This is the first in a four-part series by contributing writers Glen Drummond and Kimberley Love on the forces shaping farming and the rural experience. Drummond consults on innovation and clean technology. Love is a former Bay Street communications consultant and is a federal Liberal candidate in Grey Bruce Owen Sound. Married in 1994, they are currently restoring the farmstead built by Love’s grandfather, northeast of Toronto
Back in the ’70s, our neighbour Ed sold his bride-to-be on a future as the fifth generation to farm the family homestead. With a wry smile he recounts his logic: “The world population is growing and developing a taste for meat, and there’s a finite supply of farmland — so farming should have a good future.”
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Things didn’t go exactly as Ed — or, we suspect, many of us — planned. But what was the real underlying reason? Did workable land grow dramatically? No. With additions and subtractions balancing, that’s been fairly stable.
Did the world population stop growing? No. Global population has tripled since 1945.
Did consumers in the developing economies decide they were content with a vegetarian diet? No. The per capita consumption of meat in China is three times its level in 1985.
A threefold increase in food production — a fourfold increase in the energy intensity of agriculture
What did happen was the Green Revolution. And though in light of climate change, it seems ironic today, what we call the “green” revolution rests primarily on a single trick: scaling up the fossil fuel energy used to produce and transport food around the globe.
Between 1945 and 1994, global world grain production increased three times over. During that same period, the energy intensity of food production grew fourfold. Today, it’s estimated that for each calorie of food we eat, there are 10 calories of fossil fuel involved — six of those used directly by producers.
Given the importance of direct and indirect fossil fuel inputs (such as the natural gas required to produce ammonium nitrate and the oil used to produce herbicides) the viability of the production system and business model of most farms depends on certain assumptions about the price of oil. And that might soon turn out to be a problem — both for the people who grow food, and for those who eat it.
Leaving individual farmers to deal with the challenge of peak oil on their own will be brutal on rural communities and contrary to the longer-range interests of the broader Canadian society
“Peak Oil”
Depending on which oil industry analyst you read,“peak oil” is either near, or here. That means global oil production has either reached its peak, or it is likely to do so over the next 10 to 20 years, and natural gas will trail behind in lockstep. From that point on, oil production will begin a gradual year-over-year decline, regardless of the price a barrel of crude fetches.
The idea of peak oil isn’t universally embraced. Some skeptics look to coal as a substitute, pointing out that we still have massive coal resources and that the technology for synthesizing oil from coal has been around for decades.
But this tribe of skeptics might be overlooking a few details. First, in large-scale commercial production, a ton of coal yields only 1.25 barrels of synthetic oil. And second, a spike in oil prices will certainly inflate the cost of energy-intensive coal extraction.
Other skeptics argue that higher oil prices will stimulate a combination of new discovery, new technology, conservation and substitution that will keep oil supply and demand in balance. This undoubtedly is true — but it does not offer much insight into the price at which this new balance will be achieved.
For that insight, we might turn to the OECD’s International Energy Agency. Their 2008 report observes the following:
Production from existing fields is declining at a rate of 6.7 per cent per year. (This is a recent update to earlier estimates of a more gradual slope.)
Growth in global oil demand (driven by the developing economies) is projected at an average 1.6 per cent per year from now through 2030.
Investment in discovery and development of new oil and gas reserves must accelerate to keep supply and demand in balance.
Most new investment currently is focused on high-cost resources.
In short, when the world economy gets back on its feet, oil and gas are destined to head back up, and stay up until those prices precipitate the next economic downturn.
Let’s leave for now the question whether the absolute “peak oil” year is 2010 or 2025, and contemplate what we’ll experience as it approaches.
First — the cost of your oil-based inputs will rise. How far, how fast? The OECD’s IEA projects an average price per barrel between now and 2015 at US$100/barrel in inflation-adjusted 2007 dollars. Former CIBC energy analyst, Jeff Rubin, is talking in terms of gas at $2/l.
Second — as demand peaks nudge the limits of production, price volatility will increase. The recent experience of prices racing up to $147 per barrel, dropping back to $40 then quickly recovering to today’s range foreshadows the anticipated trend.
Coming soon: carbon fees
Canada lags the world community on climate change policy, but we remain a trade-dependent nation, and agriculture is a trade-dependent industry. Regardless of our participation in multilateral climate agreements, Canadian export industries are destined to pay carbon fees because of our reliance on trade with jurisdictions who are moving forward with their own carbon-abatement programs.
Climate change based on CO2 emissions is now seen as both a fact and a looming emergency by U.S. President Obama and Britain’s Prime Minister Gordon Brown. They along with the leaders of the European Union and most other developed economies are already moving forward on climate change initiatives with big price tags. It’s very unlikely that jurisdictions that have taken on these costs will allow trading partners to participate in their markets without paying their fair share.
So, during a period of rising oil prices, we should anticipate that oil cost inflation will be compounded by carbon fees — taking the form of input surcharges, marketing tariffs and middleman overheads resulting from the need to navigate through a patchwork of agreements around the globe.
“What’s a farmer to do?”
If energy price trends unfold with the speed and force anticipated, they could easily shift the criteria for a broad set of individual farming decisions:
Production emphasis on various crops, or production systems.
Forward purchasing of fertilizer and diesel fuel.
The weighing of fuel efficiency in equipment decisions.
Expanding or consolidating parcels of land.
Selecting crop varieties, and so on…
While this kind of management fine tuning will be necessary, a reaction to peak oil framed by our usual habit of self-reliance might be a mistake.
Canadian producers have limited market power looking upstream to their suppliers and (with the notable exception of sectors protected by supply management) less looking downstream to their buyers. Absent some important innovations, we should expect that the full cost of oil price increases will be immediately externalized from suppliers to farmers, but it may take many years before Canadian farmers can pass all of these higher costs into the downstream market.
In the interim — we could see rapid damage done to individual farm businesses and to rural communities, and ultimately to our capacity as a nation to feed ourselves and to create wealth through agricultural trade.
Peak oil represents a structural, not a cyclical problem for agriculture.
If policy-makers study this issue diligently, we believe they will conclude that leaving individual farmers to deal with the challenge of peak oil on their own will be brutal on rural communities and contrary to the longer-range interests of the broader Canadian society. It would be good business for farmers and their advocates to get that message on the agenda quickly with policy-makers and the public. CG
