2011: What a global commodity price crisis looks like
I’ve said it before and I’ll say it again: 2011 is the year when global commodity prices will be seen as the dominant force driving global economic, social and political change.
We are facing, in many ways, the perfect storm. Adverse weather has destroyed crops in places as far apart as Russia, Brazil, Pakistan and Australia. Economic recovery, particularly in China, is driving demand sky-high. The oil price was already high, despite falling back from its 2008 peak, and now the threat of upheaval across the Middle East – itself driven in part by higher food prices – is pushing the price higher still. Electoral uncertainty in Cote d’Ivoire is driving up the cost of cocoa. And so it goes on.
All of this comes as Government’s around the globe try to cut spending, including subsidies for food and energy. The result is protest: whether, in a mild form, at the petrol pumps of the US, or more seriously in Bolivia, Haiti, Tunisia and of course Egypt. When even Togo is reported to be raising electricity prices by 25 percent you know that this is truly a worldwide phenomenon.
For companies selling oil, food and other natural resources this looks like a bumper year. Profits should soar along with prices. But these are likely to be short-term gains – the mood of customers and legislators around the world is already sour, and the backlash has already clearly begun. Even away from the flashpoints of the developing world warding off consumer ire, NGO pressure, political anxiety and regulatory oversight will be a priority. And that means being open and transparent about what the companies are doing to help the vulnerable, to keep costs down where they can – and to plan properly and invest sufficiently to allow for a more affordable and more sustainable future.
In short, despite a short-term bonanza 2011 will in the end be a difficult year for the energy, utilities and natural resources sector. Being a long-term, responsible, player will be a priority for every company in this arena. Communicating that fact in a difficult, cynical, world will be a difficult, skilful endeavour. Companies will need help. Come and talk to us.