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Global Food Crisis as Technological Advances

Politics / Food Crisis Feb 12, 2009 - 11:37 AM GMT

By: Oxbury_Research

Politics Best Financial Markets Analysis ArticleBy 2050, according to the World Bank (WB), global population is expected to increase by 3 billion people. The global population is always growing (I'm almost done being Captain Obvious), and a direct result of that growth comes the WB's expectation that food demand will double by 2030 from current levels. While more people are eating more food, farmland remains finite.

This is not a groundbreaking issue as pundits have been predicting “peak food” for decades now. Up until now, the fix has been higher yields. Corn for example has seen average yields increase by 40% over the last 20 years (USDA). There remains no reason to believe that technological advances increasing yields won't continue. The problem is that the global supply and demand of food is not only experiencing higher stresses, but changing global trends have and will continue to increase the rate of change in food demand.

Beef, it's what's for Dinner

Fantastic economic growth in developing nations has resulted in an increase of the standard of living in the highest populated regions of the world. This increase in the standard of living is resulting in a changing global diet. Citizens around the world are consuming more meat, eggs, milk, and fish than they ever have. It takes 16-pounds of grain to produce one pound of beef, 6-pounds of grain to produce one pound of pork, and 3-pounds of grain to produce one pound of chicken or eggs. This is a very important notion as more of the world's agricultural production is going to livestock feed.

Approximately 30% of the world's ice free land is directly or indirectly involved in the production of livestock (United Nations Food and Agriculture organization [UNFAO]). In 1961, the world produced 71 million tons of meat. By 2007, that number had more than quadrupled to 284 million tons (USDA). In that same period, per capita consumption more than doubled meaning that the growth of the global meat supply can be attributed to both growing population and a changing diet. What's really interesting is that over that same time period, per capita consumption of meat in the U.S. , on e of the largest consumer of meat, was relatively unchanged.

There's a possible “if, than” logic that can be drawn; if the world is eating more meat, and the U.S. isn't, than a large part of the growth in demand can be attributed to developing nations. The statistics agree. Since 1980, annual meat consumption by developing nations has doubled with China leading the growth. An average Chinese citizen consumed 44 pounds of meat annually in 1985. That figure is now 110 pounds per year marking an increase of 150% in just over 20 years. Global per capita consumption of meat is expected to double again by 2050.

A doubling of per capita consumption combined with an expected growth of 3 billion people means a lot more meat is going to be consumed. Because of inputs, growing consumption of meat has a large effect on global food markets. Think of it this way: measure food supply as the amount of calories produced in the world and food demand as the amount of calories consumed (as aggregates). One pound of meat requires more calories of supply than one pound of grains. The more meat that is produced in the world the less aggregate calorie supply there is. More meat consumption as a percentage of diet results in an increase in calorie demand.

Where'd the Food Go?

Another noteworthy trend is that 7 out of the last 8 years, global demand has outpaced supply. The reason this is possible is because the opposite occurred prior to the current trend. Global food stock piles have been drawn down to make up for the gap between supply and demand. The result of the discrepancy over the past several years has been a decline in global stock piles of grains to 30 year lows. The whole notion of having strategic food reserves is to allow for a safety buffer if there is a supply shock. Current stocks are at dangerously low levels and if there was a disruption in supply, angst would be felt around the world

Now that the majority of this article has been written, I would like to say a couple of things. I'm not saying this is a pending crisis, I'm not saying that it isn't either (real cute, don't you love it when people straddle the fence like that). What I am saying is that if technological advances in yields don't continue to be developed a crisis is just a matter of time. Things may be slightly more dire than you think with the UNFAO claiming 36 countries are already experiencing some sort of food crisis. Keeping the aspects discussed in this article in mind, there is simply no wiggle room in the global food supply for things like bio-fuels. Meddling with the world's means of sustenance is a dangerous game played by politicians. Unfortunately, I believe that utter incompetence prevents policy makers from realizing the fine line they walk.

By Nicholas Jones
Analyst, Oxbury Research

Nick has spent several years researching and preparing for the ripsaws in today's commodities markets.  Through independent research on commodities markets and free-market macroeconomics, he brings a worldy understanding to all who participate in this particular financial climate.

Oxbury Research originally formed as an underground investment club, Oxbury Publishing is comprised of a wide variety of Wall Street professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.

© 2009 Copyright Nicholas Jones / Oxbury Research - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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