The International Monetary Financial Committee ended its Spring meeting a few days ago on a cautious note as it pointed to the increased risks to the global economy arising from continued volatility in oil markets.

Though it also recognised that the expansion of economic activity was proceeding at a reasonable pace and macro-economic policies were largely favourable, concern was expressed about the budget and balance of payments deficits in some countries, and especially in the USA.

The committee’s assessment of conditions in oil markets and the world energy situation was noteworthy as it covered both the short- and medium-term outlook. Rather than an appeal to OPEC to simply increase production, there is emerging a more comprehensive view that takes into account the need for policies that promote energy efficiency, new technologies and alternative fuels.

The policy-makers indicated that all of this has to fit within the context of the imperative of energy sustainability and, as others have argued, if we are to preserve life on our planet.

In the past 2-3 years, it has been the strong global demand for oil that has reversed the dynamics in the markets from surplus to tightness to the point where excess capacity has fallen to its lowest level in several decades.

No longer is Saudi Arabia in a position to further open its oil spigots, releasing large additional flows of the commodity from its excess capacity to quell price hikes. Small supply disruptions now lead to sharp temporary price movements.

So new investment is required to improve the supply-demand balance. But even this may not prove sufficient, having regard to the galloping demand for oil by the rapidly growing Chinese economy and the momentum being shown in India, a potentially huge market.

It is not only oil prices that are being pushed to higher levels by strong global demand, and especially China’s boom. More pressure has actually been exerted on steel prices, with the effect that major construction projects worldwide are threatened. In the USA, steel prices have doubled since mid-2003, pushing up construction costs by 20 per cent or more in many cases.

Indeed, the index measuring a basket of steel products in the USA rose to as high as 412.6 in November last year from 165 in mid-2003 before slipping to 330.7 in January 2005.

Other commodities have also been affected, although to a lesser extent. The pressure is being felt in rising costs of gypsum, lumber. plywood and cement. This has led some developers in the USA to begin to scale back projects as they contemplate what is being seen as the largest price increases in materials in the last two decades.

We would also have gotten a glimpse of the tightness in these markets when trying to source materials for the post-Ivan reconstruction activities. And we will also have to deal with these conditions as major hotel, infrastructure and mining projects are implemented in the coming months.

That the decision makers and bodies like the JMA were resilient enough to resist the attraction of dumped cement has worked to the country’s benefit. Instead of being heavily exposed to imported cement at a time of rising prices, we can look forward to locally-produced material from the expanded Carib Cement plant.

The low level of efficiency with which we use energy is a matter which merits serious consideration by those who make investment decisions. Except for the bauxite industry, very little has been done by local businesses to revamp their energy systems in recent years. Once we survived the oil price shocks of 1973 and 1979 and prices collapsed in the mid-1980s, everyone relaxed.

Compounding this lack of interest in energy efficiency has been the ‘motorisation’ of our households in the past 15 years, as the Japanese ‘deportees’ have flooded our island. Other economies have reduced their intensity of use of energy, but we have done the reverse so that the increase in the oil bill is now outstripping growth in all exports combined.

Unperturbed, our people have retained the impulse for street action in case measures are introduced to adjust petroleum prices to realistic levels. Whether the representatives in our Parliament are more aware of the fundamental issues posed by the global energy situation is not clear.

Unfortunately, discussions of these issues have been hijacked by the opportunistic political instincts that have been aroused by gas price movements.

As long as gas prices are seen as a political weapon, there may not be any serious interest in a rational discussion of the oil bill among our parliamentarians. Minister Davies’ proposal to establish a select committee to examine the subject could likely go unanswered.

It may take an initiative among the private sector, the labour movement and the Government to put together a viable policy framework for dealing with the implications of the oil bill.

On a related matter, the prolonged dry weather in our food producing parishes is already affecting the prices of domestic food items. In the earlier months of the year, prices of many of these items had fallen to normal levels as production picked up after the disruption caused by Hurricane Ivan.

The prices of items such as cabbage, tomatoes, lettuce and sweet pepper have risen in April, as the supply has been squeezed by drought conditions. Some other prices have softened, including yam, banana and plantain; and papaya has returned to almost pre-Ivan level. Not so for limes, which have virtually disappeared from the market.

Even as we are focussing on the impact of China’s economic revolution on world commodity prices, we ought not to ignore the future food situation. Up until recent times, that country has been almost self-sufficient in most food items.

But that is changing at a fast rate, as consumption levels rise in line with the rapid growth of the economy and of the incomes of large sections of its massive population.

We should also be reminded that the amount of arable land in China is extremely limited. In the not too distant future, China will therefore be increasing its reliance on imported food, placing pressure on supply and prices.

The restructuring and revitalising of our domestic agricultural sector must be a priority in the medium to long term if we are to cope with an external shock in food prices.

As in the case of dumped cement, we cannot afford to be too comfortable about current prices for imported food items and so neglect local production where this can be feasible. We must look beyond our noses.