EDITOR: | August 24th, 2015

Control of food means power for a few

| August 24, 2015 | No Comments
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Cowans-Dinner-ShotEveryone talks about the prices of agricultural products, otherwise known as soft commodities, rather than the long-term supply and demand trends. Like their counterparts in the mineral sector, most soft commodity prices are just awful in terms of market support at the present time. There are one or two exceptions (whole milk powder prices jumped 19.1% last week, potash exploration shares in Australia have been rising against the overall trend) but generally farm products are in bear territory. The Rome-based Food and Agricultural Organization sees less than exciting grain prices for a decade out.

But there is another aspect to all this: the politics of food or, as the headline says, food production and the long-term power it brings with it.

By 2024, a handful of countries will wield immense influence in supply of the world’s food.

The FAO in its Agricultural Outlook 2015-2024, produced in partnership with the Paris-based OECD, notes that, notwithstanding price outlooks in the short-term, trade volumes of most agricultural commodities are projected to expand over the outlook period. Cotton, sugar and poultry are expected to be the greatest growth sectors. (Interestingly, vegetable oil is one of the highest traded commodities, with 40% of output entering international trade; Indonesia and Malaysia are the world powers in this sector.)

But one of the more interesting parts of the FAO-OECD report is the focus on how most of the food products are flowing from a small few export countries and going to large numbers of importing countries.

“The limited number of exporters for most commodities reflects a comparable advantage in these countries due to natural endowments, domestic policies and climate conditions,” the report says. But the other side of the coin is that, should one of these major suppliers see their supply disrupted, it would have significant repercussions on international markets.

But I would add this thought: it is a situation similar to China’s dominance in many technology metals (rare earths, tungsten, antimony, being just a few examples) that gives it considerable market power – even if Beijing can’t always use that power to best advantage, as seems the case at present with rare earths (although it has managed to stymie the emerging tin mines by taking almost its imports at knock-down prices from Myanmar).

The short-term focus is on prices of agricultural commodities. But the pressure on their supply is going to become greater as the decades roll by due to (a) growing wealth in developing countries, and therefore the ability of people there to buy more high-end food (like steak) and (b) the sheer growth in the world’s population. Millions of extra mouths have to be fed each year: Nigeria’s population will pass that of the U.S. by 2050, at which time India will have a projected 1.7 billion people.

Yet by 2024, the bulk of supply of food exports will be in a relatively few hands. The FAO expects the U.S., the European Union and Brazil to remain among the top food exporters (with shares of 33%, 32% and 24% respectively of global food trade).

By 2024, New Zealand will be the world’s primary origin of butter and whole milk powder, the country of 5 million (at present population) holding global market share of 48% of butter supply and 56% of milk powder.

More than half the world’s sugar will originate from Brazil by 2024. Brazil will also be the leading world exporter of beef (20% of global supply) and poultry (31%).

Thailand will be the leading rice exporter, with the U.S., Vietnam and Pakistan all expected to lift exports of this grain by 2024.

FAO says the Russian Federation, Ukraine and Kazakhstan will become increasingly important wheat exporters as production continues to outstrip domestic demand in those countries.

This is one of the more interesting geopolitical stories of our time, but one largely still flying below the radar.


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