Food vs fuel wars just beginning

By Gioietta Kuo (China Daily)
Updated: 2007-07-06 16:21

The author Gioietta Kuo is advisor and senior fellow at the American Center for International Policy Studies

As everyone in China knows, food prices have risen sharply over the past year. If it gives any comfort to anyone, China is not the only country. Rising food prices are a worldwide phenomenon.

The story goes back to the days after World War II. The Western industrial nations went about developing their economy at a fast pace. The basis for this development was cheap oil. From 1945 all the way to the present day, cheap oil seemed to be a bonanza with no end in sight.

As a consequence of cheap oil, the society that developed was based on the internal combustion engine - the motor car. Even though some Americans have been aware of oil running out sometime in the future, the country still consumes oil as if the supply will last forever.

In the US, transport is based on the individual automobile rather than public transport like subways, trains. Even freight is carried by large trucks instead of trains.

Petroleum is fundamental to our modern life. From oil we make plastics, fertilizers, medicine and chemicals. We burn oil to produce electricity.

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When countries like China and India began to industrialize, the global scene changed because of increasing demand for oil.

In 2005, easily extracted oil from the oilfields peaked. From now on, the flow will be at a reduced rate, eventually running dry. Oil extracted from the more difficult oilfields, requiring more technology and consequently more expense, is expected to peak in four years, according to some experts in the United Kingdom. Since the global demand for oil exceeds supply, oil prices are going to continue rising.

In the US, there is growing awareness that the country should not depend on foreign oil from unstable regions like the Middle East. More importantly investors have realized there is profit to be made by converting corn into ethanol which can be used as motor fuel.

As more and more ethanol production distilleries come on line, 30 percent of the US corn harvest next year will go into ethanol production.

The US is the world's biggest grain producer and exporter. Almost 70 percent of all the grain imported by many nations around the world comes from the US.

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