The Rise of Agri-Powers

By Pickford, Andrew*

Strategic Studies Association

29 July 2008, 03:01 CDT

via Defense & Foreign Affairs Strategic Policy

on RedOrbit

AGRICULTURAL POWERS - those self sufficient in food, fabric, and hydrocarbon production - once were unambiguously regarded as strategic powers. This has been true throughout history: societies which were not agriculturally efficient and abundant could never long or fully sustain strategic power. Now, once again, a new set of nations is likely to emerge in the 21st Century with significant regional, if not global, influence demonstrably based on their agricultural capacity and their ability to match capital, productive land, and emerging technology on a scale which was not possible in the past. These emerging "agri-powers" are benefitting from trends making agricultural commodities more strategically important, and will gain from having a significant agricultural base.

Unlike the second half of the 20th Century, the global strategic environment is set to become more fluid, and the criteria which marked "middle-power" status, such as access to sophisticated military technology, is likely to become less overwhelming in importance. Even the term itself will lose its relevancy as dozens of nations fulfil the original definition of a traditional middle- power.

In this period of global turbulence, a back to basics approach, which leverages agricultural surpluses for international sale, biofuel production and potentially, through biotechnology, industrial applications, may result in nations with a substantive agricultural sector, such as Australia, having a more prominent global position. Similarly, it could make smaller agri-powers attractive targets for larger, hungrier1 nations.

There are a number of nations which are potential beneficiaries from the trend favoring agricultural producers, especially those which are not already regional or global powers.2 For the purpose of this paper, substantial agricultural producers are defined to have grown at least 20-million tonnes of cereal crops per annum. This existing agricultural base could provide the ability for these nations to become emergent agri-powers. However, to succeed, they must organize their societies, capital markets and productive land in the most efficient manner to harness this trend, rather than be captured by it. Of nations with potential for significant agricultural production, Argentina and, especially, Zimbabwe suffer from governance problems and unstable economies3, but have the capability to transform to become key anchor points of southern Latin America and south-eastern Africa. The emergence of agri- powers has significant relevance to regional-level dynamics and is set to be a key strategic variable. However, this trend has not yet been studied or analyzed to any great degree.

THE AUSTRALIAN EXAMPLE

The strategic role of Australian agriculture has evolved over the past two centuries and it is now reaching a potential tipping point, which may see it decline and cease to be a substantial, self- sufficient industry, or become reinvigorated and form part of Australia's strength in the 21st Century. For the purpose of looking at agriculture, in its broadest sense, the agricultural industry includes not only productive farm land, but the ability to produce and maintain the implements needed to farm the land and also access the necessary inputs (such as fertilizer and pesticide), as well as global positioning satellites, which are now becoming standard in broad-acre cereal production. Removing any one of these components, especially for a period of time, would significantly diminish the agricultural capacity of the nation. Also, given the heavy reliance on machinery, a shortage of motive fuel during key planting or harvesting periods would significantly restrict production.

The relative decline of Australian agriculture4 as a key sector of the economy has been, in part, due to its staggering success, which has increased production rate and yields and yet has reduced the number of people living on farms, in the agricultural workforce and regional communities, to a mere fraction of where they once stood.5

Ironically, as agriculture again becomes a key component of grand strategy, it takes a much lower political priority at both the state and national level, as political representation declines due to the accelerated de-population of agricultural areas, a trend which has been progressing since flax and tall trees were used to build naval ships vital for power projection in the age of sail.

GLOBAL TRENDS

In the period towards 2050, when global population numbers are forecast to surge to around 10-billion, agricultural capacity will be used by nations to a much greater degree than it is today. The economic and strategic value of agricultural surpluses, if only for nutritional requirements, will see many governments rethink how agriculture is undertaken, and there will be a greater likelihood of conflict over control of exports, and even productive land itself.

In February 2008, Kazakhstan, one of the largest grain exporters, announced it would impose export tariffs in an attempt to curb sales. Russia, Egypt, and Argentina, also large grain exporters, have introduced similar export restrictions. Before we witness conflict over agricultural land, greater competition over key inputs is already becoming evident, with regard to items such as superphosphate6, pesticide, and water7. In some agricultural regions of Western Australia, for the 2008 growing season, there were early indications that some categories of fertilizer might simply not be available. There was also emerging evidence that investment into farms in Australia was coming from international sources and from an increasing number of entities which had not traditionally been involved in the agricultural business.

As prices and availability of key agricultural inputs become more volatile, production rates and output are expected to vary, with all the problems relating to internal stability and malnutrition that this will bring. A greater immediate issue will be the extent to which agricultural surpluses start to become diverted to biofuels. While still in their infancy, the growth of biofuels has already put great upward price pressure on commodity prices and, as biotechnology improves, there is significant potential for other commodities, which form staples for the significant parts of the global population, to be used as inputs for industrial processes.8

In this perfect storm of an increasing global population, greater demand from non-traditional uses of agriculture such as energy producers and, potentially, industry - alongside reduced areas of productive land, strategists will start to look more closely at agriculture. At some time after the first conflict over water, agricultural commodities or productive land agricultural production will be proclaimed as the next major flashpoint for war. Similar lagging analysis, in the period leading up to 1900, did not foresee the eventual impact of crude oil on national strategy. Despite a rapid revision of key assumptions, following World War I, most analysis was reactive. At the time when crude oil became categorized as a strategic input, many of the then-key producing regions had been secured either directly or indirectly by Britain.9

The question which must be asked is: what comes after oil, as both a strategic input for nations and energy source? And will agriculture soon be producing strategic inputs necessary for national power projection? At the point that an input takes on a strategic dimension, ownership patterns, usage modalities and standards become set and a new strategic environment is clarified and then solidified.10 While it may be too early to determine if agricultural commodities are an emerging strategic input of the 21st Century, several indicators are foreshadowing its increase in relative importance:

Price of Commodities. The Economist's commodity price index in 2008 had reached a new high, with the forward price for grain and soya bean at record levels. Strong demand, low global stocks and some limitations on bringing new land into production indicates that higher agricultural prices will continue for most of 2008. While some price relief may arrive in 2009-2010, there are some suggestions that due to higher global demand, new food consumption patterns in Indian and China, and increasing diversion of agricultural commodities into energy production, the long-term structural price of commodities will remain high.

Emergence of Biofuels. As crude oil has increased in price, and there have been moves towards "energy independence", the practice of converting agricultural commodities, such as grains, sugarcane, and corn, into motive biofuels has increased. US Pres. George W. Bush in 2007 signed legislation into law which required a fivefold increase in biofuel production, to 36-billion US gallons by 2022. As the input for bio-refineries takes on significant proportions, the price pressure on agricultural commodities, because of biofuels, is starting to cause tensions and clashes.11 For example, the international agencies, which distribute food aid, are having substantial difficulties in maintaining their volumes of aid distributed, as fixed budgets cannot respond to the higher price of key staples.

Industrial Applications. While not a major industry, the emergence of bio-technology industries, which utilize agricultural commodities as inputs, may revolutionize many industrial processes and manufacturing. Despite not currently being a factor in industrial demand, there is nothing preventing industrial demand emerging as a factor in grain production and potentially representing a large part of the market. The aggregate impact of these trends, alongside increasing global population, is putting pressure on both grain producing and consuming nations. According to the International Grains Council in early 2008, measures were taken in several countries to cut import tariffs or to lift consumer subsidies for certain food staples. The economic impact of rising food prices, termed "agflation" is also creating internal tensions within nations, as an increasing share of household income is being diverted to food purchases.

As in Roman times, when a ready supply of bread to the capital was necessary to maintain peace and a stable urban environment, the prospect of food prices increasing further, with shortages or astronomical prices for some goods, is a concern for many governments. This concern will magnify as the urbanization trend accelerates. While developed nations may not experience food riots12, a volatile electorate paying, in their mind, unreasonable prices for basic foods, has the potential to destabilize all governments due to voter concern for high food prices and the inflationary pressures which this brings.

If, on balance, it is thought that agricultural capacity and production will take on a strategic dimension, or represent a threat to civil stability, perhaps as early as 2015 or 2020, Australia will need to reconsider its approach to the industry and formulate a long- term plan which prepares for this new reality. In this new environment, where agricultural commodities incur a strategic premium, of particular importance is how Australia relates to, and interacts with, the dynamic Indian Ocean region.

STRATEGIC RAMIFICATIONS

PRESENT DEMOGRAPHIC, economic and political trends indicate that the Indian Ocean region is going to become a key part of the global strategic matrix. As increased global activity occurs in the Indian Ocean, Australia, and specifically Western Australia, is set to be at the front line of these changes.

Western Australia already has an extensive history trading commodities in the Indian Ocean. Sandalwood exports, from Western Australia to India, financed much of the State's initial development. In the 21st Century, Western Australia is particularly well placed for a more prosperous Indian Ocean region, which is demanding a much higher level of agricultural commodities, and is geographically close to markets.

Western Australia has a relatively high level of cereal grain production and a small population, allowing for substantial volumes of food surpluses, not required for human consumption, to be used for other purposes. In 2005/06, Australia wide, 24.3-million hectares of land was sown to crops. Western Australia, individually, cropped 8-million hectares. Significantly, Australian 2005/06 production of wheat, the major cereal crop, was 25.7-million tonnes, with around 60 percent of this harvest exported for human consumption.

The scenario in which Australia, and Western Australia, is a breadbasket for the prosperous Indian Ocean region, which may contain two-billion consumers, would change the relationship of the nation with the region. It would also mark the continuation of forces which began when humans first adopted farming techniques in the Fertile Crescent around 11,000 years ago.

Throughout human history, complex societies have arisen near areas of fertile land which has provided an agricultural surplus that allowed a division of labor, specialization, and the accumulation of wealth. As a society becomes more complex, peaceful conditions allow a larger scale of agricultural production, often a long distance from final consumption. However, this process then places a great deal of reliance on the establishment and maintenance of reliable infrastructure and logistical networks. For example, in situations where crops are irrigated, there is a need to maintain extensive water distribution systems. Also, the need to ship, train or fly food from the point of production to consumption relies on complex logistical networks. Once a society becomes more specialized, the distance between production and consumption can become very large.

Rome experienced a growing distance between food production and consumption when it pushed its grain producing regions out from areas around the capital, to Sicily, and then Northern Africa and Egypt, to free up land for higher valueadd activities or simply leisure pursuits. The same trend is happening today around major urban areas and land which was once used for agricultural production. In Roman times, the changing economics of grain production meant that, from a profit and loss perspective, "it was far easier and cheaper for Rome to import wheat by sea than to transport it from the rich grain fields of Italy."13 Short-term fiscal logic exerted a significant long-term cost on the unity of empire. Just as the fiscal cost of maintaining access to crude oil is prohibitive, and potentially avoidable, so was the cost to the Roman Empire of maintaining access, and control over, grain producing regions. Not only did it have to ensure open and free sea lines of communication, it also had to maintain peace and order in the grain producing provinces. Any breakdown in this production- consumption relationship can magnify dissent and instability in urban environments, and potentially become self-reinforcing.

As agricultural goods become a strategic input to a society, nations will try to secure their own agricultural production; however, those nations which can produce a large surplus which can be exported, and bring new production online, may serve as a swing producer in a similar manner to Saudi Arabia producing oil. 14 This could give Australia, and specifically Western Australia, a great deal more international strength; however, like Northern Africa and Egypt in Roman times, it may attract outside powers who wish to have direct control of the agricultural producing regions. This phenomenon is already being noted in the iron-ore and energy provinces, with the People's Republic of China (PRC) starting to take more direct control in regions where sought after commodities are located.15

THE IMPLICATIONS

IF AGRI-POWERS DO become more important international actors in the 21st Century, there will be a number of implications for the international system.

Firstly, on a global level, it may mean that agricultural commodities, such as cereal crops, may be a strategic input for food, energy and perhaps industry. The value of productive farmland could soon become akin to oil fields. However, it is, as yet, unclear how expanding powers will seek to control strategically important agricultural regions and if they will use the market mechanism, or a more blunt instrument to maintain access to agricultural produce, such as conquest or subjugation.

Secondly, on a domestic level, debates surrounding genetically modified organisms (GMO) will intensify, and, as the returns from agricultural production increase, will create new alliances and political splits on GMO, similar to how the nuclear debate caused disagreements within the environmental movement. Control of new GMOs, and legal protection of intellectual property, may become an area of international disputes.

Thirdly, if agricultural commodities start to include a strategic price premium, it will force a number of nations to improve their agricultural sector to boost production. In places where there are high levels of inefficient subsistence farming, the result could push a large section of the population off the land and into urban centers. Also, where continued access to cheap basic food cannot be maintained for urban centers, food riots will become more commonplace and internal stability may be undermined.

Fourthly, the market forces of higher agricultural prices will increase investment in degraded land. While higher food prices may cause unrest in urban areas, the net effect of this trend may see substantial private funds invested in activities which have a positive environmental impact. Furthermore, there is likely to be a greater level of corporate institutions directly and indirectly becoming involved in agricultural production.

Fifthly, similar to the transition point when crude-oil become a critical strategic input, the ownership and control of key agricultural regions has not yet been clarified. It should be remembered control of oil producing regions occurred in a relatively short time. Once this occurs, the competition for newer producing regions becomes intense and could represent future flashpoints for conflict.

FOOTNOTES:

1. This refers to both physical and geopolitical hunger.

2. According to 2004 figures released by the Food and Agriculture Organization of the United Nations, the following nations produced at least 20-million tonnes of cereals annually, which equates to around one percent of global production: Argentina, Australia, Bangladesh, Brazil, Canada, the People's Republic of China, Egypt, France, Germany, India, Indonesia, Iran, Italy, Mexico, Myanmar, Nigeria, Pakistan, Poland, Romania, Russia, Spain, Thailand, Turkey, Ukraine, United Kingdom, US, and Vietnam. Zimbabwe, while not on this list, also has great agricultural potential, as does, for example, South Africa. When considering this list, it is important to note that most of these cereal crops are grown for domestic consumption only, and few nations have a substantial surplus for export.

3. While, in 2008, Argentina does not have as many internal problems as Zimbabwe, the development of its agricultural sector has been limited by a number of financial and economic crises. 4. In the 1820s agriculture contributed to half of Australia's GDP. In 2008, it is under three percent.

5. Illustrating this trend are the changing economies of scale. This has meant that in the Western Australian wheat-belt, in the 1960s, a sizable farm would be 2,000 acres. In 2008, the equivalent is around 20,000 acres.

6. The world price for phosphate rock has substantially increased over the period 2006-2007, from an average of US$44.2 per metric tonne to US$70.9 per metric tonne. The price has increased further at the beginning of 2008 to US$190 per metric tonne.

7. Ethanol producers are starting to conflict with city authorities and local communities, as both the growing of crops and refining process require large volumes of water. As the economics and technologies associated with ethanol continue to improve, this tension will increase.

8. Biotechnology-related research has the potential to harness growing plants for key industrial inputs. For example, there are already research and development activities which are attempting to develop a strain of plants which grow a plastic polymer. http:// www.marketwatch.com/news/story/ bioengineers-aim-cash-plants-make/ story. aspx?guid=%7B7F35EAPounds 4-CA2D-4E0D-9 262-D392566E906B%7D

9. The US consolidated control of oil producing regions after World War II, often displacing Britain.

10. In 2008, crude oil is traded in barrels, each of which equates to 42 gallons. In western Pennsylvania, in the US, during the 1860s, a standard barrel size emerged. This size was drawn from England, where a 1482 statute of King Edward IV established 42 gallons as the standard size barrel for herring, in order to regulate the packing of fish.

11. In some areas, the simplistic food versus energy debate is not as clear cut and as directly linked as claimed by some commentators in the mainstream media. Also, given the fact that agricultural produce is traded on global commodity markets, in the shortto medium-term, importers of food will have to adjust as best they can.

12. For example, the April 2008 Haiti riots were directly linked to the rising price of food, which saw some goods increase in price by as much as 50 percent in one year.

13. Yeo, Cedric A.: "Land and Sea Transportation in Imperial Italy", Transactions and Proceedings of the American Philological Association, Vol. 77. (1946), p 241.

14. According to 2004 figures released by the Food and Agriculture Organization of the United Nations, the top wheat exporters, in order, were: the US, Australia, Canada, France, Argentina, Germany, Russia, the UK, Kazakhstan, and India.

15. This trend predates the current activities of the PRC sovereign wealth fund. The PRC has been gaining equity stakes in iron-ore mines in Western Australia since the 1980s, and Western Australian gas fields since the early 2000s.

By Andrew Pickford*

* The Author. Andrew Pickford is Research Manager of Future Directions International, Australia's Center for Strategic Analysis, based in Perth. FDI is the sister organization to the International Strategic Studies Association, publisher of Defense & Foreign Affairs publications and GIS. The author acknowledges the advice and input from Gregory Copley, an award-winning historian and global strategist who has worked at the highest levels of governments around the world, and John Pickford, a farmer in the Great Southern region of Western Australia.

By International Strategic Studies Association

Source: Defense & Foreign Affairs Strategic Policy

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