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Agcapita October 1, 2012 - Food Prices Now Driving Oil Prices?
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Agcapita October 1, 2012 - Food Prices Now Driving Oil Prices?

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Let me propose a thought experiment. Are we in a global …

Let me propose a thought experiment. Are we in a global
environment where food prices can drive energy prices
rather than the more typical relationship where energy prices tend to drive food prices? Key oil producing and/or middle eastern countries spend disproportionate amounts of household income on food.

Published in: Business

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  • 1. Agcapita UpdateOctober 1, 2012
  • 2. Agcapita UpdateLet me propose a thought experiment. Are we in a globalenvironment where food prices can drive energy pricesrather than the more typical relationship where energyprices tend to drive food prices? Key oil producing and/ormiddle eastern countries spend disproportionate amounts ofhousehold income on food.SHARE OF HOUSEHOLD SPENDING ON FOOD % United States 6.6 United Kingdom 9.7 Canada 9.8 Germany 11.0 Bahrain 14.3 Kuwait 14.5 United Arab Emirates 14.5 Japan 14.8 Turkey 21.4 China 22.3 Mexico 22.7 Iran 23.4 Saudi Arabia 23.7 India 27.7 Venezuela 28.9 Russia 29.0 Egypt 38.0 Nigeria 39.8 Jordan 40.6 Georgia 41.3 Pakistan 41.9 Belarus 42.1 Algeria 43.7 Azerbaijan 45.3Source: FAO, USDA, CIA Factbook - 2010 1
  • 3. Agcapita Update (continued) FOOD PRICE INDEX Algeria (4), Saudia Arabia (1) Haiti (5), Egypt (3), Mauritania (1), Sudan (1), Yemen (300+) 260 240 Cote d’Ivoire (1) Somalia (5) Oman (2), Morocco (5) 220 200 Sudan (3) Tunisia (1) Egypt (800+) Iraq (29), Bahrain (31) 180 Cameroon (40) Libya (10000+) Syria (900+) 240 160 Yemen (12) Tunisia (300+) Uganda (5) 140 120 India (1), 220 100 Mozambique (6) Sudan (1) 80 1990 1995 2000 2005 2010 Mozambique (13) Mauritania (2) 200 India (4) Somalia (5) 180 160 140 Brundi (1) 120 2004 2006 2008 2010 2012Consequently, residents in such places are heavily Systems Institute) - “the timing of violent protestsexposed to price increases in basic food-stuffs. Does in North Africa and the Middle East in 2011 as wellthis matter? More specifically, does this create a as earlier riots in 2008 coincides with large peaks inhigher risk of civil unrest? Apparently the answer is global food prices. We identify a specific food priceyes and it happens predictictably once prices move threshold above which protests become likely. Thesebeyond a certain level. According to research by observations are consistent with a hypothesis thatMarco Lagi, Karla Z. Bertrand and Yaneer Bar-Yam high global food prices are a precipitating condition(The Food Crises and Political Instability in North for social unrest. ...More specifically, food riots occurAfrica and the Middle East, New England Complex above a threshold of the FAO price index of 210.” 2
  • 4. Agcapita Update (continued)Where is the FAO index now? 213. It would appear to price in even higher risk premiums and importingthat unrest in the middle east is set to continue... nations deal with potential and perhaps real supply... and if it continues and/or grows, does this mean dislocations?higher oil prices are ahead as investors are forced FAO FOOD PRICE INDEX 2002-2004=100 260 Nominal 210 170 130 Real* 90 50 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 * The real price index is the nominal price index deflated by the World Bank Manufacturers Unit Value Index (MUV) 3
  • 5. DISCLAIMER: The information, opinions, estimates, projections and other materials contained herein are provided as of the date hereof and are subject to change without notice. Some of the information, opinions, estimates, projections and other materials contained herein have been obtained from numerous sources and Agcapita Partners LP (“AGCAPITA”) and its affiliates make every effort to ensure that the contents hereof have been compiled or derived from sources believed to be reliable and to contain information and opinions which are accurate and complete. However, neither AGCAPITA nor its affiliates have independently verified or make any representation or warranty, express or implied, in respect thereof, take no responsibility for any errors and omissions which maybe contained herein or accept any liability whatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and other materials contained herein whether relied upon by the recipient or user or any other third party (including, without limitation, any customer of the recipient or user). Information may be available to AGCAPITA and/or its affiliates that is not reflected herein. The information, opinions, estimates, projections and other materials contained herein are not to be construed as an offer to sell, a solicitation for or an offer to buy, any products or services referenced herein (including, without limitation, any commodities, securities or other financial instruments), nor shall such information, opinions, estimates, projections and other materials be considered as investment advice or as a recommendation to enter into any transaction. Additional information is available by contacting AGCAPITA or its relevant affiliate directly.#803 – 5920 Macleod Trail SW Tel: +1.587.887.1541 www.agcapita.comCalgary, AB T2H 0K2 Fax: +1.403.648.2776Canada