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

Swimming in circles – Part II: BC salmon farmers are proud!

December 9, 2010

In Swimming in circles, I was mentioning that salmon farmers should communicate more about their people, their work and the pride of doing what they do. My article had caught their attention, as I have several contacts and retweets and other things of the same nature. I do not know if my article is the cause, or if communicating pride was in the works anyway, but over the last few days, I have seen quite a number of messages and blogs on that very theme. Of course, this made me curious and I clicked on the links. The titles were clear: they are proud of being salmon farmers, but the text comes a bit short of communicating the passion. That is too bad. I had expected better.

I do not think that the message will reach the public this way. What the salmon farmers need to do is to come over here to Vancouver and talk to people in the street. Only by having personal contact, will they have a true chance of convincing the passers-by. One of the reasons why the environmentalists are successful is exactly because they go to the people to bring their message. They ask you in the street if you have a minute to talk about whatever it is they want to talk to you. The salmon superheroes that I was mentioning in that previous article of mine understand that communication is a contact sport. They went to the offices of the salmon farming companies in Campbell River to hand over the (super?) condoms, even if that meant having to deal with the company’s security officer.

I know to ideal spots in Vancouver for such interaction with the public about salmon farming. The first one is in Kitsilano, at the corner of 4th Avenue and Vine Street. There is the Capers Community Market (now owned by USA’s Whole Foods Market). This is a store selling many organic food items, sometimes for twice the price as at the Canadian Superstore, for the very same items. Environmentally conscious Kitsilano shoppers are quite eager to pay the voluntary eco-tax (Unless in their case it is the ego-tax. Not sure). Interesting details: the David Suzuki Foundation, a strong opponent of salmon farming in open nets, has its offices in the very same block as this store. Great way of killing two birds with one stone.

The second spot is the Fishermen Wharf, near Granville Island. Fishermen sell their catches there to the same ecgo-tax volunteers. The public is welcome there with a sign telling “Friends don’t let friends eat farmed salmon” and other similar “friendly” slogans. After all, fishermen are proud, too.

Swimming in circles

November 21, 2010

If there is a never-ending feud in the food industry, the one here in British Columbia (BC) about farmed salmon certainly should be put on top of the list. The fight between salmon farmers and environmentalists has been going on for as long as the industry has been around, and it looks as if it will keep lasting for a long time to come.

In previous articles, I have addressed some of my views about the poor perception of some areas of food production and the inability of the industry to connect. The BC salmon industry certainly seems to have difficulties to fight this battle.

I still do not quite understand why they have such a hard time. On the other hand, maybe I just do know too well why.

The controversy is much fiercer in BC than it is in other farmed salmon producing countries. Perhaps, this is because BC farms salmon in the only region where wild salmon is still quite abundant, and this region of the world is still a direct interface between wilderness and human activity.

Opponents of salmon farming came out last week with “superheroes” who were going to put things right of course. Here is their website. Clearly, some people have a lot of imagination. Another PR event was the release, also last week, by the salmon farming industry of a 30-minute video, titled Silver Harvest,  that would put things right of course. Here is the link to Silver Harvest. These two recent PR activities made me come to write the following lines.

I have not so much to say about the superheroes stunt, except that their creators are a bit short on sense of humor and of creativity. Captain Condom? Batman and Spider-Salmon? Come on, anyone can do better than that.  Since they are there to save the wild salmon, the least they could have done is to give the names of the wild Pacific salmon. I had expected Captain Sockeye, Lady Pink, King Chinook, Mighty Coho and Superchum instead. Unless they are stuck in teen years, they sound more like Halloween pranksters.

The industry video was announced with lots of fervor by industry tweets and I was curious to see if finally they would reach the hearts of the public. There, too, I ended disappointed. After a good start, a farmers’ crew sailing to the farms, I thought they would glorify the farmer’s job by showing a typical day at the farm. Not really. The video then focused about how many mistakes the industry made in the past, making me think that, after all, the industry opponents were right to be as active as they had been. I am not going to go in details about a number of statements that made me raise my eyebrows. I prefer to express here what I would like this industry to communicate, instead of the constant defensiveness, the constant reference to facts and science that do not interest the public. Is this video aimed at the public? I am not sure it is, and I am not sure it should be. Who are farmed salmon consumers? For BC farmed salmon, they are mostly North American consumers, and to a lesser extent Japanese and other Asian nationals. Are these consumers concerned about the type of containment system? Hardly. They hardly care where the fresh salmon they buy in stores comes from. With Chile’s ISA epidemics problem that about decimated their production, consumers shifted to Norwegian and BC farmed salmon massively without any further concerns. When Chile’s production returns to previous levels, they will switch back to Chilean salmon just as easily. One of the most important criteria for consumers is the price in the store. Most consumers have no idea how farmed salmon is produced. Only a tiny minority of consumers know, and those who allegedly care do not eat farmed salmon anyway.

I would have liked to see the video showing all the tasks carried out on a farm. I would have loved to see the camera follow a farmer explaining what viewers could see going on on-site, explaining them what they do and why they do it. I would have enjoyed seeing the pride of being a salmon farmer and of providing people with food. Farms employees are good people who want to do a good job that is meaningful to society. They should say very clearly once and for all that they do not accept to be stigmatized and ostracized. They are family people. They have kids to feed and to bring up. They must make clear that no group of society that has the monopoly of morals and ethics. They have to say that enough is enough, and that they deserve respect, even if some do not agree with what they do for a living. A couple of years ago, an email from one of the environmentalists stated that “it is so much fun to torment the salmon farmers”. Harassment is not a sign of superior intelligence. Salmon farmers must also state that if people have ideas to improve production while also ensuring economic activity, they are open to suggestions, but that only constructive and productive criticism is acceptable. The public would understand that.

I wish the video had shown all the steps of production from the egg to the delivery to the final consumers. The content would have been similar, but it would have told an enthusiastic story that could have ended with a group of friends having a blast at a barbecue party with some farmed salmon on the grill. They could have addressed the very same topics but, instead of vague statements of being sustainable, responsible, etc…, well the usual politically correct stuff, they had the opportunity with Silver Harvest to show specifically the precise actions that they have taken, and demonstrate the improvements they made. Thus, the viewers would have seen firsthand the daily activities that ensure that the fish they produce indeed meet all the standards that they claim to use. That does not really happen in Silver Harvest. Instead, I got to listen to a list of topics without real cohesiveness between each other and the announced purpose of the video. People do not like to be told how they should think. They love to come to the conclusions themselves. They do not like being lectured. The public is not stupid, just ignorant. After all, no group has the monopoly of knowledge and science. In Silver Harvest, the speaker who, in my view, would reach the public’s hearts is Richard Harry, President of the Aboriginal Aquaculture Association. He made such a clear and strong plea for the communities that depend so much on aquaculture for their livelihoods.

Too few consumers have a chance to visit a salmon farm, especially considering how far away from farms they live. The camera could have been their eyes. Most people with whom I have talked about farmed salmon in Vancouver simply tell me that they know nothing about salmon farming, but they hear “things”. I always enjoy telling them how farmed salmon is produced, about the good things as well as the areas for improvement. After such a conversation, they usually look at the issue with a different perspective. They are interested in learning more, but they need to know that they can trust the one telling them the story.

Talking spontaneously from the heart about one’s passion is what reaches and wins others’ hearts the best.

Copyright 2010 – The Happy Future Group Consulting Ltd.

The sockeye salmon returns with some lessons

September 3, 2010

This could have been the third example, after canola and vines, of what I called earlier “Science being taken hostage”, but this story actually goes beyond just the tactical use of selected science.

The Fraser River sockeye salmon is returning in record numbers to British Columbia (BC) in Canada, the highest numbers in a century. This good news comes at a time when discussions about the disappearance of sockeye were reaching a climax. Last year, the number of returning sockeye salmon was very low and considered by some as alarming. Scientists, and pseudo-scientists, were presenting their own conclusions and they were debating about how the future looked.

Those who are not familiar with the salmon issue in BC need to know that for 20+ years, a war between environmentalists and salmon farmers have been waging. Although all the participants in this debate claim to base their statements on science, Nature is just throwing facetiously some oil on the fire. Environmentalists have accused salmon farms of being the cause for the (apparent) depletion of wild salmon stocks. Much of the accusations rested on research carried out by a local environmentalist who linked her sea lice counting and mortality of juvenile pink salmon to fish farms. Until last year, she seemed to have something of a case, as returns of pink salmons into BC rivers were low. Last year, though, the pink salmon returned in large numbers, which contradicted her theory. For years, the fish farming industry did what it had to do. It always denied any responsibility in the decreasing numbers of pink salmon, using the selected relevant science to support its case.

Ironically, when the pink salmon returned massively last year, salmon farmers were cheering the good news, but environmentalists had been rather discrete to express what should have delighted them. Maybe good news is not always good news. To make things more twisted and controversial, last year’s returns of sockeye salmon, which is a different species of Pacific salmon, were quite low. Although environmentalists never addressed any concern about salmon farms and sockeye numbers, they suddenly saw a connection. The debate became so animated that the Canadian Prime Minister himself decided to set up an inquiry about the disappearing Fraser River sockeye salmon. An inquiry commission was set up with the objective of reviewing with all parties involved the situation, and then present some conclusion. Of course, science(once again) must be the basis for the investigation. I can give you the summary of what the conclusion of the commission would have been, and still might be. “The ecology of salmon is complex and it was not possible to identify any culprit for the disappearance of sockeye salmon with certainty. The commission recommends a number of actions to be taken by all stakeholders in their respective fields of activity. The commission recommends the set up of a monitor group to report and address any new development that can lead to a better understanding and management of the sockeye population”. Something of that nature. The thing is that the life cycle of salmon is quite complex and involves a vast array of environmental conditions in the mountains, in the lakes and rivers and in the ocean. It takes 4 to up to 6 years for a sockeye to return to its birthplace and many events can take place on their route. The high return depends on how many eggs were laid, how many hatched, how many juvenile salmon survived in fresh water and later in salt water. The survival rate can depend on how much food they had available on their trip, or on the population of their natural predators. And all this may be the result of human activity, but also of natural causes. Fact is very few people really know, and can really know what happened. Yet, most of the participants claim to have the knowledge that explains a drop in the sockeye population. There just seems to be less knowledge available about why the population increased.

The whole controversy is not so much about science as it is about politics. In the highly polarized political world of BC, looking for consensus is obviously not enough fun. Fighting is where the joy is, even if it means that everyone may lose in the end. Let’s face it; it does not take a genius to figure out how to have a harmonious cohabitation of fisheries and aquaculture. Unfortunately, there is little action in that direction. Once the problem is solved, there would be nothing left to criticize. Being a critic is a remunerated job.

With the high numbers of fish coming back, a new claim appears: salmon farms are not causing any problem at all, without presenting any science-based proof of that. Of course, this conclusion is already challenged. Remember what I said about polarization. The controversy will go on, as time goes by and future returns will probably show lower levels again. Salmon farmers are not off the hook.

And this brings me to what goes beyond the discussion about science in the salmon debate. It illustrates several topics that I address in my book Future Harvests: sustainability and market orientation. With the high numbers of sockeye, the word out there is to catch as much as they can. I was talking with a fish broker last week. He told me that there is so much fishing activity in the plans that there is a shortage of ice and of totes to hold the fish in processing plants. A few weeks ago, the BC environmentalists denounced the certification of Fraser River sockeye as sustainable by the Marine Stewardship Council, claiming that the low return numbers of last year told a different story. Now, the numbers are so high that fishermen seem very eager to fish as much as possible and sustainability concerns have disappeared. It could be a good idea to take only what is possible to process and sell, and let the surplus of fish to swim back into the rivers and lay as many eggs as possible. This would help keeping high numbers for the return in 4-6 years from now. It would be rather sad to deplete the future stocks. Although fishermen have always criticized salmon farming companies for being driven by profit only, their attitude with the current situation follows pretty much that logic, though. With prices going down, I expect to hear soon some fishermen complain that there is too much sockeye. Question is who will get the blame this time?

This rush to catch that many fish illustrates the lack of market-oriented thinking. In fact, it could hardly be any more production driven. Fish brokers wonder where to sell all that fish. Simple economics tell that the price for salmon will fall. This has already started, and is likely to continue. Maybe saving more salmon to go reproduce in the rivers would have contributed to get better prices, too. In economics, this behaviour is known as the “preference of the present”. For instance, when you have a limited amount of water to cross the desert, you will choose to drink it up to satisfy your thirst, instead of rationing it and keep some for tomorrow.

Tonight, I will go for sushi!

Copyright 2010 – The Happy Future Group Consulting Ltd.

The future price of meat and fish: up

July 17, 2009

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.