For decades and with only a few blips, most notably in 2007/8, consumers in industrialised countries grew used to steadily declining food prices as crop yields continued to advance via several technologies. The result, ever-cheaper and more abundant food.
Today, that long-term trend has hit a roadblock, halted in its tracks by COVID-19-related supply chain shocks and, more recently, by the war in Ukraine. The price of corn, a pillar of ‘soft’ commodity markets and a staple for livestock, has more than doubled in the past two years alone, and it currently stands at or near record highs.
Populations need to be fed, so we need to make land available for things other than growing crops for energy needs.
The resulting food inflation – the cost of cereals and bakery products in the US1 leapt 15.9 per cent in the 12 months to October 2022, and the price of food staples in sub-Saharan Africa has jumped by more than 23 per cent since 20202 – has brought the issue of food security into sharp focus. According to the World Bank, the number of people affected by hunger rose last year to 828mn, an increase of about 46m since 2020, and 150mn since 2019 before the outbreak of the COVID-19 pandemic3.
According to a panel discussion on food security at the recent UBS European Conference, the current crisis is a complex cocktail of short- and long-term factors on both the supply and demand sides.
Sara Menker, founder and CEO of Gro Intelligence, which aims to tackle food security and climate change, argues that today’s crisis is partly the product of structural shifts in consumption that got underway long before the outbreak of COVID-19 or war in Europe.
Chief among them has been China’s transformation into a net importer of grains – in the past five years alone its corn imports have grown tenfold. “China was traditionally not a net importer of core grains, such as rice, wheat and corn,” she says.
Andrew Stott, Head of European Chemicals, UBS Global Research, cites the impact of the war in Ukraine on the price and availability of fertilisers as the key short-term supply driver of the crisis. “A lot of production got cut in Europe because gas prices meant the economics were simply impossible,” he explains. “As a consequence, pricing went up significantly. It's been a perfect storm, to use that cliche.”
So what are the likely solutions to the problems facing global agriculture? And what do the shorter-term implications spell for the likes of biofuels, which has become a popular subject in the sustainability debate but which has also created additional demand for corn as a leading input for the production of ethanol?
Pernille Holtedahl, an economist and environmental and sustainable development expert at Imperial College Business School, believes that the crisis has underscored the need to prioritize land for food production rather than for alternative fuels.
“Land is so limited, we have increasing populations, and populations need to be fed, so we need to make land available for things other than growing crops for energy needs,” she says. “For that reason, I don't see a role for first generation biofuels. Bioenergy, broadly speaking, really only makes sense if it’s waste-based and used for very specific purposes.”
Holtedahl argues the deeper problems confronting today’s global food industry are intricately intertwined with climate change and nature loss, two of the biggest issues facing humanity. “Nature, agriculture, climate change and food security all need to be looked at together,” she says. “And we won’t solve the food-supply issue until we solve all of them.”
But she also believes both the public and private sectors can help. One area for investors to consider is nature-positive companies – enterprises in the sector with sustainable agricultural practices and circular-economy principles. Together, these have an enterprise value of only about $15bn globally, but Holtedahl believes they have the potential to grow up to eightfold during the next 15 years.
It's been a perfect storm, to use that cliché.
More fundamentally, she argues that governments have a central role to play in rethinking agricultural policy and, in particular, agricultural subsidies. “The sector is already hugely subsidised in the US and Europe, so the question is how to tailor those subsidies in favour of nature rather than just paying a per-unit subsidy, which has been the model for the past 50 years.”
Technology can play a pivotal role throughout the agricultural supply chain. Precision farming, for example, combines data harvested from satellite imagery to understand growing conditions with soil-related data collected by sensors onboard tractors.
The combined data set is fed into farming equipment which applies a bespoke mix of seed, fertiliser, pesticide and herbicide to individual half acre plots. The results reaped are “hyper-optimized” according to Gro Intelligence’s Sara Menker, both boosting yields and lowering costs by avoiding excess use of raw materials.
Andrew Stott points to the potential of science to improve feed stocks to reduce the large amounts of methane produced by today’s animal-husbandry, as well as improving crop resilience to drought via gene editing – a practice that the EU does not allow at present, albeit a proposal to ease regulation is in the offing for 2023.
“We hope to see regulation change over the next 12 months because gene editing can improve yield but also improve the quality of the food,” says Stott. “And given the crisis we face in food security, we need both.”
Notes:
Independent opinion provided by Dr Pernille Holtedahl, from Imperial College Business School, via Imperial Consultants.
[1] https://www.bls.gov/news.release/cpi.nr0.htm
[2] https://www.imf.org/en/Blogs/Articles/2022/09/26/africa-food-prices-are-soaring-amid-high-import-reliance
[3] https://www.worldbank.org/en/events/2022/10/07/trade-and-food-security-in-a-climate-change-impacted-world
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