Is animal farming really on the way out?

October 22, 2018

Lately in the food world, one can read many stories about alternatives to protein from animal farming. Animal farming also gets blamed for its contribution to greenhouse gas emissions. With so much finger pointing, one can wonder whether animal farming has a future. Proponents of alternatives do all they can to convince everyone that the writing is already on the wall. Personally, I believe that things are far from being that simple.

To predict what scenarios are likely for the future, it is necessary to look at the issue from its many dimensions, both on the production side as on the consumption side. I prefer to look at it first from the consumption side because consumer markets shape production systems more than production systems shape consumer markets.

From the consumer end, there is already much to say. First, as the population is increasing and more people are able to afford protein, the demand for protein is increasing and will continue to do so in the coming decades. I wrote already many articles about this during the nine years of this blog and the topic is also part of my books. The fact that more and more people can afford food is a positive development. The problem is that more and more of them now actually consume more than they should. Overconsumption boosts the need for more production beyond what nutritional needs are. Overconsumption comes down to excess, waste and pushes our use of resources too far. The goal must be to help people to eat balanced meals and not to overeat. If the purpose of the suppliers of alternative protein is to push for consumption of their products and not address the issue of overconsumption, they will be just as guilty as the current protein suppliers. The future challenge is not just to replace one overconsumption with another. It is to stop overconsumption. Unfortunately, as long as our economic model is about volume growth, one should not have too many illusions. Future food prosperity is really about having always enough, not about always more. To achieve this goal, we must shift from sheer volume growth thinking to high quality (including production of course but also social and environmental) with faire distribution of the created wealth between all links of the value chains, and in particular a fair price for farmers through proper planning between supply and demand. The purpose is to supply affordable food instead of just cheap food with all the consequences that we all can see of the race towards always cheaper. Unfortunately, the volume-driven model is heavily subsidized in the wrong places and that will also have to stop if we want change.

Consumers also need to realize the true value of food instead of taking it for granted because future food is anything but for granted. Regardless of the type of protein, one thing is sure: it is precious and rare. This is much more so than for carbohydrates. Protein should be treated with respect. Here are two examples why I make this point. I remember in the 1990s the CEO of Tyson Foods explaining in a conference that the poultry industry is a producer of lean protein and he lamented that, in the US at least, the favorite use was to deep fry it in cheap oil, and thus completely change the nutritional quality of chicken meat. The second example was during a presentation by the CEO of a German fish fast food restaurant chain called Nordsee, who was mentioning that breaded fish was very popular, but not so much because fish is healthy but because fish sticks were used to be a carrier of ketchup from the plate to the mouth. If the true purpose of meat for some consumers is to be a carrier of oil or ketchup, then this is a problem. Never should a product that required the sacrifice of an animal be used to soak into cheap and unhealthy product when over consumed. Speaking of sacrifice, it is good to remember that the word “sacrifice” comes from the word “sacred”. It is true that often our dealings with animal protein looks more like sacrilegious. This is a useful detail to think about when considering consumption of meat. The thing is that animal protein should never really be a commodity. It should remain special. But that is not the way or economic model has decided.

From the production side, agriculture has followed a similar pattern as most other industries. It is about lowering costs (nothing wrong with that) and standardization (maybe a topic more susceptible to debate). Regardless of what people may think of intensive animal husbandry, this system is not here per accident. It is the reflection of how we look at economy and ourselves. Have no illusion about alternatives to animal protein; they follow exactly the same economic philosophy. I always say that the dominant production system is the one that matches the desires of the larger number of consumers. The saying “we are what we eat” is very true. If you look at it that way, you can see that our economy is just as much about intensive human husbandry as it is with farm animals. Economy is organized around three components: resources, labor and capital. Depending on the prioritization and distribution of these three components, we build different systems. A simple example can illustrate what I mean is mechanization: workers have been replaced by machines backed with capital investment in machines. The tricky thing about heavy injection of capital is that the system becomes capital-dependent. The capital must deliver a return on the investment and very often the only way is inject even more capital, just to keep the head above water. It is good for the bankers, but as many farmers and food producers will tell you, less so for them.

So, will animal farming eventually disappear? Of course, it is difficult to answer this with certainty. My opinion is that it is not going to happen any time soon, if it ever happens. What will change are the production systems. After all, the current intensive production systems have not been around since the dawn of times. They are actually fairly recent. They have changed and are continuously adapting. Production systems that are not environmentally sensible will disappear, simply because they will not be able to be profitable and competitive. The reason for this is simple: sooner or later they will not be able to ignore the negative externalities anymore from their production costs. Environmentally sensible systems will take over. Note that I do not use the term environmentally friendly but I use environmentally sensible instead. I believe it is a much better reflection of reality. Will this transition be smooth? It might be, but it is much more likely that it will not be.

Another question to reflect about is whether animal farming is unnecessary? My answer to this is: no! First, like it or not humans are omnivores. Our dentition can testify about that. That is the result of dozens of thousands of years and it is ingrained in our system. It is nature. We are mammals, even though there’s no shortage of groups who try to even deny our biological reality and try to reduce people –and animals- to legal entities. Between Laws of Nature and man-made laws, we will see which ones will prevail. Our first food –milk- is animal in nature. There always will be people who want to eat animal protein. Every time that economic prosperity has increased, meat consumption has increased. It does not happen per accident. When money is tight, meat is often the first thing to decrease. To get back to the question, I believe that animal farming is alright, as long as it is respectful of the environment, of the animals, and also of the farmers. I believe that animal protein is a privilege what we must cherish, not a right that we should take for granted. Animal protein is not the sole source of protein and there are many delicious dishes to make with vegetal protein. Look at Indian cuisine! If the purpose of animal farming is to stuff oneself, then yes I am with those who have an issue that approach of farming and consumption.

Of course, most of the opposition to animal farming takes place in Western countries. It is kind of a First World problem. If certain animal farming systems are environmental time bombs, other systems are actually beneficiary. In many developing countries, having a few goats or cattle is actually essential for the economy and for the survival of farmers. Pastoral systems contribute to prosperity and social stability. Another important point is the biology of ruminants. Just as much as I was mentioning the biology of humans as the results of dozens of thousands years of evolution, the same is true for animals. Ruminants are amazing processors of cellulose. Humans can thrive on grass, because we are not equipped biologically to extract nutrients from it. Ruminants are experts at that. Since there is about twice as many hectares of grasslands as there is of arable land, grasslands represent a huge food potential and ruminants are superb transformers of cellulose in high-value foods for humans in the form of milk and meat. The key is that must be done sensibly and by taking future consequences into account. Many societies around the world know the value of farm animals. If ruminants are excellent transformers of cellulose, it is also important to mention that they have never evolved to be grain eaters, at least in large quantities. Sooner or later, this will become a much more vivid issue than it is now.

Suppliers of alternative protein bring a number of arguments why their products have the potential to replace “traditional” animal meat. The environment plays a central role, in particular the issue of greenhouse gasses. They also address the animal welfare as a driver for their products. The issue of slaughterhouse by-products is also a valid argument. Theoretically, texture proteins, lab meat, insects and vegetarian diets do address these concerns, indeed. So can alternative protein push animal farming out of business? The answer is complex and I will try to answer it as concisely as possible.

The animal protein market is huge and one cannot expect to replace it overnight. Since the demand for protein is going to increase further, alternative protein would probably happy to take only a chunk of the growth. They have to create their spot in an existing and very competitive market. Textured proteins have been around for decades and they have never represented a threat to traditional meat. That does not mean that it could not change of course. Lab meat is all new and there is at this stage no solid indication that they can even compete with traditional meat on world markets any time soon. They are still a long way of representing a force in the animal protein business. Time will tell. An important detail for both textured protein and lab meat is the number of factories, incubators and texturing lines that they need to build to replace animal farms. That will represent huge investments for which they will have to earn the money to carry out. Competing with traditional animal proteins means engage fully in a commodity markets where margins are often thin. They will compete with independent farmers who are often contracted by corporations and often hardly make minimum wage. These suppliers will have to fight against the huge animal protein corporations and deal with retailers and food service companies with strong bargaining power. Will they really want to take the road to commodity markets? I doubt it, or it will be a very long journey. When I hear or see their pricing objectives, nothing tells me that they are really willing to target the mass animal protein market. It looks more to me that they will try to work from a targeted marketing strategy and will work their way into niches for quite some time. Another hurdle is the consumer perception for their products. Vegetarian products already have exposure and are well-perceived. Lab meat may be a more difficult challenge. The mere fact that lab meat producers want to call it clean meat instead and are already facing opposition from meat producers who claim that lab meat is not real meat shows that they have not solved the perception challenge, yet. Even the term meat is not a given.

Where does that leave us for the future and the issue of animal farming greenhouse gas emissions? Considering the time that I believe it will take for alternatives, I do not see that they will play as big a role as they think and/or claim. I believe that reducing greenhouse gasses emissions will have to be enforced. Regulations on production systems will have to address this. This has to happen today already. There is no time to wait until these emerging industries will have developed critical mass. Also production volumes will have to be addressed. It is likely that if we want to be serious about curbing the environmental footprint of animal husbandry, they will not be many alternatives to capping production volumes. That will be a tough one as nobody will want to be at a disadvantage with their competitors. There will be the exact same discussions as there already are with climate change and those who refuse to participate. Neither governments nor corporations will take effective measures. The answer lies with consumers. They are the ones who have the power to reduce animal protein production and changing production systems. From an environment point of view, the only real option is a reduction of global consumption of animal protein. That is the easiest and fastest path to solve the problem, but I do not expect a massive shift from omnivore to vegetarian of such amplitude that anything significant will happen. Unfortunately and just like with anything else related to climate change and overconsumption, only a minority will really act voluntarily. On the consumer side, if prices remain too cheap to trigger a change in behavior and a reduction of consumption, then overconsumption will simply continue. What I wrote in my previous article will fully apply to the topic of animal protein and animal farming.

Copyright 2018 – Christophe Pelletier – The Happy Future Group Consulting Ltd.



Perhaps the ultimate challenge

July 1, 2017

There certainly is no lack of challenges on the path to feeding a growing world population, but a successful future does not just stop with food volumes. Beyond quantity, it is necessary to ensure that people eat balanced diets. Of course, this is true for those who are food insecure and need help to be able to access more food, but it just as true for the overweight and the obese. The health cost to society is high and is so the cost to the environment. Although excess calories end up as body fat and not in landfills, overweight and obesity should be looked at as food waste nonetheless. After all, body fat is food that has been produced but not consumed for any useful purpose. The problem is only getting bigger as rates of obesity are increasing among the population of emerging countries and are reaching alarming levels. It is not a Western countries’ problem anymore. It is a global one. There is no one particular cause to explain this trend, but it is a combination of lifestyle, example at home and education about the basics of nutrition. We are what we eat and we eat what we are. Diets are undoubtedly a reflection of society and its values.

One of the drivers of today’s economies is growth and too often this concept is restricted to quantitative growth. We must be honest and recognize that our food and agriculture systems still are greatly production driven. Although the idea of a market-driven approach is widely spread, the practice seems to differ, and it looks like it is only translated in marketing-driven instead, always with an underlying production-driven thinking. About all food sector and companies always look for ways to sell more volume. There is competition within any particular industry, but also between industries. For example, in the animal protein sector, poultry, pork, beef and fish are always trying to get a higher stomach share at the expense of one another. Usually, the main decision factor for consumer to make their purchase is the relative price of one type of protein versus the others.

The main message that consumers receive every day is: eat more of this or more of that. Then, it is only normal that they do just that. Why expect any other behaviour? The result is a value system of always more, without really thinking about how it all adds up, while it should be about always enough. Overconsumption leads to waste and to unbalanced diets. Waste is the number one enemy of sustainability, and educating the public about proper diet is actually an important weapon in fighting waste, but it is a difficult one. Although good habits are generally not any more difficult to adopt than bad habits, it seems that the latter group is more attractive. Changing eating habits is all about education. It starts at home and in school. Actually, it is rather easy to learn about the proper ratios between protein, fats and carbohydrates –both fast and slow ones- that are needed in a balanced diet. Information is everywhere, but unfortunately, the lack of education and therefore knowledge about nutrition results in many consumers having no idea how to read labels and how to compose proper meals. If our lifestyles and our needs have undergone major changes over the past five or six decades, physiology of digestion and nutritional metabolism have not changed much at all over the tens of thousands of years that humans have been roaming the planet. It would seem obvious that such an essential element of life should be common knowledge, but it is not. An interesting experiment is to ask people at random what the nutritional needs of an average human being are. Usually, people have an idea about how many calories a person should eat on a daily basis. When it comes to how many grams of protein and even more so fat, then the faces tend to turn blank. Another even more interesting experiment is to ask the same question to people working in food and agriculture. Just go ask how many calories, how many grams of protein and fat. It is an eye opener.

It is possible to make consumer behaviour change from harmful to healthy. There are lessons to be learned from the example of tobacco. To change, consumers need the proper incentives, but the bottom line is that people change only if they perceive the change to be an improvement. Since eating habits rest on powerful psychological triggers, the difficulty is in finding the right triggers and creating a perception of reward. Food producers have a critical role to play in this transformation, and it has to be a collective and collaborative effort with all other stakeholders as well.

Copyright 2017 – Christophe Pelletier – The Happy Future Group Consulting Ltd.

Nature will reshape food value chains

October 15, 2015

The recent climatic events, in particular droughts, have attracted more attention on future challenges for food production, and rightly so. Unfortunately, the mainstream media cannot help presenting the as all gloom and doom. Certainly, there are very serious reasons for concerns, but solutions can be found. I wish the media would present more examples of positive actions to face and overcome the challenges.

It is not easy to deal with a changing environment, especially when it is impossible to predict accurately what the change will be. Predictions about temperature increases are useful but they are quite insufficient. An increase of 2 degrees on average will be different if the standard deviation is 1 degree or if it is 20 degrees. Other factors such as hours of sunlight and precipitations (including their nature, frequency and intensity) will impact agriculture at least as much as average temperatures. Changing climatic conditions will not only affect plant growth and development, but they will change the ecology of weeds and pests as well and that needs to be factored in future forecasts and models

Nature will reshape food value chainsA special attention on water is necessary. Without water, there is no life. Unfortunately, over the past few decades, wasting natural resources has been a bit of a way of life. The issue of food waste has finally received the attention it deserves, but the waste is not just about food. It is about all the inputs such as water, energy, money, time, and fertilizers. Water is still wasted in large quantities. Just compare how many liters a human being needs to drink compared by the amount of water that is flushed in bathrooms every day. Before the housing crash of 2008 a study in the US had estimated that lawn watering used three times as much water as the entire national corn production. But the issue of water is not just about waste. It is also about preserving water reserves. The late example of the drought in California illustrate what water scarcity may mean for food value chains. California is not only a major agriculture power house, but it exports a large part of the production outside of the state’s borders. The issue of water scarcity and the dwindling level of the Colorado River are not new for Californian agriculture. It has been known for a couple of decades that problems were coming. California produces a lot of water-rich fresh produce by means of irrigation. It actually has been exporting its water in the form of lettuce, spinach, melons, strawberries and citrus far away to places from where the water will never return to California. The water loop has been broken wide open and that is why, among other reasons, the system is not sustainable. If California can no longer supply its current markets, it will have to rethink its target markets. At the same time, other regions, that may not be competitive with California today, because externalities are never included in the cost of production, will eventually take over and replace the Golden State as suppliers for some productions. Unfortunately for the future, California is not the only region with a water problem. Saudi Arabia changed its food security policy a couple of years ago as the country leaders realized that trying to produce all its food would lead to a severe depletion of its available drinking water reserves. Instead of pursuing food self-sufficiency at all costs, the country chose to find other supply sources through international trade and through the purchase of farmland in foreign countries. The examples of California and Saudi Arabia demonstrate how natural –and demographic- conditions shape food value chains. The issue of water is not just about produce. Animal productions require usually more water than vegetal ones. In the future, water availability will surely affect where which kind of animal products are produced. New regions will arise and old traditional ones may review their strategies from volume-driven to higher margin specialty animal products market opportunities because of environmental constraints.

Climate change and water scarcity show how international trade can actually contribute to food security when done responsibly and with long-term vision. The prevailing model of producing where it is cheapest to produce without taking into account negative environmental externalities is facing its own contradiction and demise. The next model will be to produce not only where it is the cheapest to produce but where it is sustainable to do so. When water runs out, it is no longer possible to ignore the externalities of a production. When water becomes scarce, it gets more expensive. The law of supply and demand commands. When inputs get more expensive, several things happen. The economic model shifts. Priorities and externalities change, too. At first, producers try to find ways to increase efficiency and eliminate waste. The benefits outweigh the additional costs. Uncertainty stimulates innovation. New systems, or sometimes old ones that found a second youth, replace the current ones. If that does not work well enough, then producers start considering producing something else to ensure the continuity of their operation and find new business.

It is not the first time that our natural environment changes. Finding successful solutions to deal with it really are about our ability to adapt and to preserve our future, as it has been the case in the past. The challenges may be of a magnitude like never before, but so are our knowledge, our technical abilities and the tools present and future.

From an agricultural point of view, adapting to a new environment is about finding the type of production that thrives under new conditions. It may mean different areas of production for some species. In North America, there is already a shift for corn. Iowa has traditionally the main grower, but the corn production area is now expanding north. Minnesota is now producing more corn than in the past and so are the Canadian Prairies. Similarly, the production area for soybean is shifting north. Minnesota is growing an increasing volume of soybean and even in the province of Manitoba in Canada, soybean production attempts have been carried out since a few years.  It is the result of better production conditions and the development of new varieties that can adapt to new less favorable climatic conditions. Because of the local supply for soybean, the development of aquaculture with local soybean products for fish feed is now considered a long-term possibility in Minnesota among others. In Europe, corn production regions also saw a shift to the north for corn during the 1970-80s thanks to the development of new varieties, which largely contributed to the growth of dairy production in these new areas through the widespread use of corn silage. For the future, there is no doubt that genetics will contribute again to ensure food security. There is currently a lot of work done to develop varieties that can withstand droughts, floods or soil salinity. The ability to know the complete genome of species, to spot genes through gene markers, to be able to create new varieties that are less sensitive to diseases help speed up the development of crops that can thrive under future conditions. The recent developments in synthetic biology are quite interesting. Research conducted at the IRRI (International Rice Research Institute) on the development of rice varieties that can have a higher photosynthesis efficiency and thus higher yields could open new perspective for a more productive and more sustainable production.

Next to the development of better and more adapted seeds and genetic material, the development of new technologies that I described in a previous article will bring a number of effective solutions as well. In particular the rise of precision agriculture is certainly quite promising. The ability to deliver to the crops exactly what they need when they need it at the right time and at the right place in the right quantity will help reduce the environmental impact of agriculture while offering the possibility of delivering higher yields. Similarly, in animal production, there still is room to improve feed efficiency. It can happen through further genetic improvement, the use of more efficient feed ingredients and feed composition and through better farm management. The latter is definitely an essential facet of a better future for food production. Better and updated skills for food producers will help being more efficient, more productive and more sustainable at the same time.

An area that is often forgotten when it comes to the future of food is the functioning of markets. If demand for certain products, and in particular animal products, increases faster than supply, price will go up and there will differential increases between the different types of products. As most consumers, unlike what marketers sometimes tend to make believe, still choose what they eat depending on the price of foods, there will be shifts. Some productions will thrive while others will struggle.

As prices still will be an essential driver of the location of the various vegetal and animal productions, markets and environmental constraints will increasingly have a joint effect. In the future, the dominant economic model of producing where it is the cheapest to produce will evolve. As the pressure on water supplies, soil conditions and pollution issues will keep increasing, the model will include an increasing share of negative externalities. They are the long-term costs that are never factored in the production costs but that will affect future production economics. Externalities are the hidden side of sustainability and they will determine the future map of agriculture, as it will no longer be possible to ignore them. Choices will have to be made between short-term financial performance and the long-term ability of various regions to be able to produce, and to keep producing, the volumes and the quality specifications that are needed by the different food markets of the future.

A friend of mine told me a couple of years ago after a trip to Asia how she could see from the plane the large plantations of palm oil trees, and how they had replaced the jungle. She described her impression as the view resembled the strategic game of Risk to her. Yes, climate change and water availability in particular, will reshape food value chains because agriculture, regardless of it scale, is a strategic activity. It is about life and death. It is about peace and war. Future strategies for both global commodities as well as for local food value chains will integrate Nature’s new deal of precious resources and conditions of productions. Together with the geography of future consumption markets, world agriculture will readjust, relocate and the Earth will look different once again.

Copyright 2015 – Christophe Pelletier – The Happy Future Group Consulting Ltd.

China is evolving – A look towards future consequences

March 13, 2014

Recently, interesting economic news has come from the Empire of the Middle. On the one hand, financial markets reacted worried on the softening of the Chinese economy, but on the other hand they reacted rather positively about the first corporate debt default allowed in the country. To me, all of the above is good news. If financial markets get a bit nervous for a few days, then so be it! It cannot be a complete surprise that at some point the growth of the Chinese economy would slow down. Double-digit growth cannot last forever, and growth cannot keep going on a straight line without some corrections along the way. If markets are worried about a growth of 5% for China, then how will they react when China lands into a recession, as it surely will happen at some time?

Personally, I find China’s performance over the last 30 years quite impressive to say the least. I am old enough to have seen dramatic changes about that country. When I was a kid, all the news from China was rather sad. There was a chronic situation of near-famine, and what I heard then, true or not, was that the Chinese had only one bowl of rice per person for a whole day. The Great Leap Forward and the Cultural Revolution directed by Mao Zedong did not exactly spelled prosperity, by far not. After the arrival of Deng Xiaoping, things changed and a new direction took place, which had led the country to where it is today. Pragmatism took over from blind dogma. Deng Xiaoping’s quote “It doesn’t matter whether the cat is black or white, as long as it catches mice” summed it up nicely. I have to admit that I was still rather young and did not pay much attention to what happened in China. That came later during my professional life. In the early 1990s, the price of wheat increased, and this became cause for concern in the poultry industry, in which I was working by then. I remember a conversation with one of my customers. We came to the conclusion that China had decided to feed its people, and that was the sign of a new era. Since that day, I have followed with much interest the evolution of China, and until this day it has not stopped fascinating me.

Bringing a country of 1.5 billion people in 30 years from hunger to the world’s largest economy is no small deed. Western economies with a much lower population should know, since they struggle to provide enough jobs to their populations, which in many cases would fit in only one of the large Chinese cities. Chinese leaders have shown a remarkable pragmatic approach in the way they have carried out this change. They have performed an impressive balancing act to stay in power through economic development that allowed the population to not have enough reason to start a revolution, which is the only way to change a government when there are no elections. Feeding their people was definitely a sound strategy to achieve the double objective of power continuation and increasing prosperity. However, this economic success has come at a high price. China suffers from major environmental damage, and the rest of the world also undergoes the consequences. This is where the news of the past few days sends some interesting signals about the future. China is now entering a phase of optimization. Growth is not anymore just about more, but it is about better. Phase one, providing for the basic needs seems on its way to completion. Now, focusing on the quality of future growth becomes necessary, as keeping the course of the previous decades would probably soon lead to make the country hardly liveable. But allowing the pace of growth to slow down in order to get the time to improve the situation and clean some of the damage is not the only sign that shows that Chinese leaders have the confidence that the country has achieved a level of economic prosperity sufficient to absorb this slowdown. The recent debt default of the solar panel company Chaori shows that China has decided to stop to protect business from failure, as until this case, various levels of government would guarantee the debt. The message seems to be that the economy is strong enough to take such hits. This is a strong signal that China will no longer bail out businesses and that they will let market forces select the winners and the losers. That is quite the move toward liberalism. A number of Western countries do not appear this bold, lately. In the same area of a changed economic philosophy, China is also currently allowing market forces to regulate the value of its currency, which is currently weakening, even though Western countries have always put pressure on China to re-evaluate the Yuan. The ability to persevere on long-term objective and not let outsiders interfere more than necessary is one of the quality of the Chinese that I like particularly. They do what is good for China and do not allow foreigners to undermine they progress. They run their economy with the same resilience and determination as they did with the Long March. Personally, I like the approach of the Chinese leaders. They are smart, focused and pragmatic. The new generation of entrepreneurs and executive also shows these good qualities. I also am quite impressed by the enthusiasm and curiosity of young Chinese students. They have the momentum on their side and it feeds their desire to succeed.

As I mentioned earlier, a couple of decades ago China decided to feed its people, mostly to avoid social unrest that could get out of control. In the area of food security, China has, like in the rest of its economy, achieved impressive results, but at a high cost, too. I believe that part of the current shift in economic philosophy can be looked at from the perspective of Maslow’s pyramid of needs. The objective number one for China has been to meet the basic needs: food, shelter, safety. Although there is still a part of the population living in poverty, the basic needs, from a collective point of view, are more or less met, as the majority of the population has now entered the middle class or better and the rest seems to follow in that direction. In the first phase, it is clear that environmental damage was under little scrutiny, as the end justified the means. After all, hungry people are not picky about what they eat, if it means surviving. In the today’s Chinese society, just eating what is available is no longer the only priority. Once the basic needs are met, the emotional takes gradually over from the biological. Consumers start to think and to question. It is not anymore about surviving today only, but about living in the future. The population is expressing its discontent of the quality of life and against the environmental recklessness of businesses more and more often. If food was used to be considered a potential source of unrest, now the problem has shifted to air and water. Heavy air pollution, contaminated water and the sight of thousands of dead pigs floating in the river that flows through Shanghai, as was the case a few months ago, are no longer tolerated by the population.

China Food Map (Photo: Zhang Yanlin/Asianewsphoto)The phase of optimization is also going to take place in food and agriculture. The situation about corn is a good indicator. Until 2012, China was self-sufficient for corn. With the increasing demand for meat as a result of economic improvement of the population, China has now become a net importer. The type of demand for the various food groups, together with the environmental toll of pursuing the objective of food self-sufficiency has reached its limits. It is important to acknowledge the performance of the Chinese agriculture, though. Even is the cost of achieving food security is high, one needs to remember that China is the world’s largest producer of rice, wheat, pork, eggs, fruit and vegetables, and cotton. It is the second largest producer of corn, behind the US. Considering the size of the country, being the main producer for all those commodities is quite an achievement. Yet China, announced last February that it was changing its objective, and that grain self-sufficiency was no longer sacred. It makes very good sense. The long term is as important as the present. China needs to work hard now to protect and restore its soils and its fresh water. On other area where the country can also achieve substantial results is by fixing post-harvest losses. Infrastructure will be developed further. Optimization of the food value chains will also take place, largely in the form of a consolidation of businesses. The seed sector will be interesting to follow in this regard, as many small seed producers will either disappear or be absorbed by larger entities. Considering the crucial role of genetics for crop yield, this rationalization of the sector should also contribute to a further improvement of the Chinese agriculture.

With land purchases abroad, world agricultural production up, international trade and a more astute food stocks strategy, China does not need to try to produce all its food itself. The bulk of the basic needs is covered. Now, it is time to optimize and repair without having to fear shortages. The focus is going to be more on waste reduction and efficiency than before. It definitely will be about doing more with less, to use a commonly used expression. An example of this tightening of standards is the so-called Green Fence for the recycling goods that China imports. Now the recycling materials need to be cleaned to enter the country. China simply does not want to use its energy and water resources. They want the waste producers to do that in their own countries. That is wise.

Another area for optimization is food safety and food quality. In a previous article , I wrote about a strategic shift towards speeding up the learning curve to meet higher standards. The shift from quantity to quality is a reflection of the pyramid of needs. When people have enough to eat, as is the case in large Chinese urban centers, they start to look at how food is produced and question what they do not like. Food security is for most no longer a worry, as the alarming rise in overweight and diabetes shows. When food security is no longer a worry, the focus shifts to food safety. That is quite normal.

My expectation is that China is no longer in the logic of just copying and producing cheap low quality. Although this reputation is still quite alive in Western countries, in my opinion it is incorrect. But after all, similar prejudices lived long about Japan, too, until the time that Americans realized that Japanese goods were of a better quality and Japanese companies were better run than their domestic counterparts. We will see the same thing about China. Some people will wake up too late. The Chinese are quite awake. Don’t worry for them.

Although the food industry, like all industries, resents criticism, it is actually the sign of a developed society. Basic standards do not satisfy anymore. People look for the something extra, and that is where opportunities arise. Those who listen to consumers and offer them what they want increase their chances of capturing the high-margin market positions. Let’s face it; markets for undifferentiated commodities are attractive mostly because of the large volumes they represent. In China, too, health and environment will be the drivers of future food supply. This will definitely offer good possibilities in the future. The Chinese will also take a look at their diet, and the per capita consumption of meat, just like economic growth, will not keep increasing forever. In the same way as it did in Western countries, it will reach a plateau, probably in 10 years from now, and later will gradually decline, for the same reasons as it is doing in the West, and also because the population of China is expected to decrease to 1.4 billion by 2050 and to 1.1 billion by 2100. That decrease represents a lot of consumers. It will be important to notice this change of trend on time. When consumption of certain food items in Western countries reached that plateau, most companies did not anticipate it. As usual in such situations, denial is the first reaction. First the change of trend is considered a temporary hiccup. Investments to increase capacity have often been made on the expectation of continuous growth, causing an overcapacity of production, and the production capacity needs to be used fully to be economically efficient. This creates a lack of flexibility and all producers enter the difficult times with the same cost profitability concerns. When the stagnation appears to last, producers like to think that indeed there will be a consolidation of the sector, but they usually all seem to think that they will weather the storm and will not be affected. Of course, it never works that way. Bad things do not happen only happen to others. Then, the crisis follows and usually a vigorous restructuring takes place. I have seen this many times and it is amazing to see how history repeats itself. There is no doubt that when food consumption will have reached its top, the same mechanism will show. This time, the problem will be quite robust, though. To supply China, production volumes will be much higher than previous similar scenarios of stagnation in the various Western regions. Further, just as much any marginal increment of consumption per capita multiplied by 1.5 billion means large volumes, any decrease of consumption will represent significant pain. This point is not here, yet. There are years of growth for most food groups ahead, but it is time to start thinking, and especially start planning, about a change of strategy. When the plateau appears, differentiation will become the main theme, and niches will be the place to be. Considering that the Chinese culture is long-term oriented and that relationships are a fundamental element of business in China, I would recommend starting paving the path for this shift sooner than later. After all, 10 years pass quite fast.

Copyright 2014 – The Happy Future Group Consulting Ltd.

Beyond the merger Shuanghui-Smithfield

September 7, 2013

Last May, when the Chinese company Shuanghui announced it was buying Smithfield Foods, the world’s largest pork producer, I was very curious to read about reactions to the news, in particular from the US. The takeover did not surprise me. In my second book, We Will Reap What We Sow, I already told my expectation that the geography of corporations would change, following the shift of economic power around the world. I predicted that the new emerging powers would take over some of today’s agribusiness beacons, and hinted that eventually, headquarters of large corporations would also move to locations closer to the bulk of consumption. The Smithfield takeover quite fits in this scenario. My interest in the reaction of Americans came from some of my earlier speaking engagements. At the beginning of my activities with The Food Futurist, I presented in several occasions how the rise of the Asian middle class would affect markets. In particular the magnitude of the Chinese market always put things in perspective. When I showed my audiences how much volume an increase of 10 kg per capita per year of beef, pork and chicken would represent, there was usually a silence of surprise. Then, when I told that the evolution is not just about volume but also about the choice of cuts, that instead of being complementary to Western consumption by buying low quality cuts, the Chinese market would become a direct competitor for the same pieces of meat, the surprise usually turned into annoyed denial. The price of the meat that Americans would buy would be set by the consumers in Beijing and Shanghai at least as much as by those in New York or Los Angeles? That’s bold, isn’t it? I could understand the reactions. After all, the coming situation would mean the end of the undisputed dominance of American stomachs (and to some extent, their minds as well). The highest bidder will get the best product. It is not just a hunch about the future. It is the here and now. There are already examples of that in the seafood sector, where the top quality products are shipped to China instead of ending on French tables as it used to be, simply because the Chinese buyers are willing to pay more than the French to get the product, probably because they still make very good money at those prices.

However, many reactions from the US have been the ones I expected. I could find outrage at the idea that a Chinese company could dare buy an American one. I do not remember seeing such opposition when Brazilian meat companies would buy Western ones, but after all Brazil is not perceived (yet) as a contender to the US supremacy as China is. That would explain the double standards, I suppose. There were the extreme reactions such as those who decided and claimed they would not eat meat from Smithfield because, according to their simplistic conclusions, their pork would sink to the quality standard of what they think Chinese products are. Well, no… because applicable food standards in the US would still be those of the USDA and not from the Chinese government. How simplistic they may sound, such reactions are not from average Joe. They come from comments posted on professional meat magazines for which readers need to subscribe. The world is changing, but some still hope the old status quo will prevail. Good luck with that!

Yes, there will be competition for the attractive cuts of meat. Actually, it will shape the coming couple of decades of global agriculture, and of agricultural markets. Prices will depend on the ability to forecast and align production and consumption of animal products with commodities for animal feed. There is much work needed in that area. Those who attended my presentations in which I mention the dynamics of future markets know what I mean.

But there are more lessons from the Shuanghui-Smithfield merger, beyond the simple competition for the carcases and the geography of purchasing power. It sends a clear signal that the Chinese market is evolving towards more quality. The local suppliers want to be able to provide the market of the increasing affluent Asian middle class with the same standards as Western markets, which I have been also indicating as a growing trend both in my writings as in my presentations. Purchasing a company such as Smithfield offers Shuanghui the possibility to speed up the learning curve towards a better pork quality by also buying the processes and procedures that already exist in the production units in North America and Europe. Such a move is going to have interesting ripple effects. Normally, it should give Shuanghui a competitive advantage, as they should learn and implement better procedures faster and better than their Chinese competitors. This will give them a strong position in the urban centers, at least in the short term. In the long term, the side effect is that their competitors will also work harder at raising their own standards and improve food quality in China. This will also indirectly serve the Chinese governments by having market forces working in the same direction as government regulations to achieve better food standards. Finally, it will benefit the Chinese consumers, as they will be able to buy better quality foods. As they became wealthier, Chinese consumers have also become more critical and aware of environmental and food safety issues. They will not accept the current situation anymore and they want the same top quality as the Westerners. After all, the income in large Chinese urban center is quite similar to the one of Westerners. Why should they settle for less? And in the future, we will see the same trend growing in other emerging countries. That is where the best opportunities will arise in the coming decades.

Copyright 2013 – The Happy Future Group Consulting Ltd.

Dealing with complexity

February 1, 2013

Looking at the future of food and farming goes far beyond agriculture. It comes down to looking at the future of humankind. Balancing future supply and demand of food is an exercise that includes many disciplines and dimensions, probably more so than any other human economic activity. Anything that affects life and its level of prosperity must be taken into account. Feeding the world is not just a matter of production. Of course, the ability to produce and to keep producing enough food is paramount, but there is more to it than that. The consumption side is just as important. Demand will depend on the diet, which also depends on how much money people have available to pay for food.

Total future food demand is a combination of which foods and food groups people in the various regions of the world will buy and eat. This is a function of demographic, economic, cultural, religious and ethical factors. If future demand is about consuming according to the nutritional needs of a human being, clearly the situation will be different than if people demand twice as many calories and protein as the actual nutritional needs. The relative share of animal products in the total diet will also change the situation in terms of production and of production systems. Food production must adjust to the demand and do its best to meet it, but not at all costs. Therefore, it is essential to optimize food production at the global level so that the largest quantity of food can be produced at the lowest environmental cost. At the local level, production depends of course on natural conditions, but also on economic, political and cultural conditions as well. This may be the most profound change that we must deal with: feeding the world of the future is a global exercise. As more and more people worldwide have more and more money to spend on food, demand is now global, and therefore production plans must also be global. The times of producing food simply for the own people and exporting surpluses is over. Markets will now react to any event that will affect production or consumption somewhere else. Borders do not make this shift in thinking easy. It is always tempting to think that having one’s house in order is enough, but it is not. What happens in other countries on the other side of the world will affect us just as well. Why is that? Just one word to explain it: markets. There used to be a time, not so distant when if there was a drought in Russia, China or Brazil, markets would not react as strongly, and anyway not so much in the media, as we have seen over the past few years. This was the case because only a minority of the world was consuming large quantities and that minority did not have competition. Now the competition is wide open. Markets will keep reacting on this and the relative price levels of various foods will influence how much of what is consumed and where. We will see eating habits change because of this economical aspect of food supply.

At the same time, food production is also adapting to a changing environment, and to face its future challenges. The amount of new developments in technology, access to information and knowledge and in decision-making tools is amazing. Innovation is flourishing everywhere to solve environmental issues, to cope with new energy and water situations. The dominant themes are the reduction waste of all sorts, as well food as agricultural inputs and by-products, and the prevention of the release of harmful contaminants. Innovation is developing towards better and more efficient systems that must ensure the future continuity of food production and, at the same time, keeping food affordable for consumers. Interestingly enough, many innovations that will be useful for agriculture do not originate from the food sector. Food producers will need to be curious and look beyond the field to prepare for the farming of the future.

Clearly, the number of factors affecting both consumption and supply are many. To add to the complexity, many of these factors are not of an agricultural nature. Many of them originate from the population, its activities and its needs for all sorts of goods. I mentioned earlier that what happens in one region affects others, but the natural resources markets, such as energy, metals and minerals, that must meet demand for non-food consumer goods also affects agriculture and its production costs. Although many see rising costs first as a threat, I tend to welcome them, as they always stimulate innovative solutions to increase efficiency and reduce waste. Two examples show that it works. One is the car market in the USA that shifted from gas-guzzlers to high gas mileage vehicles since gas at the pump became much more expensive than it was only 5 years ago. The second one is food markets. Had you heard as much about food prices, food security or food waste before the food price hikes of 2008 and 2012?

In my work, I always try to make my clients and audiences aware of how everything that has to do with food is interconnected with many other sectors, and how economic, demographic and political events are linked to food security or how they might affect it in the future. That is an underlying them in my books.

Even, within the food and farming sectors, organizations do not realize enough how their future will be influenced by other food productions and vice-versa. I always get reactions of surprise at the magnitude of the interconnection and the interdependence with these factors, and how they affect their activities indirectly. It is a normal reaction, as most people tend to focus on what has a direct connection with their activities. After all, that is why I do what I do: to help them see and decipher this complexity, and understand what actions to take to adapt and prosper. I never shy away from show the complexity. My audience needs to get a flavor of the any dimensions and many layers involved. However, I always take a practical approach and show them that complexity is not the same as complicated. Deconstructing the complexity actually works well to show the many levels of actions there are. It helps my clients connect the dots between their activities and what will affect them and how. It gives them a level of confidence in how to deal with the future and take action. I also like to warn against oversimplifying, which is another tendency that I observe from time to time. The mainstream media is rather good at that. But I also get questions that sound like those who ask hope that I have a magic wand and will be able to give them a foolproof recipe for success. That simply does not exist.  If preparing the future were easy, nobody would even talk about it. It would be done. It it was easy, I guess many of the organizations that have been involved in agricultural development and food aid for decades would have already succeeded, and they would not exist anymore. Yet, they still have to keep up with their work.

Feeding the world is work in progress. Developing the right actions is complex, but not as complicated as it sounds. However, the true difficulty is in the execution, and in particular bringing other stakeholders with different agendas and different views on board to contribute to the success.

Copyright 2013 – The Happy Future Group Consulting Ltd.

Rise of the Asian middle class and the competition for animal protein

November 29, 2011

The complete story about this topic and how it will influence the future markets can be found in my book We Will Reap What We Sow.

The size of the world population is among the most significant changes for the future. There are many challenges, as the media tell us on a daily basis, but there are opportunities. The first and the main of these opportunities is the population increase itself. In the coming four decades, there will be two billion more people to feed. Never before, has humanity seen such a demand increase. This means that farmers and food suppliers do not have to worry about a lack of market opportunities. Not only the number of people will increase, but the consumption pattern will change, too.

Until recently, most of the consumption took place in industrial countries, mostly the USA, the EU and Japan. For the coming decades, food consumption in these areas will not increase. There are simple reasons for this. One is the demographic stagnation of industrialized regions. Another reason is that people of these regions already eat too much. They have no room for more consumption. At best, they can replace one food by another. Before the economic crisis of 2008, the average daily intake of calories per American was on average of 3,800. This amount is about 50% more calories higher than a normal human being needs on a daily basis. Nobody should be surprised that in such conditions a third of Americans are obese.

In emerging countries, the economic growth results in the rise of a new middle class. A change of diet is the first change that takes place when the standard of living increases. People switch from staple foods such as rice or wheat to higher quantities of animal protein and more fruit and vegetables. The OECD (Organization for Economic Cooperation and Development) looked at the future evolution of the respective shares of consumption by the middle class, between different regions of the world. Their study was for consumption goods at large. The graph is simply amazing.

Click on the picture see the enlarged version

The relative consumption of Western countries will shrink dramatically. While the USA represented about 5% of the world population in 2000 and consumed about 25% of the world resources, they will represent only about 4% of the population and consume about 4% as well. A similar evolution will take place in the EU and in Japan. China and India show the opposite trend. With a share of the total world consumption close to negligible percentages a few years ago, their economic development and the size of their middle classes will transform markets dramatically. Estimates are that the middle class from China and India combined will represent about 45% of the world middle class by 2030! Market demand and therefore world prices will be dictated by the demand from these two countries and not by Western countries anymore.

While the graph covers all consumption items, the situation for food alone might show some differences, but the trend would show a similar pattern. The demand for food in emerging countries will grow strongly. This will not affect only the consumption volumes but also the type of food. The change of the type of food that consumers of the middle class of emerging countries will demand will go beyond switching from a starch-based diet to an animal-protein-rich diet. The type of animal protein that they will eat will change, too. A couple of decades ago, China would import many of the low quality animal products that Western consumers did not want to eat. China used to import products such as chicken feet, chicken wingtips, sow uteri or fish heads. The new middle class is no longer much hungry about those products. They want the prime cuts, too. Instead of being complementary, emerging markets and developed countries will be in competition with each other for the better animal products. This will have profound consequences for the future. It will make the sale of the low-quality products more difficult and affect negatively the profitability of meat producers. At the same time, it will make the demand for prime products literally explode, pushing prices up. Western consumers and Western markets used to set the prices. In the future, Western consumers will have to buy food based on the price set in Asia. Their alternative will be to not have access to these prime products anymore and have a choice between changing their diets or eat less animal products.

This change will make producers and buyers look at business opportunities in a completely different manner than they currently do. All emerging countries show the same trend. Brazil now sees domestic demand for chicken meat increase faster than export markets. Brazilians eat more meat because they become wealthier. Chilean salmon farmers see growing possibilities in the Brazilian market. While their traditional market for Atlantic salmon was the US market, this may change. Since air transport from Chile to the USA is quite expensive, at least more expensive than transport to Brazil, the flow of trade will change from the past. Norwegian salmon might become a better alternative, but the Chinese are now buying increasing quantities. American buyers must prepare themselves to pay much more than in the past to get salmon products.

It becomes clear that the challenge of feeding the world depends for a large part on future consumption of animal protein.

To understand the effect of the increase of consumption of meat in China, a few numbers are helpful. When 1.5 billion people eat on average 1 kg more of chicken meat, world production needs to increase by about 750 million chickens. That represents about 2% of the world production. Similarly, when the Chinese consume on average 1 kg of pork more, the world must produce 15 million pigs more. That number represents 1.5% of the world pig production. The meat consumption in China has already passed the milestone of 50 kg per capita per year, and projections indicate that it would reach 8o kg per capita per year in 2030. Clearly, consumption increase will be much more than just 1 kg. An increase of 10 kg of chicken meat per capita per year in China means that chicken production would have to increase by 20% to meet the new demand! This represents almost the US chicken production volume, and more than Brazilian production. In the case of pork, an increase of consumption of 10 kg per capita means that world pig production would have to increase by 15%. That is 5 times the current pig production of Iowa. That is 60% of the EU production. For beef, the world production would have to increase by 24% to meet an increase of 10 kg per capita per year! This number also represents about 25% more than the current total beef US production.

The Indian population, although still largely vegetarian, is also changing its eating habits. Meat production is increasing there, but not in such dramatic proportions as in China. Nonetheless, with a population of 1.2 billion people, any incremental meat consumption will have consequences.

Different animal productions have different levels of feed efficiency. It takes about 1.8 kg of feed to produce 1 kg of chicken meat. It takes about 3 kg of feed to produce 1 kg of pig meat. For beef, depending on how much grass the animals are fed, the amount of grain used to produce 1 kg of beef varies. With a population of 1.5 billion, an increase of meat consumption of 30 kg would result in the need to produce 3 times 30 times 1.5 billion. The need for feed, excluding grass, would be between 100 and 150 million tons of grains.

Human consumption of grains increase rather limited. Considering that in 2011, animal feed uses about a third of all grains produced, more production of animal protein will put much more pressure on the markets of agricultural commodity. Producing enough to meet the desires of a more affluent world population is actually about allowing the luxury of more meat than people really need. There is no doubt that the “meat question” will become more and more vivid in the future.

My next book, We Will Reap What We Sow, will get in depth about this topic and many others, and discuss the pros and cons of different future scenarios. Stay tuned!

Copyright 2011 – The Happy Future Group Consulting Ltd