The absolute level of food production worldwide is rising. Despite this increase, the price of food has been rising for the last two years – reversing a downward trend in price in real terms over the last 30 years.
This appears to be in response to three factors :
a) the rising oil price, which is increasing the cost of most agricultural inputs ;
b) the ‘nutrition transition’ to increased meat consumption in China and India and other developing countries as personal incomes rise, causing a multiplier effect in the consumption of grain for animal feed ;
c) the rapid rise in bio-fuel production involving the conversion of crops into ethanol, particularly maize in the US, where 25% of the 2007 maize harvest is expected to be used for bio-fuel production.
A rise in the global demand
While overall population growth rate is slowing – it has actually halved since 1970 and now stands at 1.17% per annum – the world’s population is expected to exceed nine billion by 2050. The greatest growth is forecast in developing countries. The desire of the undernourished of today to increase their share of daily calories will also continue to rise steadily.
These two factors are principal drivers of increased demand for agricultural commodities. Supply pressures emanating from the world’s major emerging economies are of particular importance. It is increasingly apparent that the wealthier Chinese or Indian consumer is attracted to the so-called Western basket of goods, with an increasing taste for livestock products including dairy.
The annual per person demand for meat in China has risen from 20 kilograms in 1985 to about 50 kilograms today. That has resulted in a continuing increase in the overall grain requirement – each kilogram of beef requires about eight kilograms of grain-based animal feed to produce – and mounting strain on water supplies. Population growth and changing patterns of nutrition are a continuation of trends that have been observed over several decades. They are set to continue ; and, as the world’s population grows and per capita incomes rise, the Food and Agriculture Organization (FAO) predicts that food demand will grow by 55% between 1998 and 2030.
Global Supply : improving, but not sufficiently.
Over the last 25 years, global food production has doubled. The expansion of agricultural land
accounted for this to only a limited degree, increasing by less than 10% in the period. Improving crop volumes may be attributed mainly to higher productivity
per hectare through the increased use of irrigation, the application of fertilizers, and the adoption of high-yield crop varieties. But for wheat, rice and whole milk, this upward trend in productivity is now levelling off or actually falling. Since the data exclude the volume of grain diverted for livestock feed, the decline in production per capita for wheat may in reality be more marked than actually shown. The implications of this could become more
significant in the longer term as demand for food and feed continues to grow.
Against this broader background, a number of factors are affecting the short-term balance between the demand and supply of agricultural commodities :
-poor weather conditions for food production in recent years, particularly the droughts affecting successive Australian harvests ;
- the running down of global grain stocks in an effort to cut storage costs, because of the increased efficiency of supply chains and depressed market prices in earlier years ;
-the rise in energy prices, in part attributable to increases in stored capacity as a response to concerns about future energy availability ;
-increased interest in the trading of agricultural commodities, a process that may in itself contribute to rising prices.
Future challenges
Anxieties are mainly expressed in terms of anticipated limitations on the future global availability of land, water and the energy required for agricultural production.
Land availability
The consensus seems to be that the area of land cultivated globally is not likely to increase substantially in the shorter term. However, there is potential for longer-term expansion, most notably in sub-Saharan Africa and South/Central America. In reality, rather than seeking to expand production through the exploitation of additional rain-fed land mass, increases in food output since 1990 have been achieved largely through farming measures such as the use of fertilizers, pesticides and irrigation. Land use per capita in that period has actually been falling. This fall may be attributable to the rising cost of irrigation and attendant problems of soil salinization and water shortage. There is also widespread concern at the extent of land degradation. The amount of land classed as irreversibly destroyed for most practical purposes by land degradation is 3.05 million square kilometres ; that is 2.3% of the world’s total area and equivalent to 21% of the arable area currently available globally (14.6 million km sq).
Water levels
Production of the per person/per day food requirement needs between 2,000 and 2,500 litres of fresh water, so the expansion of food production necessary to meet growing demand will have serious implications for the world’s fresh water resources.
Water shortages are already evident in many regions, with particular concerns in Asia. UNESCO predicts that by 2050, at worst, seven billion people in countries will experience water scarcity ; at best, it will be two billion in 48 countries.
According to the FAO, the potential for the expansion of irrigated land, particularly in arid or dry land areas, is ‘extremely limited’. Such is the severity of the shortage that UNESCO predicts that some countries will be forced to ‘rely increasingly on importing food to satisfy domestic demand’.
Oil
In 1949 Dr M. King Hubbert was the first to postulate the concept of ‘peak oil’ and the idea that the fossil-fuel age would be of relatively short duration. There is still no consensus on that in terms of the global position observed today. What is clear is that, since 1980, the rate of new oil discoveries is not keeping pace with the growth in demand. In one application of the Hubbert model, a scenario by Colin Campbell of the Oil Depletion Analysis Centre (ODAC) predicts that production will peak between 2005 and 2010, and shows oil as currently going through a period of global under-supply. The effects of rising oil prices have impacted on fertilizer production. Prices of some supplies have risen to a level ‘not witnessed in the past 10 years’ and are forecast to remain high, at least in the short term.
A structural shift in the worldwide food system
Despite the absolute increase in food production worldwide, world population growth linked to changing consumption patterns is outstripping the increase. Per capita grain production is now flat and the per capita area of irrigated agricultural land is falling. This reveals what may be a more fundamental underlying shortfall, involving a permanent inability to meet the growth in demand for food arising from population growth.
This phenomenon, if it continues, is directly comparable to the postulated notion of ‘peak oil’ in that it too involves an endgame inability of worldwide production to keep pace with demand growth.
The factors revealed by these observations, some of which represent a significant departure from the ‘business as usual’ assumptions of the last three decades, hold the seeds of possibly disruptive geo-political outcomes. The exact shape of the future will depend on the interplay of key variables related to these factors.
The most challenging insights suggest that food may be entering a period of fundamental production constraint, triggering driving forces that could go well beyond a simple question of high food prices. This possibility implies that, in response, we may see a far-reaching structural shift in the worldwide food system. In the body of supply network opinion consulted, there is a widely held view that, in the longer term, global supply may not be able to meet demand unless a different, more holistic, approach is adopted. The need for sustainable management of the global resource base emerges as an issue of fundamental importance, with constraints on the supply of oil, water and land demanding particular attention.
