21 September 2009

Slack and disruptions in the ecosystem

A mail from Suyodh:

The idea of this mail is to show how production systems can behave in erratic ways when something like oil gets erratic. Keep in mind that production systems have lags - meaning they take time to adjust to new levels of prices. When oil prices are oscillating as wildly as $147 in July 2008, $ 34 in Feb 2009 to $70 today - other systems too will behave weird.

Japan and Belgium are a continent removed; but, do not underestimate the disruptive power of such swings in oil prices. Climate change also chips in. Reduced European milk products/derivatives demand due to the recession will also be chipping in.

An economy cannot be immune to the constraints imposed by the ecosystem that it dwells within. As long as there was slack within the various sub-systems of the ecosystem, disruptions did not manifest; as we are
reaching a point of almost no slack, the disruptions will manifest more frequently.

We live in interesting times for sure :)

The first link below is a video on Belgium in 2009 and the second on Japan in 2008
Three million litres of milk sprayed on the field
Belgian milk producers pour about 3 million litres (793,000 gallons) of milk on a field near Ciney, September 16, 2009, in protest over a growing industrial dispute over low prices. Low milk prices they say are bankrupting farmers. Source: REUTERS

Japan's Butter Meltdown


By COCO MASTERS/TOKYO Saturday, May. 03, 2008

The world's second largest economy is now crying over spilled milk — and its delicious by-product, butter. Japan, insulated from rice shortages that plague other parts of Asia, is experiencing an unprecedented shortage of the household staple — and discovering that it is not as immune from the growing global food crisis as it wants to be.

The butter shortage results from a chain of events. When the country suffered an overproduction of milk in 2006, the government ordered about 1,000 tons of raw milk poured down the drain and dairy cows slaughtered to prop up prices and defend local milk farmers. Dairy prices were then managed to retain their advantage to imported milk and butter, whose prices were inflated by tariffs. (To protect domestic butter, the tax on imported butter went up twice last year. There is a nearly 30% tariff on butter imports.)Butter has a strange status in Japan. Historically, butter is a reminder of Japan's first contacts with the West — the islanders complained that the foreigners were bata-kusai , that is, "butter-stinkers." But since the 1960s, local butter making and consumption has been seen as a symbol of Japanese self-sufficiency in and mastery of an originally Western product. The shortage is a blow to that independent self-image.

But now grain-feed prices have risen as a result of a drought in Australia as well as the accompanying use of corn for ethanol, which has reduced the amount available for feed for Japan's cows. The drought has also cut back on milk that would have been imported to supplement the Japanese market. Combined with competing demand for milk and milk products from emerging markets in China and Russia, the result is a collapse of the local butter production in Japan.

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