While the world has been quite rightly consumed by the issues on credit markets over the last few weeks, there is an insidious problem creeping up on us that could affect the whole world for decades to come. We believe there is potential for significant ongoing food shortages that go well beyond the current concerns on food security, and will result in regional unrest and conflict.
This underlying issue is highlighted by the fact that world stocks of wheat have been on a general downward trend for 40 years. This trend has continued in the last three years despite the fact that we have had two of the largest wheat crops in history during that time. The same general trend has occurred in coarse grains (corn, sorghum, oats, barely and triticale) and rice over the last ten years, which means that it covers all of the key grains in the human food supply chain. But this is only the surface problem. We must delve deeper into what is happening in order to get a true picture.
The tightness in grain supply and demand has led to significant price rises in these commodities over the last 18 months. This in turn has led farmers to plant more grain and on current forecasts it appears that stocks will rise this year.
However, this is no reason for complacency. Compared to historical demand
we have a completely different picture going forward that could fundamentally change the relationship between supply and demand.
As everyone knows, world population is projected to grow significantly over the next 30-40 years with the United Nations medium population forecast predicting that world population will be over 9 billion in 2050, an increase of over 2.6 billion people from the 2005 figures.
It is possible that the world agricultural system could cope with this increase through normal productivity improvements. But there are also two other large demand factors coming into play just at the time when we appear to be approaching limits on the availability of arable land and water.
The first of these is that we are seeing exponential growth in world affluence which means a lot more people will have a lot more money. This sounds great but it will have a significant effect on the food supply chain. History shows us that as people become more affluent they move from subsistence living on tubers and vegetables, to eating more cereals, and then to consuming far greater amounts of animal protein.
Due to limitations on available land and our depletion of wild fish stocks, any significant increase in animal protein production is going to have to come from feeding grain and plant protein to animals and fish. Consequently grain demand will rise even further because it takes a lot more grain to feed an animal than it does for us to survive on the cereals themselves.
The second major new demand factor is the significant push for biofuels in response to climate change and Peak Oil fears. As an example, the US ethanol industry alone will use 104 million tons of corn next year to produce ethanol. To put that in context that is 100 per cent of average annual world coarse grain trade and 6.4 per cent of total global cereal grain production.
The factors that we have described have been discussed by a number of commentators but what will happen has not been fully grasped by anybody.
What all this means is that demand for cereals is accelerating away from us in a completely different way than we are used to. As a consequence the future of the global food supply chain will be significantly different than in the past.
Where we differ on our forecasts is that we believe we are going to be living on the edge of massive food shortages for the foreseeable future. The global tightness in grain stocks will remain for a long period of time, albeit it with some volatility. This means that the world is going to be exposed to the risk of a poor harvest for a large part of the foreseeable future. The way the market is likely to play out is as follows.
If farmers produce more grain then the price will fall back in the short term.
This in turn will encourage more people to push cereals into biofuels and into animals. At the same time grain farmers will get reduced price signals so grain production growth will slow. In time this means that global stocks will fall again, prices will rise and the cycle will repeat itself. In essence supply and demand will roughly track each other with periodic widening and narrowing of the gap between the two.
This leads us to the main problem. The world food supply chain is a less than perfect market where signals and responses are separated in time due to the biological nature of the system and significant impacts of climatic conditions.
The future food supply chain we see is analogous to the world metals market where supply ramps up over time and you see big variations in price as you get under supply or over supply situations.
Where the analogy breaks down is that the food supply chain is exposed to climatic risk in a way the metals market is not. In the last 25 years we have had three years where world cereal production has been between 69 and 104 million tons less than the previous year. If global supply and demand remains very close together over the long term and climate change increases climatic variability, then it is highly likely that we will get several years in the next 25 year period where there will be a catastrophic tightness in world cereal stocks.
If such a year occurs then the tightness in global stocks will be exacerbated by trade restrictions and hoarding by countries that have a surplus of cereals.
We have already seen this occurring with India putting restrictions on rice exports this year and China ramping up export taxes on fertilizer to keep fertilizer stocks up internally. Many of the countries that have cereal or rice deficits are in the Middle East or in other politically fragile regions. The implications of this situation for global security and a range of companies, both inside and outside of the global food supply chain, are enormous.
This guest posting was written by Paul Higgins and Sandy Teagle who are futurists with Emergent Futures. See more of their material at www.emergentfutures.com and follow their tumble log at www.emergentfutures.tumblr.com
Post your comments at firstname.lastname@example.org
Copyright © 2014 AIM Inlines Co., Ltd. All rights reserved.
No portion of this web site may be used or
reproduced in any manner
whatsoever without written permission, except in the
case of brief quotations
embodied in critical articles and reviews.
Back to Articles
| Top of the Page