By Tony D’Altorio, Investment U Research Tuesday, May 10, 2011

Coffee drinkers are finding it more and more expensive to get their caffeine fix. The commodity’s price recently surpassed the key US$3 per pound level for the first time in over 34 years. And with roasters scrambling to secure scarce supplies of Arabica beans, costs could remain high for a while. The International Coffee Organization (ICO) certainly warns as much. It points to global inventories falling to a mere 13 million bags, their lowest level in 50 years. Worse yet, they have little chance of replenishing those numbers this year.

The Weather Outside Is Frightful

As with so many other commodities, poor weather bears the brunt of the blame for coffee’s price hike. In Columbia, for example, output plunged to a 33-year low of 7.8 million 60-kilogram bags in 2009. Supplies did rise to 8.9 million bags the next year, but it expects to barely match that amount in 2011. Mexico also suffered a bad crop this year due to low temperatures. And several Central American countries have also experienced problems. Then there’s Brazil, the world’s largest coffee producer. It already worried the market recently with its 13 percent production drop in medium quality beans.

Now another weather phenomenon threatens the country’s coffee crop. Local meteorologists explain that as La Niná – a cooling of waters in the Pacific Ocean – weakens this year, it increases the chance of frost. Should cold weather hit Brazil hard enough, industry analysts expect coffee prices to hit over US$4 per pound.

Coffee Demand Is Percolating

This disappointing global coffee crop comes in the face of robust demand, especially in producing countries like Brazil. The uptick in consumer cravings could reshape the market… for good. In the past, coffee has been grown to satisfy U.S., European and Japanese caffeine fixes. But while these markets remain important today, ICO data shows their demand stagnating. Asia, Africa and Latin America, on the other hand, are becoming increasingly robust. Global demand for coffee rose 2.4 percent annually over the past decade. But this number masks the underlying trend…

Consumption in the U.S. and other established markets has been growing a mere 1.1 percent per year. Yet it swelled an impressive 4.3 percent annually in coffee-producing nations and 3.8 percent in other emerging economies. The Brazilian Coffee Industry Association, for one, expects domestic demand to top 21 million bags next year. If so, that marks a 50 percent increase in the last decade and surpasses even the U.S. – the world’s number one coffee consumer – for coffee cravings. And don’t discount the growing coffee culture in China. Coffee shop chains now consider Asia a top priority.

Starbucks (NASDAQ: SBUX ) CEO Howard Schultz says he is “beginning to see the morning ritual develop” in China. The company now plans to triple its number of stores there to over 1,500 by 2015.

Investing in Coffee with iPath ETNs

In 2010, 53 percent of coffee worldwide was consumed in the traditional markets and 47 percent in the emerging world and coffee-producing countries. If current trends continue, that difference will first even out, and then switch altogether. Unlike the previous four big coffee market rallies of 1975-77, 1985-86, 1994 and 1997, this one has much broader causes and firmer roots. In other words: Expect high coffee prices for the foreseeable future.

For investors wishing to sip their coffee and have it too, iPath offers two ETNs that track coffee futures’ performance: iPath Dow Jones-UBS Coffee Subindex Total Return (NYSE: JO ) iPath Pure Beta Coffee (NYSE: CAFE )

Good investing,

Tony D’Altorio

Reprinted with permission of the publisher. The above story can be read on the website www.investmentU.com. The direct link is: http://www.investmentu.com/2011/May/coffee-prices-percolate-higher.html

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Views expressed are not FNArena's (see our disclaimer).

By Richard (Rick) Mills
Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

The second half of the 20th century saw the biggest increase in the world’s population in human history. Our population surged because:

- Medical advances lessened the mortality rate in many countries 
- Massive increases in agricultural productivity because of the “Green Revolution”

The global death rate has dropped almost continuously since the start of the industrial revolution - personal hygiene, improved methods of sanitation and the development of antibiotics have all played a major role. 

The term Green Revolution refers to a series of research, development, and technology transfers that happened between the 1940s and the late 1970s. The initiatives involved: 

- Development of high yielding varieties of cereal grains
- Expansion of irrigation infrastructure
- Modernization of management techniques
- Mechanization 
- Distribution of hybridized seeds, synthetic fertilizers, and pesticides to farmers

Tractors with gasoline powered internal combustion engines (versus steam) became the norm in the 1920s after Henry Ford developed his Fordson in 1917 - the first mass produced tractor. This new technology was available only to relatively affluent farmers and it was not until the 1940s tractor use became widespread. 

Electric motors and irrigation pumps made farming and ranching more efficient. Major innovations in animal husbandry - modern milking parlors, grain elevators, and confined animal feeding operations - were all made possible by electricity.

Advances in fertilizers, herbicides, insecticides, fungicides, antibiotics and growth hormones all led to better weed, insect and disease control.

There were major advances in plant and animal breeding - crop hybridization, artificial insemination of livestock, and genetically modified organisms (GMOs). 

Further down the food chain came innovations in food processing and distribution.

All these new technologies increased global agriculture production with the full effects starting to be felt in the 1960s.

Cereal production more than doubled in developing nations - yields of rice, maize, and wheat increased steadily. Between 1950 and 1984 world grain production increased by over 250% - and the world added over two billion more people for dinner.

The Green Revolution

The modernization and industrialization of our global agricultural industry led to the single greatest explosion in food production in history. The agricultural reforms and resulting production increases fostered by the Green Revolution are responsible for avoiding widespread famine in developing countries and for feeding billions more people since. The Green Revolution also helped kick start the greatest explosion in human population in our history - it took only 40 years (starting in 1950) for the population to double from 2.5 billion to five billion people. 

Norman Borlaug, an American scientist, is often called the Father of the Green Revolution (GR). In 1943, he began conducting research in Mexico regarding developing new, disease resistant high yielding varieties of wheat. Mexico then combined Borlaug's wheat varieties with the agricultural technologies being developed at the time and was able to become a wheat exporter by the 1960s – prior to Mexico’s Green Revolución the country was importing almost half of its wheat supply.

Improving seeds is what people have been doing since the beginning of agriculture - people selected the biggest seeds that were easiest to thresh and stored them for planting the next crop. But in Mexican test plots something special happened - improved varieties of short stemmed wheat dramatically increased yields.

What makes these improved plants successful are:

- Plants with the largest seeds were selected for breeding to create the most production
- By maximizing the seed or food portion of the plant, the plant is able to use photosynthesis more efficiently because the energy produced during this process went directly to the food portion of the plant
- By selectively breeding plants that were not sensitive to day length, researchers doubled a crop’s production because the plants were not limited to certain areas of the globe based solely on the amount of light available to them

These high yield plant varieties need:

- Fertilizers
- Irrigation 
- Pesticides 

The “revolution" in Green Revolution is well deserved. The new seeds along with chemical fertilizers, pesticides and more irrigation replaced traditional farming practices in many areas of the world.

The Green Revolution: Accomplishments and Apprehensions

Address by:

The Honorable William S. Gaud, Administrator 
Agency for International Development 
Department of State\

Before:

The Society for International Development 
Shorehan Hotel 
Washington, DC

March 8, 1968

Over the last five months we have seen new evidence of their progress. Record yields, harvests of unprecedented size and crops now in the ground demonstrate that throughout much the developing world - and particularly in Asia - we are on the verge of an agricultural revolution. 

- In May 1967 Pakistan harvested 600,000 acres to new high-yielding wheat seed. This spring (1968) the farmers of Pakistan will harvest the new wheats from an estimated 3.5 million acres. They will bring in a total wheat crop of 7-1/2 to 8 million tons - a new record. Pakistan has an excellent change of achieving self-sufficiency in food grains in another year. 

- In 1967 the new high-yielding wheats were harvested from 700,000 acres in India. This year they will be planted to 6 million acres. Another 10 million acres will be planted to high-yield varieties of rice, sorghum, and millet. India will harvest more than 95 million tons in food grains this year - again a record crop. She hopes to achieve self-sufficient in food grains in another three or four years. She has the capability to do so. 

- Turkey has demonstrated that she can raise yields by two and three times with the new wheats. Last year's Turkish wheat crop set a new record. In 1968 Turkey will plant the new seed to one-third of its coastal wheat growing area. Total production this year may be nearly one-third higher than in 1965. 

- The Philippines have harvested a record rice crop with only 14% of their rice fields planted to new high-yielding seeds. This year more land will be planted to the new varieties. The Philippines are clearly about to achieve self-sufficiency in rice. 

These and other developments in the field of agriculture contain the makings of a new revolution. It is not a violet Red Revolution like that of the Soviets, nor is it a White Revolution like that of the Shah of Iran. I call it the Green Revolution. 

The production advances of the Green Revolution were real.

But by any yardstick the Green Revolution, while a true, almost global agricultural revolution, was not as green as many think - there was collateral damage:

- Agricultural output did increase as a result of the Green Revolution, but the energy input to produce a crop increased faster - the ratio of crops produced to energy input has decreased. This is because High Yielding Varieties (HYVs) of seeds only outperform traditional varieties when adequate irrigation, pesticides and fertilizers are used

- Green Revolution agriculture produces monocultures of cereal grains. This type of agriculture relies on the extensive use of pesticides because monoculture systems - with their lack of genetic variation - are particularly sensitive to bug infestations

- The transition from traditional agriculture to GR agricultural meant farmers became dependent on industrial inputs - not made on the farm inputs. Farmers faced severely increased costs because they now had to purchase such items as farming machinery, fertilizer, pesticides, irrigation equipment and seeds

- The increased level of mechanization on larger farms removed a large source of employment from the rural economy. New machinery – mass produced gas tractors, large self propelled combines and mechanical cotton pickers – all combined to sharply reduce labor requirements 

- Less people were affected by hunger and died from starvation - but many more are affected by malnutrition such as iron or Vitamin A deficiencies. Green Revolution grains do not have the same nutritional values as traditional varieties. The switch from heavily rotated multiple crops to mono cropping or dual cropping reduces total soil fertility and the nutritional value of our food 

- The Green Revolution reduced agricultural biodiversity by relying on just a few varieties of each crop. The food supply could be susceptible to pathogens that cannot be controlled by agrochemicals 

 - Many valuable genetic traits, bred into traditional varieties over thousands of years, are now lost

- Wild plant and animal biodiversity was hurt because the Green Revolution expanded agricultural development into new areas where it was once unprofitable or too arid to farm

- The 20/80 phenomenon - the rapid increase in farm size and the concentration of production among large producers means 20% of producers generate 80% of the agricultural output

- As a result of modern irrigation practices, aquifers in places like India (once Borlaug's greatest triumph) and the US mid west have become depleted. There are two types of aquifers: replenishable, most of the aquifers in India and the shallow aquifer under the North China Plain are replenishable – depletion means the maximum rate of pumping is automatically reduced to the rate of recharge. For fossil, or nonreplenishable aquifers - like the U.S. Ogallala aquifer, the deep aquifer under the North China Plain, or the Saudi aquifer - depletion brings pumping to an end. In the more arid regions like the southwestern United States or the Middle East the loss of irrigation water could mean the end of agriculture in these areas

- Green Revolution techniques rely heavily on chemical fertilizers, pesticides and herbicides, some of these are developed from fossil fuels which makes today’s agriculture regime much more reliant on petroleum products

- Farming methods that depend heavily on chemical fertilizers do not maintain the soil's natural fertility and because pesticides generate resistant pests, farmers need ever more fertilizers and pesticides just to achieve the same results

- The increased amount of food production, and foods low price, led to overpopulation worldwide

"Some of the environmental lobbyists of the Western nations are the salt of the earth, but many of them are elitists. They've never experienced the physical sensation of hunger. They do their lobbying from comfortable office suites in Washington or Brussels. If they lived just one month amid the misery of the developing world, as I have for fifty years, they'd be crying out for tractors and fertilizer and irrigation canals and be outraged that fashionable elitists back home were trying to deny them these things".
Norman Borlaug, father of the Green Revolution, winner of the Nobel Peace Prize in 1970, the 1977 US Presidential Medal of Freedom and the US Congressional Gold Medal in 2006

The Green Revolution's use of hybrid seeds, irrigation, chemical fertilizers, pesticides, fossil fuels, farm machinery, and high-tech growing and processing systems combined to greatly increase agriculture yields. The Green Revolution is responsible for feeding billions - and likely enabling the birth of billions more people. 

A Harsh Reality

The modern agricultural complex spawned by the Green Revolution may have allowed us to grow more food, but dependence on this high cost industrial input type of system extracts an extreme toll. 

"The earlier Green Revolution has been criticized for excessive use of pesticides, excessive use of fertilizer, overexploitation of ground water, and so on. It had a number of negative consequences – we were able to revolutionize agriculture in the northwest part of India*, [but] it’s now in ecological distress." Dr. Monkombu Sambasivan (M.S.) Swaminathan, father of India’s Green Revolution

* New technologies were introduced to grow the new varieties of seeds - chemical fertilizers, pesticides and the drilling of thousands of wells for irrigation. 

By 2050, the world's population is expected to reach around nine billion - minimum and maximum projections range from 7.4 billion to 10.6 billion. Norman Borlaug is on record stating he believed that 100% adoption of presently existing Green Revolution practices (and adaptation of well advanced research in the pipeline), could feed 10 billion people on a sustainable basis.

"Future food-production increases will have to come from higher yields. And though I have no doubt yields will keep going up, whether they can go up enough to feed the population monster is another matter. Unless progress with agricultural yields remains very strong, the next century will experience sheer human misery that, on a numerical scale, will exceed the worst of everything that has come before". Norman Borlaug

Unfortunately the high yield growth is tapering off and in some cases declining. This is in large part because of an increase in the price of fertilizers, other chemicals and fossil fuels, but also because the overuse of chemicals has exhausted the soil and irrigation has depleted water aquifers. 

Dr. M.S. Swaminathan said: “stagnation in productivity is due to depleting natural resources base such as a steep fall in ground water table, impaired water quality, increasing input cost - particularly diesel, deficiency of micro-nutrients in the soil, deteriorating soil health, and high indebtedness of farmers.”

There has been almost no real increase in funding of the international agricultural science effort since the 1970s. This global decline in agricultural R&D means less new technology will be available to farmers. What is available are Genetically Modified Organisms (GMOs) - heavily bio-engineered seeds - which rely on the same industrial credits – fertilizers, pesticides, diesel and irrigation - that the first Green Revolution did.

Conclusion

Narrowly focusing on increasing production as the Green Revolution did cannot alleviate hunger because it failed to alter three simple facts - an increase in food production does not necessarily result in less hunger - if the poor don't have the money to buy food increased production is not going to help them.

Secondly, a narrow focus on production ultimately defeats itself as it destroys the base on which agriculture depends – topsoil and water. 

And thirdly to end hunger once and for all, we must make food production sustainable and develop secure distribution networks of needed foodstuffs.

Here’s a final word from the father of the Green Revolution:

In his Nobel lecture of 1970, Borlaug stated: “Most people still fail to comprehend the magnitude and menace of the population monster. The rhythm of increase will accelerate . . . unless Man becomes more realistic and preoccupied about his impending doom.”

In July 2007 Borlaug was awarded the Congressional Gold Medal, the wording of the law by which it was awarded said: “Dr Borlaug has saved more lives than any other person who has ever lived.” 

The world spends $1500 billion a year on weapons - perhaps we should put more effort into playing nice and spend more on figuring out how to feed ourselves?

Let’s hope that the next developments in Green Revolution food production are at least as successful as the first. Lets also hope making Green Revolution Two a little more environmentally friendly is on the radar screen.

Because if it isn’t, it should be.

Richard (Rick) Mills
rick@aheadoftheherd.com
www.aheadoftheherd.com

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Richard is host of www.aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, FNArena and Financial Sense.

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Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report. 

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