By Peter G. Hall, Vice President and Chief Economist
Crisis hit briefly at the top of the last cycle. No, not the crisis that hit the economic and financial world in late 2008; earlier that year, the relentless and seemingly endless global economic growth initiated a localized food shortage in Southeast Asia. Panicked consumers began to stock up, fearing the worst. It all fizzled quickly, as the situation was swallowed up in the chaos that hit the world a few months later. Was the long-forgotten Asian food crisis a harbinger of shortages in the coming cycle, or was it just an isolated, never-to-be-repeated anomaly?
The answer isn’t easy. Shortages can occur even in a time of plenty. Rumours of shortage can be enough to create them. Get enough people believing that supplies of anything – food, water, gold, currency, credit, and even tulip bulbs – are short, and regular people will drop everything in an effort to stock up ahead of everyone else. But distribution systems aren’t built to handle sudden stock-ups. So the store shelves empty, cash on hand at banks is drained and so on, creating the self-fulfilling appearance of a shortage. The panic is only punctured when the shelves are filled again and the rumours dissipate. That is, unless the rumours are right. So, was Asia’s 2008 scene rumour or reality?
It was so short-lived that we may never know. But it is a warning that it may recur, and the facts do not rule out food shortage 2.0. Across the emerging world, an army of newly-rich consumers is growing. Every economy is participating, and the numbers are impressive. Brazil has been adding 5 million annually to its middle class. Indonesia tops that, at 7 million a year. Go to India, and the drama increases – their annual number is between 10 and 20 million, and they hope to reach 30 million in the near future. But China tops the charts. By its own calculations, China is adding to its middle class by more than Canadian population every year, and the number is projected to grow over the coming decade.
Taken alone, the numbers are very impressive, and lead to all kinds of conclusions about the changing nature of global consumption. These newly-rich consumers do two things: they consume more, and they consume higher-quality goods and services. And they start with food. In general, they eat more meat. According to the FAO, per capita meat consumption in industrialized countries has slowed to a crawl. But in the developing world, it’s the opposite. From a low base, per capita meat consumption in South Asia is the fastest growing in the emerging world. From a high base, Latin America is also showing impressive growth. But in the population-heavy Asian space, per capita meat consumption is even more eye-catching.
This has huge implications for the future growth of world meat demand. Multiplying the per capita numbers by total population gives staggering results. East Asia will account for almost half of world growth in meat consumption from now until 2030, and emerging markets as a whole will account for 86 per cent of growth. Industrialized economies already account for under half of total global meat consumption, and that share is forecast to decline to just 29 per cent by 2050. This speaks not so much to the decline of wealthy markets as it does to the shifting dynamics of global population growth and consumption patterns, and the implications for total global consumption of meat.
Why is meat important? A well-known metric is that it takes 7 to 10 times the amount of crop volume to generate the same caloric intake from meat compared with the caloric intake from consuming the crops directly. This phenomenal increase in meat consumption is actually putting exponential pressure on the world’s crops. It has huge implications for trade in agricultural products, all up and down the value chain. It also suggests that economies everywhere, eager to produce as much food at home as possible, for security reasons, will be farming as much land as possible. They’ll need more fertilizer for the more marginal lands, equipment and agri-science to increase yield productivity. Sounds like a good time to be in the agri-food business.
The bottom line? Things are looking good for both prices and volume activity for primary agricultural products, processed food, fertilizer, machinery and agricultural know-how. As a bread-basket nation, Canada has a lot to offer.
This commentary is reprinted courtesy of EDC. It is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement and no representations or warranties are made as to its accuracy, timeliness or completeness. It is not intended to provide financial, legal, accounting or tax advice. Neither EDC nor the author is liable for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.