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Monday, Dec. 7, 2009

Agriculture must be rebuilt ahead of oil's 'noble' limits


Crude oil prices started plummeting only two months after hitting a record high in July 2008, due to the financial crisis triggered by the collapse of Lehman Brothers. Speculators suddenly shifted their strategies from "buying" to "selling" in anticipation of weaker demand amid the global economic downturn. Although the price had fallen by as much as 70 percent by February this year, it has since been on the rise again.

According to the International Energy Agency, oil prices are likely to exceed $200 per barrel (159 liters) by 2030 — first, because oil reserves are finite and, second, because motorization is progressing with no end in sight in newly rising economies like China and India.

Once crude oil becomes that expensive, I believe its use will be limited to "noble uses" — petrochemical products mostly, because modern society cannot do without petroleum-based materials such as plastics, synthetic rubber, chemical textiles and polyethylene.

Motor vehicles powered by gasoline or light oil will become luxury items and soon disappear from the marketplace, as electric vehicles and plug-in hybrid cars account for a large majority of automobiles. A combination of biofuels, electricity and IT-controlled sails will serve as power sources for trucks, buses and short-haul ships; while oceangoing vessels will run on hybrid power sources made up of fuel cells using hydrogen converted from natural gas, solar power panels laid out on decks and internal- combustion engines burning heavy oil, all of which will be aided by wind power propelling IT-controlled sails.

It may be possible to fly aircraft with biofuels, fuel cells and hydrogen. But long and high-speed flights across the Pacific will likely continue to require the use of jet fuel, which will also be rated as one of the "noble uses" of crude oil.

Be that as it may, a combination of internal-combustion engines and electric motors is destined eventually to become the principal power source for aircraft just as for oceangoing ships.

Prevailing circumstances indicate that, at least for the immediate future, transportation of passengers and cargoes will continue to rely on heavy oil for long-haul ships and jet fuel for aircraft. Moreover, hybrid ships and aircraft will remain much more expensive than their conventional counterparts. Also the price of natural gas, the source of hydrogen, is likely to go up.

One factor contributing to the rapid progress of globalization since the late 1990s has been the drastic reduction in the cost of transporting people, goods, money and information. The cost of moving money and information is likely to remain near zero in the future — with the click of a computer mouse. In stark contrast, however, transporting people and goods is likely to become increasingly more expensive with the rise of crude oil prices. As a nation heavily dependent on imports for grains and fuels, Japan is destined to pay much higher prices when the costs of freight and insurance are taken into account, even if commodity prices themselves remain low.

It is conceivable that the rising costs of transportation will result in making Japanese agriculture more competitive internationally. Consumers are expected to become more inclined to buy farm products produced in their own vicinity.

High transport costs could make it impossible to manufacture automobiles and other products in Japan for export to other countries and may thus necessitate a shift of production to where the market is. The number of flights will be reduced, discount air tickets will cease to exist and international and academic conferences will be held less frequently.

All these trends seem to point to a reversal of "globalization" back to "localization." Viewed from a different angle, though, shifting production and assembling processes from the home country to marketplaces might turn out to be another step forward in globalization. At any rate, countries like Japan, which have depended on processing and assembly, could end up exporting employment opportunities, further aggravating the employment situation at home.

If so, Japan needs to start rebuilding its agriculture, given its heavy reliance on imports for its food supply. Revival of agriculture cannot be attained overnight. Agriculture must be made more attractive to younger generations to make up for job losses resulting from shifting manufacturing bases abroad.

It is no exaggeration to say that one of the most urgent tasks facing the government is to study and implement expeditiously those actions needed to make agriculture attractive to younger generations.

Takamitsu Sawa is a professor of Ritsumeikan University's Graduate School of Policy Science and an appointed professor at Kyoto University's Institute of Economic Research.


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