If you follow the Canadian stock market, you will probably be familiar with the name of Jeff Rubin, former chief economist for CIBC World Markets. Like all economists, he hasn’t always been right, but he’s been right several times on some bold predictions. In 2000 he predicted oil prices would hit $50 a barrel within five years, and he correctly called the residential real estate market bust in the early 1990s. He has been named Canada’s top economist several times.
Rubin has left CIBC to write Why Your World Is About to Get a Whole Lot Smaller, a book about how oil scarcity will lead to the end of globalization. Rubin predicts that the price of oil will reach $225 a barrel by 2012, and have profound effects on the world economy. The book was released last month to considerable attention in the national media, and there will be more for the next while as Rubin speaks on the book tour and rubber chicken circuit over the next year or so.
It’s hard to imagine that Rubin’s prediction of is much of a stretch. Oil has already nudged $150 a barrel, and is still holding an historically high level of around $60 during the worst recession since the 1930s. Meanwhile, citizens of developing countries such as China and India are adopting the North American ideal of at least one car per driveway.
The law of supply and demand applies differently to oil than to grain, the supply of which is renewed every year. Oil is like land – they aren’t making any more. You can argue whether there’s 10 or 20 or 50 years’ worth, but whatever the number it’s only a matter of time, and there is only one way for the price to go, and that’s up.
Rubin’s book explores some of the implications of high oil prices for the economy. What are the implications for agriculture?
If you filled your tank or bought nitrogen last year, you’ll already have some idea. But consider that Canada is consuming natural gas at a rate faster than it finds new supplies, and that there are only nine years’ supply left at current rates of consumption. Meanwhile consumption by oil sands plants is expected to almost triple to 2.8 billion cubic feet per day by 2015. That represents tough competition for nitrogen fertilizer manufacturers, but that’s nothing compared to the inevitable reality that at some point Canadians are going to need to conserve natural gas so that we can continue to heat our homes. Home heating, or fertilizer? Guess which will get priority, either through market forces or regulation?
Again, maybe it’s five years, or maybe 10 or 20, but in the overall scheme of things it may not be long before we may have to deal with the reality of farming without purchased nitrogen. If Rubin is right, that will be on top of $225 oil, and whatever that means for filling your fuel tanks.
Let’s assume that all these considerable obstacles can be overcome by some as-yet-unidentified technology, as was hinted by the recent endorsement of “biotechnology” by Canadian, U.S. and Australian wheat groups (they really mean genetic modification through interspecies gene transfer, but don’t want to say it that clearly). Assuming any of this actually works, there’s a problem. Everyone would use it, including importers, so they would buy less from us. Europeans, who already have wheat yields double and triple ours, might increase them further. And supposing this new technology allowed Europeans and Americans – with more rainfall and longer frost-free seasons – to introduce a high-protein, strong-gluten gene into their winter wheat? So much for our CWRS premium.
Which also takes us back to Rubin’s prediction that high energy prices will make the world smaller because it will be much more expensive to ship long distances. That puts Western Canada, the exporter farthest from port, at the greatest disadvantage.
Rubin points out that high energy prices aren’t all bad. A reversal of globalization will mean that North American manufacturing jobs lost to offshore competition will come home because of the prohibitive costs of shipping. The same might apply to some sectors of farming where imported goods can be replaced with those grown closer to home, but how that might help Prairie grain and livestock farmers is not clear. Biofuel is one possibility, but not grain-based ethanol, which is dead in the water, especially given recent changes in U. S. greenhouse gas regulations.
Indeed, very little is clear. We’ve only touched on some of the obvious implications of high-priced and scarce energy to Prairie agriculture. There are many more, not to mention any complications from climate change.
There’s an urgent need for a full-scale, government-funded independent commission into what a quadrupling of energy prices will mean for Canadian, and especially Prairie, farming. Great credit goes to economist Jeff Rubin for encouraging a national conversation, but for agriculture, this needs to be a commission with an agronomist, not an economist, in charge.