"Much ink has been spilled recently on predicting the future of the planet, focusing on the scarcity of resources, lifestyles, consumption, the availability of food, land and water, carbon prices, inflation, obesity and much else. What drove this media coverage was the arrival of world inhabitant number 7 000 000 000. Every week, the world has more than 1,5 million new mouths to feed.
A three-year average has revealed that global consumption of wheat is growing by 10 million tons annually, maize by almost 30 million tons a year and soya beans by 20 million tons a year. The consumption of meat has grown by almost 20% in nine years. In essence, we have access to food but production is not responding the way it should. Last year alone, we had a deficit of 50 million tons of grain.
In Asia, almost a billion people are moving upward into the middle classes. All forecasts done 10 years ago on production, exports and imports in China were incomplete, and some were plain wrong. In 1995, China produced and consumed 14 million tons of soya beans. Last year, it produced 14 million tons and imported 70 million tons, and these figures exceed what was originally projected for 2030.
If China wanted to be self-sufficient in soya beans today, over 35 million new hectares would need to be dedicated to this crop. But this is unnecessary, since there are countries with the potential to supply food to China. Add to this the fact that China’s five-year strategic plan focuses on income distribution and better working wages. This means we can expect that poor people will have more income to spend on food, thus pushing up consumption even more.
A global trend
It’s not only in China that food markets are growing at incredible rates. India’s food market will grow from US$155 billion (R1,289 trillion) in 2010 to US$260 billion (R2,162 trillion) in 2015. In the same period, Thailand’s food market will grow by 50% and Indonesia’s from US$65 billion (R540 billion) to US$100 billion (R831 billion).
Imagine what is happening in the Middle East and Africa, as well as in South America, with the booming economies of Brazil and Argentina representing almost 250 million people. Food commodity prices rose almost 40% last year. This increase is bringing back inflation, hunger and political disturbances in some developing countries, where people spend 30% to 50%, and sometimes more, of their incomes on food and are net oil importers.
Two basic questions need to be answered. The first is: why are commodity prices consistently rising and the prices of industrialised products consistently falling?
Several factors are putting pressure on food commodities markets. Some of these include the huge increase in income in emerging economies, where there is often no accurate consumption data; urbanisation; changing consumption habits; emerging countries’ government family income support programmes; high oil prices and the use of grains and agricultural land for biofuels; food production shortages due to adverse weather conditions, unsustainable water use, disease, cost increases and other factors; the devaluation of the US dollar; and investment fund speculation.
To focus briefly on biofuels and food production shortages: an increasing number of industries are using farm land more intensively as the main source for their products. Farms originally used for growing food for direct human consumption are now producing biofuels, bioplastics, paper and pulp, biomass for generating electricity, and much else. In addition, more livestock is being raised as greater numbers of people consume protein. Since land does not grow, the pressure on existing farms mounts and land prices increase dramatically.
Cost structures
The second basic question relates to the increase in costs for producing commodities. Traditional commodity suppliers are facing huge changes in cost structures, including skyrocketing prices for land, labour costs, water, fertilisers and crop protection. And there are fundamental changes built in here.
For example, the orange juice offered to the Group of 20 participants in Cannes probably comes from Brazil, which has about 90% of world market share. This juice is produced from oranges planted in São Paulo State, squeezed in modern factories and moved in dedicated trucks and vessels to Rotterdam. The cost of this production was US$500/t (R4 161,42/t) in 2003. Seven years later the operational cost was about US$1 500/t (R12 487,05/t). It’s an incredible increase, and if consumers want to keep this chain alive they will have to accept new price levels.
Solutions
How can the G20 countries work together to address food supply and security issues in the coming decades?
Food chains and governments have two ways of solving the looming problems of demand. One is retreating toward increased protectionism, stimulating non-competitive areas to produce an economically artificial environment and resuming war-time policies of self-sufficiency. The other is a production shock, moving towards growth, global trade and inclusion.
Since 2008, I have focused on 10 solutions to address food security:
- Expand sustainability and increase food production horizontally using newly available areas in South America and Africa, where water is not scarce.
- Expand vertically to increase productivity.
- Reduce food taxes and other market protections and barriers that increase costs and inflate food prices for the final consumer.
- Invest in global logistics to reduce waste and cost in transporting food.
- Use the best sources for biofuels production that do not compete with food chains.
- Invest in reducing transaction costs that occur in all food chains.
- Look to a new generation of cheaper, innovative fertilisers.
- Ensure that contracts with farmers are sustainable.
- Disseminate innovations such as genetically modified organisms and nanotechnology.
- Change consumer behaviour to promote awareness about the effects of consuming too much food.
Inclusivity is the key
The food system has become much more sophisticated, incorporating commodity companies and consumer companies alike. The time has therefore come to redesign food chains. Today, there is a thin line between private companies, public companies and non-governmental organisations, and this is forcing people to co-operate to avoid conflicts of interest. In addition, farmers worldwide, but mostly in emerging nations and Africa, need price incentives, technology, credit and market access to invest in growing production to a level that can meet increasing food demand.
High global food prices are of deep concern to the UN, the Food and Agriculture Organisation, and the G20. To address the issue, tax systems need to be debated urgently, even to the extent of giving lower income people temporary government support, while moving as fast as possible towards achieving the 10 points outlined above. Global food production needs to double within a decade. The world does have sufficient land, technology, water and farmers to achieve this goal. All it takes is our determination to succeed." – Lloyd Phillips
Contact Prof Marcos Fava Neves at [email protected] or visit www.favaneves.org
For a copy of Prof Neves’s book Surviving the Global Food Jungle – Realities, Options and Strategies for South Africa, contact the Agricultural Business Chamber on 012 807 6686, email [email protected] or visit www.agbiz.co.za.
The views expressed in our weekly opinion piece do not necessarily reflect those of Farmer’s Weekly.
