The Tumultuous Decade Ahead:
Uncertainty, Variability, and
Global Growing Pains
Alex Avery,
Director of Research and Education
Hudson Institute
Next 25 Years Will Be Rough!
• Global farm product demand will double
• Global energy demands will double
• Politics will continue to interfere with the
supply & demand of both (i.e. biofuels and
biotechnology, drilling moratoria, etc.)
• Social change will weigh on developed
economies (aging populations, public debt,
currency flows) and consumer spending
Uncertainty and Volatility!
Population growth and rising affluence
will keep food and energy supplies
tight relative to demand
Result: much greater price volatility in
commodities markets.
– Debt liabilities and aging population mean
thinner consumer wallets, higher taxes
– Weather/Climate a HUGE additional
uncertainty factor (policy and supply!)
A World in Transition
• Rise of the East: China and India
enter the 21st century.
• The olding of the Old and New
World: aging populations in Europe
and North America taxing younger
generations with debt.
Debt is the wildcard!
What’s in Store for
N. Am Farmers?
• Energy uncertainty
• Currency uncertainty
• Market uncertainty (WTO
credibility)
• Consumer uncertainty
• Climate uncertainty
• Policy uncertainty
World Food Demand 2050
• Global food demand will at least
double, and likely triple over the
next 50 years
• Little new farmlands to exploit, only
more productive farming methods
on existing farmlands
Population
Past and Projected World Population
10
(Billion People)
8
6
4
2
0
1950 1970 1990 2010 2030 2050 2070
Year
World Population by Region
Africa
Oceana
Europe
Lat
Asia Am /Carribea
n
North Am
Affluence = Meat
China/India Total Meat Production
100,000
90,000
80,000
70,000
000 Metric Tons
60,000
50,000
40,000
30,000
20,000
10,000
-
61
64
67
70
73
76
79
82
85
88
91
94
97
00
03
06
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
China India
Per Capita Meat Consumption
Kg per person each year
China Hong Kong
Pork 33.7 69.8 +207%
Poultry 9.6 36.8 +383%
Beef 4.7 16.0 +345%
Total World Meat Production: 1965-2050
700,000 80.0
Doubling by
600,000 Total Production 2050 70.0
Per Capita 60.0
500,000
kg per capita
50.0
2X
000 Tons
400,000
40.0
300,000
30.0
200,000
20.0
100,000 2009 10.0
- -
65
75
85
95
05
15
25
35
45
19
19
19
19
20
20
20
20
20
Affluence: Not just food demand
• Clothing demand increases
• Pet food demand increases
• Beer demand increases
• FUEL/ENERGY!
Population + Affluence
Current population: 6.5 Billion
World Land Use
Crops
Other
Pasture
and
Rangelan
d
Forest
World Land Use: 2050
+2.5% Ag
Crops
Other
Pasture
and
Rangeland
Forest
Food Demand 2050
• At least a doubling of global food demand over
next 40 years, more likely a tripling
• Most of increase will be in Asia, where
population is still growing rapidly and good
farmland is scarce
• Affluence + population are equal keys to future
food demand
• Farmers in Land-rich countries such as Canada,
U.S., Brazil/Argentina stand to gain most
Globalization – Tables Turn
• For past 30 years, globalization and trade
has reduced overall cost of goods and
benefited consumers in developed
countries
• For the next 30 years, globalization and
trade may increase costs for developed
world consumers, especially in foodstuffs!
Record Food Prices
• Record highs in June 2008 (213.5 points for 55
commodities, increase y/y of 43%, UN FAO)
– Driven substantially by high demand combined with high oil
prices ($142/barrel oil = high fert prices) combined with weather-
related crop problems. Tight supplies and the link to biofuels,
pulled cereal grain prices way up. Mostly high oil prices!!
• Record highs now, Jan 2011 (214.7 points, increase y/y
of 25%)
– Driven by high demand, weather-related crop probs (wheat
Russia), and record high prices in sugar, oilseeds, meat.
– Prices could rise further still!
– NOT driven directly by high energy prices via biofuels
Commodity Prices
2008 2011
Oil $88.44 $142
Bulk urea $320/ton $460
Corn $6.01 $7.57
Soy $13.63 $15.74
White Sugar $752/ton $383.70
Rice $13.90 $20.21
Food Prices Could Rise Higher
• “There is still, unfortunately, the potential
for grain prices to strengthen on the back
of a lot of uncertainty. If anything goes
wrong with the South American crop, there
is plenty of room for them to increase.”
Abdolreza Abbassian, senior economist UN FAO, Jan 5, 2011
• Global grain output must rise at least 2%
in 2011/2012 to satisfy expected demand
and not erode grain stocks
Uncertainty: Food/Energy Supply
Future Constrained by Policy
• Oil exploration and extraction hindered in
West by eco-wacktivists and utopian
alternative energy promises (wind, solar,
etc.)
• New, more productive farm technologies
hindered by eco-wacktivists and utopian
alternative farming promises (organic,
free-range, etc.)
Globalization: 2-Way Street
• U.S. Agriculture Market Gap Closing
– farm exports doubled from ~$50 billion in
1995 to ~$110 billion
– However, U.S. ag imports quadrupled from
~$20 billion to ~$80 billion
The difference is in value, not volume.
Imports have increased in labor-intensive,
higher cost fruits/veggies vs. exports of raw
bulk commodities.
THIS WON’T CHANGE SOON
Russian Wheat Situation
• Soviet Union was once a significant
wheat/cereals exporter in 1970s and early
1980s.
• Affluence, increased meat consumption
eliminated those exports.
• But economic contraction after Soviet
breakup cut meat consumption/production
in half, allowing increased exports of
wheat and barley.
Russian Wheat/Barley
• 85% of harvested cropland
in former Soviet Union is in
Russian Federation,
Ukraine, and Kazakhstan.
(RUK)
• Wheat and feed grain
production in RUK is down
27% and 36% in 2010 from
2008.
World Production vs.
Consumption: Rice vs. Wheat
RUK Wheat and Barley
Production
RUK Meat Production
49%
73% of 1992 level
Russian Meat Situation
• Poultry production up 16% in 1st half of 2010.
Poultry dominated by large enterprises,
producing 70% of their own feeds.
• Households account for ~50% of beef and pork
production.
• Experts expect poultry to continue to grow, but
more slowly. Beef will continue to decline due to
high start-up costs for new entrants, low
economic returns, and animal husbandry issues.
RUK Grain Export Tonnage
MMT 44% larger than U.S. wheat
exports; RUK feed grain
exports ~80% of Argentina
RUK Grain Export: % of World
Variability = Uncertainty
Russian Ag Future: USDA FAS
• Drought alone would not have been
disaster, but combined with financial crisis
• Russian farmers had huge debt by 2010
• No government safety net, but Putin
announced $5.1 billion ag spending for
2011, a 50% increase.
• Russia still behind West in roads, reliable
power, transport, storage.
Russian Ag Future: USDA FAS
“Given unclear land tenure issues,
dependence on local bureaucracy, and the
non-competitive business environment,
Russian agriculture is still not attractive for
private investors. In many cases big
capital invests in agriculture primarily for
the sake of controlling land resources and
not for efficient agricultural production.”
10/26/2010
Regulatory Policy Uncertainty
• Tools needed to maintain momentum in
agricultural productivity are increasingly
hindered by politics
• Biotech wheat: held up by developers due to
uncertain consumer reaction
• Biotech potatoes: ditto
• Biotech rice: ditto
• Biotech sugar: legal/political battles
• Biotech forage: legal/political battles
Tyrone Hayes vs. Atrazine
A: Corn field irrigation Ditch
with “leopard frogs by the
thousands” in 2001
F: “The fields around the
irrigation ditch were not
planted in 2003 or 2004,
and the ditch dried up,
resulting in 100% failure of
the [frog] population at this
site …”
Global Warming Policy
Uncertainty
• Only 0.5 degree C warming 1850-1940.
• NO statistically significant warming at all 1998-2010.
• Oceans and land both cooling rapidly (as they did in
2007-2008
• Many climate experts expect global temps to decline
for next 20 years due to unusual solar minimum
IF SO, what will THAT do to energy policy?
Regulation? Food production? Supply/demand?
What Global Warming?
Oceans cooling again
Sunspots 11 solar cycle past
Past 2 years of solar cycle
prediction WRONG!
Past 2 years of solar cycle
prediction WRONG!
Slowest Sunspot Recovery in at
least a Century
New Research Suggest NO
SUNSPOTS by 2016
Longer Solar Cycle = Cold
Longer Solar Cycle = Cold
Not Just Solar Quiet,
Pacific Decadal
Oscillation, Too!
Result of new Reality:
Policy Chaos
• Japan postponed Kyoto II until after 2014
• U.S. going ahead with GHG limits under EPA
Clean Air Act (a bodge job)
• Europe has no appetite for limits
• Carbon trading markets dead
• Subsidies in alt energy continue, but uncertain
• Canada policy now confused
• Consumers confused and uncertain
Finally, Debt Crisis and Currency
• Massive debt and aging populations have
serious ramifications for economic growth
• Ontario debt/GDP = Greece
• U.S. States have massive debt (Illinois,
California, New York, Michigan
• U.S. Fed debt = $45,000 per
man/woman/child
Finally, Debt Crisis and Currency
• Chinese increased money supply 50%
during stimulus. Now worried about
inflation.
• U.S. Ditto. All major economies have tried
stimulation and printed money
• Econ 101: increase supply, price falls
• Part of Commodity Price increases a huge
vote of “No Confidence” in money, and
toward intrinsic value (gold, oil, etc.)
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