November 25, 2017

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Opportunities in This Developing Crisis

We are five years into a severe global food crisis that is very unlikely to go away, says the well-known US fund manager Jeremy Grantham of GMO.

Food Needs in Agribusiness

Food Needs in Agribusiness

This developing problem is badly underestimated by almost everybody, he argues. It will threaten poor countries with increased malnutrition, starvation, even collapse. Resource squabbles and waves of food-induced migration will threaten global stability and global growth.

Paul Conway, vice-chairman of Cargill, the world’s biggest agribusiness, says the world’s hundred-year decline in food prices relative to personal incomes “is probably over.”

Over the past decade the average price of food as measured by the United Nations has tripled. The poor feel the pain – Egyptians now have to spend 40 per cent of their income on food.

Although there are temporary factors that worsen the situation, such as the current drought in North America, the fundamental problem is that demand is growing faster than supply. Driving demand are three factors:

  • Population growth, with the world’s numbers expected to expand to 9 billion or more by the middle of the century.
  •  Rising living standards, especially in Asia. One of the first things the emerging middle classes do with their new wealth is spend it on eating better – less starch and more fat and high-quality protein, especially meat. But that magnifies demand for cereals. It requires 30 kilograms of grain to produce one of dressed beef; 12 to produce one of pork.

Fund manager GTI has identified the scale of the developing problem – in China and India, “half a billion new urbanites will be moving from rice to ribs over the next 20 years.”

  • Huge quantities of crops that would otherwise provide food are being converted into liquid fuels thanks to massive subsidies by governments driven by ecomania and concern about increasing dependence on imported energy. A third of US corn production is converted into ethanol to drive motor vehicles. A tenth of the world’s vegetable-oil crops are turned into bio-diesel.

Little can be done about lowering growth in demand for edible crops except cut the incentives for fuel conversion, which has started to happen.

What about supply of food to meet the expanding demand?

The general assumption is that we need to increase food production by 60 to 100 per cent by 2050. Doing that used to be relatively easy, but is no longer so:

  •  Improvement in grain cultivation productivity has fallen every decade since 1970, down from 3.5 per cent a year to 1.5 per cent, according to Grantham. Quite probably, the most efficient grain producers are approaching a “glass ceiling” where further increases in productivity per acre approach zero at what’s called “the species’ limit” (just as race horses do not run materially faster now than they did in the 1920s). “The big wheat and rice producers have not made any progress for more than ten years.”

Yet, remarkably, investment in agricultural research has steadily fallen globally  as a proportion of economic activity.

  •  Incremental returns from increasing fertilizer use will steadily decline at the margin. It has increased five-fold over the past 50 years, but the easy pickings are behind us.

Expanding use of fertilizer was the major reason for the Green Revolution: firstly, through selection of seeds that could utilize more inputs of fertilizers and turn them into more plant growth, and secondly, providing them with the extra fertilizer.

But beyond a certain point more fertilizer does not improve returns. It does, on the other hand, do increasing environmental damage.

Also, rising costs are putting fertilizers beyond the reach of many who would like to use more of them, especially in Africa.

The net result is that we are deep into diminishing returns with fertilizer and can hope for only modest and decreasing help from this source in the future for increasing the productivity of grain cultivation.

the next article in the series – Desalination is a very expensive answer

CopyRight – OnTarget 2012 by Martin Spring

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