FORESIGHT

Global food trade will change dramatically in the next ten years. Developing countries and China in particular will need to import much more than they have and will be vulnerable to future disruptions in supply. The urgent need for food imports in developing countries and the applications of genomics and automation to agricultural production will create attractive market opportunities for corporate players. Family owned businesses that dominate farm production today will continue to be important players, but multinationals will begin to dominate many agricultural markets with large productive farms. China will rely on national companies to secure future imports. Chinese companies, both private and state-owned, will scour every continent for agribusiness opportunities. Tensions with China’s neighbors, particularly India and Vietnam, are going to rise over access to food and water. The new supplies for developing countries will mostly come from Latin America and Africa.

RECENT SIGNALS OF CHANGE

For many emerging economies, self-sufficiency in food supply is no longer possible. Rapidly growing food demand is forcing many countries to rely on imports of food.

  • In 2009, the Food and Agricultural Organization of the United Nations (FAO) estimated agricultural production will have to increase by 70 percent by 2050 to meet projected demand. The increased demand will be due to a larger global population and higher daily calorie intake per person. Most of the increased demand will come from developing countries. Unfortunately, around the world most land suitable for farming is already farmed.
  • In 2015, the FAO predicted that climate change because of increased greenhouse gas emissions would likely have significant impacts on future food and livestock production. The agricultural sector already absorbs 25 percent of the total economic impact of climate-related disasters in developing countries.
  • Based on FAO and US Department of Agriculture (USDA) statistics, the U.S. has 11% of the world’s arable land. The U.S. is the largest producer of corn in the world, responsible for over one-third of the world’s corn crop, and the largest producer of soybeans. It is also among the top wheat and rice suppliers, and is responsible for one quarter of the world’s meat exports.
  • An estimated 20% of U.S. agricultural production (based on volume) is exported, making the U.S. the largest food exporter in the world, responsible for 16% of global agricultural exports. In addition to the United States, the other major agricultural exporters are Canada, Australia, Brazil, and Argentina.
  • World fish production increased from 95 million tonnes in 1990 to approximately 165 million tonnes in 2014. Farmed fish accounts for the entire increase in world fish production since 1990. Caught fish remains flat at approximately 90 million tonnes per year. In 2013, human consumption of farmed fish in tonnes exceeded beef consumption around the world.
  • China currently feeds 20 percent of the world’s population with only 7 percent of the world’s water supply. 80 percent of the China’s water is in the southern part of the country, while almost 70 percent of the farmland and 50 percent of the population lies in the northern part. Much of China’s water is also unfit for human consumption, 70 percent, and agricultural use, 30 percent. Consequently, China is one of the fastest growing agricultural importers, and the U.S. comparative advantage in land has enabled it to be the largest agricultural supplier to China.
  • All governments actively manage their agricultural markets. China is no different.
    • China’s commodity exchanges are the largest in the world, but remain largely closed to foreign investors. The Dalian futures market is the largest commodities exchange in China. By volume, seven of the top 10 agricultural-commodities contracts traded anywhere in the world last year were based in China.
    • In September 2016, China’s Premier Li Keqiang said China would soon lift a ban on U.S. beef imports that had been in place for more than 10 years due to concerns about the spread of bovine spongiform encephalopathy (BSE), or mad cow disease.
    • China consumes almost a third of the world’s cotton, Recently, China’s government accumulated a stockpile of cotton that was 60 percent of world stocks, enough for 10 billion pairs of jeans, because of a government program to buy cotton from Chinese cotton farmers with guaranteed minimum prices. At the same time, China’s government controls cotton imports through a strict quota system and large import tariffs.
  • Import demand for food and other agricultural products is expanding fast in developing countries besides China. In 2014 about two-thirds of U.S. agricultural exports went to developing countries, compared with 48% in 1994. Many are becoming dependent on imports to meet their increasing demand that is outstripping country production.
  • The Commonwealth of Independent States (CIS) and Central Asia lost some 40m ha of productive land in the post-Soviet period.
  • Africa agricultural production has been increasing rapidly, and has the potential to increase a lot more.
    • The FAO estimates Rwanda’s grain production increased by 300 percent between 2000 and 2014.
    • The value of crops in Cameron, Ghana, and Zambia rose by at least 50 percent in the past 10 years.
    • 400 million hectares (ha) of land in West Africa’s Guinea Savannah is available for food production; much of it has the ability to double crop; and only 10 percent is currently cropped. (For comparison purposes, Germany currently has a total of 20 m ha under cultivation.)

Large multinationals dominate the agricultural equipment and materials supply industries, while farms large and small are largely family owned. The long-term trend of consolidation in the agricultural equipment and materials supply industries and farms continues, driven by innovation and the need for more productive farms.

  • Information data on the Earth ecosystem and the ability to gather more using space satellites and in-situ sensors are rapidly increasing. Much of this information is directly useful to improving farm productivity, and as a result a new wave of innovation in farming is occurring.
  • In the United States, farming is a family-owned enterprise—nonfamily corporations run just three percent of farms—and large farms dominate—eight percent of the farms account for 80 percent of US food sales, according to 2012 data from the USDA. Big problems continually face farmers; the successful ones will be savvy, entrepreneurial, risk takers, and effective users of new technology.
  • In 2014, the FAO estimated 90 percent of the world’s more than 570 million farms are owned by an individual, small group of individuals or household. Only 6 percent of the world’s farms are larger than 5 hectares.
  • Sensitivities around foreign ownership of farmland are increasing in developed countries. In April 2016, the Federal Treasurer of the Australian government declared the proposed A$370m sale of S. Kidman & Co. to China’s Dakang Australia Holdings (part of the Pengxing Group) was not in Australia’s interest. Last year the sale was rejected on security grounds because some of the property adjoined some sensitive military sites.
  • The suppliers to farmers are often multinationals. Today some of the largest ones are pursuing mergers and acquisitions to consolidate global capacity and position themselves for agricultural-market upturns. These are very large deals, often cross-border, requiring anti-trust and regulatory approvals of the governments of countries affected.
    • In August 2016, the U.S. national-security regulator, the Committee on Foreign Investment in the U.S., or CFIUS, approved China National Chemical Corp.’s planned $43 billion takeover of Swiss seed giant Syngenta AG. The US regulator was involved because about a quarter of Syngenta’s sales come from North America. The deal still needs to be approved by European authorities.
    • At the beginning of September 2016, Monsanto Co. and Bayer AG announced that Bayer would buy Monsanto in a $57 billion deal that would create an agricultural powerhouse. The German pharmaceutical and chemical multinational would obtain Monsanto’s market-leading position in seeds and crop genes, and position Bayer for the potential growth in high-tech crops to sustain the world’s population.
    • Dow and DuPont announced plans in December 2015 to combine to form DowDuPont, a multinational worth $130 billion, and then split into three publicly traded companies—an agriculture firm, a material sciences business and a specialty products company. Europe’s antitrust authorities have said they are concerned about possible reduced competition and innovation in the seed and farming products industry as a result of the merger.
  • Food quality and safety issues arising from new technologies, particularly GMO foods, are explosive topics.
    • In July 2016, more than 100 Nobel laureates signed a letter to Greenpeace urging Greenpeace and its supporters to abandon their campaign against GMOs in general and Golden Rice in particular.
    • In September 2016, a former employee at a Chinese state laboratory that studies GM foods said his superiors had him falsify reports. This allegation quickly spread on China’s social media. The Beijing government is trying to shift public opinion toward acceptance of GMO food.

PLAUSIBLE OUTCOMES IN TEN YEARS

The global food supply system will generally meet the world’s rapidly increasing demand for calories; but there will be many disruptions and problems and many food security and health issues. The dynamics of the system will remain chaotic with the commercialization of disruptive technical innovations, the imposition of new trade restrictions by governments, the cyclical nature of commodity markets, the impacts of climate change and weather patterns on arable land, and the independent investment decisions of multinationals pursuing perceived opportunities.

Corporate power over food production is going to increase significantly.

  • Farms will continue to consolidate and get bigger in major agricultural export regions like the United States and Canada as well as in developing countries with promising export opportunities.
  • New multinational entrants will start buying and forming large farms, employing technology to greatly improve the farm’s productivity and distribution system’s efficiency.
  • Because of the growth opportunities and risks, the multinationals will leverage investments in agriculture innovation. Silicon Valley will likely be a key center of agricultural innovation.
  • The image of farming and agriculture will begin to shift from an important cultural and social activity to a strategic natural-resource exploitation activity. Will multinational farmers be viewed any differently than multinational oil companies?

Foreign multinationals will be investing in productive farmland in Canada, the United States, Brazil, Argentina, and many countries in Africa.

  • Both state-owned and private multinationals from China will be very active.
  • Foreign ownership of many nations’ farming capacities will increase. How might this influence a nation’s food and water security concerns and policies?
  • How will federal or state farm or crop subsidies be affected?
  • How will efforts to create a resilient regional ecosystem—where regional policies for food production, water use, economic industries, and environmental management are coordinated, if foreign multinationals assemble large farms focused on export opportunities?

Population protests and disagreements among NGO groups over food and water issues could increase in the future in both developed and developing economies because of many conflicting issues:

  • Food security and food safety issues associated with the growth in imports.
  • Loss of small-farm jobs.
  • Increased availability of information about the use of local water, land, and infrastructure resources.
  • Potential risks to regional ecosystems from GMO foods.
  • Regional and local water policy decisions.
  • Climate change mitigation and adaptation policies that conflict with agricultural markets.

Latin America and Africa countries will turn into the world’s food baskets.

  • The major increases in food production over the next ten years to meet the world’s population needs for more calories will come from Latin America and Africa.
  • The major supply countries could organize themselves into the “OPEC of food’—or OFEC, if they realized the leverage they might have and coordinated national strategies for exploiting their farming capacities.
  • Precision-farming technologies will spread from North America to Europe and Latin America and then Asia and Africa.
  • The center for technological innovation will continue to be in North America.

National governments will continue to try to shape food demand and production in their countries.

  • Food imports will continue to be strictly monitored and controlled in countries. Governments will continue to apply targeted tariffs or restrictions to reduce imports and protect national producers.
  • Food trade issues in front of the World Trade Organization will increase.
  • National and local water policy decisions will be affected by the increases in food exports, and possibly by the changed ownership of large farms.
  • Tensions among countries in Asia will rise over these issues. China and India will compete worldwide for access to food supplies. Vietnam and Thailand will be squeezed.
  • Energy and environmental-management policies of many countries will be highly influenced by food and water security outcomes.

Farmed fish production will very likely continue to grow rapidly because of technology innovations and provide an increasing part of total calorie intake around the world.

3 thoughts on “Multinational Food Factories

  1. Bill, Interesting to see you are in the blogging business again. I was wondering what you thought of recent alternative estimates of slower-than-previously-projected global population growth, the possible lack of impact of atmospheric carbon and temperature on increasing plant growth, and the ‘low-hanging fruit’ in food waste reduction to increase food availability. Also, is the imagery business, for which you are CDO, related to Ag? I would like to discuss that with you as well.

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    1. Hi Brock, I don’t know there’s much “business” in blogging, but I like thinking about the future directions and decisions of big business and how they might impact the world. The slower-than-previously-projected global population growth would certainly affect things in the long term, particularly if they’re in Africa. I’m focused on developments in the next ten years and there won’t be so much affect there. As I understand it, future plant growth has a limited potential as a long-term solution to reducing carbon emissions. Plant growth is important, just not the solution. I’m assuming innovations in food waste reduction will definitely occur, and they would have an impact in the near term. Given the scale and complexity of the food supply system, multinationals are potentially in the best position with their access to capital and skills to push through the innovations. We’ll see about that. The imagery business I working for will generate unique imagery that would be valuable to the Ag industry, if we succeed in launching our satellites. But the Ag industry is not our focus. Let’s talk offline about the imagery business.

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