The
following paper was presented by Tully Wakeman, Co-ordinator, East Anglia Food
Link.
Climate change, oil depletion, and their impact on fruit and vegetable businesses
1.
Climate
Change
It
is now universally accepted that climate change is happening far faster than
ever before, and that it is a result of human activity.
More
worryingly, a number of “positive feedback” loops now appear to be engaging
which may rapidly accelerate the rate of change.
For example, the permafrost beneath the west Siberian peatlands is
thawing. As they melt these bogs - which cover an area the size of
Climate
scientists broadly agree that the world’s greenhouse gas emissions need to be
reduced by between 60-80% over the next couple of decades if we are to avert
catastrophe. At the same time, we need to share the remaining emissions with
emerging economies like
So
far, only the largest polluters have been included in a carbon trading system
which has encouraged them to find ways to reduce emissions. In order to meet
more ambitious targets, many commentators believe that all individuals and all
businesses will need to engage in some kind of carbon-rationing system. This
will create very real incentives on individuals and businesses to reduce
emissions.
However,
it is unlikely that emissions reductions in the order of 80% can be achieved
simply by adopting cleaner or more efficient technologies – particularly if we
assume that the economy continues to grow in the meanwhile (since emissions tend
to grow with economic growth). More likely, people will have to modify their
behaviour too. This might include choices like avoiding flying, living closer to
work so that they can use their cars less, and putting on an extra sweater
rather than turn up the heating. In a system of carbon rationing people won’t
make these choices out of altruism, but simply because they don’t have enough
carbon credits to be able to “afford” them.
Businesses
too will have to change their behaviour by localising their operations and so
on. Again, this will not be a matter of choice but will be forced on us by the
carbon rationing system.
2.
Oil
depletion
There’s
another reason to assume that we will all have to reduce our use of energy, and
that is that our sources of energy are themselves being depleted. In fact, we
are reaching a point known as “peak oil”, where half of the world’s
original oil reserves have been used up, and where the rate at which the
remaining reserves can be extracted will begin to decline. The same is true of
natural gas. Since oil and gas between them account for a very large part of the
Figure
1 depicts the likely rate of extraction of all oil and gas liquids,
according to the analysis of the Association of the Study of Peak Oil and Gas (ASPO).
Figure 1
As
you can see, ASPO anticipate the peak to come around 2006. The exact date is not
the main point: rather, the point is that we should not behave as if oil is an
unlimited resource. Since demand continues to increase (not least as a result of
China’s economic growth), prices must rise until they become high enough to
force individuals and businesses – business like yours – to change their
behaviour and use much less energy. Since demand tends to be very inelastic, we
should expect prices to rise from the current $60 per barrel to over $100 or
potentially much higher.
Why
is this phenomenon not being talked about more widely? Governments tend to rely
on analyses like those of the International Energy Agency, who claim to review
the world’s remaining reserves. Yet that review, while acknowledging that
production is declining in almost every part of the world, goes on to assert
that “The oil supply projections of this Outlook are derived from aggregated
projections of oil demand….OPEC conventional oil production is assumed to fill
the gap”. That is, they don’t know how much oil OPEC has, but they’re
hoping it’s enough.
Unfortunately,
there is every reason to believe that OPEC has greatly overstated its reserves.
Figure 2 shows how OPEC countries suddenly increased their reserves during the
1980s.
Figure
2 (source: ASPO)
None
of these revisions reflected significant new exploration activity or finds.
Rather, countries may have exaggerated their reserves because, under new OPEC
rules, production quotas were geared to reserves. By claiming more oil they were
allowed to sell more oil.
Also,
noted that most countries have claimed the same reserves year after year,
despite the fact that they have produced oil in the meanwhile.
It
seems altogether likely that the OPEC counties in the
In
short, we should assume that the rate at which oil and gas can be supplied to
this country or any other will shortly begin to decline. In that case we either
need once again to implement a system of rationing (as it happens the systems
already proposed for carbon credits would probably work well), or we should
expect prices to rise very quickly indeed. A doubling or tripling of current
prices for diesel, electricity and other fuels is by no means unlikely. Nor
should we assume that alternative fuels such as biofuels, wind, nuclear, or
hydrogen will simply step in and fill the gap. A much safer bet is that we will
be forced to reduce our total energy use very significantly. Since oil and gas
currently supply 85% of the
3.
Impacts
on Fruit and Vegetable Businesses
We
need only the most basic grasp of economics to understand that consumers and
businesses choose between different options based on the costs and benefits of
those options. If the cost of option A goes up in relation to option B, but the
benefits of option A do not increase, we would expect at least some people to
stop choosing option A and start choosing B instead.
In
the fruit and vegetable business players all along the supply chain make choices
every day and every year. Farmers choose whether to use more fertiliser or less;
consumers choose whether to go to the supermarket or the local greengrocer;
caterers choose whether to buy an exotic vegetable or a local one. For some
decades now the trend has been headed one way – more convenience food, more
shopping at supermarkets, more international trade in fruit and veg, more
airfreight. Climate change and oil depletion will reverse those trends, simply
because the price of processed veg will go up more than the price of unprepared,
the price of imported fruit will go up more than the price of local fruit, and
the cost of getting to the supermarket will go up more than the cost of getting
to the local greengrocer. Let ‘s look at these issues in a bit more detail.
Consumers
Consumers
themselves may suffer as a result of oil depletion. Many may lose their jobs as
economies contract. They may have more time and/or less money to spend, and this
may make many more willing to prepare their own vegetables. If electricity
prices go up too high, or electricity supplies become unreliable, some may get
rid of the freezer, meaning they will no longer require frozen vegetables. They
will want to use the car less, or may choose no longer to own a car, and this
(together with the loss of the freezer) will push them more towards daily,
neighbourhood shopping and away from the weekly supermarket shop.
Fruit
and Vegetable Growing
Farmers
are already suffering from the rising costs of fertilisers. Since nitrogen
fertilisers are essentially made from natural gas, their price rises with the
gas price. We expect to see the current trend to minimising the use of
fertilisers to continue. Similarly pesticides are mainly manufactured from oil,
and their prices too will rise as oil prices rise. Again, the current trend is
to reducing the use of pesticides, and we would expect that trend to continue.
Climate
change is already changing the types of crops which can be grown. However, in
the
Imports
and seasonality
Consumers
have become used to being able to buy the same fruits and vegetables all year.
This may change. The energy used to import fruits and vegetables by road or sea
can account for about half of their total energy requirements. To put it another
way, we could halve the current energy cost of fresh fruit and vegetables simply
by sticking to
Even
if people don’t stop eating imported apples and salads overnight, the trend
will be in that direction. At the margin, more people will choose the local,
seasonal item from the shelf simply because money is tight and the local item
will in future be cheaper than the imported one.
As
for airfreight, which typically uses 10 times as much energy as importing by sea
or road (and produces 10 times the emissions), I would expect it to become
economically unsustainable very soon indeed. Clearly vegetable production
businesses in, say,
Processing
Processing
fruit and vegetables can have at least as great an impact on energy use and
carbon emissions as imports do. Freezing is the extreme example of this. The
process of freezing 1kg of vegetables and storing it for 6 months results in
carbon emissions of 2kg per kg of food. This compares with the figure for
airfreighting vegetables from
As
energy prices rise (and/or a rationing system is imposed) the price of frozen
and canned foods will also rise. Again, particularly where consumers are more
time-rich and cash-poor, the convenience of frozen vegetables may be less of an
issue for many than the much higher price. Consumers may choose to buy fresh
vegetables more often. If they find that they are buying very little frozen
food, they may question why they are running a freezer, given the
ever-increasing electricity bill for doing so. Obviously if large numbers of
consumers discard their freezers, much of the frozen vegetable business will be
over for good.
Packaging
The
current trend to increasing amounts of packaging for fruit and vegetables – so
that consumers can buy them ready-washed, perfectly ripe and so on – is likely
to be reversed by the rising costs of the packaging materials. This is
particularly true of plastic, which is made from oil. In the
Packaging
is a form of embedded energy. The disposable mentality which arose from the era
of cheap energy will now reversed by the reality of rising costs. In future we
would expect most fruit and vegetables to be sold loose, and for crates etc to
be returnable.
Logistics
Transport
of fruit and vegetables within the
East
Anglia Food Link not only believes that such a cost-effective solution exists,
but we are taking the first steps to create it. In short, that solution would
involve more local (perhaps county-level) fruit and vegetable supply hubs which
could serve most of the retailers and foodservice distributors in that county.
Each such hub would provide sufficient demand to justify production of a range
of fruits and vegetables within that county.
Retailing
As
noted above, consumers may increasingly opt for more frequent and more local
shopping trips, as the cost of driving to a more distant supermarket becomes a
bigger issue than the convenience factor. This implies that either supermarkets
will need to move wholeheartedly into convenience stores and out of their
out-of-town superstores, or that they will lose market share to local
greengrocers or local convenience stores. It’s interesting to note that some
supermarket chains have already sold and leased back their out-of-town store
buildings.
Catering
Restaurants
and pubs have enjoyed spectacular growth in recent years due to people’s
growing expendable income. Unfortunately as rising energy prices force people to
tighten their belts, eating out is likely to be one of the first things they
will cut down on. For fruit and vegetable businesses this probably means that
it’s the wrong time to try to expand sales to the catering trade.
4.
An
exciting new opportunity
-
Regional and county-level greengrocery wholesalers acting as “hubs”
-
Production agreements between these wholesalers and local farmers who grow to their requirements
-
High levels of food safety accreditation, traceability and transparency.
You
may come up with a different model. No doubt there is more than one way to build
a low-energy fruit and vegetable business. But the opportunity is to do just
that, and I urge you to begin to do it right away.
