26 November 2012

Food Production Becoming Better Investment than Oil

Demand for food is growing faster than demand for oil. As human industries grow more sophisticated, they learn to do more with less oil. But as human societies grow more sophisticated and more urbanised, they demand more food -- and of a better quality and a wider variety.

China's demand for food is expected to grow particularly quickly, as the population urbanises, and China experiences more and more difficulty with decreasing quality of water and soil.
"In 10 years," Gua said, "China will be importing 50 mmt of corn. In fact, less than 10 years." China currently imports no corn.

This rapid increase in buying the world's grain despite the cost is due, Gua said, to China's economic growth in the past 30 years, more people moving from rural areas to urban, and government policy to assure there is plenty of food to feed its 1.3 billion people.

As urban areas expand, more tillable acres are lost to crop production.

...As the middle class gets more prosperous, more meat is sought in Chinese diets, he said. _China's Growing Food Demand
With higher meat consumption, more animal feed is required. Most of that increased supply will come from overseas, particularly Brazil and the US.
The US continues to be a good bet for food production, due to its excellent farmland, advanced farming practises, good climate, good transportation infrastructure, and generally reasonable government policies.
A lot of factors need to be addressed when assessing a purchase of farmland around the world. We see U.S. farmland as the best opportunity for investors as it has some of the best soil in the world, the perfect climate for fertile crops, the adequate infrastructure for transporting grain, and a government that supports its farmers and property rights. _US Farmland
As Chinese farmland is lost to urban growth and development (as well as to toxic industrial products dumped into the soil), and as more farmers move into cities for work, China will have to cultivate more foreign food suppliers. Besides Brazil, China is also looking toward Africa as a future producer of food for China.

Currently, Africa accounts for just 3% of global agricultural trade, with South Africa and Côte d'Ivoire together accounting for a third of the entire continent’s exports. But if the world wants to feed itself then it needs Africa to emerge as an agricultural powerhouse. _ZeroHedge
But there are serious problems with developing African infrastructure of any kind, including food production.
local farmers are skeptical when foreigners come to their country. Farmers react quite emotional and do not want to sell land that they got from their ancestors. It’s hard to understand how important land is to most of the population. Many fear that if they sell out their land the country will be driven back to the colonial days of the past. _Farming in Africa
In Brazil, most of the farmland is owned by just a relative few large landowners -- 2/3 of the land is owned by 3% of landowners. It is much easier for China to make deals with these "land oligarchs" of Brazil, than with the many small farmers and holders of Africa.
China is at a huge disadvantage as it accounts for 20% of the world’s population, but only 7% of arable land. Compare that with Brazil which has the reverse of those ratios.

...we would expect the big gainers of a meaningful rise in food prices in real terms to be Brazil, the US and Canada, while Japan, South Korea and the UK would face challenges... China’s surplus has turned to deficit. What will happen if the Chinese middle class swells as it is expected to? And that’s the rub; what we have been used to in terms of food’s importance is set to change. How food moves around the world is likely to change, and the flow of currency around the world will also likely be impacted. _ZeroHedge

Modern high production agricultural requires plenty of oil, fertiliser, sophisticated farmers, high quality transportation infrastructure, and ready industrial support. While Africa may possess 60% of the world's uncultivated land, its land is not all of the best quality, and Africa's support infrastructure leaves a great deal to be desired. Africa cannot even feed herself on her own.

Europe has good infrastructure and sophisticated farmers, but not as much high quality farm area as it once had. Russia and the Ukraine suffer from inferior infrastructure and a more sluggish industrial support -- as does much of Asia and South America.

Canada and the US -- as well as parts of Latin America -- stand to benefit the most from a global boom in demand for agricultural products. But Europe is still well positioned as a premier processor of food, beverages, and food products.

The best US farmland is likely to be bid up in price, over time.

Fortunately, there are plenty of ways to start with an inferior soil, and develop it over time so that it acquires superior fertility.

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