ThePanelist.com - Agriculture: The New Global Warming Bad Guy?

Agriculture: The New Global Warming Bad Guy?

Written by David Neubert

Tuesday, 18 December 2007

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 commodiites 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 relseases CO2.

Anna Mack Farm in Sheffield Massachusetts

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.

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Photographs by David Neubert via Flickr