Real estate, alternative real assets and other diversions

Feeding an empty planet

The Farmer

Global population will soon start to fall, making much farmland redundant 

The world is heading for demographic change more quickly than many foresee, bringing challenges of a kind not faced since the fall of the Roman Empire. We will find ourselves in a world where much of the land farmed today is rendered redundant, because of global population decline. For the investor looking to provide capital for the long term in agriculture, analysis of what delivers cost-of-production competitive advantage becomes ever more relevant.

Absolute population growth peaked in 1989, with a net increase of about 90m souls. Since then global population growth has continued, taking us past 7bn in October 2011 to an estimated 7.7bn today, but growth has been slowing and the rate of slowdown is increasing. Russia, Japan, Brazil and Bulgaria are all in population decline, driven by factors that include ongoing urbanisation and the education of women. The rest of the world is heading in the same direction, even in Africa, where birth rates are still high but falling fast. Below a birth rate of 2.1, a population cannot sustain itself, and in most countries the rate is heading towards 1.6. The falling birth rate doesn’t deliver immediate population decline; there is a hump of the increasingly elderly to pass away first, but it is then relentless.

None of the UN models for 21st-century population have fully acknowledged the increasing pace of decline in the birth rate. They rarely seem to look up from the very short term, focusing on the immediate resource demands of excess population, predicting 8.5bn in 2030, 9.7bn in 2050 and 10.9bn in 2100. A more likely reality is that we will not reach 9bn; we may not even get to 8.5bn – population will peak around 2050 then begin to decline. 

Feeding 8.5bn by 2050 can be quite easily done with existing technology, existing land, existing management and existing capital. We farmers have demonstrated remarkable productivity growth, with a threefold increase in food production since 1970, despite failing to use many of the resources available to us in the most effective manner. The double whammy of political stupidity in all its forms (subsidies, tariffs, capital controls and the like) and the market dynamics of supply and demand (when you produce too much, the price collapses) holds farmers back from producing to the full biological and technological potential of their land. Why would farmers produce more than enough, when the market does not reward them for doing so?

Population growth has been reducing in importance as a driver of demand for food commodities. However, this has been masked by the dietary change that comes with (urban) affluence, in tandem with dietary excess. Global demand for the major food commodities has grown by around 1.5% a year for at least six decades. A shift to higher rates of meat consumption has seen growth in corn and soy beans to feed livestock; incomes rising faster than food inflation has spurred growth in consumption of higher-value fruit and vegetables as well as animal protein. And supply has kept on growing to match demand, in spite of a few politically or weather-induced supply wobbles.

However, dietary changes due to income happen only once. Meat consumption may increase fourfold but then stops growing and begins to gently decline, as has been the case in much of the developed world for some time now. Total calorie consumption may grow from 2,200 of staples to 3,200 with more meat and too much sugar, but it does not grow from there on.

So, what happens next? A Malthusian fear of starvation continues to inform policy, nominally in support of food production, but actually in support of farmer and landowner incomes. How does the taxpayer react to a world in which food prices continue to fall because of excess capacity? Logic would suggest that the tax burden of caring for a population skewed demographically towards the elderly will reduce taxpayers’ enthusiasm for sustaining a farming industry where supply exceeds demand.

In a world of sensible economics, the centres of food production should move to favour areas that enjoy climatic, water, logistical and other cost-of-production advantages, and (but this is a big ‘and’) much of the land being farmed today should be allowed to revert to a more natural, less managed environment.

There are lessons from the past to help inform the future. The urbanisation of much of Europe in the 19th century was fed increasingly well by newly ploughed lands in the American Midwest, Australia, New Zealand, Russia’s Kuban steppe and more. Supply growth wildly exceeded demand, commodity prices fell sharply, and the Old World producers felt this most keenly. Tenants abandoned their farms, rents collapsed, and, had two world wars not intervened to encourage domestic production, we might have seen many more of the less cost-competitive areas of Europe abandon farming completely.

Subscribe to our print magazine now!