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15-05-2008, 10:44 PM
The following makes interesting reading

Food for Thought
By Niels Jensen

What countries are truly the have and have nots of the world? Good friend and business partner Niels Jensen of Absolute Return Partners suggests we look at the old equation in a new way? Food and energy resources may be at least part of the definition in the future. In this week's Outside the Box we continue a them I mentioned a few weeks ago: agricultural needs are going to be a new and important force in the world and when coupled with energy may shift the balance of power in the world in strange a different ways.

When, as Niels points out, Afghanistan poppy farmers are shifting to wheat farming, the world is truly a different place. I think you will find the research he has done to be truly worth a few minutes of your thinking time.

And as a preface, I was reminded a little while ago that a Financial Times headline story last Friday mentioned that China is buying African farmland and building massive amounts of railroads and infrastructure to get grains to the market. I have long been bullish on African farmland. This week's OTB will tell you why.

John Mauldin, Editor
Outside the Box

The Absolute Return Letter
May 2008

"There is nothing so disastrous as a rational investment policy in an irrational world."

John Maynard Keynes
You just know that something is astray when Afghan poppy growers begin to switch from opium to wheat. According to the Independent newspaper here in the UK, that's exactly what is now happening. I have no desire to enter into a pound for pound risk/reward analysis of producing wheat versus opium. However, the consequences of the rapid rise in energy and agricultural commodity prices are far reaching and perhaps not as well understood as they should be. That is the content of this month's letter.

The Silent Tsunami
My story begins with Al Gore. While most of us lulled ourselves into the belief that he was onto something when he tried to convince us that global warming (or climate change, as I prefer to call it) was the most formidable challenge facing this planet, a silent tsunami1, also known as the global food crisis, began to develop and is now threatening to undermine global political and economic stability, the latter of which has been key to the benign financial markets we have all benefited from in recent years.

According to the World Bank, just over 1 billion people live on one dollar or less per day. People in the poorest countries in the world spend 80% of their income on food. So when you and I have hardly noticed that the bread we pick up from the local bakery has doubled in price over the past year, it is because only 10-15% of our budget is spent on food items2. In many emerging economies the number is much higher. Chinese consumers spend 28% of their income on food. In India it is 33%. If you want to know how much it is in your country, go to:


There are three food staples in the world today which dwarf all other food ingredients in terms of importance. They are (in alphabetical order) corn, rice and wheat. As you can see from chart 1 below, they have all experienced rapid price appreciation since last summer. What is it that has driven this price explosion and what does it mean to financial markets? As with most things in life, there is no simple explanation; a number of factors have conspired to create a situation which is exceptional but also destabilising and hence dangerous.

It Is The Bio-Fuel Policy Stupid!
The explanation given by most commentators is the bio-fuel policy currently being pursued by the Bush administration



[1] A term borrowed with thanks from The Economist newspaper.

[2] Our food statistics come from the US Department of Agriculture and indicate that consumers in countries such as the UK and the US spend less of their income on food than consumers in other countries. This is due to the fact that take-aways and restaurant visits are not included in the USDA numbers. Adjusted for that, almost all OECD countries spend 10-15% of household expenditures on food.

[3] Source: The Daily Telegraph

[4] Source: The Daily Telegraph