Category Archives: Economy

Ownership of food: the seeds of future conflicts

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From an agriculture that mostly was producing locally for a local market with a straight forward production chain, the organization of food production has become more complex and structured over time. As we moved towards always more integration, traceability and globalized markets, the roles and bargaining positions of the different actors has changed.

bargaining power evolves

Facing the possibilities of more food riots in the future, if we are not in a position to make food affordable for all, we certainly can expect to see new power struggles emerge.

If we place ourselves in a scenario of food shortage, it is normal to assume that the power would be in the hands of whoever owns the food. But who is the owner, or better said who is actually in charge?

Is it the retailer? Is it the farmer? Is it the owner of the land on which the crops are grown? Is it the futures contract trader? Is it the seed supplier? Because without farmers, there is not much food in the stores; and without seeds, farmers cannot grow much food, and without food, no futures contracts to negotiate.

In the same way, who should decide where to the food would go? Does it belong to the country and the people who produce it, or does it belong to a corporation that prefers to sell it abroad? In a situation of shortage, this could lead to serious conflicts.
Corporations look primarily at markets and try to maximize their profit. That is their mandate.
Governments have a different look at things, as politicians want to have happy citizens, so that their position of power can continue. All they want is avoid social unrest.
Potentially, this can lead to new regulations and even to the possibility of nationalizations if companies and governments do not agree.

To get back to the example of seeds and genetics, there is a growing responsibility resting of the shoulders of breeding and genetic engineering companies. Not so long ago, let’s say a bit more than a century, there was much more genetic diversity in agricultural crops and farm animals. This diversity has shrunk quite significantly and we face the potential risk of not having the right genes available if we were to face a natural situation that would eradicate plants or animals as a result of inability to resist and to adapt to the new conditions these organisms must deal with. The genetic pool used to be a collective asset, but it has moved more and more into a private asset. About this, too, one can wonder who is in charge and who has ownership, and what could the consequences be.

As long as we are not facing any severe supply unbalance, the current situation will probably linger as it is a bit further, with the players having the most power trying to grow their position and influence other deciders to their advantage, but this kind of consensual vagueness about who is the owner of food will sooner or later cause some major shake-up.

Copyright 2009 The Happy Future Group Consulting Ltd.

The lurking menace of weeds – Farmers’ enemy #1

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Here is quite an interesting article from the FAO about the cost of weeds in agriculture.

the more weeds, the less yieldAccording to their numbers, weeds limit crop yields to such an extent that the world misses yearly the equivalent of 380 million of wheat a year, or in money $95 billion. My first reaction was that there is an untapped market for herbicides producers, but the article describes ways of getting rid of the weeds that do not require the use of chemicals.

Compared with the medical cost of obesity in the US of $147 billion a year, or the contribution of the US meat and poultry industry of $382 billion per year to the economy, or the TARP funds for the banks of $700 billion, or the estimated financial toxic assets losses worldwide of $4 trillion, the $95 billion does not seem that big a number after all.

Yet, 380 million tonnes wheat equivalent represent, according to the FAO, half of the 2009 expected world wheat production!

Assuming simplistically that with this wheat we would feed people only a diet of bread, this could feed decently more than 1 billion people! This is all the more amazing as the FAO currently estimates the number of hungry people in the world at 1 billion. Clearly, there should be some possible solutions if policies and politics were targeted at the right goals.

Always interesting to put numbers in a different perspective…

Kraft Foods reduces global plant water use by over 20%

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Here is an illustration of what I wrote in two previous articles (Managing water is paramount for the future of food production and Sustainability: As Natural As Balance). Read the article about Kraft Foods at http://www.meatinternational.com/news/kraft-foods-reduces-global-plant-water-use-by-over-20%25-id1718.html

Nutrition basics should be taught in school

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When food costs twice!A recent report showed that the annual medical cost of obesity reached $147 billion (see article). On the other hand the contribution of the meat and poultry industry in the US is $832 billion annually. Therefore, we can expect ongoing arguments between economic interest and health care costs for a while. The simple fact is that too many Americans do not eat a properly balanced diet and that should change.

The most efficient way to improve eating habits is by understanding nutrition and educating children at an early age about health and food, and about diseases caused by either unbalance or excess. Food safety is not only about bacteria or residues, but also about handling food properly and eating right.

People know actually very little about proper nutrition. The average person may have some ideas about how many calories he/she needs on a daily basis, but it hardly goes much further than that. Only few people know how many grams of protein they should consume on a daily basis. They know even less how many grams of fat they need. When it comes to carbohydrates, the situation is just as confused and confusing. Most people do not even know how the different groups of carbs (starch, sugars and fibers) are metabolised and what ratio between them they should consume. The result is a diet that has negative long-term effects.

If the FAO estimates the daily calorie needs at 1,800 for an average human being, the averages in developed countries are much higher, reaching about 3,500 on average for Western countries and even 3,800 in the US. The same conclusion is true for protein and other nutritional elements. It should be no surprise then that when people eat twice as much as they should, they get twice as big as they should, too. The reality is that in developed countries, people do not eat what they need, but they eat what they want. And they want too much.

Balanced nutrition is not difficult to understand, but someone needs to teach it. As parents have about as little knowledge and understanding as their kids do, schools would be quite well inspired to put nutrition on their curriculum. After all, schools are the places where future generations are educated to do the right things in the future, or at least it should be part of their mandate. Helping people eating right is part of creating healthy and prosperous societies. Sick societies will not be leaders. Of course, including nutrition in the curriculum is not enough for schools. They must also provide foods and drinks that contribute to healthy eating. Offering kids access to junk foods and junk drinks in vending machines may generate revenue for schools, but it works against helping kids to have a healthy diet. If they have the choice, kids will not spend their lunch money on water and broccoli. The responsible adults in charge must help them make the right choices. Offering treats is not to schools to decide, but only to the parents.

For more on similar topics, please visit my other website The Sensible Gourmet

Copyright 2009 – The Happy Future Group Consulting Ltd.

Rebuilding fisheries is a must for the future

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Rebuilding fish stocks will be good for us allAs everyone knows, fish stocks have been depleted to levels that are not acceptable. This is the result of short-term thinking combined with highly efficient but stupid fishing methods. Not only fish is a high value food source, but oceans are complex ecosystems that we cannot afford to lose. Although aquaculture claims to be the way to compensate the supply of wild fish, this is only true within limits, as some aquaculture species are fed with fish meal and fish oil, and replacement of these products is also limited by the quantities that agricultural crops can supply, and consequently their price.

As one of the points that I mention in my presentation “Twelve trends for the future of food production” (under Presentations tab), we can expect that programs will be set up to rebuild wild fish stocks and bring the volumes back to levels with which sustainable fishing methods and quotas will help provide us with more secure supplies. This will be some sort of a stimulus plan for seafood with all stakeholders involved: government, fishermen, aquaculture industry, retailers, food service and consumers.

A recent report published by the Pew Charitable Trusts has reviewed the possibilities and the economic impact of rebuilding fisheries in the Mid-Atlantic Ocean, as well as the downside of doing nothing. A Canadian research has worked in a similar direction and tend to show that rebuilding fish populations is possible, citing a number of successful cases (see article).

All that comes out from these reports is that the situation, although quite serious, is far from lost, but it requires political will and organization to make it happen. This is exactly why all parties involved from whichever country concerned will have to act in a coordinated manner.

Copyright 2009 The Happy Future Group Consulting Ltd.

The future price of meat and fish: up

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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.

Consumption per capita will decreaseWhat 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!

Copyright 2009 The Happy Future Group Consulting Ltd.

G8 shifts focus from food aid to farming

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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

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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 timeWe 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.

Copyright 2009 The Happy Future Group Consulting Ltd.

The buried treasure: Arable land under our cities

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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 asphaltInevitably, 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.

Copyright 2009 The Happy Future Group Consulting Ltd.

Will globalization lead us back to local thinking?

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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.

Copyright 2009 The Happy Future Group Consulting Ltd.