If you didn’t have ethanol, you would not have the prices we have today

The globe’s worst food crisis in a generation emerged as a blip on the big boards and computer screens of America’s great grain exchanges. As prices rise, major grain producers including Argentina and Ukraine, battling inflation caused in part by soaring oil bills, were moving to bar exports on a range of crops to control costs at home. It meant less supply on world markets even as global demand entered a fundamentally new phase.

At the same time, food was becoming the new gold. Investors fleeing Wall Street’s mortgage-related strife plowed hundreds of millions of dollars into grain futures, driving prices up even more. By Christmas, a global panic was building. With fewer places to turn, and tempted by the weaker dollar, nations staged a run on the American wheat harvest.

Foreign buyers, who typically seek to purchase one or two months’ supply of wheat at a time, suddenly began to stockpile. They put in orders on U.S. grain exchanges two to three times larger than normal as food riots began to erupt worldwide.

The food price shock now roiling world markets is destabilizing governments, igniting street riots and threatening to send a new wave of hunger rippling through the world’s poorest nations. It is outpacing even the Soviet grain emergency of 1972-75, when world food prices rose 78%. By comparison, from the beginning of 2005 to early 2008, prices leapt 80%. Much of the increase is being absorbed by middle men — distributors, processors, even governments.

At least 14 countries have been racked by food-related violence.The crisis, it fears, will plunge more than 100 million of the world’s poorest people deeper into poverty, forced to spend more and more of their income on skyrocketing food bills.

People worldwide are coping in different ways. Although China has tried to calm its people by announcing reserve grain holdings of 30 to 40% of annual production, a number that had been a state secret, anxiety is still running high. In India, the government recently scrapped all import duties on cooking oils and banned exports of non-basmati rice. Even wealthy nations are being forced to adjust to a new normal. In Japan, a country with a distinct cultural aversion to cheaper, genetically modified grains, manufacturers are risking public backlash by importing them for use in processed foods for the first time.

In the United States, experts say consumers are scaling down on quality and scaling up on quantity if it means a better unit price. In the meat aisles of major grocery stores, steaks are giving way to chopped beef and people used to buying fresh blueberries are moving to frozen. Some are even trying to grow their own vegetables.

A big reason for higher wheat prices, for instance, is the multiyear drought in Australia, something that scientists say may become persistent because of global warming. But wheat prices are also rising because U.S. farmers have been planting less of it, or moving wheat to less fertile ground. That is partly because they are planting more corn to capitalize on the biofuel frenzy. If market forces had played a larger role in food trade, some now argue, the world would have had more time to adjust to more gradually rising prices.

Robots could fill the jobs of 3.5 million people in graying Japan by 2025.

Japan faces a 16% slide in the size of its workforce by 2030 while the number of elderly will mushroom, the government estimates, raising worries about who will do the work in a country unused to, and unwilling to contemplate, large-scale immigration. The current fertility rate is 1.3 babies per woman, far below the level needed to maintain the population, while the government estimates that 40% of the population will be over 65 by 2055, raising concerns about who will look after the graying population.

Japan could save 2.1 trillion yen ($21 billion) of elderly insurance payments in 2025 by using robots that monitor the health of older people, so they don’t have to rely on human nursing care. Caregivers would save more than an hour a day if robots helped look after children, older people and did some housework, it added. Robotic duties could include reading books out loud or helping bathe the elderly. Mommy, I want Yuki 2.0 to wipe my @**.

The Pressure Is On For Rice Farmers

Asian governments have long focused on developing high-growth sectors, such as manufacturing, and meeting the infrastructure requirements of increasingly urban populations. But that has been coupled with a neglect for farming that is now hurting as a larger and more affluent population demands more food, thereby also contributing to surging world prices for staples such as rice and soyabeans. Such neglect is particularly worrying because nearly two-thirds, or 641m, of the world’s poor live in the Asia-Pacific region, with rural poor accounting for some 70% of those.

Asian governments have shown chronic complacency towards agriculture since reaping the benefits of the green revolution three decades ago. Then, US research led by Norman Borlaug allowed India and other Asian nations to switch to higher-yielding farming techniques and rapidly gain self-sufficiency in crops such as wheat. A clear example is the demise of extension services in many Asian countries. While officials from agricultural ministries used to visit rural areas to train farmers and introduce new technologies, “this provision of public service has now almost collapsed”.

Thailand is ahead of Asian peers on productivity. But it is not immune to the distribution problems and even criminal activities undermining the region’s farming. A surge in crop prices is believed to have been accompanied by increasing theft. According to local reports, some Thai farmers have been waking up to find outsiders have harvested their entire crop overnight.

China and India, meanwhile, have both made substantial pledges to farmers in their latest budgets, with India waiving some $15bn in loans to small farmers. The challenge for China, where a wealthier population has more than doubled its meat consumption over two decades, is the limited availability of arable land rather than poor production. China is a leader in the use of fertilisers, at levels about three times the world average per hectare, and most of the easy productivity gains have already been achieved.  Hail to rice farmers!

Rice climbed to a record and corn traded near its highest ever on speculation a 3% annual increase in global demand for cereals will outstrip supply as governments curb exports to prevent protests. Rice, the staple food for about 3 billion people, rose 2.4% in Chicago trading today after doubling in the past year. Soybeans advanced for the third day and wheat gained as investors bought agricultural commodities on concern dry weather in the Great Plains and heavy rain in the eastern Midwest may curtail U.S. production and push down global inventories.

The World Bank estimates “that 33 countries around the world face potential social unrest because of the acute hike in food and energy prices,” Robert Zoellick, the bank’s president, said on the organization’s Web site. For these countries “there is no margin for survival,” he said.

Consumers still face at least 10 years of more expensive food

From subsistence farmers eating rice in Ecuador to gourmets feasting on escargot in France, consumers worldwide face rising food prices in what analysts call a perfect storm of conditions. Freak weather is a factor. But so are dramatic changes in the global economy, including higher oil prices, lower food reserves and growing consumer demand in China and India. While the price of spaghetti has doubled in Haiti, the cost of miso is packing a hit in Japan.

In the long term, prices are expected to stabilize, but consumers still face at least 10 years of more expensive food. The Chinese middle class is starting to change the traditional thought process of beef as a luxury. Attempts to control prices in one country often have dire effects elsewhere. China’s restrictions on wheat flour exports resulted in a price spike in Indonesia this year, according to the FAO. Ukraine and Russia imposed export restrictions on wheat, causing tight supplies and higher prices for importing countries.

There is still $300bn of bad debt out there, and Japan could be hiding most of it.

Just as battered investors had begun to glimpse signs of recovery in America, the next shoe has dropped with an almighty thud in Japan. The Tokyo bourse has crumbled, suffering the worst start to the year since the Second World War. The Nikkei index is down 17% since Christmas, and the shares of Japanese banks are leading the slide. Americans and Europeans have so far confessed to $130bn of the estimated $400bn to $500bn of wealth that has vanished into the sub-prime hole.

 A Power Shift Is Underway

The US looks poised to lose its mantle as the world’s dominant financial market because of a rapid rise in the depth and maturity of markets in Europe, a study suggests. The change may have occurred already, not least because US markets are beset by credit woes, according to research by McKinsey Global Institute. “We think the differential growth rates are so significant that it is quite likely Europe has overtaken the US,” said Diana Farrell, author of the report. The credit crisis has dented confidence in the health of America’s financial institutions and its model of finance.

A power shift is also under way in Asia as the Chinese market continues to boom while markets such as Japan stagnate. McKinsey suggests China’s booming trade surplus has put it into the position of being the world’s largest net exporter of capital, topping Japan, Germany and the oil exporters for the first time. The findings are likely to attract attention from bankers and policymakers since they come amid an intensifying debate about the changing pattern of financial power.  

Meanwhile, since the launch of the single currency in 1999, European markets have been steadily growing in liquidity and size. And other parts of the world, such as Asia and the Gulf, are enjoying rapidly growing financial clout due to their large surpluses - a shift exemplified by the recent decision of Asian and Gulf Sovereign Wealth Funds to take large stakes in big US banks.

In 2006, McKinsey calculates that America’s markets had some $56,100bn ofassets. Europe, including the UK, had $53,200bn of assets, a sharp increase on recent years. On recent trajectories, this implies that Europe overtook the US in 2007.

Grudgingly, Japan is starting to respect its neighbors in terms of education methods.

Japan is suffering a crisis of confidence these days about its ability to compete with its emerging Asian rivals, China and India. But even in this fad-obsessed nation, one result was never expected: a growing craze for Indian education. Many Japanese are feeling a sense of insecurity about the nation’s schools, which once turned out students who consistently ranked at the top of international tests. That is no longer true, which is why many people here are looking for lessons from India, the country the Japanese see as the world’s ascendant education superpower.

Newspapers carry reports of Indian children memorizing multiplication tables far beyond nine times nine, the standard for young elementary students in Japan. Viewing another Asian country as a model in education, or almost anything else, would have been unheard-of just a few years ago, say education experts and historians. Much of Japan has long looked down on the rest of Asia, priding itself on being the region’s most advanced nation.

Last month, a national cry of alarm greeted the announcement by the Organization for Economic Cooperation and Development that in a survey of math skills, Japan had fallen from first place in 2000 to 10th place, behind Taiwan, Hong Kong and South Korea.  Most annoying for many Japanese is that the aspects of Indian education they now praise: learning more at an earlier age, an emphasis on memorization and cramming, and a focus on the basics, particularly in math and science.

Japanese parents have expressed very, very high interest in Indian schools. Eager parents try to send their children to Japan’s roughly half dozen Indian schools. The boom has had the side effect of making many Japanese a little more tolerant toward other Asians.

Watch out for a growing number of trust fund babies in Asia

The opportunities for private banks in Asia Pacific are big, and still growing. The region is home to more than a quarter of the world’s high net worth individuals (HNWIs) - the industry jargon for people with $1m of investable assets. Their wealth is growing by 8.5% a year. By 2011, their combined riches will total $12,700bn.

The difference between North America and Europe? The wealth management business in Asia is a lot more diverse than in Europe or north America - in terms of providers, legal jurisdictions and customers. Potential clients might be a Japanese aristocrat whose family has been rich for generations, or a Malaysian entrepreneur who grew up in a kampong (village) and now wants to invest the proceeds of an IPO according to Islamic shariah principles.

China continues to boom - there are estimated to be at least 300,000 Chinese HNWIs. Foreign private banks are setting up branches as quickly as they can. They are starting to move inland from the wealthy cities along the coast to service the growing number of entrepreneurs in China’s West. India is also showing enormous promise too. Asian HNWIs tend to be more mobile than their counterparts in Europe or north America. That diversity may mean opportunities in providing specialist tax services, for example.

Asian clients may have very different ideas about what private bankers should do for them. A western approach based solely on analysing risk tolerance in accordance with modern portfolio theory, and recommending appropriate products, may not sit well with a customer who is just looking for share tips. It takes time to build trust with such clients, and help them to understand that wealth preservation and growth is more complicated than betting on shares on China’s overheated stock market.

The need for private banking is likely to intensify as a big wave of wealth starts to flow down the generations. “In Asia people may not be as open with me as western clients about all of their investments, so I can’t always make appropriate recommendations,” says one private banker.  The “rags-to-riches” ethnic Chinese entrepreneurs of south-east Asia are beginning to die off. Many left home to seek their fortunes as manual workers in the tin mines of Malaya, or fled China when the communists took over, to start small businesses that grew into family conglomerates. Such patriarchs learned about business the hard way. Many may not have been educated past primary school. But their grandsons - and granddaughters - may well have been to top international business schools, and have very different ideas about how the family business should be run. They may even consider whether the business should be sold off, and the cash invested instead. Watch out for a growing number of trust fund babies in Asia.

Research suggests that many rich families in Asia are ill-prepared for generational change. Only half of the 33 families surveyed in Hong Kong, India, Malaysia and Taiwan said they involved the next generation in managing the business. Many young graduates even felt that inheriting the family company would be a burden, as it constrained their career choices.

Asia, outside of Japan, and the Middle East would need 10,000 new private bankers by 2010. Private bankers need more than quantitative skills. They must watch the markets, in case the client asks their opinion. It also helps to speak a few languages, especially Chinese dialects. Such people are rare and no bank seems happy with the recruitment situation. Publicly, managers talk about providing staff with friendly environments and great career opportunities to win the battle for talent.  93% of customer relationship managers in private banks in Asia said they had been approached by rivals in the past year.  One in seven private banks risked losing a third of its staff or more. It is not unusual for entire teams to follow a talented manager and take their clients with them. 

The boom in private banking is sharpening traditional rivalries between the north and south-east Asian hubs of Hong Kong and Singapore. Both have trustworthy reputations as financial centres. Wealth managers have traditionally clustered in Hong Kong. But Singapore, which has the world’s fastest growing population of dollar millionaires, has been catching up.

Honda Makes Stylish Attempt With Hybrid CR-Z

Hybrids can be muscular and stylish, too. That’s the message Honda hopes to send at this month’s Tokyo auto show with its new gas-electric hybrid sports car CR-Z. The vehicle has maintained “the essence of the sports car” while still delivering good mileage and less pollution, he said.

Hybrid vehicles tend to be bulkier than sleek sports cars because of the size and complexity of the hybrid systems, which include a battery, motor, engine, converter and other parts. They’re usually not known for their torque, acceleration, handling and innovative design. The CR-Z comes with a new hybrid system developed by Honda whose breakthroughs allowed designers to get around such restrictions to achieve its lean cutting-edge look. The model will be on display at the biannual Tokyo Motor Show, which opens to the public Oct. 27 in the Tokyo suburb of Chiba.