos and major disruption would result from such a scenario. As we have seen from the economic crisis of 2008 and following many other unsettling developments legal actions can continue to drag on for years.  More in the article below.

http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos....

Wed, 05/14/2014 - 22:27 | 4761450 Spungo
Spungo's picture

Thank god we have no inflation. Otherwise we would be on the brink of unrest and possibly civil war.

Thu, 05/15/2014 - 03:28 | 4761768 Grouchy Marx
Grouchy Marx's picture

The prices of caviar, Perrier water, and French wines have all risen sharply; expect more turmoil on Wall Street. 

Thu, 05/15/2014 - 06:30 | 4761842 Dre4dwolf
Dre4dwolf's picture

The price of food is scary.

Time to stock up on huge supplies of oatmeal, hell atleast you can eat it , even though it tastes like cardboard.

Thu, 05/15/2014 - 09:17 | 4762162 hot sauce technician
hot sauce technician's picture

Not too bad with some cinnamon and honey.

Thu, 05/15/2014 - 19:34 | 4764597 Duc888
Duc888's picture

 

 

Wow, tough crowd here, two down arrows for building DESAL plants.   So I guess murdering millions of people and spending trillions doing that is a better deal?

 

Who knew, count me as a minority here against murdering innocent people.

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