Bio-wondering

I've had a hard time convincing myself to write this. I think it's fascinating. I really want to examine it. But I don't have much of a background in macroeconomics and when it comes to international econ I'm a zero. I know it's not simple in any sense. I tried to grill a friend who is a college professor specializing in ag policy about it, and he shook his head and told me the answer was a World Food Prize. I'll put it out there, though, try to stick to the available facts, not make too many assumptions, and maybe I can get some good insights from you-all.

Substantial telecommers Ericsson and MTN along with enormous mobile network trade group the GSM Association are piloting a biodiesel-powered mobile telecom base station in Lagos, Nigeria. Their plan is to buy locally-grown pumpkin seed, groundnuts (kind of like peanuts), palm oil, and jatropha and set up biodiesel processing operations local to their microwave transmission base stations to fuel the mobile network generators.

MTN is already sunk, pretty much up to its clavicles, into constructing itself a new market in Nigeria - and it's the number one provider of mobile services in the country. The company has borrowed $300 million to build the MTN Y'elloBahn - a digital network that, when completed, will allow your mother to call you almost anywhere in Nigeria during your Peace Corps stint. Thanks a lot, MTN! So far, only about 20% of the Nigerian population has cell phones, but growth in this "flat world" of ours is basically assured.

The electrical power situation in Nigeria is a policy issue unto itself. The country is currently in the process of both privatizing and setting up a framework for operation of its electricity grid. Many outside companies doing business in Nigeria generate power for operations without hooking into the national grid, which is woeful with power outages. According to Oyeronke Oyetunde (I have no idea how to say that, either), MTN's Regulatory Affairs Manager, telecoms in Nigeria produce 84% of their own power and get just 16% from the national grid. She claims that the need for companies to generate their own power adds 35% to the cost of constructing new base stations. I have been around lobbyists for too long to really believe her, but I'm sure there's some cost increase associated with installing a generator instead of running a line. And there are ongoing costs, of course. Last year, MTN spent $20 million on diesel fuel for its generators. A cost estimate I found for diesel fuel in Nigeria in February of 2005 had it at about $2.00 a gallon. It's not insignificant, but for a company with $2 billion in sales that same year, it doesn't seem like a whole lot. Lots of successful companies do like to squeeze out the odd million in savings here and there, though, and MTN's biodiesel proposal must make fiscal sense for them.

Their partner, Nigeria, is very excited about development. And, considering that growth in the economies of developing nations kicked the ass of growth in developed countries over the past 5 years (4.8% per year compared to 2%) it seems dreaming big is also trendy. A research report sponsored, dubiously, by Vodafone, but supported by the Centre for Economic Policy Research (CEPR) found that between 1996 and 2003, developing countries gained 0.59 percentage points in economic growth for every 10 more mobile phones per 100 people. When the internet and communications settle in, the result can be Nigerians selling services to Germany, bringing in income from outside the country which can be spent and perpetuate itself locally, as I somewhat discussed in the local production piece. Only on a larger scale that I'm less certain about. But, so, good! Clearly the incentive is there for companies to invest in telecommunications in Nigeria. Investors seem to think it's a country on its way to full participation in the global economy.

But: you can't eat a mobile phone. You can eat pumpkins seeds and groundnuts and palm oil. You probably shouldn't eat a lot of jatropha. Just enough to cure the bellyache.

The three largest crops in Nigeria in 2003 were yams, cassava and groundnuts. The three largest crops Nigerians dined upon were sorghum, millet and cassava. They produced a lot of sorghum, millet and cassava all on their own, but in 2002, Nigeria imported 6.6 megatons of groundnuts. In 2003, they imported 160,000 megatons of palm oil. What is the end result of increasing demand for products that are already in short supply within Nigeria?

First, the price would almost certainly increase. Initially, imports would also have to increase as farmers caught up with the price signals. Then, land formerly used for some other purpose - probably growing a different crop - would be shifted into oilseed production. Chances are that the new oilseed fields would replace food fields rather than other oilseed fields. So local production of food would decrease, potentially increasing the need for food imports and potentially increasing the price of food.

Upon my initial inspection, this argument looks bug-infested when it comes to biodiesel in the U.S., though I need to look into it a lot more before coming to any real conclusions. One main reason is that the U.S., in 2003, was importing only 11% of its food - the two largest imports fruit and fish with olive and canola oils also ranking high. It was estimated in March of 2006 that Nigeria imports about 60% of the raw inputs for its food processing sector. Food imports total an estimated $2.5 billion while exports are a measly $400 million. Not the best ag trade balance for a country with a farming majority.

It seems that importing food is not a choice that Nigeria is making, but a necessity borne from a lack of John Deere equipment, water, diminishing soil quality and any number of other factors. So when MTN asserts that it is improving the well-being of Nigerians by using biodiesel to fuel its mobile network, I have extremely mixed feelings about it. Is it really helpful to increase the demand for already-scarce resources? What comes first - the mobile phone or 3 meals a day? This project prioritizes communications technology first, food security second. Is that okay?

I'm not being sarcastic; I really do want to know. This idea leaves me with lots more questions and no conclusions at all.

Is it, in terms of economics and political stability concerns, okay to rely upon a tech economy to lift up living standards so that a country can afford to import an increasing majority of its food?

The U.S. has always had a policy that food is a national security issue. We refuse to be held hostage with a corn cob to our heads. Food is power - without it, we die. It would be no less for Nigeria. But, really, is domestic food supply a national security issue?

What is the motivation of the group putting this deal together? They claim economic as well as environmental benefits. How are they fueling the biodiesel production facilities - perpetual motion machines? Will they be on the grid? Will they be fueled by biodiesel? Or lions?

Who really benefits, and who pays in this scenario? You need an econometric model to see how it all falls out with the supplies and demands being all shifty-like. Do oilseed prices really increase? Do food prices really rise? Do the telecoms save money? Do more people end up with mobile access? Does more environment get destroyed, and carbon released, from clearing more land? Does the use of tractors go up?
I plead ignorance in my disclaimer and I'll say again, I'm ignorant about so many facets of Nigeria, telecommunications and groundnuts. The most I can hope for is that I haven't made any big errors or insulted anyone. I would love to have pointed out if there's something I'm missing. Or even if you have questions I've failed to ask here. Shoot.