The hot regions of the future

Food strategies for the world

Food strategies around the world

In this article, the term hot does not refer to climate, but to strategic and active food producing regions. Not only is the population growing, but also the demographics vary greatly between regions and this will change deeply where from and where to the trade is going. Here are, briefly, the main changes as I see them happening as we go forward.

The aging and increasingly health-conscious West will not show any increase in consumption per capita, and very likely it even will drop, as older people need less food than the youth and also because the shift from quantity to quality will continue. Of course, immigration policies in these countries might offset this somehow. The direct consequence of this is that suppliers are going to have to look for alternative markets for agricultural products. They should not have to worry too much, as there will be plenty of people to feed in other regions.

Asia, with about half of the world population is definitely a huge market, although it presents a great variety of conditions and situations.

The largest economy in the region, China, is developing a middle class with more disposable income. This results in a change of diet, with relatively more protein, especially animal protein than by the past. Although being the largest meat producing country in the world, China is struggling to feed its population, and I expect that it will remain a net food importer. Further, the country has major challenges to overcome when it comes to availability and quality of water. However, in the long run, the past one-child policy will affect the Chinese demographics and influence their need for food, as well as the dynamism of their economy at large, by the way.

The second largest economy, India, is very dependent on the monsoon for its food supplies, and climate will remain a challenge. They seem to struggle to be able to secure their self-sufficiency, rural development is still a challenge and poverty remains a concern to reach prosperity.

Emerging South Asian countries, on the other hand, for instance Vietnam, show a different picture. They have a young population and want to benefit of the economic momentum coming from China. They are actively developing agricultural and aquaculture production for export purposes, and they keep on this policy. Aquaculture is very active, as some of these countries have a very extensive shoreline, like for instance The Philippines.

Although food security in the region remains uncertain, and the scare of last year’s food price increase, some countries are trying to establish structures to protect from such risks. For instance, a number of ASEAN countries are trying to set up a rice cartel, some sort of an OPEC for rice, in order to have more control on the market and the prices. Of course, we will have to see if this will work as planned.

Another region that is showing booming demographics is the Arab world and the Middle East. Many countries in the region are wealthy thanks to oil, but also have the disadvantage to be located in desert areas. Attempts to increase food production have met their limits, and they do not guarantee food security. The main reason is the shortage of water and trying to grow more food would create a drinking water crisis. This is why some Arab countries are developing other strategies to “outsource” their food production like mentioned in the article “The Great Unseen Land Grab”. Other countries, like Qatar, are considering investing in food companies in order to secure their food supplies.

Some players are already making their moves

Some players are already making their moves

I expect stronger ties between the Middle East and former soviet republics. Russia, Ukraine and Kazakhstan are joining forces in the “Black Sea Wheat Pool”, another agricultural OPEC. Although we will see how this combination works. Another area that I see booming in the future is the Mediterranean region, which is the interface between Africa and Europe. Although immigration has been a hot issue in the past, there is a great potential for a win-win situation for both sides if managed properly. The idea of creating an Economic Zone around the Mediterranean has already been brought forward and considering the demographics of the region, it makes quite a lot of sense.

Africa, although plagued by many problems, be it natural, social, political, humanitarian or health, as a huge untapped potential. The plans of Arab and Asian countries to lease land on this continent and develop agriculture for their needs, could give the necessary impulse to develop African economies. I also believe that South Africa has the potential to be the driver of the economic surge for the continent.

Last but not least. South America and Brazil in particular, is going to play a major role in agricultural production. They have an amazing potential, but also many issues to solve, especially on the environmental and political level. Their position of producers of basic commodities as well as high value products like meat gives them a strategic role in the international food trade, and the upcoming merger between JBS and Pilgrim’s Pride in the US and between JBS and Bertin is another step in the creation of agribusiness giants, following the merger between Perdigao and Sadia.

Copyright 2009 The Happy Future Group Consulting Ltd.

Bringing cities to the countryside: Infrastructure will help rural development

Although the title of this article many sound a contradiction in terms, agriculture (in which I include aquaculture as well) needs cities and vice-versa. Rural development is more than just agricultural activities; it is about creating and improving a cluster of many economic activities that are necessary for the proper functioning of a community.

As such, this should not be a surprise, because in the history of man, human settlements always have been linked to drinking water and sufficient food supplies. By developing agriculture, the very first “farmers” created the conditions for sedentarism, instead of continuous migrations. On these sedentary communities, other activities developed later to cover the needs of the locals. Maslow's pyramid of needs - Picture WikipediaThe hierarchy of the needs that we must fill can be easily identified according to the pyramid of Maslow: food and water, shelter and physical safety. Once this is achieved, adding other activities become more natural and simple.

This is why developing large urban centers is no guarantee of prosperity. Like all things in life, the key is about balance. Of course, over the last 150 years, the focus has been about growing the industrial capabilities and this has been the engine for a massive migration of population from the countryside to the cities. Although the conditions were far from stellar, many companies in the early industrial development were providing their employees with housing. Their ways may not always have been very social, but they were showing some level of social responsibility.

With the ups and downs of industries, cities have increasingly faced a problem of poverty, as the development did not include a sense of community anymore and company loyalty towards their employees disappeared as the workforce became expendable and factories could move to other countries.

This industrialization and urbanization have also affected the rural areas and the agricultural world. Many rural areas have faced and are still facing isolation and poverty. Although in many cases there have been many efforts made to improve this situation, the situation has not always improved.

Yet, we now see the challenges of feeding an ever-increasing population, we all recognize that we will need to cultivate more land and water, but this still does not seem to make things turn around.

In my view, the problem is that, too often, we restrict rural development to agricultural development, and by looking at this part in a separate way, instead of focusing on integrating agriculture in the development of the whole local economy, we just do not create strong enough chances of success. Having large urban centers with their problems on the one hand, and remote and depopulated rural areas with their problems on the other hand, should be the clear sign for all of us that our economic model is out of balance. There can be life outside a huge metropolis where everyone has become an anonymous person, resulting is a dislocated social fabric. What has made the success of our species has been our ability to act as groups. As isolated creatures, we probably would not have survived very long.

To rebuild the necessary social fabric in rural areas, we must create the conditions to have balanced and complementary activities. This is why, while some see the future of agriculture as urban farming, I believe that it has to be urbanizing the countryside, not with large impersonal cities, but with human size settlements where we can provide for all the needs.  Isolated farmers with no direct connection with their markets and not getting the value for their products to make a decent living will look for alternatives. If we want more people to produce food, we must understand that they must make enough money to want to keep producing food. By creating a proper infrastructure around agricultural areas, we can create a more local market that will drive production. A profitable market for the farmers’ products also means more money in their pockets, which in turn means more spending power to develop demand for other business, be it for products or services. This is how we will be able to grow local economies and communities. This is not about a romantic or idealistic back to nature movement, or creating local farmers markets purely for marketing purposes, but this is a thorough and integrated process embracing modernity. In the current rural areas and probably in other regions, the future will about bringing the economy to the people before bringing people to the economy.

Copyright 2009 The Happy Future Group Consulting Ltd.

How much can the rule of 80-20 tell us about the future?

We all have heard about this rule across all industries, including agriculture and food. Eighty percent of the food would be produced on 20% of the farms and vice-versa. If it still applies in the future, it can indicate us how our food production and supplies will look like in the future. Of course, this is always a theoretical exercise, but it is quite convenient to elaborate on our thoughts.

As the population is expected to grow quite strongly in the coming decades, especially in urban areas, this could indicate two dominant trends:
• Further size increase of the largest farms and further industrialization of agriculture and food for global markets, although the number of farms in this segment would not increase strongly.
• Strong increase of the number of small farms involved in specific value chains and strongly linked with their local economy.

Industrial agriculture
Producing more, yet in a sustainable way. That is the challenge!This group will continue to be involved in mass production of commodities for global supplies, like this is the case today.
Yet, they will face an increased pressure to adapt to the requirements of sustainability, which technically is quite possible. New systems and more efficient technologies will be the pillars of its growth and development. They will have to find ways of reducing the amount of chemicals in crops and the amount of pharmaceuticals in animal productions
The requirements for capital will be quite high and the sector will be led by increasing larger corporations, by an increasing level of capital by large private investors and, last but not least, by some governments. This agriculture will innovate further and will be developed thanks to this capital. It will use automation and mechanization to reduce the dependence on labor. Mergers & acquisitions will continue in the agricultural sector and a few large blocks will remain, dominating their sectors.
Their mandate will be about more control the natural conditions of production and about reducing to a minimum their impact on air, water and soil, by using less polluting transport methods, water preservation, effluent treatment and soil preservation. They also will have to engage in maintenance of their environment.
The role of this type of agriculture will be to bring to market large amounts of affordable food for the masses, and should play an important role in strategies around food security, which is where corporations and government will interact on a regular basis.

Local food value chains
Closer to natureThis sector should undergo a strong growth and be build in a market-driven approach. These are the farmers that produce specialty products aimed at serving either a very specific segment of the retail or foodservice market.
This trend, which has been already initiated around concepts such as organic or authentic, will evolve into a more integrated local economy, and the initial concepts will probably become less differentiated as food production in general, be it industrial or traditional, will use more sustainable techniques.
Contrarily to the common belief, this agriculture will be developed thanks to very efficient techniques, but will be centered relatively more about labor and relatively less about capital. In this case, efficiency does not necessarily mean intensification.
We must not underestimate the significance of this part of the food production, as it will play an important role. However, we must not expect this type of agriculture to be the solution to feed the world, and this is not the purpose of the farmers involved in such food production chains.

This type of farming will grow in two different environments:

  •  In “developed” countries to serve a increasing, but aging, population more demanding about the origin and the production methods, and who is ready to pay a premium for the perceived better quality. The angle will be about quality, transparency, sustainability, traceability and as close to zero a use of chemicals and pharmaceuticals. In some areas, it could help strengthening a local economy and local communities.
  • Developing a local economy thanks to agriculture (Picture: FAO) In emerging countries, the development of a local agriculture, and aquaculture, will be a key driver of economic development for under industrialized and/or under urbanized regions. It also will be a way of slowing down the migration of population to urban centers and limit social problems, by creating satisfying economic conditions and by securing food supplies locally. This farming will be about basic needs, before marketing.

Copyright 2009 The Happy Future Group Consulting Ltd.

The future price of meat and fish: up

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

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

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

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.

The Great Unseen Land Grab

Interesting article from The Economist on how some countries are already organizing and securing their food supplies for the future. Major political-economic chess game in the running.

Buying farmland abroad – Outsourcing’s third wave

It connects quite well with my previous article about Jim Rogers buying land in Canada and Brazil.

And it also connects well with the move made by the Canadian investment firm Sprott Asset Management to secure a land lease of a million acres in partnership with First Nations on the Canadian prairies to grow crops as an investment in agricultural commodities.