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Food Prices Rise, Open RAN Hype, Latin America Pains and the Week in Review

Blog / Weekly Review

Food Prices Rise, Open RAN Hype, Latin America Pains and the Week in Review

Rising food prices. Global food prices rose for the third consecutive month in August. Meat and dairy prices were relatively flat, but the overall UN Food and Agriculture Organization Food Price Index (FPI) was up 2 percent on a 1.9 increase in cereals prices (most notably sorghum, barley, and corn), a 6.7 percent rise in sugar prices, and a 5.9 percent rise in vegetable oils prices.

What it means: We don’t know yet. But we are starting to get enough data points to progress from indicators to extrapolating a trend. As a result, we’ve been spending the week reading reports on the 2008 food price crisis, during which rice, corn, and wheat prices surged after three years of slowly climbing prices. Initially, many analysts thought the main culprit was increased demand, especially for meat, in India and China. Subsequent studies carried out by the International Food Policy Research Institute and the United Nations found that the factors involved were more varied, and included high energy prices, the weakening of the U.S. low interest rates, and investor speculation in commodities markets.

If you read that and thought, “well, energy prices are low, so we should be fine right!”, guess again. The reason high energy prices were such a problem was also multifaceted. High energy prices meant more demand for biofuels – which is why corn production in the U.S. could not offset global shortages. High energy prices also mean higher prices for farmers, both in terms of fertilizer and transportation. Belarus, the sixth largest exporter of fertilizer in the world last year, is embroiled in political unrest – and its potash workers are on strike as a result. Transportation capacity is declining as prices are surging as well right now – and it is far from clear that there will be enough capacity when it is needed and once more economies start coming back online.

Add on to that low interest rates (the Fed basically just said it would keep rates low indefinitely), a weakening dollar, investor thirst for higher-yielding investments, and weather-related disruptions in China, South America (especially Argentina), the American Midwest, and East Africa, and you’ve got yourself a perfect storm of sorts. It’s too early for us to call our shot on this one, but we are getting increasingly worried about a substantial rise in international food prices exacerbating political stability and threatening attempts at COVID-19 recovery. Others seem less worried, and all we can say to that is we hope they are right.

Open RAN: worth the hype? Dell’Oro Group, a respected market research company focusing on the global telecoms sector, released a report projecting that open radio access network (Open RAN) hardware and software would capture 10 percent of the total radio access network market by 2025. (Currently, Open RAN is projected to garner less than 1 percent of the market this year.)

What it means: For those who need a primer on what “Open RAN” is and why it’s important, you’re in luck – it’s one of the very first blog posts we ever published. Click here to read it. Open RAN has become the U.S. silver bullet in its anti-Huawei campaign. Cutting Huawei off from its suppliers was step one, but the U.S. also needs to present a viable alternative to Huawei, preferably one that does not lock vendors into a long-term relationship and one that broadens the market to include more than just Huawei, Ericsson and Nokia. Open RAN promises to do that by making the hardware and software that will make 5G networks “vendor neutral.” That way, you can pick and choose your components based on cost, rather than having to forfeit your digital soul to a single company.

Open RAN technology is exciting and has come a long way in a very short time. The Japanese company Rakuten is promising to roll out Open RAN 5G networks later this year and the U.S. government is making federal funds available for companies willing to throw their hat in the ring with Open RAN technology. The catch, however, is that Open RAN is a relatively unproven technology right now, and that even if Dell’Oro’s self-admittedly optimistic projection is right, Open RAN is looking at capturing 10 percent of market share in five years. An optimist might look at that figure and think, “well the 5G market is going to be huge! 10 percent of huge is potentially a lot of money!” A pessimist, however, would read Dell’Oro’s conclusions a little more closely, and find lines like, “three of the top five RAN stalwarts have, to varying degrees, indicated they will support some aspects of Open RAN” and “at a first glance it might appear overly optimistic with a baseline scenario suggesting a new technology, which remains relatively untested and some officials believe would need a decade to get off the ground.”

All of which is to say nothing about who is actually going to be producing the Open RAN hardware in question, considering the U.S. manufactured a grand total of zero radios last year. The U.S. might be able to kneecap Huawei, but what is to stop another Chinese company from becoming a global leader in Open RAN hardware, or else some other country, even Japan, from taking the global lead? That is the trouble with protectionist policies. There are no silver bullets. Kneecapping one company doesn’t work. Protectionism is a framework, an overall approach to shaping an entire economic system, and it means protecting domestic champions at every step along the way. The U.S. is certainly talking and behaving like a country that is going to use protectionist policies to get its edge (no pun intended, 5G nerds) back when it comes to 5G rollouts, and that may well be enough for the U.S., or at least, for Open RAN to have its day in the sun eventually.

Just remember that “eventually” probably means more like a decade (if ever) – or five years, if you’re Dell’Oro Group. Forecasting the adoption of new technologies is difficult even in normal times – and 2020 is not normal times.

The remaking of Latin America. Argentina published new controls over the import of goods like motorcycles, electronics, and appliances in the Official Gazette. Brazilian industry is frustrated with Argentina for holding up hundreds of millions of dollars’ worth of exports at the border due to new import restrictions.

What it means: Forgive us if we indulge ourselves in a little bit of a victory lap on this one. We wrote back in April about Mercosur’s murky future. Since then, we’ve seen France practically veto a Mercosur-EU free trade deal because of Brazilian environmental policy in the Amazon, and now, a minor breakdown in Argentina-Brazil trade relations. The former is an important development in its own right, and a sign of just how important climate politics is becoming as a geopolitical force. But the latter development – a weakening of Brazil-Argentina trade relations – is even more significant.

Think of South America in particular as a geopolitical bubble of its own. Isolated from much of the rest of the world, it has its own internal geopolitical dynamic. Foreign countries by and large value South America for its resources, not for its territory. Since 1991, the overwhelming geopolitical dynamic of the region has been towards regional integration, spurred on by Argentina and Brazil. Mercosur was founded in 1991 and ever since integration has proceeded forward. In recent years, however, China has become a more important economic partner for Argentina and Brazil than the two countries are for each other. Add on top of that a serious ideological disconnect between the neo-Peronist Argentine President Alberto Fernández and whatever the right word is for Brazilian President Jair Bolsonaro’s militant populism and you’ve got a problem.

COVID-19 accelerated this dynamic and has catalyzed further disconnects between Brasília and Buenos Aires. We think this trend is going to dominate geopolitics in South America and in Latin America in general over the course of the next decade, and is why we took the time to write our own strategic framework for the Western hemisphere. At just the time the U.S. is beginning to pay more attention to Latin America, a major geopolitical shift among two of its most important countries is underway, and both governments and businesses need to make plans accordingly.

Honorable mention

A brave man from Lincoln, Nebraska is petitioning Lincoln City Council to rename “boneless chicken wings” to reflect the fact that they are not, in fact, chicken wings. We salute his struggle. God speed, Lincoln!

China’s Ministry of Commerce announced new export controls that restrict transactions and trade related to artificial intelligence technologies.

Taiwan’s Council of Agriculture said it would allow imports of pork containing ractopamine. Taiwan’s main opposition party, the Kuomintang (KMT), protested the move and urged local authorities in Taiwan to oppose the move.

A caravan of 600 vehicles clashed with Black Lives Matter protesters in downtown Portland last weekend, leading U.S. President Donald Trump to threaten to send the National Guard and the Portland Police to break up at least one demonstration that it called an “unlawful assembly.”

U.S. Secretary of State Mike Pompeo approved plans to halt $130 million worth of aid to Ethiopia due to its filling of the Grand Ethiopian Renaissance Dam.

Japanese Chief Cabinet Secretary Yoshihide Suga has emerged as the frontrunner to replace Japanese Prime Minister Shinzo Abe. See our take on Abe’s surprise resignation announcement from earlier this week here.

The Office of the U.S. Trade Representative released a statement saying the U.S. was pursuing “government-to-government discussions with Mexico over the next 90 days to address U.S. industry concerns regarding U.S. imports of Mexican perishable products.”

German Chancellor Angela Merkel said she had seen “shocking information” that demonstrate “beyond a doubt” that Russian opposition figure Alexei Navalny had been “the victim of a crime intended to silence him” and that the Russian government had “very serious questions” to answer.

Scottish First Minister Nicola Sturgeon said she would move forward with presenting a draft bill setting out a timeline for a new Scottish independence referendum.

U.S. Secretary of State Mike Pompeo told Republic of Cyprus President Anastasiades in a phone call that the U.S. would temporarily lift an embargo on non-lethal defense articles and services for FY 2021.

Mozambique sent additional soldiers and security forces to the Cabo Delgado region in an attempt to reinforce troops already stationed there in their battle against Islamist insurgents.

END