Tag Archives: energy costs

The World Turned Upside Down

It’s not often you can point to a week in history and say with confidence that ‘today the world changed utterly.’ Unfortunately for us we’ve just had such a week.

Look at the agricultural front, so far nothing has really been said in the west, although I’ve noticed a couple of the papers starting to run stories about possible food shortages. Apparently the Chinese government, which seems to think about these things rather more than our governments do, has stockpiled 70% of world Maize stocks, 51% of world wheat stocks and “Enormous quantities of US Soya.” World food prices are rising as countries scrabble about looking for supplies to carry their own populations through to the next harvest. Given that there isn’t a lot of hope of much planting in the Ukraine this spring, and that Russian farmers have been locked out of the domestic credit market just when a lot of them would be looking to buy seed, Russia might be joining in the desperate scramble for grain.

If looking for agricultural support payments, then I think you might have to look hard. As an example, Germany spent 47 billion euros on defence in 2021. This is 1.5% of GDP. It has announced that it will increase this to at least 2% of GDP which means 62 billion euros a year, but with an extra investment of 100 billion euros as an extra top up.

https://www.reuters.com/business/aerospace-defense/germany-hike-defense-spending-scholz-says-further-policy-shift-2022-02-27/

All this is on top of paying for covid and desperately trying to arrange energy policy. So whilst nations want more food, I will be interested to see what happens to various schemes. At the moment it looks that all government would have to do is point out how food prices are rising, take off the brakes and let us farm.

On the energy front things are mixed. If you want to have another international conference to discuss getting to carbon zero, you could doubtless have one, but obviously to get the Russians you’d have to accept their puppet Ukrainian government as entitled to negotiate for the Ukraine. On the other hand, even the most blinkered politician has realised that relying entirely on Russian gas was never a good idea. So in the long term it looks as if European countries (including the UK) will be going over to renewables, with nuclear to balance out the supply when renewables fall short. (Which was something gas did fairly well for us in the UK)
Unfortunately in the short term, we are probably in for a couple of years of pain and backsliding. Not only are the Germans pondering keeping their nuclear plants going, they are also pondering burning more coal. Apparently the International Energy Agency has pointed out that dropping your thermostat by one degree would save Europe 10 billion cubic meters of gas a year. We may have to see a culture shift, wear more in the home, burn less fuel. There again this has been the message for two or more decades from UK governments of all parties, and indeed Labour, the Coalition and the current Conservative government have all jacked up energy prices to both deter use and to use money raised to subsidise renewables. Now it’s being jacked up even more. As somebody who has never lived in a house with central heating I find people’s homes too warm anyway but I don’t want to trespass on private grief.

Then there are going to be deeper effects that are unquantifiable. I’m sure we can all remember pictures of shattered German cities taken in 1945. But by the time a previous generation saw those pictures the war was largely over and the German death camps had been liberated. Yes they saw Dresden but they also saw British forces liberate Bergen-Belsen. I make no moral equivalents, I point no fingers at our own day, but it is likely you are going to watch European cities destroyed on prime time TV as smart phone footage reaches our broadcasters. This could go on for month after month.

Then we could have millions of Ukrainians settled in European countries. People who can never go home and who may eventually become citizens. What impact will a quarter of a million Ukrainian widows and fatherless children have on British Politics? I suspect those who support Putin’s ‘denazification’ of the Ukraine could struggle to gain electoral acceptance.

Also if we go back to a full cold war, UK defence spending will increase and the armed forces will grow. Will we have to reintroduce conscription? Will it just be for those who self-identify as men, or is it going to be an equal opportunities experience?

♥♥♥♥

There again, what do I know? Speak to the experts

As a reviewer commented, “Another gentle and entertaining read about the pros and cons of Farming, ably assisted by Sal the collie dog and Billy the feral farm cat.
As always, I’m amazed Farmers make enough money to keep their farms and families going, given the ‘guidance’ given by the ‘experts’ in government and the Civil Service…”

The crumbs under the table

What will 2022 bring for farming?

I never forget seeing the ‘before’ and ‘after’ photos of Tony Blair. The first when he became Prime Minister and the latter as he finally left the job. That being said, I’m willing to put money on Boris aging even faster. The problem for him is that next year doesn’t look like it’s going to be particularly good.

One problem is that Europe (by which I don’t mean the EU, but the continent) isn’t particularly wealthy any more. The writing is now on the wall for everybody to read. Energy is at the bottom of it.

Gas imports into the EU are seriously political, after all much gas came through the Ukraine. So the Russians built Nord Stream 2 to bypass the Ukraine (which depends on the money it makes from the pipeline) and to land the gas directly into Germany. Last year 49% of German gas came from Russia.

https://www.statista.com/statistics/1201743/russian-gas-dependence-in-europe-by-country/

Perhaps due to pressure from the US, perhaps due to pressure from the Baltic States, Poland, and the Ukraine, the Germans have put off when Nord Stream 2 can deliver. If this was supposed to be a shot across Putin’s bows, it didn’t work too well because Russia is having a colder winter than usual and can happily use all the gas it can get.

The problem is that for much of the year, wealthy countries like China, Japan and South Korea have outbid Europe when it came to buying gas.

https://www.ft.com/content/4885b7f5-97a2-4e66-af91-a9211956b0f5

Luckily the rich have filled their tanks, they’ve got plenty of stocks to last them through to spring when prices fall, so they’re not all that bothered any more. At the moment, if you’re based on the U.S. Gulf Coast, you can reckon on getting 43.205/MMBtu in Europe but Asia is only willing to spend $38.975. So a lot of really big gas tankers have turned round in mid ocean and are now sailing to Europe. We’ll have gas, but we’ll have to pay for it.

Obviously looking at the graph you can see the price is dropping from its peak. Looking ahead the futures market thinks gas will continue to drop in price.
https://www.naturalgasintel.com/lng-tankers-diverting-mid-voyage-for-premiums-in-europe-where-prices-keep-setting-records/

The BBC is estimating that the reasonably average domestic customer is going to have to find £1,277 a year. Then there are the industries that aren’t going to be able to keep going at these prices. We’re going to get other problems. Cannot see there being much fertiliser produced in the UK at these prices. In fact we might reach the stage where government helps subsidise CO2 production and companies make fertiliser as a by-product.

But either way we are almost certainly going to see redundancies, newspaper headlines about families who cannot afford to stay warm and still eat, and it’s going to be genuinely tough for some people. On top of that we’ll continue to see the steady increase in costs we face as we move over to a green economy. Talking to people working in them, the foodbanks have had a busy couple of years, but they’re gearing up for this coming year being worse.

And then we have farming. Obviously fertilisers are going to look expensive. I wonder if the supermarkets will get their arms twisted by government to allow the use of more sewage sludge in agriculture?

But on top of this, across the whole of Europe, not only are populations facing increasing energy prices, but governments are trapped between reduced incomes and vastly increased spending due to the pandemic.

Certainly in the UK, I cannot imagine government willingly doing anything that will increase food prices. In fact I think that they can be relied upon to do their best to keep prices down.

It will be interesting to see whether the EU, with a population of 447 million people, of whom 9.7 million are engaged in agriculture, (Just over 2%) has the nerve to tell the 98% that they have to dig deeper to help the 2%.

From the point of view of the UK farmer, what’s the best way forward?
Certainly if you can earn environmental money without damaging the earning power of your business, it is probably worth considering.

Then there’s always diversification to consider.

But finally, remember that the UK is hardly the prime market to sell food into. I suspect our competitors will be eying up the rich world, China, Japan, and South Korea. Even if, as a business, it isn’t our produce that is exported, we could still do reasonably well on import substitution.

But people do at least have to eat. The BBC had some nice figures as to how you could save money on energy. Reducing the setting on your thermostat by one degree could save you £55 a year. Put like that, cancelling your Netflix subscription could save you three degrees. It’s the sort of calculation people will be faced with whether they want to or not. A large part of the job of a foodbank isn’t just feeding people, it’s signposting them to those who can give them the help they need. For some, it’s help in budgeting.

Now of course, it’s entirely likely that none of the above will come true. Look at the prophecies we’ve seen in the past. Boris put a figure for the NHS on the side of a bus and it looks like chicken feed compared to what he’s had to spend. Whether he wanted to or not. We were told that Kent would end up a lorry park and funnily enough it hasn’t. We were promised a shortage of turkeys for Christmas, and my lady wife returned from a brief tour of the shops on Christmas Eve to announce that fresh turkeys were being discounted because shops had too many. With any prediction, it’s pretty much guaranteed that the ‘unknown unknowns’ will kick everything up in the air.

  
Anyway, have a good New Year, stay well and stay busy.

♥♥♥♥

 

There again, you could always talk to an expert!

As a reviewer commented, “A collection of anecdotes and observations about farming in England in the 21st century. Written by an actual farmer, this book is based on real experience and touches on a variety of subjects in a witty and engaging style. Cats, cattle, bureaucrats, workers, and the working dog all make an appearance, as do reminiscences about the old days and speculation on a possible future. This book is both entertaining and informative, a perfect diversion for the busy reader.”

Responsibility?

Ambrose Bierce defines Responsibility as ‘A detachable burden easily shifted to the shoulders of God, Fate, Fortune, Luck or one’s neighbour.’

I try to keep out of the detail of current politics but I’ve got a problem I’d like sorting out please. I know there are people out there far wiser than me and I’m sure you can put me right.

Firstly, yesterday when the energy companies were being questioned, it was decided that 5% was a disgraceful profit margin, greedy, disgusting.
Which I suppose is fair enough. But if you go on the Tesco website, Tesco’s own annual review shows that in the years 2009 to 2012 the company had a margin which averaged 6.17%. When are the MPs going to haul them in and demand windfall taxes, price freezes etc? Is energy more important than food?

Also energy costs. I checked. A lot of these Green levies go back to July 2009 when Ed Miliband released ‘The Renewable Energy Strategy’. At the time he commented “We are going to minimise the costs as much as possible, but it is true there is not a low-cost energy future out there.” This document estimated that this renewables policy could cost households as much as £250 per year. But checking on Google you can see that at the time energy experts estimated bills could rise by up to £500 every year. Mr Miliband insisted there would be no cost before 2015.

Given that all this was carried out in public in 2009 and we were (probably) all there and all sort of listening, why are we surprised now?