Jagdish Parihar is the Managing Director & Chief Risk & Compliance Officer at Olam International Limited. He was a speaker at the Global Commodity Risk Management Forum 2016, and he will also participate in this year’s event as well. During his talk last year, Mr Parihar explained the key macro-trends in the agri-sector.
Growing population will drive demand growth
Global population is set to hit 9.7 billion people by 2050, and more than 11 billion by 2100, even if the decline of fertility accelerates. Ceteris paribus (= “holding other things constant.”) could be applied to the laws of supply and demand: the potential of the Earth is finite (constant), whereas the population will continue to grow. Therefore, without taking into consideration soil fertilisers, for example, or other methods which attempt to boost the exploitation of the natural resources, more will be required from a finite source. More human “traffic” on the earth is equivalent to more mouths to be fed. Something which poses certain problems, since there is a…
“More is expected from an increasingly ill Earth.”
Growing scarcity of arable land, water scarcity and climate change
Actually, there is a widespread belief that climate change is driven by population growth. Or, more precisely, by a population that over-consumes. Let’s talk some numbers here: food production requires water, specifically, around 70% of all usable water on Earth is currently used for food production. Moreover, almost 40% of the entire (ice free) land surface of the planet is dedicated to agriculture. For those who would like to look into the issue more, the documentary Cowspiracy is highly recommended. Food and other consumption goods require a lot of energy during all the stages of their product lifecycle: manufacturing, transport, use, and disposal. As a result, oil, coal and gas usage has increased dramatically to meet rocketing demand for energy consumption. Energy demand by an increasing population over the past half-century has led to atmospheric carbon dioxide concentration of alarming levels.
Agricultural intensification causes severe soil degradation and depletion of groundwater. Land use for agriculture, urbanisation and infrastructure causes loss of habitat with regards to the world’s biodiversity. Apart from the degradation of terrestrial ecosystems, many of the world’s marine ecosystems are also being rapidly degraded by overfishing, pollution and ocean acidification. Climate change is the result of our consumption activities, as shown mostly in the form of global average temperature rise and, and the frequency of extreme weather conditions. And a fact quite hard to chew: the climate change currently emerging is mostly a consequence of the past activities of fewer than 3 billion people; not the current activities of 7 billion, 9.7 billion, or 11 billion, as projected. All in all, more is expected from an increasingly ill Earth. And by “more”, more “calories” are definitely included in the game, since there is an…
Increased calorie consumption driven by income growth
Over the next three to four decades, global per capita income is expected to rise at a rate of over 2 per cent per year. Economies of developing countries are projected to expand at twice the rate of those in industrial countries. Rising incomes entail higher fat diets. In China, for example, when per capita income grew fourfold after the 1970s, the consumption of high-fat foods soared. Nevertheless, with regards to developed countries, the case is rather the other way around; namely: in countries such as the USA and the UK, the effects of increased income have generally been considered as beneficial with regards to dietary choices, resulting in better quality diets.
“70% of all usable water on Earth is currently used for food production, and 40% of the ice free land surface of the planet is dedicated to agriculture.”
Slowing rate of agricultural productivity improvement
Agricultural productivity is measured by the ratio of agricultural output to agricultural input. Output is usually measured as the market value of the final output, which excludes intermediate products such as corn feed used in the meat industry. This output value may be compared to different types of input, such as labour and land (yield). Some factors that increase agricultural productivity are mechanisation and genetic engineering, fertilisers, pesticides, and irrigation. It seems that there is still a lot of space for improvement in order for agricultural productivity to keep up with increasing agri-needs.
Jagdish Parihar, Managing Director & Chief Risk & Compliance Officer at Olam International Limited
Learn more trends of the Agri-Sector at the article What is Now Trendy in the Agri-Sector? (PART 2/2), and make sure that you join this years’s ComRisk, in order to get a profound insight into the commodities industry.
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