THE NEW ECONOMICS OF FOOD
- Agriculture is facing formidable challenges in the 21st century as there are more people than ever on Earth. Technology and private/public partnerships are just two of the factors that can help the agriculture sector keep pace with the world's growing demands for food.
As of October 2011, the United Nations reported that the global population stood at 7 billion, a number that is expected to grow to 9 billion by 2050. The organization forecasts that much of this growth will come from areas already with big populations, notably China and India.
The fact that farmers can support the Earth's population is a testament to recent breakthroughs in agriculture research such as higher-yielding seeds, improvements in drip irrigation and technology, such as global positioning systems and precision agriculture, which reduces waste.
But more can and needs to be done to make food healthy, plentiful and affordable for all. To attain this goal, agricultural leaders and thinkers suggest that approaches such as helping farmers access markets, funding innovation and keeping trade restrictions at bay are big parts of the new economics of food.
Markets 'invaluable' part of agriculture
Former U.S. Senator Tom Daschle, who spoke at the CME Group's Global Financial Leadership Conference (GFLC) in October 2011, believes markets play an "invaluable" role in the future of agriculture.
"I don't think there's any question that markets play an increasingly important role, a valuable role – I'd say invaluable role, as we look at the many, many challenges we face," he says.
Daschle says markets create the demand for greater innovation, new thinking and ways to address these challenges. Innovation, he added, "is the product of good public/private partnerships… in both generic and specific ways."
One example of a public/private partnership is the Archer Daniels Midland (ADM) Institute for the Prevention of Postharvest Loss at the University of Illinois. GFLC panelist Matt Jansen, senior vice president and president of the oilseeds business unit of ADM, says discoveries made at the institute can help farmers not just in the United States but around the world.
In his 2012 Annual Letter to his foundation, Bill Gates outlines how interest in agriculture funding is being revived after years of neglect via these partnerships. "One approach that looks promising is innovative partnerships with private companies where the companies donate proprietary assets in which they have invested hundreds of millions of dollars, as well as their expertise, to help make appropriate varieties available royalty-free to poor farmers," Gates writes.
Some of those innovations come from "optimizing" what is currently available, Jansen says. One example is corn stover – the leaves and stalks that are left in the field after harvest — which has been touted as a biomass replacement for corn in ethanol production. "As we're in higher commodity prices, I think the opportunity for investment and innovation is certainly better today than it has been," he says.
Seeds derived from genetically modified organisms (GMO) will continue to be part of the solution to feeding the world, the GFLC panelists state.
Despite opposition to these crops in regions like Europe for political reasons, resistance to using GMO seeds will eventually end. "I think it's practically untenable…. We can't address the challenge we face around the world, especially with the demographics and the extraordinary challenges we're going to be facing climatically, without GMO involvement," Daschle says.
Keeping trade free
One of the most pressing issues facing agriculture in the future is keeping international trade flowing. It is also one issue that is most difficult to address. Trade restrictions by governments can cause price volatility and may lead to worries about supply and lead to hoarding mentalities. This was seen in 2007 and 2008 where rising food prices triggered riots in 48 countries. In 2010, Russia and the Ukraine slapped embargos and high export taxes on wheat exports which boosted global prices and took grain off the market.
Another GFLC panelist, Emery Koeing, executive vice president and chief risk officer for Cargill says the real cost is not the taxes imposed, but the sometimes unexpected timing of them. "We don't mind having import duties or export duties, as long as they're predictable and reliable and that you can see them coming," he says.The problems occur when there are surprise interventions, as there were in Russia. "The biggest problem was the shock, that they just announced the export embargo," Koeing says.
That hurts not just the farmers, but the end-user who is expecting consistent delivery of grain, he explains. That can cause governments to make inefficient decisions, like growing water-thirsty crops in arid regions, or storing grain in humid areas which ultimately causes spoilage.
According to the Global Harvest Initiative, an agricultural industry-funded group, about 25 percent of all food and agricultural products are traded internationally. Most nations are unable to achieve food self-sufficiency without a great economic or environmental cost, which is why it is paramount to keep borders open, they say.
Governments are trying to protect their citizens from price volatility and that is a concern across the board, from producer to consumer. But without efficient markets to hedge risk, prices could fluctuate further, says Koeing. Markets operate best, when "they're able to work in a very efficient and effective way. And to the degree that that works I think it's best for the industry and best for the consumer and also best for the producer."
