Rise in demand for food gives hope for future

FOOD security combined with emerging food trends are increasingly topical subjects.

Latest estimates suggest the world population will grow 2.3 billion by 2050, to over 9 billion with nearly all this growth coming from developing countries.

That means global food output has to rise by 70% from current levels.

In developing countries, production will need to nearly double. Making it happen will call for €150 billion investment annually, mainly in the poorer parts of the world.

All of this has both advantages and challenges and will make for interesting reading in the years ahead.

For instance, grain prices have shot up in the past year with the Food and Agriculture Organisation (FAO) of the United Nations suggesting grain prices are set to say well above trend levels for at least 10 years.

It suggests grain prices are to stay 15-40% above their levels of 1997-2006, before even adjusting for inflation.

The gloom and doom merchants, speculators and the media are already warning of dearer food prices.

Food producers like the consumer will be hit and it looks as if those producing fertilisers and other inputs will come best out of this emerging phenomenon.

It will be good news for the likes of Origin Enterprises which has a strong fertiliser component as well as significant animal feed business. The group’s Masstock operations, which offer on farm consultancy to boost output and get the best from the land, is also set to gain from this trend.

However, global markets can be notoriously fickle – milk prices are just returning to 2007 levels after the downturn hit demand for dairy produce. The slump was also a reminder about how wrong forecasts can be.

At the height of the boom global dairy demand was running 3% ahead of supply in 2007. Back then it was taken as a given the trend would continue indefinitely as rising living standards in Asia and China would continue to drive up dairy consumption faster than the market could cope with.

Nobody reckoned with the global credit crunch and suddenly farmers were left floundering as incomes were sharply reversed.

Despite those glitches, it is generally accepted that increasing food output and a concern for greater food security will become more pressing in the years ahead.

While the outlook augurs well for farm incomes and corporate earnings, food price inflation over the next decade will be under pressure as the cost of raw materials look set to move higher due to stronger demand, with both milk and dairy prices set for steady rises.

Grain and milk prices will not be the only prices to rise. According to the website dailyreckoning.com, the rush to greater food production is having a huge impact on land purchase globally.

“Productive agricultural land with water on-site will be very valuable in the future,” according to Michael Burry, the hedge fund manager who bet against the housing bubble and who has admitted to a big investment in land in recent years.

In the US, the average price of farm land has doubled over the last decade, to $2,140 an acre, according to the US Department of Agriculture.

Wealthy individuals like George Soros and Ted Turner are buying farmland in Argentina, but the biggest buyers are sovereign wealth funds of governments in countries where farmland is at a premium such as China, India and the Middle East.

The World Bank estimates foreign investors bought 111 million acres in the developing world in 2009, a 10-fold increase in 10 years, two-thirds of them in Africa.

How this will go down with local communities remains to be seen as demand for food continues to grow.

But as Irish farmers look to the future, the projections of burgeoning demand suggests they can do so with a good deal of confidence.