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Oil Flows as Rebels Gain

Libyan rebels pressed the regime of Col. Moammar Gadhafi Sunday, taking control of a key city near the capital of Tripoli, declaring a provisional government and allowing oil shipments to resume from territory under their control.

An oil tanker was expected to depart the port of Tobruk in the northeast corner of Libya sometime Sunday night carrying 700,000 barrels of oil, said Hassan Bulifa, a member of the management committee of Arabian Gulf Oil Co., Libya's largest oil producer and the only oil company based in the country's opposition-controlled eastern territory.

The management committee has assumed control of day-to-day operations at the company after its chairman, Abdulwanis Saad, resigned during the uprising against Col. Gadhafi. Mr. Bulifa said he believed the tanker would be bound for China.

The turmoil across the Middle East, cradle of much of the world's oil production, has sent prices soaring. Last week, crude oil for April delivery on the New York Mercantile Exchange rose $8.17 per barrel, or 9.11%, to $97.88, and for the seventh time since 1982 prices jumped 10% within two days. Month-to-date, U.S. benchmark crude is up 6.17%.

he National Oil Co., which is based in Tripoli and remains under the control of Mr. Gadhafi's government. Nevertheless, the relaunching of exports would be good news for Arabian Gulf Oil, which has had to cut back production rates for fear of running out of storage capacity amid a lack of export outlets.

The developments in Libya came on another turbulent day in the Middle East. Oman, a small sultanate at the mouth of the oil-rich Persian Gulf, had its first protests, in which at least one person was killed. Riots broke out in Tunisia, the country that started the wave of uprisings in the region. The prime minister there, appointed only a few weeks ago, resigned after several days of street violence.

In Libya, the pledged Arabian Gulf Oil shipment was a rare bright spot amid signs the industry is faltering badly as expatriate workers leave and many local workers stay home, fearing growing violence. The United Nations refugee agency said more than 100,000 people have fled violence in Libya to other countries in the past week.

Over the weekend, the government failed in repeated attempts to regain ground in the strategically important coastal city of Misrata. Libya's third-largest city, it is located between Tripoli and Col. Gadhafi's hometown of Sirte, raising questions about the strength the leader's remaining loyalist forces.

But areas near Tripoli weren't as quiet. Foreign journalists taken on a government-sponsored tour of Al-Zawiya, to the west of Tripoli—which last week witnessed bloody clashes between opposition and pro-Gadhafi security forces—entered the center of town to see the tricolored flag that predated Col. Gadhafi's 1969 revolution flying.

"This council was created in defiance of Gadhafi's claim that there will be chaos after he leaves," said the spokesman, Abdul Hafidh Gogha. "There is no chaos. In just 10 days we managed to cross the hard times and create local councils to govern." Read more at professional.wsj.com

 

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Tunis Flap Prompts Departure Of French Minister

PARIS—French President Nicolas Sarkozy said he was replacing the country's foreign minister, Michèle Alliot-Marie, in an effort to draw a line under a string of embarrassments that have muddied France's diplomatic efforts since the start of uprisings in the Middle East.

In a televised address, Mr. Sarkozy said Ms. Alliot-Marie was being replaced by Alain Juppé, who was defense minister in the previous cabinet. Gérard Longuet replaces Mr. Juppé at the Defense Ministry, he said.

Ms. Alliot-Marie, 64 years old, has come under fire over the past few weeks, first for saying—at the height of the protests in Tunisia in January—that authorities there would benefit from the skill of France's riot police and then for disclosures involving her Christmas vacation in the North African country. During the holiday, Ms. Alliot-Marie used a private jet belonging to a relative of ousted Tunisian President Zine al-Abidine Ben Ali.

Though the minister said she had used a private jet during her Tunisian holiday, she denied any wrongdoing, saying the trip had not influenced her political position. But public perception turned against her, analysts say.

Ms. Alliot-Marie's Tunisian vacation also added to another disclosure: that French Premier François Fillon and his family had accepted a private-plane trip and other hospitality from the Egyptian government during a New Year's holiday.

The two events gave the French public the impression that France was cozying up with despotic rulers across the Middle East, instead of supporting democratic forces, analysts say.

Commenting on the Tunisian revolt that led to Mr. Ben Ali's downfall, Mr. Sarkozy said in January that France "had failed to grasp the sense of despair and the suffering" of Tunisia's population.

Fewer than a fourth of French adults approve of Mr. Sarkozy's policies, according to recent opinion polls. Read more at professional.wsj.com

 

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France Focuses on Food at G20 summit

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France Focuses on Food

President Puts Issue of Rising Prices at Top of G-20 Agenda

LONDON—Long known as a country obsessed with culinary perfection, France is making food a top priority as President Nicolas Sarkozy takes the helm of the Group of 20 meeting this week.

Key to the agenda in France, Western Europe's largest grains producer, is addressing rising world food prices by improving transparency in commodities markets. Proposals include limiting the size of positions dealers can take, regulating off-exchange trading and publishing data on the type of investors in the market.

Ministers of the G-20 industrialized and developing nations are also considering ways to make agricultural markets more transparent, including publishing more information on international supplies and improving forecasting mechanisms.

Agricultural powers such as the U.S., Canada and Brazil have signaled their opposition to greater regulation, while financial hubs like the U.K. fear losing lucrative trading.

"Regulation of commodities is not the answer," said Argentine Economy Minister Amado Boudou after discussions with Brazilian Finance Minister Guido Mantega. "The solution lies in increasing production."

But it argues that current food prices are largely being driven by supply and demand, particularly pointing to the surging demand from emerging markets coupled with supply shocks that include flood and drought.

Even some French officials have started to tone down their push for more regulation. Finance Minister Christine Lagarde said in a recent interview that France would now focus more on transparency. "We will solve a number of things through access to information," she said.

The price of wheat, for instance, has doubled since July.

Inflation poses a headache for policymakers globally, but far more in developing countries, where households spend up to 75% of their budget on food, compared with around 10% to 12% in Europe and the U.S.

Food-price inflation has been partly blamed for sparking protests in North Africa that toppled long-standing presidents in Tunisia and Egypt. To prevent a repeat of the widespread unrest of the 2007-08 food crisis, governments in some importing countries have begun building up grain stocks while others have boosted food subsidies.

European Union data show that between 2003 and 2008 institutional investors increased their investment in commodities markets to between $250 and $300 billion from $15 billion. But opinions remain divided over the influence that financial investors wield over prices.

"Speculators are always an easy target, but speculators didn't cause food prices to rally in the second half of 2010," he said. "The more you have different types of players trying to use the derivatives markets, the more they reflect the true price of the commodity."

Strong demand growth and a lack of transparency in emerging markets have also contributed to price volatility, said David Lehman, managing director of commodity research and product development at futures market operator CME Group.

"Even if we don't have a complete overview, because of the severe impact this can have on people's lives, a precautionary approach should be taken," said Oxfam agriculture and trade expert Marita Wiggerthale. Read more at professional.wsj.com

 

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Hungry for a Solution to Rising Food Prices

Hungry for a Solution to Rising Food Prices - BusinessWeek

• As the Tunisian dictator Zine el Abidine Ben Ali discovered in January, there is no surer route to political oblivion than to deny people access to affordable food.



• The riots that ensued—propelled in part by anger over high food prices—drove Ben Ali from power and spread to Egypt, Jordan, Yemen, and Algeria. Ben Ali may be remembered as the despot who was toppled by a vegetable cart.



• The deluges in Saskatchewan were so sustained and intense that farmers couldn't plant some 10 million acres of wheat, according to the Canadian Wheat Board. "What is typically the driest province was never wetter," said the governmental agency Environment Canada.



• Chicago Board of Trade up by 74 percent in the past year.



• Corn traded in Chicago rose by 87 percent during the same period.



• grain prices have spiked even higher because of yet another drought, this one threatening China's wheat crop, the world's largest. In that country's eight major wheat-producing provinces, some 42 percent of winter wheat cropland has been hurt by a dry spell, according to Agriculture Minister Han Changfu.



• "Whenever you get the market as tight as we are now, hoarding becomes widespread," says Abdolreza Abbassian, a senior economist at the FAO. Wheat prices may keep rising until the summer, he predicts, because importers are speeding up purchases to outrun inflation. Prices are more likely to stay high or go higher in the next six months, he adds, than to decline.



• You need two perfect harvests through the summer of 2012 to get stockpiles back to an acceptable level," says Jason Lejonvarn, a commodities strategist at Hermes Fund Managers in London.



• a Chinese ban on wheat exports would also send prices higher, meaning that global grain shortages—once thought to be a disaster of the past—could return. Even American commodities buyers are feeling the pinch. "There is not one crop you can point to that is without supply problems," says Steve Nicholson, a commodity procurement specialist for International Food Products in St. Louis. "Production is not keeping up with demand."



• the crisis is a test of mankind's ability to feed itself



• the era of predictable abundance that fueled the world's population growth to almost 7 billion people may be over.



• Yet rising global food prices have pushed 44 million more people into extreme poverty in developing countries since June, the World Bank says. "Global food prices threaten tens of millions of poor people around the world," World Bank President Robert Zoellick said in a Feb. 15 conference call. "The price hike is already pushing millions of people into poverty and putting stress on the most vulnerable, who spend more than half of their income on food."



• "In many of these emerging markets, two-thirds of the consumer price index is essentially food, energy, and transportation," New York University economist Nouriel Roubini told Bloomberg News in January.



• "We are a food-abundant country and the last place where food inflation is going to rise," says Erick Erickson, an economist at the Washington-based U.S. Grains Council.



• That's because in those countries, consumers pressed by food costs are more likely to get pay raises, says Karen Ward, senior global economist at HSBC in London. Once inflation creeps into wages, it quickly becomes general. China, with nearly double-digit economic growth, is an example. Chinese consumer prices rose 4.9 percent in January from a year earlier, the government announced on Feb. 14, while food costs rose 10.3 percent.



• In low-demand, high-unemployment economies such as the U.S., workers can't get higher pay to cover their rising food bills, so they cut back on other kinds of spending. Companies, too, are forced to eat their higher costs because they know raising prices will kill sales. In a weak economy, higher commodity prices are "like a further tax on your growth," says HSBC's Ward.



• The question is whether Wall Street speculators are making commodity prices rise faster. At the height of the housing and stock market bubble that burst two years ago, speculators were accused of pushing up crude oil prices—to a peak of $147 per barrel for West Texas Crude in 2008—without regard to supply and demand. This led to calls for regulation that weren't answered until the Dodd-Frank financial reform bill gave new marching orders to the U.S. Commodity Futures Trading Commission.



• the commission in January proposed stricter position limits, or rules on how many futures contracts investors can own at one time.



• Traders say they don't boost prices, because trading is a zero-sum game: For every buy, there's a sell. "Speculators will flock to a good, compelling, fundamental story," says Gary Mead, an analyst at VM Group in London. "If you take away that good, compelling, fundamental story, speculators will look at something else. In this low-interest-rate environment, they're searching for yield in whatever shape. Right now, it happens to be commodities."



• A record 43.6 million people in the U.S.—more than one of every eight—received food stamps in November, as the jobless rate stayed near a 27-year high, the USDA reported. In most parts of the developing world, there is no comparable safety net, which is why national leaders and nongovernment organizations alike are scrambling to devise solutions before the worst comes to pass.



• Beijing will spend 12.9 billion yuan ($1.96 billion) to bolster farm production and fight the dry weather. Benjamin Wey, founder and president of New York Global Group, an advisory firm in Beijing and New York, predicts that the Chinese government, to avoid social unrest, will impose food price controls, making producers and distributors whole through subsidies.



• Agriculture Minister Mykola Prysyazhnyuk urged the World Bank to create a world grain bank "to safeguard the global food supply … and to avoid unrest and to avoid fear."



• Bank President Zoellick also recommends targeted government aid for the poor, such as school lunch programs, and a free-market approach to price volatility, with governments promoting transparency and preventing restrictions on the flow of food.



• Scientists have been warning for years that carbon emissions from cars, planes, factories, and power plants would make the global climate warmer and more chaotic—altering weather patterns to make some places more prone to drought and others more prone to floods. And climate campaigners have been wondering for years what it would take to galvanize the U.S. and other nations into action.



• "There is an increasing likelihood of a food crisis globally," he said, "due to climate change." Business leaders are equally frank. "The fact is that climate around the world is changing," says Sunny Verghese, chief executive officer at Olam International, among the world's three biggest suppliers of rice and cotton. "That will cause massive disruptions."



• The current series of droughts and floods are not simply wreaking havoc on food supplies. They're harbingers of life in a hotter and more chaotic climate. Could hunger, and the threat to power that accompanies it, be what finally forces political leaders to act?

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Drought threatens China's wheat crop

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Drought threatens China's wheat crop; Shortages could create more pressure on already rising global food prices

The U.N. Food and Agriculture Organization issued an alert Tuesday that a severe drought was threatening the wheat crop in China, the world's largest wheat producer, and even resulting in shortages of drinking water for people and livestock.

The state-run news media in China warned Monday that the country's major agricultural regions were facing their worst drought in 60 years and said Tuesday that Shandong Province, a cornerstone of Chinese grain production, was bracing for its worst drought in 200 years unless substantial precipitation came by the end of this month.

World wheat prices are already surging and have been widely cited as one reason for protests in Egypt and elsewhere in the Arab world. China has been essentially self-sufficient in grain for decades for national security reasons, and any move by China to import large quantities of food in response to the drought could drive international prices even higher, creating serious problems for less affluent countries that rely on imported food.

''China's grain situation is critical to the rest of the world - if they are forced to go out on the market to procure adequate supplies for their population, it could send huge shock waves through the world's grain markets,'' said Robert S. Zeigler, the director general of the International Rice Research Institute in Los Banos, Philippines.

The Food and Agriculture Organization said that 5.16 million hectares, or 12.75 million acres, of China's 14 million hectares of wheat fields had been affected by the drought, and that 2.57 million people and 2.79 million head of livestock faced shortages of drinking water.

''Minimal rainfall or snow this winter has crippled China's major agricultural regions, leaving many of them parched,'' reported Xinhua, the state-run news agency. ''Crop production has fallen sharply, as the worst drought in six decades shows no sign of letting up.''

Relatively few days of subzero temperatures and government irrigation projects have somewhat tempered the effects of the drought so far, the F.A.O. said in its ''special alert,'' but it went on to caution that extreme cold, with temperatures of minus 18 degrees Celsius (zero Fahrenheit), could have ''devastating'' effects. Kisan Gunjal, the F.A.O. food emergency officer in Rome for Asia alerts, said by telephone that if rain came soon and temperatures warmed up, then the wheat crop could still be saved and a bumper crop might even be possible.

Chinese meteorological agencies are warning of frost for each of the next nine nights in the heart of Shandong Province, with temperatures falling as low as minus 6 degrees Celsius (21 Fahrenheit), with very little chance of precipitation in the next 10 days except for the possibility of a little light rain or a dusting of snow on Wednesday or Thursday.

The heat wave in Russia last summer, combined with floods in Australia in recent months, have drawn worldwide attention to the international wheat market because both countries have historically been big exporters. Soaring wheat prices have been a particular trigger for food-related protests this year, in contrast to three years ago, when rice led food price increases and caused food riots from Haiti to Senegal. Read more at www6.lexisnexis.com

 

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China Spends $1 Billion To Fight Massive Drought Wrecking Country's Wheat Crop

China has announced $1 billion in funding to help farmers fight the country's devastating droughts, according to The Guardian.

The country is facing its worst drought in 60 years right where it hurts the most, the wheat producing province of Shangdong.

Beyond the impact on the country's wheat crop, the drought has left 2.81 million people without drinking water, according to Xinhuanet. Read more at www.businessinsider.com

 

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U.N. Says Drought in China Puts Wheat Crop at Risk

SHANGHAI—A United Nations agency said this year's wheat crop is at risk in at least five Chinese provinces, echoing continuous warnings from China that its major northern wheat growing areas are facing an epic drought.

In a rare special early warning global alert, the U.N. Food and Agriculture Organization said north China's "ongoing drought is potentially a serious problem." The Rome-based FAO, which based its notice partly on a stream of warnings from Beijing about the wheat crop, said the provinces primarily affected include Shandong, Jiangsu, Henan, Hebei and Shanxi, which together represent about two-thirds of China's national wheat production.

For weeks, Beijing officials have underscored their concern about risks to the wheat crop, with the state-run Xinhua news agency reporting on Tuesday that the production base in Shandong province "is bracing for its worst drought in 200 years."

The FAO report said water shortages in the wheat regions are a likely factor in lifting Chinese retail wheat flour prices 8% over two months to January and 16% from the same month in 2010. In separate reports earlier, the FAO has warned governments to avoid short-term measures to combat inflation.

Global wheat producers, including in the U.S., have been attentive to the possibility China will import wheat this year at a time when a half-year-old Russian export ban is in place after wildfires there and when Australian producers have faced weeks of adverse weather. On Tuesday, U.S. wheat futures surged to a 30-month high. Read more at professional.wsj.com

 

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Angela in Wunderland

What Germany’s got right, and what it hasn’t

THE West has rightly marvelled at China’s economic miracle. Less noticed is a minor miracle in its own midst. It is time to pay attention to Germany’s new Wirtschaftswunder.

Germans entered 2011 in their most optimistic mood since 2000, according to Allensbach’s polls. Business confidence is at its highest since the Ifo institute began tracking it 20 years ago.

Germans entered 2011 in their most optimistic mood since 2000, according to Allensbach’s polls. Business confidence is at its highest since the Ifo institute began tracking it 20 years ago.

the country did not experience a property or credit bubble, and that it has kept its public finances admirably under control.

Germany’s success has been export-driven: unlike most other big rich economies it has maintained its share of world exports over the past decade, even as China has risen.

Germany has a cheaper-labour hinterland right on its doorstep in central Europe that has helped companies raise efficiency and hold down pay. Meanwhile, German firms happen to produce exactly the things that a booming China wants, from luxury cars to the machinery that enables Chinese factories to be the workshops of the world. So Germany has been a big winner on both the supply side and the demand side of globalisation. The euro also provided a bonanza, thanks to (unsustainable) demand in places like Spain and Greece.

German companies have excelled at seeking out unglamorous but profitable niches, and then focusing relentlessly on being the best.

Under Gerhard Schröder, a Social Democrat who was Angela Merkel’s predecessor as chancellor, the so-called Hartz reforms made labour markets more flexible and made work a bit more attractive compared with living on unemployment benefits.

German businesses also took a gamble during the downturn. With the help of government subsidies they held on to their workers, betting that order books would quickly fill up again. They did, so German companies retained the skills and the manpower to respond quickly to the upturn.

Yet the German model remains flawed in two important ways.

it is too dependent on foreign demand, reflected in an excessive current-account surplus of 5% of GDP last year, while consumer spending is feeble (one reason why enthusiasm for the government is low too, see article).

If every European country followed that example it would be a recipe for a slump. Instead, like China, Germany needs to rebalance its growth, with greater efforts to boost demand at home. More spending in Germany would also help struggling economies elsewhere in Europe. The second blot on Germany’s copybook is its poor record in improving productivity. In contrast to Germany’s industrial prowess, its bigger services sector remains overprotected and inefficient. More competition and less red tape would help.

Without a rise in domestic spending and progress in productivity, Germany’s success will falter. It is encouraging that consumer spending has started to play a bigger role of late. Productivity-enhancing reforms of services should be next. Half a German miracle is not enough. Read more at www.economist.com

 

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