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Commodity Price Crisis Driving Green Economic Revolution

Bill Roth | Thursday January 6th, 2011 | 2 Comments

Earth 2017 projects that 20% of the world’s economy will be in sustainable goods and services by 2017 based upon the assumption that “unsustainable” goods and services will increasingly cost a lot more at the cash register and pump while sustainable goods and services will become increasingly price competitive as they gain production economies of scale. The explosion in higher commodity prices during 2010 is new evidence that the Green Economic Revolution projected by Earth 2017 is on the cusp of reality.

Here are the facts on the Commodity Price Crisis:

  1. The Standard and Poors GSCI Index that tracks price inflation by commodity category recorded an almost 35% price increase for agricultural commodities and an over 30% price increase in precious metals for 2010
  2. Cotton prices were up 100%
  3. Gold’s price rose 29%
  4. Soybeans prices are 27% higher
  5. Corn is priced 39% higher
  6. Copper is up 21%, setting an historical high of $8,966 per ton
  7. Coal prices were up 8% reflecting its role as as the fuel for 45% of the USA’s electricity supply and 71% of China’s electric generating capacity.

Finally, oil is probably our world’s most price-visible commodity. 2010 ended with crude oil prices approximately 9% higher at $90+ per barrel, heading toward $100 per barrel. In December 2010 when gasoline prices are historically at their lowest annual levels the national average price of gasoline jumped up to and stayed at over $3 per gallon.

Unsustainable Drivers Of Price Inflation

  1. Global demand is the absolute #1 reason for commodity price inflation. The world now has 7 billion people. And for peoples in countries ranging from China to India to Kenya it is the American lifestyle based upon high commodity consumption per capita that is the image of prosperity and wellbeing. Whether it is water, oil, minerals or food the demand for commodities is soaring from global consumerism.
  2. Supply risk is the second reason. There is not another Saudi Arabia (or Texas in the 1940-60 time period) offering the world a huge supply of oil harvested with low cost traditional technologies. There is a huge amount of oil still available for harvesting but it is located in locales with very high and costly environmental and political risks. This higher exploration and extraction risk requires a high commodity price to support its financing. $100 per barrel oil supports the risk of developing today’s oil fields like those off the coast of Brazil or in the Gulf of Mexico located thousands of feet below the oceans. $30 per barrel does not. This same link between high risk and higher commodity prices to support extraction financing is being played out for most other commodities, especially for the raw earth minerals being harvested to support the computer/telecommunication and transportation industries’ thirst for these minerals.
  3. Climate change is the third driver in commodity price increases. Computer-modeled simulations of the world’s climate change are increasingly pointing to storm volatility, and changes in the location of intense storms, as a major impact created by the earth’s increasing air and water temperatures, and ocean acidity. Whether it is drought, floods, freezing weather or hurricanes, the impact is to constrict the production and delivery of commodity supply systems already stretched in their ability to supply the world’s increasing demand. The acerbating result is increased price volatility and overall higher prices for commodities.

Economic Result: Accelerated Sustainability Adoption

Corporate America has discovered the link between adopting sustainability and cost reductions. The financial result is that even though Corporate America’s 2010 sales in the U.S. were flat, their profits achieved record levels. While Corporate America is still unsure about the bottom line value of Corporate Responsibility their 2010 profit experiences confirmed that going green saves green.

Higher prices at the pump, meter and cash register due to the increasing cost curve for less sustainable goods and services plus wage stagnation is a second major 2011 trend supportive of a greener economy. This price/wage squeeze will shift consumer focus upon lower cost solutions like efficiency. Projections are that during 2011 a $3 per gallon price at the pump will be the norm and $4+ is realistic if there is a Hurricane Katrina-like supply disruption or a Middle Eastern conflict. Consumers are already responding to this anticipated pump-price future! 2010 closed with the best selling cars and trucks being those offering higher levels fuel-efficiency. The hottest selling SUVs (Ford Escape, Honda CRV and Toyota RAV4) are now cross-over vehicles based upon car, rather than truck technologies that offer up to double the fuel economy of 2000 SUV models. Toyota is projecting that by the end of this decade their high MPG Prius hybrid model will be outselling their current top selling Camry model.

A similar trend is also happening in food. 62% of consumers say they plan to eat more healthfully in 2011. Consumers are making the connection at the restaurant and grocery store between what they eat and their annual double-digit price increases in health care costs. In addition, processed foods are confronting higher costs based upon their dependence upon petroleum-based pesticides, fertilizers and global transportation systems for their global manufacturing. Slowly but surely local, all natural, food is gaining pricing parity. “Local” as a menu marketing claim by restaurants has grown by 15% in just the last year!

2011: Sustainability’s Price Competitiveness

What will be different in 2011 is that the commodity price inflation crisis will have a dramatically larger impact upon the consumer’s pocketbook. In 2010 the slowly receding global recession created a short-term situation where retailers, facing a shortage of consumer demand, had to pay for commodity price increases from their operating cash flows rather than raise prices and run the risk of eroding their customer loyalties. Ironically, one impact of higher commodity prices is 2010’s continued high employment rates as employers reduced human resources expenses (and all other operating costs available to them for generating cash) to create the internal cash flow their businesses required to pay for higher commodity prices. However, the combination of a healthier world economy in 2011 and the limited availability, and marginal scale, of yet more internal cost cutting within Corporate America holds the potential that the commodity price crisis will evolve into a consumer price inflation crisis.

This can be great news for the environment and growth opportunities for businesses selling price competitive sustainability solutions. Ironically, while cap and trade appears to be legislatively dead in Congress (but very much alive in California, Europe, China, et al.) the U.S.’s free market “invisible hand” is poised to pump out price signals that will shift demand toward efficiency, recycling and sustainable technologies and business practices. Earth 2017 is only 6 years away but its potential for a world economy generating $10 trillion in annual revenues through the sale of sustainable goods and services is poised to reach a new volume threshold during 2011 in reaction to the increasing cost of the world’s commodity supply .

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The Secret Green Sauce written by Bill Roth profiles best practices of actual companies growing green revenues and his YouTube channel Earth 2017 TV provides a library of short video interviews of business leaders talking about their adoption of sustainability.


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  • http://www.stepstosustainability.com Peter Bruce

    In addition to the three unsustainable drivers of price inflation, I would add a fourth- market dynamics. I recall (can’t verify it) that for every barrel of oil consumed in the U.S. in 2008, 100 barrels were traded. Thus the price inflated by those just “clipping the ticket”. Two solutions are: 1) local generation of energy and 2) reform of the market over time – ideally from an ethics and values perspective.

    • http://www.earth2017.com Bill Roth

      Peter, good point.

      At times of higher geo-political risk the potential for speculation, and its cost impacts upon consumers, grows.

      A major improvement in oil trading would be to increase the cash requirement supporting a trade. Today’s required level of cash requirement encourages speculation. A higher level would shift trading back to its core function of managing price risk around a physical position.

      But even reducing speculation, while offering short-term benefits regarding price volatility, will not mitigate the long term upward march in the price of oil. That can only be reversed through the adoption of sustainability in the form of increased efficiency and increased use of alternative, renewable fuels.

      Thanks Peter for submitting your comment,

      Bill