The good change

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Fundamental changes in global demographics are major drivers of international food demand.

While the 2009 recession and current global economic uncertainty play a role in determining the demand for food, other fundamental changes that have occurred since 2008 are still the major factors that influence the global demand for food.

The world population is growing steadily. The UN estimates a global population of 7 billion by 2011. While population growth in the developed world has slowed down, rapid growth is still occurring in developing countries.

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In addition, urbanisation occurs at a very rapid rate. More than half the world’s population already lives in cities. The fastest growing cities are in developing countries, and many of these are in Africa.

According to the UN, the populations of Dar es Salaam, Nairobi, Kinshasa and Luanda will all have grown by more than 60% by 2025.

South Africa’s cities will grow at a slower rate, but the population of Durban, Johannesburg and Cape Town are still expected to have grown by at least 10% by 2025.

Income trends
While the population of the developing world is growing, it is also becoming more affluent. The developing countries outperformed developed countries economically over the past decade.

While economic growth in the developed world turned negative, developing countries still managed positive growth, albeit at a slower rate. Latest IMF projections show that this trend will probably continue during 2012.

In emerging economies, economic growth also leads to changes in the economic distribution of the population. As more people move from rural areas to cities, they change from self-sufficient subsistence farmers to consumers, who now have to buy all their food.

The composition of SA’s population has changed a lot in the past decade. In 2001, 38% of the total population was in LSM 1–3 and actually outside the mainstream markets. This fell to 17% in 2010. The percentage of consumers in the middle income groups (LSM 6–8) increased from 22% to 37% during this period.

As people grow more affluent, their diet also changes. They consume less starch and more protein foods. This trend is the main driver for the sharp increase in global meat prices since 2009.

It’s also evident in SA, where the SA Milk Processors Organisation (SAMPRO) recently released figures that show a 5%+ growth in the sales of dairy products during the 12 months to end June 2011.

Implications for SA agriculture
We’ll need more food to feed our growing population, which is becoming more urbanised and more affluent every day. Our population will not only need more food, it will need more value-added and convenience products.

The bulk of the food bought in SA is supplied by the major retail chains. In the past, these companies were frequently accused, even by the National Agricultural Marketing Council, of misusing their dominant position in the retail chain.

The entrance of Walmart into the SA market may bring some much-needed competition to the retail sector. Its stated aim of working with primary producers could benefit farmers. However, farmers who sell directly to specific retailers must realise it is strategically dangerous to sell all one’s products to a single buyer.

In addition, the growth of markets in neighbouring countries provides enormous opportunities for food producers and processors. The lack of infrastructure used to be the main problem for doing business in other African countries. This is no longer true.

SA businesses have succeeded in formalising the markets in Southern African countries. The African market is growing and changing very quickly – an ideal environment in which South African commercial farmers can grow their businesses.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and don’t reflect MPO policy.