WORLD AGRICULTURE and FOOD COMMODITY MARKETS BULLETIN SERVICE

FoodWorks is adding an important service to its regular consulting work. FREE!

There can be no doubt that the world is heading for a food crisis in the coming summer. Rising food prices drive more people into poverty and put brakes on the world's recovery from recession. Poor, hungry people lead to civil instability and a slower recovery means less jobs.

We need to act now!

Some of the major factors that have been pushing food price indices to their highest levels include:

Demand side

* Rising population – the world is adding 80 million people every year. Moreover, the majority of these people are in developing countries which have a limited agricultural resource base. As an aside, health programs, laudable as they are, impact more rapidly than food supply initiatives. So in countries where the population growth rate is highest, the Malthusian boundary is closer than we think.

* Rising incomes – the fastest income growth rates are also in those countries with large populations and above-average growth. Whereas the aim in the high income countries is to cut back on food consumption (we worry about obesity), a large proportion of the world’s population is moving towards increased consumption of eggs, meat and milk. All these commodities are poor converters of food adding pressure to the demand for staple foods.

* Bio-fuel – We are less concerned about bio-fuels. While the USA grew about 420 million tons of grain in 2009 and put 28 percent of that into bio-fuel, it is surely the case that without the ethanol program this amount of grain would not have been grown. It is disingenuous to take the bi-fuel grain and say “it could have fed millions of people”. Not so, without the demand for ethanol, at least a proportion wouldn’t have been grown. That said, this area of consumption represents a significant part of the demand for natural resources and has its own impact on the environment.

Supply side

* Water deficits – water is the elephant in the room. Aquifers are being depleted everywhere. Sanaa, the capital of Yemen, will soon have no water supply whatsoever. Melting glaciers in the Himalayas will first flood Pakistan (as they did last year) and then the absence of water will starve the largest irrigation system in the world.

* Climate change – however it is measured, and despite the skeptics, there seems enough evidence that the pattern of the world’s climate is changing with large dustbowls developing in Central Asia and Sub-Saharan Africa. Soil erosion and the damage to the eco-system from e.g., oil palm being grown in Indonesia also give huge cause for concern.

* Loss of land to non-farm use – as the human population grows people migrate to cities in search of jobs that are almost always more remunerative than agriculture. Mega-cities are consuming land for housing and industrial use at an enormous rate.

* Technical limits to productivity (yields) – the “Green Revolution” of the 1960s and ‘70s was based on large increases in land productivity. But the growth in yields cannot be exponential. Already many developed countries have reached the limits of what the land will yield. In the developing world yield increases, obtained at considerable cost, are frittered away because of lack of infrastructure, e.g., for storage and drying. Perhaps 40 percent of the production of food in these countries is simply wasted before it ever reaches the table.

All this has happened in the context of the public sector – national governments, multi-lateral aid agencies and the other donors – losing heart for agricultural development. Lack of investment in agriculture, its infrastructure and its skills has eroded the capability of many countries to deal with the crisis that is now on us.

With all the above in mind, FoodWorks has recognized that there are nevertheless opportunities. If governments will not or cannot act, then they should stand aside and let the private sector and the profit motive take over.

It's an urgent priority to mobilize capital and expertise and get it to work!

In this case, we at FW are developing a commodities market analysis service that not only looks at price and market trends in terms of the supply-demand balances of the major food and beverage crops, but points to related investment opportunities.

We will start with the basics of the food business, the staple crops, and focus on wheat, corn (maize) and rice. We will then add oilseeds and oils. As we progress we will include fertilizers and sugar and coffee and dairy.

We’ll do it (at least initially) free as a service to our clients and to facilitate the investment and development projects that are our bread and butter. We’ll bring to this not mere quantitative analysis, but the lengthy experience needed to see what changes in the numbers really mean on the ground with the farmers and those buying in the market.

And if you'd like to us to answer specific questions - free - by all means just email foodworks@quartermainesworld.com

Background note: FoodWorks staffers have had many years of experience of both public and private sector project work in every sector of agriculture and agribusiness. We are not academics, but people who have real world experience of how the markets work.

A NEW WORLD FOOD CRISIS?

The news media are full of new concerns about a world food crisis in 2011. FoodWorks and its affiliated companies in Project Partners have been working for decades in the fields of rural development and livelihoods in agriculture, not to mention the more commercial aspects of agribusiness, food processing and related technologies. We believe we have something significant both to contribute to the current discussion and to offer as experts in the entire "farm to fork" value chain.

First, let's review the current concern that is building in institutions like the UN's Food and Agriculture Organization (FAO) which has the primary task of providing early warnings about food shortages. Then we'll go on to say something about the fundamentals of this problem that is not easily going to disappear.

Jacques Diouf, the Director-General of FAO, has underlined with some simple facts the need for a new "Green Revolution" to provide food for hungry nations. There are a billion people on Planet Earth who go hungry right now. World food production will need to increase by 70 percent to feed a population of over nine billion people in 2050. With limited land, farmers will have to get greater yields out of the land already under cultivation. In a strikingly direct statement entitled "Price volatility and food shortages to remain" Mr Diouf says that the FAO Index of Food Prices rose again sharply at the end of 2010, heralding the possibility of another major food crisis. Coming from FAO, but with support from statements made by President Sarkozy of France recently about commodities prices and food riots and the US Government's "Feed the Future Initiative", this is not scaremongering.

FAO rightly identifies the underlying structural causes of the emerging crisis. As development professionals, we at FoodWorks absolutely support this analysis.

1. Falling investment in agriculture: the share of agriculture in official development assistance (ODA) dropped from 19% in 1980 to 3% in 2006, and now stands at around 5% - it should amount to $44 billion per year. ; the budgetary expenditure of low-income food-deficit countries on agriculture represents about 5%, when this should be at least 10%; finally, domestic and foreign private investments of around $140 billion per year should amount to $200 billion.

2. Unfair terms of trade for commodities: The OECD countries protect their agriculture with a total support estimate of $365 billion per year while encouraging through policy changes free, unsubsidised agriculture in the developing world. Non-tariff barriers also restrict trade.

3. Non-food industry speculation in agricultural commodities: there is considerable evidence that hedge funds and other, non industrial users of agricultural commodities take advantage of price upswings that drive the actual commodities to price levels that make their use as raw materials too costly. Not only do price surges take food directly from the mouths of the very poor, but they damage enterprise throughout the value chain, thus entrenching food shortages.

The blunt fact is that human population growth is leading to a Malthusian crisis in developing countries where the usual solution, technical change, cannot easily increase supply.

Tanzania is a good example: the population is growing at nearly 3% which means it will double from 40 million to 80 million in less than 30 years. But the agricultural base - good soil and available water - is limited. Climate change is compounding the problem with extended droughts. The necessary infrastructure, especially irrigation and farm-to-market roads, is lacking.

The awful irony is that this population increase is a result of rapid success in tackling basic health. Health projects (e.g. malaria net distribution) impact rapidly, whereas investments in agricultural productivity take many seasons to show their results. A recent assessment of agriculture in Tanzania conducted by FoodWorks shows that every aspect of the sector and the value chain needs to be tackled. But donors are increasingly reluctant to do so because of the difficulty of producing the easy to understand "success stories" so beloved of desk bound bureaucrats.

We believe that part of the answer will come from the private sector. Already large sovereign wealth funds and other commercial investors e.g. in the Gulf Arab States (the GCC) have begun to invest in agriculture to secure their own food supplies. FoodWorks has a number of plans afoot to help with this process. Equally, the large multi-national agribusiness companies need to be encouraged to make their products and R&D available to partners in the emerging but at-risk economies. USAID already has programs like its Global Development Alliance (GDA) in place and these kind of prgrams, combined with so-called "corporate social responsibility" (CSR) programs can lead to worthwhile public-private partnerships (PPP).

But there will not be any simple answer - and that's what confuses the bureaucrats. They don't understand that agriculture and agribusiness is possibly the most complicated human activity there is. It climate and biology-driven and includes elements of science, technology but also every angle of business, finance and marketing that can be imagined. Grow a crop, increase yields by all means, but if you can't ensure its quality and traceability (origin), store it, move it, package it and ensure that it's safe to eat and do that profitably, then the basic agronomy fails.

FoodWorks and its partners have over 40 years of experience in every aspect of this astonishingly complex activity. We want to be part of the solution. And a solution is urgently needed.

For more information click the link to: Project Partners

Or contact Geoff Quartermaine Bastin directly by email at foodworks@quartermainesworld.com

Chart: UN FAO