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Ag business consultant foresees rising food prices. (8.15.2007)

ST. LOUIS, MO -- Philippe de Lapérouse, whose French ancestors fought with colonists in the Revolutionary War and has family in France today, for many years has tracked developments in global food and agribusiness markets. A consultant with a long view, de Lapérouse recently explained his thoughts on agriculture and St. Louis as an agribusiness and research center at his office in Ladue.

The crops look really good this year, which could drive down grain prices. But that's apparently not happening yet. Are we shifting to something new with the demand for fuel made from grain like corn and soybeans?

It's larger than saying it's food versus fuel. What we're seeing is a lot of new technologies that have come to the fore because of the improvements in biotechnology. We have genetic engineering and the manipulation of traits of both crops and animals to enhance the efficiency of food production and the production of biofuels.

Have we oversaturated ourselves with ethanol and biodiesel plants?

First, there's a question of timing and cycles. And it's very location specific. We just launched a subscription service to track the capacity in the U.S. by ethanol and biodiesel, starting with the first quarter of 2007. We suspect, based on our latest, second-quarter results, that there may be some leveling off in plant capacity for ethanol, whereas biodiesel is still growing.

Is there a biofuels bubble?

We don't think it's a bubble, but we do think certain sites have been poorly selected. It's a matter of water (for processing biofuels), train tracks (for shipping the fuel), access to feed stocks at competitive rates. It's like the real estate business. It's location, location. It's very dependent on the location and the marketing agreements.

Does the biofuels industry have to be propped up by government aid?

The market needs to be directed because, at the end of the day, we're dealing with a long-term challenge. It's not a short-term challenge. The market needs direction to achieve long-term objectives. Some will argue that mandates are a fair way to structure the market, to put pressure across the board that will force the market to reach equilibrium. Some argue the case for subsidies to prime the pump.

Back to your question about whether there's a bubble. We believe renewable energy, derived from corn for ethanol and biodiesel from soybeans, all play a part. There's no single solution. It's going to be a combination of wind energy, hydro energy and so on.

What's this doing to food prices?

We are going through a period some economists would refer to as "agflation." Food prices have been increasing. But the argument could be made that some food prices, or raw commodities, were kept artificially low by subsidies and that we were paying for them in terms of increased medical costs because of poor eating habits and poor nutrition.

We think food prices will inch up. Whether that's a long-term trend remains to be seen.

We have low food prices compared with other countries, don't we?

Food prices are roughly 6 percent of the average family budget. It's that cheap, whereas if you go to a country like Indonesia, it's 55 percent. The real story isn't what's happening in the U.S. It's what's going to happen on a world basis because of changes in the floor of prices.

We will see some dramatic impact on prices that people have to pay for food overseas, so a small change in the U.S. may have dramatic implications for people who spend over 50 percent of their budget on food. That will have foreign-policy implications. You have to assume that once something moves, something else is going to move, and you have to figure out what it is that's going to change.

Are you talking about Mexican tortillas and U.S. corn prices?

Yes, demonstrations over tortillas. Tortillas are manufactured from white corn. U.S. exports of white corn are limited to 2 percent of Mexico's imports. There was no direct relationship between U.S. corn prices and the price of tortillas. It was just a convergence and correlation in time.

There was a drought in Mexico, so production of white corn dropped. The other major player was South Africa. It, too, had a drop in production, so the world price for white corn increased. It happened at the same time that the price for yellow corn in the U.S. was rising because of the increase in demand for ethanol. In the public consciousness, the ideas got conflated.

Will farm subsidies end in our lifetime?

It's going to be very hard to divorce agriculture from some aspect of subsidies. For one thing, there are the vagaries of weather. We're going to see increased volatility in the weather. But the subsidy load will lighten up over time because there's pressure to do that.

Do U.S. commodity subsidies hurt overseas producers, particularly in poor developing countries? Is there a moral issue here?

That's true, and I think you'll see the private market leading the way on some of these issues. One of the private voluntary organizations has decided to no longer ship subsidized food and sell it in some of these markets and then use the funds for other projects because it recognizes it was destroying the marketplace in the poorer countries.

Because you have French relatives and are fluent in French, you must have felt some conflict over the last few years.

First, I grew up in the U.S., but I was born in France. My mother worked on the Marshall Plan, which is why she was in Europe and how she was in Paris, where she met my father. My American family has always been Francophiles. I'm part English on my French side, so my family and friends always spoke English. We felt at home on both sides.

Tell me about your name.

It means "rocky place." It's a name you find in the south of France.

How do you stay well-informed about trends in agriculture?

I read trade journals, the Post-Dispatch, The Wall Street Journal, the Financial Times, the Economist, the International Herald-Tribune, The New York Times.

Do you get these online?

Some online, some paper. I spend a lot of time reading and talking to people and using the Internet to network with my contacts around the world. I spend a lot of time asking questions. The basis of our business is asking questions.

St. Louis boosters tout this city as an agricultural capital. Is that valid?

Historically, St. Louis had a tradition of being a center of agricultural trading and economy. The VP Parade started as a kind of fall festival. We're on the river system, which is transportation to export markets. Chicago is clearly the capital of risk management in agriculture. Kansas City is a center of grain processing. We're the center, probably, of long-term thinking about biotechnology, with Monsanto and the universities.

Do we have a critical mass yet?

I think that could happen, but I don't think we've reached that point yet.

Article by By Repps Hudson, St. Louis Post-Dispatch

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