High Corn Price Will Lead to Lower Beef Production

The price of many commodities ia going up. Wheat is at $326/metric ton,  and corn is selling at $303/metric ton (price figures as of 25 February 2011, see www.Indexmundi.com).  This is bad news for so many poor people all over the world. But, in the case of beef, the price increases would mean something else. Because at a certain point, high grain prices will lead to lower beef production throughout the world. People will then be substituting beef with pork and chicken.

Cows have been causing a disproportionate amount of green house warming, because they emit methane (CH4). Methane (which is the same as natural gas, used as LPG ) is 25 times more effective at trapping earth’s heat than CO2. This has made many environmental activists worried that increased beef production would be bad for global warming. Now, we can show that beef production itself has a limit, and that this limit is fast approaching.

Feed Conversion Ratio
How did I come out with this conclusion? It has something to do with what is called the “Feed Conversion Ratio” (FCR), which shows how much grain is needed to produce a given amount of meat. It takes 8 kilograms of grain to produce a kilogram of beef; thus, FCR for beef is 8. Of course, cows could also eat grass, and grass is cheaper than grain, but we can still show that the FCR=8 for beef is still quite important.

The grain that some cows are fed (at least part of the time) is still a big factor in the price and amount of beef produced. In economics, the operation of the market and prices depends on marginal transactions, meaning in this case that the decision to feed grain to cows will be taken as long as it is profitable to do so. Concretely, this has resulted in there being  more than 40% more cows in the planet, than could be sustained by grass alone.

Following the logic of the FCR, the price of corn (which on 25 Feb. 2011 was $303/metric ton) should, at the most, be one-eighth of the price of beef (which on 7 Feb. 2011 was $4136/metric ton). At present, corn is about 1/13 the price of beef. When the price of corn rises 60%, it would reach the margin limit for beef prices. If corn prices rise even further, the price of beef will have to rise in response, to keep it at 8:1 ratio with the price of corn.  Because if the beef price does not rise, it will not be profitable for farmers to feed corn to their cows, and they will reduce the number of cows that they maintain, increasing the price of beef in the process (and thus restoring the 8:1 ratio). The actual price ratio will be more than that (perhaps 9 or 10) because there are other costs in producing beef than the food that they eat, but let us disregard these other costs for the moment.

Ceiling on Beef Production
But the price of beef could not go up indefinitely. Especially since the price of other kinds of meat are not going to rise as fast.  Chicken (with a FCR of about 3) and pork (FCR of 3.5) will increase in price, but only by their FCRs, which means that the price differential between beef and chicken/pork will increase. People will eventually shift their consumption to more of chicken and pork. And farmers will then stop feeding their cows grain.

This development will spell the end of the feed-lot system, where cows which were fed grass in individual farms are gathered together in giant “feed-lots” where they are fattened by being fed grain. When the price of beef could no longer keep up with being 8 times the price of the grain that they eat, feed-lots will no longer be profitable. (Below: Picture of Feedlot)

Less and less beef will be produced until it reaches about 70% of the present level. At this level, the only cows left will those that eat only grass. The price of beef will be quite high, but it no longer pays to feed them grain. Ranchers will be making a big profit. At this point, the environmental challenge will be to prevent people from clearing forests and converting these  to grassland. The sky-high price of beef will make this option quite tempting for many people in the third world.

The point when this happens will not be too far in the future. This year, corn prices will probably rise 50 to 80% again (just like it did last year) and the price of beef will have to follow that of corn (with its price 8x that of corn). This will go on, till the time, perhaps in as little as two years, when demand will start shifting to chicken and pork.

The production of pork and chicken will continue to rise for some time. At a certain point, much further in the future, they will also hit their limit, and production will stabilize at that point, with people shifting to eating “farmed” fish (which has an FCR = 2)

Recovering from EDSA Revolution’s Hangover

The EDSA revolution was won by a combination of (among other things): the military (rebels and generals), the Catholic church, and Peoples Power. And as we all know, it was successful beyond our expectations, and it was relatively bloodless. While people 25 years later wonder what went wrong with the EDSA legacy; I would say that in a sense, things didn’t “go wrong”, but that what happened in the last 25 years was a natural result of the very nature of EDSA. And that it is only now that we are really in a position to work at realizing the dreams of EDSA.

Let us take a look at the various forces behind EDSA:

Military
The presidency of Cory Aquino was plagued by numerous coup attempts. Then came the presidency of Ramos (a former general), and then the role of General Reyes in deposing Estrada and installing Gloria Macapagal Arroyo as president.  The role of the military in Philippine politics was big under Marcos; but ironically, it probably became bigger AFTER Marcos’ fall. They were literally the kingmakers of Philippine politics, and even provided the “king” for a time – in the person of Ramos.

This political role of the military encouraged the idea especially among the lower ranks of launching coup attempts periodically. And these coup attempts, and other threats to the presidency (esp. that of Arroyo) made the support of the generals indispensable.  The military brass was so important to Pres. Arroyo, that they were given a free reign in terms of finances, they also got choice posts in government.

There was certainly corruption within the military during the rule of Marcos.  The “Reform the Armed Forces Movement” of Honasan was precisely the response of the AFP lower officers to military corruption.  But after EDSA, military corruption was more hidden, but did not diminish at all. The military also played a political role beyond national security.

It is only now, with the exposure of the Garcia case, and the implication of the entire AFP hierarchy of corruption, that we are starting to take a close look at the AFP. And this time, there is also the political will to do so. Because, for the first time since EDSA (strictly, it is the second time, Erap being the first, but Erap was overthrown), we have a president who is not beholden to the military (and PNoy is actually supported by military reformers).   And who is not averse to investigating corruption in the military.

So, now there is a chance that the military will be “returned to barracks”, and go back to their role of simply supporting the civilian authorities.

Church
Cardinal Sin famously called upon the people to gather at EDSA on those fateful days of 1986, in order to protect Honasan and the other military rebels. This increased the political clout of the Catholic Church, which had already grown quite significantly  under Marcos.  After EDSA, the church would, from time to time, threaten to call another people power revolt. And as politics would have it, threats are very powerful things.

The Catholic Church’s opposition to mining is a illustration of how powerful it has become. In the face of the government’s drive to promote mining investments, the church has successfully undermined this drive. Local priests have proven quite creative in opposing local mining companies;  and since they have the support of the hierarchy, they are doubly effective.

Now, we see that the church is plagued by various sex scandals. And we will see that the CBCP stance against the RH bill, though formidable at first glance, will end with the church’s moral authority severely eroded.

Ironically, this could turn out to be a good thing. The church has been a tremendous influence in the Philippine value system. And this has some very negative aspects (see Catholicism Impedes Philippine Development ) Thus, it will be a good idea to review the role of the Church in Philippine society, AFTER it loses the RH debate.

People Power
Business groups and the church, in the light of EDSA’s  easy victory, had been quite “trigger happy” in calling for People Power revolts. They called for “EDSA 2” which succeeded in deposing Estrada (with General Reyes’ help, of course). And then “EDSA 3” came, in an attempt by pro-Estrada forces to depose Arroyo, and reinstall Estrada. “EDSA 3” was a flop. And this was the end of the People Power revolts. People have grown tired of People Power mobilizations after this.

I think that “People Power” should have been used only once – against Marcos. And that both “EDSA 2” and “EDSA 3” were wrong. This is because these revolts are, in effect, (improper) shortcuts in democracy. They aimed to overthrow, with a few thousand people in Metro Manila, presidents who have been democratically chosen by the whole nation.  Notwithstanding all the shortcomings of the Estrada presidency, it didn’t really deserve to be overthrown – at least, not at that point, nor in that way. Another problem with People Power revolts is that they erode the stability of the country’s political institutions. Why should people bother with them, if there is a short cut with People Power.

So, now, the institution of People Power is thoroughly spent. We can concentrate on working within the established political institutions.

Today,  we find ourselves in a better position to pursue our “EDSA dreams” – end corruption, economic progress, etc.  The forces that helped win EDSA have turned out to have their “dark side”, and they have hindered our efforts these last 25 years, to build a truly prosperous nation. With their strength dissipated, we could now work on building a working democracy, and a prosperous country.

After 25 years, we are now recovering from the EDSA Revolution’s hangover.

Allow Free Importation of Corn

I think that the Philippines should lift the tariff on imported corn (35-50%); it will actually benefit the country to do so.

Poultry and Pork Producers
Cheap poultry and pork are being imported, and our poultry and pork producers are suffering. ( Philippines: Chicken and Pork Imports Jumped in 2010 ) They are suffering because the government has high tariffs (up to 50%) that prevents the importation of corn. Corn is used for feed. Philippine poultry and pork products are more expensive than imported meat, because our pigs and chickens are fed with our more expensive corn.

If you really think about it, the Philippines is already practically importing corn.  The chicken and pork imports imbibe foreign corn, plus a hefty profit for the foreign producers.  It would be much better to simply import the corn; it would also end up being much cheaper.

Meat producers are an untapped potential for exports. If we allow the free importation of corn, it may be possible for the country to actually export meat. Thailand exports chicken, and they are using imported grains to help them do it; so, why can’t we?

One Million Corn Farmers?
The government says that it can’t help, since they are concerned with the welfare of up to a million corn farmers. I take this statement with a grain of salt. Even if there are actually a million people who at present are dependent on the planting of corn, I would still hesitate to use this as an excuse to have tariffs on imported corn.

In the first place, people who plant corn today could easily shift to planting something else next season.  If there are indeed a million farmers planting corn  (I think it the million people includes the children of those farmers) it would be probably because they enjoy the benefits of “protected” local corn, hiding behind tariff walls. If the tariffs are gone, and Filipinos could import corn, how many of this million will stick to corn growing? and how many would shift to other crops?

Corn is not really a staple crop, unlike rice. Even though there is a small minority of people who do eat corn everyday (instead of rice),  corn should be treated like any other crop. Thus, it shouldn’t hide behind tariff walls. Farmers should be able to plant corn or not plant it, depending on whether this is the most profitable thing to do (considering soil quality, necessary inputs, expected rainfall, etc).

And since corn is not a staple crop, it should also be possible to liberalize the importation of it. Thus, the government does not need to be involved in its importation.  Companies should be able to compete in importing corn and distributing it to meat producers. This would help ensure that the price of corn remains as low as possible.

Rising World Prices
Now would be a good time to lift tariffs on corn. The world price for all grains is rising fast. I think that the present domestic price for corn is not too far above the world corn price. Thus, the immediate effect on farmers will not be as great as if tariffs were raised 2 years ago.

Of course, prices go up, and they could go down. That’s part of the risk of opening up to the world market. But I think that we should look at corn prices as a source of opportunity, and not as a threat. If prices do go down later, the country could buy up more corn, and produce more chicken and pork. And corn farmers could shift to other crops. If prices go up, farmers could shift into planting corn.

The Philippines should use this occasion to streamline our agricultural sector. There should be more done to help our farmers produce more, and to shift to higher-value crops. Local businesses should be encouraged to invest in agriculture.  Agricultural extension workers should be mobilized in larger numbers, to advise farmers about suitable crops, technology, etc. Post-harvest facilities should be built, as well as more farm-to-market roads.

There is under-investment in agriculture. The government should take steps to promote agriculture in the country. Not only because of the large number of families engaged in it. But also because there is a potential for economic growth in agriculture.

Implications of Mideast Unrest for the Philippines

The crisis in the Middle East seems to have gained momentum. It has so far resulted in the overthrowing of the dictatorships in Tunisia and Egypt. Now, it is spilling over to other countries: Iran, Bahrein, Yemen, Libya and Algeria.  This seems to be a new trend in the Middle East – young people willing to risk their lives in the struggle for democracy, and succeeding beyond what people could imagine even a couple of months ago. I think this trend will continue for some time. In fact, I think this is THE new trend in the Middle East – to replace that “old” trend of Islamic Fundamentalism.

What does this all mean for the Philippines?

Overseas Filipinos. The unrest in Egypt has meant that some scores of Filipinos working there have had to go home. Some Filipinos in Bahrain and some other countries may also be forced to do so in the coming days or weeks. But the impact of the unrest will be bigger than that, especially if the young people are victorious in their struggle. Because one of the main issues behind the struggles is that people want more jobs created.  And this means that governments, even those who manage to survive the protests, will have to pursue programs to employ more locals.

A local-hire policy for Egypt will probably not displace Overseas Filipinos (OFs) there, but it may in countries which have a bigger migrant work force. The Gulf states e.g. Bahrain, have a lot of OFs.  If the governments in the Gulf countries institute local-hire policies, intensify the job-trainings for locals, etc., this could mean that less migrant workers would be hired. And that will include Filipinos.

There is, however, a “but” to all this. If the governments of countries like Egypt, Lebanon and Jordan manage to stimulate the economy and increase employment opportunities, their people will not have to go to the Gulf countries as migrant workers.  Jobs would then be available to others, including Filipinos.

So, it all depends…

Higher Wheat Prices. Another issue that governments in the region are sure to address is that of wheat prices. Wheat is very important for people there, and they have seen a very significant rise in prices recently. What many governments are already doing (even those without significant protests) is to increase wheat price subsidies.  They don’t want to be overthrown, so a “little bit” of subsidy for wheat imports is a small price to pay for stability.  Or, for countries with successful revolutions, this is one of the things that the people will demand, and get.

If countries in the Middle East would all increase their subsidies on wheat, the result will be an increased overall demand for wheat, which can only mean that the world price for wheat would go even higher. And this will be felt in the Philippines. Already, the Philippine government has turned back tax increases on wheat imports. But the price will continue going higher for some time to come – and may remain at that high level.

Thus, expect even more increases in the price of pan de sal ,Tasty and other wheat products…

Muslims in the Philippines. I believe that another result of the unrest in the Middle East will be the decline of Islamic Fundamentalism. The Egyptian revolution is a turning point, a trend break, in the Arab world.  Egypt has always played a leading role in such trends. Arab nationalism started with Egypt’s Nasser; Islamic fundamentalism also started in Egypt. Thus, I believe the new “facebook” inspired revolution is another Egyptian trend that will be adopted by the Arab world.

Islamic Fundamentalism is the ideology that has been attracting the youth of these countries. Now, the youth have a new call – one of democracy and progress –  which they can aspire for. If Egypt becomes economically successful as a result of their revolution, I think that Islamic Fundamentalism will indeed become a thing of the past, in a few years.

The strength of Islamic Fundamentalism comes from its appeal to the youth, and in the funds that it is able to raise. If the youth are attracted to something else, there would be less recruits to Al Qaida and other Islamist movements. If people have something else to donate to (i.e. the pro-democracy movements), they will not give as much money to Al Qaida. This is why I think that Al Qaida will soon be a thing of the past – if it is starved of youth recruits and money, it won’t last long.

What about Abu Sayyaf?  Abu Sayyaf these days gets money from Al Qaida and other such Islamist organizations. And they do this by staging terrorist attacks etc, making videos of them, and sending these to Al Qaida et al. They get paid by Al Qaida, in effect, for undertaking terrorist attacks. If Al Qaida runs short of funds, this will also mean decreased Abu Sayyaf activity.

It may also be that Filipino Muslims would have their own “facebook” revolt against their trapos. Political dynasties such as the Ampatuans etc rule their areas as if they were absolute rulers. If the Muslim youth get inspired by Egypt, it may mean the beginning of the end for these mini-dictators who have been exploiting them for so long.

Who knows, maybe the Egyptian revolution will inspire the full blooming of democracy and the economy of our Muslim areas.

The Egyptian Revolution, from Nadia’s Eyes

Mubarak has stepped down! Egypt is Free! The Egyptian people have succeeded in bringing down Mubarak, and have conquered their fear. They now need to build a new Egypt.

During this revolution, I’ve been following a Tweeter in Egypt named Nadia El-Awady. Nadia is an Egyptian science journalist. Her tweets have given me an insight into that revolution which is much deeper (and even funnier) than what the news media can give.

I started following Nadia from 3 February, at the time that pro-Mubarak thugs started roughing up journalists.  Nadia was one of the victimized journalists, and her video camera was destroyed by the thugs. This meant that Nadia had to resort to other means of reporting (i.e. tweeting) – and this proved to be a boon to me and 8100 other people who followed her tweets.

“I did not cry when I saw dozens injured, unconscious or dead emerge from the front lines of fighting with Mubarak police/civilian thugs…I did not cry or cringe when I was tear gassed and shot at by Egyptian police. I cried when my camera was broken by Mubarak thugs. My camera was my weapon in this revolt. It was the tool that created a role for me…Today I leave home without my camera. I will not be able to afford a new one for a long time..” 3 Feb.

In the days that followed, she kept reporting from Tahrir Square. It’s the small things that made the struggle come alive for me. About her friend who was “flag crazy” , buying 3 flags of varying sizes and a bandana; about her not showing her journalist ID when checked by the police while walking home; about her eating a meal at a friend’s apartment which was next to Tahrir (and that this family was continuously feeding friends and friends of friends).

She borrowed a wheelchair to bring her 73 year old father to Tahrir square on 7 February. Her father was so excited, kissing the hands of people who were wounded in the struggle… talking to the people in Tahrir…

On 8 February, she was feeling sick, but decided to go to Tahrir anyway: Today is one of those days i should be lying in bed getting served soup and meds by a doting family member for this cold. Ahhh…

And then, her musings about the revolution:  “Sometimes calculated risks must be taken to achieve one’s dreams…A calculated risk is taken by anyone climbing a mountain and putting their life in danger just to see what the world looks like from the top…A calculated risk is taken by anyone putting on gear to breathe underwater just to swim alongside a manta ray….” ( 5 Feb.)
(Nadia is an avid diver and mountain climber.)

or about concerns about her security:  “My fear is not getting arrested. My fear is getting arrested and no one knowing about it. That’s why I don’t go to the protests alone…” 5 Feb.

And her comments about the “civilized” nature of the revolution:
“Christian mass performed with muslims and christians chanting AMEN…” 6 Feb.
“My sister said: people now go to Tahrir to spend some time in “the perfect world where people love each other and treat each other well”” 6 Feb.

or about its “funny” nature:
“My sister talking to herself and laughing: “Egyptians protest in the funniest ways… People were killed a few days ago yet Tahrir is full of people doing art, playing their guitars, reciting poetry, and playing out sketches”… 7 Feb.

And her problems getting an internet signal: “I spend 3/4 of my time in the revolution obsessing over finding a signal so I can connect to the Internet and tweet..I look absolutely ridiculous standing in the middle of millions of ppl holding up my phone looking for a signal..” 4 Feb.

And finally,  here is a link to Nadia’s blog entry on the revolution, written before her camera was broken: Egypt’s Revolution, an Eyewitness Account, January 25 -29