Concentration of production is now recognized as one serious weakness of globalization, supply chain disruptions in the last three years having brought ample proof of this inconvenient aspect of the search for ever-greater efficiency, ever-lower costs, at the expense of resilience, securing availability. Supply issues are not the sole problem felt by some customers when price variability is impacting everyone in everyday life for food or energy, to name two of the basic needs.
Energy is considered as one of the least concentrated sectors. Thus, if we follow the basic rules of economics, we should be rather immune to localized supply disruptions unless cartels like OPEC come into play, or if commodity traders play with marginal supply in a hyper-financialized economy, or when logistics constrain the flow, the situation for natural gas, either routed by pipeline, strongly linking producer and user, or in liquefied form, limited by the exorbitant cost of ships and liquefaction-regasification plants. At the end of the day, only energy independence can somehow tame instability, as we have seen for natural gas in 2022. Systemic crisis in the EU, business as usual in the U.S. Crude oil prices were also swung around in 2022, but much less than natural gas.
Agriculture, on the other side of the concentration scale, is considered one of the most concentrated sectors, with staple crops supply, open to global trade, in the hands of a few countries and of a few global private players, nicknamed ABCD. In a system of liberalized, free-trade-based, global and inter-connected, specialized and commoditized economies, even national food independence cannot prevent price spikes, as we have seen with cereals in 2022, Ukraine and Western Russia being deemed one of the breadbaskets in the northern hemisphere.
A situation also observed in 2021 for rapeseed oil, a combination of reduced crops and stocks, strong demand for vegetable oils (substitutable) and a growing ban of palm oil, the prominent and cheapest vegetable oil, in biodiesel production in the EU leading to an amazing price spike. First-generation biofuels economics being mostly dictated by the price of raw materials, the graph below shows a remarkable stability between 2017 and 2020, for sugar-based (ethanol) and vegetable oil-based (FAME) biofuels, compared to the chronic instability of crude oil (Brent), but spikes are just lurking around the bend, like in 2021 and 2022, and meteorological hick-ups will not be the least cause behind disruptions:
Analysis by Philippe Marchand
Unfortunately, mining is just next to agriculture in the ranking of sector concentration, which should be a matter of concern as all-out electrification relies on metals. Shall we repeat the same mistake we have made with the over-exploitation of fossil resources?
Which lessons can we learn from all this? Two seem obvious, if we are serious about keeping energy secure, affordable and sustainable for all of us:
The idea is not to insulate any country from the rest of the world, a dream for some nationalists and eco-radicals, but to become less exposed to sources of global turmoil, geopolitical or climatic, protecting citizens from price spikes that have no reason to be imposed just because of a competitiveness, efficiency-first, ultra-liberal doxa that has shown its limits in this beginning of the second decade of the 21st century. Let ideas and innovations, preparing for a better future, remain global and free-flowing, and materials, food, pharmaceuticals or energy, for the everyday life, become more local.
Philippe Marchand is a Bioenergy Steering Committee Member of the European Technology and Innovation Platform (ETIP).
