Feeding the world has a fairly simple goal — balance demand with supply. Doing this, of course, is anything but simple.
Solutions for maintaining global food supplies have to address rising population levels, emerging countries with a taste for new foods, limited arable land, changing weather patterns, more grains used for biofuels, growing water scarcity and a host of other factors.
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The world’s population growth rate has been trending downwards since before the 1970s. However, the total number of people is still rising by about 75 million per year. The UN estimates that world population might reach 9 billion by 2050, with most growth in developing countries. This is the equivalent of adding two Chinas to the world’s current population.
The World Bank estimates that food requirements will rise by 50 percent by 2030. This increase is driven not only by population growth but also by an expanding middle class in developing countries with a growing preference for Western diets.
Developing countries, especially in Asia, have been steadily moving from the direct consumption of grains and other staple crops to vegetables, fruits, meat, dairy and fish. The increase in meat and dairy consumption has also led to greater demand for animal fodder and feed from cereals. China consumed about 250 percent more meat per capita in 2007 than in 1990. India consumed 20 percent more meat, fish and eggs per capita than in 1990.
Not surprisingly, Asia is importing more foods than ever before. The Australian Farm Institute estimates that by 2020, Asia will be importing an additional 5.2 million tonnes of dairy products, 1.9 million tonnes of beef and 1.1 million tonnes of chicken. Grains are also a major part of these imports. In 2009, China alone imported 44.5 million tonnes of beans, more than half of the world’s total and three times its domestic production.
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Even as global food demand increases, the resources capable of supplying this demand are under siege. The UN estimates up to 25 percent of global food production could be lost by 2050 due to loss of agricultural land, climate change and water scarcity.
Analysts estimate that 21 countries lack adequate amounts of arable land and freshwater. With continuing population growth, 156 more countries are projected to fall into this category by 2025. Growth in agricultural acreage is expected to increase by only 7 percent between 2000 and 2020, lagging far behind an estimated annual growth of 1.1 percent in world total population. This problem is made worse by urban growth, which often occurs in fertile areas along rivers and coastlines that are suitable for farming.
Climate change might result in an increase of 40 to 170 million in the number of undernourished people worldwide, according to the Intergovernmental Panel on Climate Change. While higher average temperatures may lead to crop yield increases in temperate zones, most developing countries in the lower latitudes will start to see more extreme weather, including droughts and flooding. In Argentina, for example, the summer of 2010 saw record high temperatures that have reduced harvest forecasts, pushed crop prices to two-year highs, and prompted concerns about tight global supplies.
Lack of access to stable and adequate supplies of water is reaching critical proportions, and the problem will worsen because of rapid urbanization worldwide. Agriculture, which accounts for 70 percent of global fresh water use, will be particularly vulnerable.
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According to the UN, world food prices might rise by 30 to 50 percent over the coming decades. World food prices saw a sharp spike in 2007 and 2008, and high prices returned in December of 2010, with prices expected to remain high for 2011.
In developed countries such as the US, food price inflation has been relatively mild in recent years, with prices expected to rise in 2011 by only 2 to 3 percent.
We see a different story in developing countries that rely heavily on imports. The world food price index of the United Nations Food and Agriculture Organization (FAO) rose 32 percent from June to December in 2010, driven by rising prices for cooking oils, grains, sugar and meat. Bad weather affecting commodity crops in many exporting countries might keep prices high over the first part of 2011, and that, in turn, might lead to higher prices in local food markets.
In addition, the increased use of grains for biofuels might be creating additional pressures on food supplies, leading to price increases. Reports vary about the actual impact of biofuels on food prices, and an unresolved “food versus fuel” debate continues to be waged worldwide.
In July of 2008, the World Bank asserted that “large increases in biofuels production in the United States and Europe are the main reason behind the steep rise in global food prices”. However, in 2010, the World Bank issued a revised study, which stated that “the effect of biofuels on food prices has not been as large as originally thought”.
A 2008 study by the Organisation for Economic Cooperation and Development (OECD) echoed the revised assessment of the World Bank. The study found that current biofuel support measures will only increase wheat prices by about 5 percent, maize by around 7 percent and vegetable oil by about 19 percent over the next 10 years.
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Although maintaining adequate food supplies remains a serious issue, agrochemicals have been proven to significantly increase farming productivity in both developed and developing countries.
Agrochemicals have long played a significant role in the global chemical industry. According to estimates by analyst and research group Phillips McDougall, global agrochemical sales (excluding fertilizers) totaled US$37.9 billion in 2009. The largest product group, herbicides, accounted for 46 percent, with fungicides and insecticides each claiming a share of about 25 percent. Recent innovations in agrochemicals involve all three of these groups, designed to be both effective and environmentally friendly.
DuPont has come up with two new herbicides – Resolve Q™ and Require Q™ – which are effective against a greater variety of plants than traditional herbicides and can be used in more types of weather. The company has introduced similar products for soybeans and wheat.
Syngenta has developed the IZM (isopyrazam) fungicide with advanced “double binding” properties which combines binding to the fungal target site for high potency against disease, with binding to leaf wax for long lasting and durable results. Currently used in Barley, Syngenta is aiming to extend use for disease control in wheat.
The insecticide Entrust® Naturalyte® developed by Dow AgroScience is a winner of the US Environmental Protection Agency’s (EPA) Green Chemistry Award. The product has an active ingredient as effective as many synthetic compounds against pests that harm certain kinds of corn, potatoes, Innovations in today’s agrochemicals fruits, and leafy vegetables – but it is organic and environmentally friendly.
BASF’s F500 fungicide blocks the transport of electrons in the fungus’ mitochondria, thereby reducing the supply of energy to the fungus and killing it. With this molecular approach, a single fungicide can function well against a range of different plant diseases in a wide array of cultivated plants.
Bayer CropScience has released a new product, Oberon®, that protects plants from pests while leaving little residue on the food or in the fields. The EPA has labeled Oberon® a reducedrisk pesticide, meaning it is safer than existing products.
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R&D costs continue to climb due to the increasing regulatory burden and complexity of the products. The overall costs of discovery and development of a new crop protection product increased by 21.1 percent, from US$152 million in 1995 to US$256 million in 2008. Surveys suggest that Industry trends the cost of taking a product through development stages increased from US$67 million in 1995 to US$146 million in 2008. For development, the greatest rise was seen in the costs of field trials, which were shown to have risen by 116 percent from 2000 to US$54 million in 2008.
In addition, the average lead time between the first synthesis of a new crop protection molecule and its commercial introduction has also increased. This has been driven by increased data requirements for regulatory bodies as well as by re-registration procedures in both the EU and the US. Under Directive 91/414/EEC in Europe, 75 percent of active ingredients were removed from the market in 2008. Of the remaining 268 substances, 210 are still awaiting approval.
Generic products are another key trend; rapidly taking market share previously enjoyed by patented products. Growth rates for major generic agrochemicals producers continue to outpace industry-wide growth rates in recent years.
If this was the whole story, the agrochemical majors would have lost their premium rating a number of years ago and would be facing similar structural issues faced currently by ‘big pharma’. Led initially by Monsanto, the large agrochemical companies have invested billions of dollars into the development of seed technology, which is transforming the way in which major field crops such as corn and soy are being grown in large parts of the world. The adoption of this technology by farmers, which remains highly controversial in Europe, has been shown to produce significant yield gains and other benefits which can be measured clearly. It is the use of this seed technology combined with their proprietary chemical products that are keeping the major agrochemical companies ahead of their generic rivals. It remains to be seen whether these advances will be sufficient to keep pace with the rapid expansion in global population.
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Chris Stirling
KPMG in the UK
+44 20 73118512
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