Is Agriculture the New Global Warming Bad Guy?

We know that coal and petroleum companies are mining the raw materials that contribute to greater levels of CO2 in the atmosphere, but who else is contributing? Surpisingly, agriculture, as Mike Brune from Rainforest Action Network [RAN] says:

We launched a major new campaign taking on giant Agricultural companies ADM, Bunge, and Cargill for violating human rights and clearing rainforests to make way for massive soy and palm plantations. Clearing tropical rainforests for plantations, what we call agri-sprawl, generates more than 20 percent of global greenhouse gas emissions. This is the reason why Indonesia is the world’s third-largest source of greenhouse gas emissions, and Brazil is #4.

Number one and two for now are The U.S. and China, respectively, but that order is expected to reverse soon. I find it very interesting that the top two countries are digging up hydrocarbons stored in the Earth's crust and burning them, while Indonesia and Brazil are burning hydrocarbons (wood) sitting on the surface.

These agricultural companies trade at higher valuations (earnings multiples) but benefit from the same high prices of energy and global commodities that are driving up the price of energy. Higher commodity prices and demand mean more land is being put to work. Since a dense rainforest holds more hydrocarbons (burnable substances), burning down the rainforest to build a farm releases CO2.

I wonder how long it will take before others start seeing, not just big oil companies like Exxon (XOM) ($91.73) and Chevron (CVX) ($92.41), as producers of hydrocarbons, but also the big agricultural companies that Brune mentions: Archer Daniels (ADM) ($39.13), Bunge Ltd (BG) ($116.06) and Cargill Corporation (Privately Held - Minniapolis, USA).

Am I buying any of the agricultural companies? Not right now. Because of their higher earnings multiples, I see more downside in agriculture with a global collapse in commodity prices. Upside is about the same for both oil and agriculture.

Disclosure: I do not own XOM, ADM or BG. I do own CVX.

Comments

[Greg Pinelli:]

Two themes working at once..first, the effect of deforestation on global greenhouse gas emissions and second a collapse of commodity prices coming to an economy near you soon.
As to the first...I suggest you protest to the governments involved. The latest ploy is for countries with ecologically critical areas to agree not to develop them in exchange for fees..paid of course by first world countries.
The second issue..a commodity collapse..means a severe worldwide recession or depression. Since China and India and other developing countries have huge commodity demands this certainly means an ugly time for their massive unemployed populations.
Of course..the second event takes care of the first. Am not sure if this is a caution or part of a general wish list on your part. In any case...not a single useful, investible idea in the article. In other words..useless.

2007 Dec 17 09:36 AM

[emily x:]

Previous comment: "not a single useful, investible idea in the article. In other words..useless." Literally, what planet are you living on that you can afford not to care? It's essential to look at the environmental and human cost of any "investible idea" at this point.

Agribusiness is a huge factor in carbon production and by extension global warming. AND large-scale water pollution, caused by massive use of fertilizers and pesticides. "How can I make money off this?" is just not the question to be asking, even on an investment website. Come on, financial wizards, you're supposed to be so smart -- put the brains to use for something greater than your near-term profits.

PS, I don't agree that a "global collapse in commodity prices" is on the way -- maybe a setback in 2008, but the overall trend is up and will continue so for the next 5-10 years. IMHO.

2007 Dec 17 10:55 AM

[User 130995:]

Sorry for interjecting the science of the issue. But global warming is an interplay between the absorption (increased by greenhouse gases) and reflection of radiative energy. It has been studied and published in a peer-reviewed journal that cutting down the rainforest DECREASES the global temperature by increasing reflection MORE than the increase in CO2. There are dozens of reasons to NOT cut down the rainforest, but this is not one.

2007 Dec 17 11:36 AM

[frobe:]

This is true for the polar or boreal forest, where bare ground is white for much of the year, and growing activity is low so little CO2 is taken up (but it is moot for high latitude forests because no one is cutting them down). However, removal of tropical or equatorial forests *will* increase the global temperature because of the lost CO2 *removal* ability (they are actively growing year-round), and because the brightness difference between foliage and dirt is not that large. Burning any kind of forest down is of course even worse, because it directly increases the atmospheric CO2. This was presented in a talk at the December AGU meeting in San Francisco and, I think, can also be found in the Nobel Prize winning IPCC report: www.ipcc.ch/index.htm (I can't find it immediately but there's lots of other good stuff there).

2007 Dec 18 01:37 AM