The future price of meat and fish: up

Posted on July 17, 2009 by Christophe Pelletier

With a world population increasing strongly and an agricultural area that will not grow accordingly, the law of offer and demand clearly indicates that agricultural prices will increase in the future. This is true for agricultural commodities such as grains, but the increase will be even stronger for animal products, such as meat, poultry, dairy and fish.
This will be the result of an increasing and very likely quite aggressive competition between the need to feed people with the basic commodities, the need to feed farmed animals and possibly for some time the need to produce biofuels.
Since it takes more than one and even several kilograms of animal feed to produce one kilogram of meat, the feed conversion ratio (FCR) will affect by which factor the price of the various animal products will increase.
Efficient productions like chicken will be successful and will remain quite competitive pricewise against other sources of animal proteins, thanks to its low FCR, to its low water use and to the good agricultural value of its manure. In the aquaculture sector, efficient productions such us tilapia and pangasius have a bright future ahead, as they can help feed a large population for an affordable price. In general, aquaculture has the opportunity to fill the huge gap left by depleted wild fish stocks, although it will have to solve some issues in order to be successful (see my article titled “The lessons of intensive animal husbandry to aquaculture“). In terms of price, the scarcity of wild fish will make these quite expensive for the future.
Less efficient species such as pigs and beef cattle will see the price of their products increase relatively much more. Pigs also have the disadvantage of producing low quality manure, which will limit the level of intensification. However, pork plays an important role in some cultures, and therefore, it will still show a reasonable volume growth, with geographical variations.
A high FCR species such as beef cattle will probably undergo the most dramatic change. Higher feed costs, linked to a relatively high capital need will probably push a number of farmers to shift to other more efficient productions. Highly intensive systems such the feedlots will also undergo major changes, as regulations on the use of antibiotics and hormones will make them financially inefficient. Further, their high impact on the environment because of the manure will also work against them. I do not expect the 99-cent beef burger to be here for all that much longer, burgers will continue to exist, but just quite a bit more expensive. On the other hand, I can see good possibilities for specialty beef products, such as grass-fed beef, but customers will have to pay the right price for it. Grass is the animal feed that we all seem to underestimate, yet it covers vast areas of very often fragile soil, and cattle is one of the few species that can transform it into high value protein.
In the aquaculture sector, a carnivore species such as salmon will also meet its own limitations. Although, salmon feed has shifted from mostly fish oil and fishmeal to a much more complex mix of vegetal oils, this production will see its production costs rise strongly. I expect salmon to become a luxury product again.

What will a higher price mean?
There again, simple economics tell us that this will influence the level of consumption per capita. The price increase will moderate the level of consumption and the price differential between the type of protein, as well as health concerns, will cause a shift between the respective consumption of the different products. In Western countries, people consume quantities of animal products that are substantially higher than what they actually need, and this has led to many health issues. The decrease in consumption will help make people healthier, and reduce the burden of health costs in that part of the world.
In developing countries, the situation is different, as consumption trends show an increase of consumption of animal products, from rather low levels, though. In these countries, consumption per capita will increase, but will not reach the levels that Western countries have shown, simply because prices will be too high to get to such levels.
The decrease of consumption per capita that we will see in developed countries does not mean that the meat industry will get into trouble. Less average consumption per capita in the West will be more than compensated by the growth in emerging countries, where population numbers are significantly higher, and this will lead to a higher global demand of animal products. The main change is that the consumers will be distributed geographically rather differently than they are today. This also means that production will be located in different areas than today.

Just as a teaser: if Western countries consumers were to reduce their meat consumption to just the necessary maintenance needs, it would free volumes enough to cover the maintenance needs of meat for the whole population of China!

Poultry husbandry of the future

Posted on July 14, 2009 by Christophe Pelletier

Here is an article by Bernd Meerpohl of Big Dutchman on poultry husbandry systems of the future. Not surprisingly, he did not present any revolutionary new developments for year 2034, but I miss some aspects that I believe will be important for the future.
Markets will be different, just because the consumers will not be located in the same as now. Different markets with different needs will mean further evolution in breeding strategies. We will deal with energy and environment in a different light, and this will affect production systems. Climate control, lighting systems, transportation, distance between producers and consumers, bird catching and bird processing, packaging systems will all evolve because of the need to preserve energy, food and water, as well as increase efficiencies.

World Nutrition Forum: The future starts now

Posted on July 8, 2009 by Christophe Pelletier

Here is an article reporting about the World Nutrition Forum held recently in Austria.

It presents the future of animal productions quite along the same lines as I think.

Efficiency, innovation and location will become the key components for the future.

Efficiency will act as a “natural selection” between the species farmed, as an increasing need for protein combined with a limited volume of feedstuffs and water will decide what productions can grow the most and which ones might not be able to do so. Poultry is definitely a winner thanks to its low feed conversion ratio and to its relatively high water use efficiency, pork is uncertain, and cattle will have the toughest time, although cattle is the only production that can transform cellulose into animal products, so the production systems will likely change and offer a different kind of future for beef.

Location of production will follow the location of the consumer markets. With a population increasing strongly, as well as their standard of living is improving, Asia will become a very active production area. This probably will also be the result of a need to reduce transport costs, as well financially as environmentally speaking.

Innovation, as I have mentioned in previous articles, will be a key driver for the future of animal feed and of animal productions. I am quite glad to read that the industry is fully aware of this need, and also that they see their future in “creating value” more than just “cutting costs”.

Although the conclusions of this forum are quite encouraging and positive, the next step might be the challenging one: how to turn these great ideas into systems that will work and will ensure the long term future of the production side as well as of the consumption side? It will all be in the proper planning and execution that this will succeed.

G8 shifts focus from food aid to farming

Posted on July 6, 2009 by Christophe Pelletier

Here is an interesting article from the Financial Times describing the new approach from G8 countries towards food security. It connects with my previous posting, and shows how strategic agriculture is becoming. It is also nice to see that some world leaders look at this issue in a more sensible manner than in the past, shifting from “give a man a fish, he will have food for a day” to” teach him to fish and he will have food every day”. Well, that is if we manage to replenish our oceans, which is a topic on which I will write in the future.

Of course, it must be clear that if they choose this new approach, it is because they have an advantage in doing so.

The competition for the control of food has started

Posted on July 2, 2009 by Christophe Pelletier

A couple of recent articles (Foreign cropland deals and Professional investors look toward overseas farmland) show clearly how much action there currently is about securing food sources in the future. Many players are involved, from countries buying or leasing foreign land, to investment firms and hedge funds.

Agricultural commodities have become quite hot and are expected to become even hotter.

In the future, we can expect to see more of such land acquisition, we will see more alliances, like the “Black Sea Wheat Pool” in which Russia, Ukraine and Kazakhstan are supposedly joining forces to build a strong wheat sort of OPEC. Although considering the relationship between Russia and Ukraine about natural gas, one can wonder what will happen with this.

Taking control one piece at a time We must expect strategies about food supplies that will remind us of what we have seen about oil supplies. Politics are going to play an increasingly important role. After all, we can live without oil, but not without food. There will be aggressive moves from countries that are not self-sufficient, first friendly like the land purchases and leases, but there probably will be a point when this might not be enough and regional conflicts will happen. Some exporting countries will also take a more aggressive stance on prices and on availability, but they also will have to be aware that too much arrogance might end up in serious tensions.

In my view, we are going to see very interesting tactics that will include food, energy, trade agreements, diplomacy and military threats as part of the whole bargaining process.

Similarly, we can expect to see more tensions between private firms involved in food and governments. Locally, we can expect nationalizations of land and factories. More regulations of the markets will take place, probably after excesses from privately owned money, investors and businesses will create another “bubble” with agricultural commodities futures contracts, that will end up destabilizing food markets in a somehow similar manner as the financial world has acted for many years before it faced a meltdown.

The buried treasure: Arable land under our cities

Posted on June 24, 2009 by Christophe Pelletier

Will we see science-fiction urbanism? Will we become urban gardeners?

As the population increases, so does the need for food. In the press, you can read statements like “we will need four Earths by 2050 to feed the world”, although some predict only three.
Fact is that we will not have extra planets to grow our food, and we will either find ways of increasing food production or the world population will regulate itself, be it through famine or wars.
The buried treasure underneath the asphalt Inevitably, there will come a time when all apparent arable land will be in use for agricultural production, and there will be a need for more. Already today, we have a vast area of good agricultural land, which is inaccessible, because it is located under cities and roads. This is even more important as the prediction is that the world population will increasingly live in urban areas.
Since the beginning or urbanization, human settlements have developed around the bare necessities, which are water and fertile ground. Today’s major urban centers have been growing from their original core, and they cover a lot of such fertile land. One of the dilemmas for the future will be to accommodate this increasing concentration of population in cities and to keep arable land available. In a later stage, we might have to find ways of recovering this land in some way or another.
In order to conserve arable land from further housing and infrastructure development, we need to think “vertical”. This could mean the end of the individual house, and the further development of higher housing building as the unique model. It is not unthinkable that we will restart agricultural activities in the cities themselves, by allocating some area for gardens both at ground level and suspended on top of buildings, and even the return of farms in the cities. So far, infrastructure had chosen the easy, cheapest and most obvious solution, which was to lay cities and transport on the ground as much as possible. Maybe, we will see an increased redevelopment of roads and transport lines on elevated structures, such as the bridges and the monorail lines that we know today. This could free a huge amount of land for food production. Of course, this sounds like a very costly solution, but food scarcity will make its price skyrocket even more. Another solution, although it seems to go against the trend generally accepted today would be to redistribute the population more evenly between urban centers and agricultural areas.

Rabobank: Sourcing grains critical in animal feed-to-food chain

Posted on June 22, 2009 by Christophe Pelletier

This is an article from World-Grain.com about a report from Rabobank on their outlook of a growth for meat of 50% between now and 2025 and its consequences on feed-to-food value chains.

Albert Vernooij, author of the Rabobank report ‘Changing Industry Landscapes’ says “The global feed-to-food value chain has switched from being supply driven with a long-term sustainable share for each link in the chain, to being demand driven. This is placing the retail and food service sectors in the leading positions, and farmers and abattoirs (slaughterhouses) have become the weaker links”.

Certainly the retail and food service, because they are the closest to the final consumer have the best position to connect to market demand, but I disagree with his statement that the value chains are demand driven. Most of meat products are commodities and retailers and food service companies buy at the lowest price a rather undifferentiated product. Most slaughterhouses and farmers are still purely production driven, or more accurately put, volume and cost driven, instead of being profit and niche driven. Only very few value chains are really market driven, although most are marketing driven, but that is not quite the same.

Will globalization lead us back to local thinking?

Posted on June 22, 2009 by Christophe Pelletier

This might sound contradictory, but one of the effects of globalization could very well be a new impulse for the development of a local economy, with energy as the main driver.

Let’s review a few things! One driver of globalization has been the search for low wages, therefore making corporations relocating their manufacturing units to the emerging countries. Another pillar of globalization has been the ability to transport goods across the world at a low cost, as energy has been in fact quite cheap. A clear effect of the success created by the above is an economic boom in the emerging countries, where employment has risen and where the standard of living has increased, on average. Currently, we are going through this difficult economic situation, but in the future, we very likely will face an increase in the price of oil. This is the energy effect that I just mentioned. Higher energy costs and food prices will drive inflation higher, although not to alarming levels. Nonetheless, this will be pushing wages up in the emerging countries, while unemployment will stay high for a while in the West, where the main consumer markets are. Therefore, we can expect to see the wage differential between those two groups of countries shrink, while transporting goods will become more expensive. In such a situation, it is not unreasonable to think that some manufacturing will come back closer to the Western consumers market. In addition, in the same time, emerging countries should have been able to develop a middle class that will drive domestic consumption, and thus sustain a certain level of economic momentum, even if their exports decrease in relative volume. An interesting consequence of the above would then be global trend towards a more local economy. The currently emerging countries would produce to satisfy their domestic markets and exporting lower surpluses, while the Western countries would repatriate some of the production units back home since it might be cheaper to produce and to transport goods that way to satisfy their own consumers.

Agriculture has followed the same pattern as other industries, and regions have specialized for the foods that they could produce at the cheapest cost. Of course, the cost of production and of distribution to consumers depends largely on the price of inputs, such as energy, fertilizers, animal feed, etc, but from a pure financial, and also climatic, point of view, it could not make sense to try to produce everything everywhere. Thanks to cheap fuel, the model was to go to global trade and transport foods over long distances. This is quite a change compared with the local agricultural model that dominated until the nineteenth century.

This search for the lowest cost of production will not go away, for a very simple reason. The overwhelming majority of the world population has a limited budget and keeping food affordable is an absolute necessity. We have seen during the sharp food price increase of 2008 that it would not take much to create a panic and riots, because even a slight price increase is almost unbearable for most people, especially in developing countries. This is quite a contrast with the wealthy Westerners who claim that cheap food is a bad thing, and that agriculture should be local and small-scale.

Another aspect that is not addressed very often is the actual carbon footprint of food transport. In the partisan debate, most of the arguments focus on the number of miles travelled, but they rarely look at the qualitative aspect of the transport. Depending on whether we transport food by road, by rail or on water, the results vary greatly. For instance, in Brazil, only 5% of exported products were transported by waterway in Brazil, compared to 61% in the U.S. Conversely, 67% of Brazil’s exported products are transported on highways, compared to just 16% in the U.S. In the European Union, almost 90% of the external freight trade is moved by water, and short sea shipping represents 40% of trade within the European Union in terms of ton-kilometers. As you can imagine, the consequences for the environment, as well as in terms of transportation costs differ greatly.

There are also significant differences between transporting fresh foods or frozen foods. A study carried out by Astrid Scholz, Ulf Sonesson and Peter Tyedmers on salmon showed that consuming frozen salmon transported by sea was the better environmental choice for salmon. To illustrate this, their conclusion was “If seafood-loving Japanese consumers, who get most of their fish via air shipments, were to switch to 75 percent frozen salmon, it would have a greater ecological benefit than all of Europe and North America eating only locally farmed or caught salmon.”

Another important parameter in the environmental impact of the distribution of food is the filling rate of the transportation unit. An efficient fleet of trucks that organize back transport for other goods is more efficient than a small truck used by a farmer to bring his products to the city’s farmers’ market 400 kilometers away and who drives back empty.

As you can see, in the choice between global or local, we need to think in pragmatic terms because the reality is more complex than it may seem at first.

The transition from a consumption society towards a maintenance society

Posted on June 22, 2009 by Christophe Pelletier

The days of our consumption society are numbered. We are going to have to find another economic system to prosper in the future as it is part of solving the climate change and CO2 emission issue. Over the last 60 years, all our economy has been based in encouraging consumer demand for goods that have been produced with relatively very cheap energy, very cheap raw materials and as cheap labour as possible, with as cheap credit as possible. This has lead us where we are, which is a group of very wealthy nations wasting very precious resources, to the point of exhaustion and suffocation. Although some still try to resist and deny the obvious, this system is no longer sustainable and we must rethink what should drive our economy. In an earlier article, I made a reference of how previous generations used to be very cautious about what and how they consumed. The positive side of the last 60 years has been the incredible progress we have made in science, knowledge and technology, which offers possibilities unthinkable for the previous generations I was referring to. We understand our world and how it functions like never before. We have all the technological solutions to solve the climate issue, but the key is the will and the determination to change and to act. This cannot happen as long as we keep thinking the economy in terms of growth only. Growth will not go on for ever, simply because our space and our resources are limited. As there are more and more people needing more and more energy, food and other goods, the law of offer and demand will rule. Prices will inevitably go up and consumption will slow down. A new time has come. The priority must now be quality, not quantity, we must think about having enough, not having always more. This thinking is not a nostalgia to a past that also had its limitations. It is not about rejecting a market-based economy. It is about looking at the market that has always been here, but that has been pushed in the background for the easier approach of just producing more and selling it. What we will have to bring to market is not so much products as services. These services are the ones that are directly related to making all the natural and industrial cycles run harmoniously in a durable way. Just to name a few examples, I would mention all activities that are related to cleaning the damage we have caused, and recycling activities will become more and more important in our whole economy. In the same way, water treatment is going to be a crucial activity, even more so than it has been so far. Clean industries producing durable goods and services will prevail. This change will also make some jobs disappear and some appear or even reappear. As usual change always brings opportunities. It is to us to recognize them and to take them. The time has come to make the transition from this consumption society, based on wasting resources, and with no future, to a maintenance society, where wealth, and not growth, will be the economic success indicator. By acting today, we can ensure this process to happen in a smoother way than if we wait until we have no choice anymore.

Photos from AgriVision 2009 – Feeding the globe in 2050

Posted on June 19, 2009 by Christophe Pelletier

Here is a link on a photo report published in World Poultry about the recent AgriVision 2009 held in the Netherlands.

Their objective was to answer the question of how to feed the world population by 2050, which is the basis of my own quest.

They seem to have come to rather optimistic conclusions. This is good news, but that will require the proper leadership as well from the world of politics as from the business world.