Who knows where the cold wind blows?
A volcano erupts in Iceland and thousands of Kenyan farm workers lose their jobs. An oil rig sinks in the Gulf of Mexico, and retirees in Britain could see their pensions cut. Globalisation and interdependence aren’t just slogans.
The Kenyans were working for companies that export flowers to Europe using airfreight. The 500 tonnes of flowers exported daily brought in 71 billion shillings last year (around $900 million) making horticulture the country’s main foreign exchange earner, ahead of tourism at just over 50 billion shillings.
Kenya is only one of many countries pushing non-traditional agricultural exports. The idea is to integrate the global economy by exploiting improved communications and marketing networks and the large numbers of customers for out of season and exotic products in developed countries.
One way of looking at this is that everybody wins – one partner gets income and development opportunities, the other gets cheap luxuries. When things go wrong though, the risks are very unevenly shared. It’s one thing to go without fresh flowers or pineapples, another to have no job.
Exporters rely on cheap transport, and that in turn needs oil. The IEA chief economist has repeatedly warned that “we need to leave oil before it leaves us”. In the meantime though, the search is intensifying for new sources and ways to squeeze the last drop from existing ones. That’s why US President Obama lifted the ban on drilling in certain parts of the Gulf and elsewhere, and why companies like BP that exploit the resource are among the world’s richest firms.
Oil prices and the profits of oil companies fluctuate, but in the long run, they’re seen as a sound investment, making them attractive to pensions funds. Funds based in the UK invest heavily in BP (and earlier this month backed BP management against a campaign by NGOs concerning oil sands developments in Canada ).
Around $24 billion has been wiped off BP’s market capitalisation (over $170 billion before the accident), and the estimates of $2 to $3 billion for cleanup are huge, but not crippling for a company that size. BP will probably recover long before the Gulf coastline does if history is anything to go by. Exxon shares outperformed the market as a whole and the oil industry following the Exxon Valdez disaster in 1989.
We’ll look in more detail about a number of the issues raised here in forthcoming Insights books. Global agriculture is discussed in “Feeding 9 Billion People”, while From Crisis to Recovery will have a chapter on pensions and financial markets.
While Stocks Last has a chapter on fishing and the environment, describing the impact of oil pollution and other hazards on marine habitats. The Gulf provides examples of many of the issues raised. It already has a dead zone where run-off from agricultural chemicals washed down the Mississippi has caused an algal bloom that starves everything else of oxygen. Atlantic bluefin tuna are due to start spawning in the Gulf around now. And commercial and recreational fisheries could be devastated by the pollution.