First published in Cleantech magazine, May 2008. Copyright Cleantech Investor 2008
by Anne McIvor
Biofuels have been blamed by many observers for recent rises in food prices. The truth is more complicated. We discuss the complex issues behind increasing agricultural commodity (and hence food) prices and assess how agriculture can meet the future challenges of feeding – and fuelling – the world.
Agricultural commodity prices have risen sharply over the last year on concerns about shortages of supply. Although some prices have fallen back from record highs, wheat is still trading in excess of 60% up on the year, rice has more than doubled in twelve months, US soybeans are more than 70% up on last year and corn prices reached a record high of over $6 a bushel for the first time in April.
Rising commodity prices have fed through to higher food prices generally, with meat and dairy product prices affected by the increasing costs of the crops used as animal feed. Food has become a highly political issue in many corners of the world and, according to the United Nations’ Food and Agriculture Organisation (FAO), 37 countries are facing food crises.
The debate about the role of biofuels in pushing agricultural commodity prices higher has, in some quarters, distracted attention from the other factors which have contributed to the price rises. It is fair to conclude that biofuels have played a role, particularly in the US, where investment in ethanol has contributed to rising corn prices. However, there are other factors involved, including the underlying long term growth in demand for food from developing economies, especially China and India. Two decades of under-investment in the agriculture industry has also contributed to the recent price rises. In addition the situation has been exacerbated by short term factors such as adverse weather conditions in certain key regions – and perhaps a degree of irrational speculation in financial markets, resulting in commodity price bubbles.
Short term issues such as the weather and market speculation aside, and irrespective of the ‘food/fuel’ debate, agriculture faces a challenge to meet the world’s future food requirements. Emerging economies are experiencing a combination of rising populations (more mouths to feed) and changing eating habits. Jessie Bakens, Jeroen Blokland, Silva Deželan and Cornelis Vlooswijk, the authors of a report entitled ‘Scarcity in Abundance: Investing in New Scarcities’ which was compiled by Dutch research institute IRIS, on behalf of leading asset manager Robeco, estimate that global demand for food will double by 2050, driven in large part by “higher consumption of meat and dairy products and (therefore) higher demand for corn and grain for animal feed”. According to IRIS, meat consumption per capita has risen by 75% since 1990 in emerging countries: nevertheless China’s meat consumption per capita is still less than half that of the US.
Despite the underlying evidence of rising demand, the agriculture industry globally has suffered from under-investment – arguably due to the market intervention mechanisms which were put in place by the EU and the USA. Programmes such as the EU’s Common Agricultural Policy were instituted to ensure food security, but evolved into policies to protect the income of farmers in those regions – but at the expense of investment in agriculture elsewhere in the world. Alastair Dickie, Director of Crop Marketing at HGCA, part of the UK’s Agriculture and Horticulture Development Board, argues that – due to the distortion of the global agriculture market resulting from intervention by the EU and USA – agriculture has been seen as “an uninteresting place” for close to twenty years.
According to statistics compiled by DuPont Agriculture, in the last decade chicken consumption has grown by 28%, pork consumption by 27%, corn consumption by 22% and soybean consumption by 40%. Over the same period, world population growth has been 12%. However, the increase in the crop area harvested over that ten year period has been just 2%.
Now, however, as Dickie points out, the industry is receiving strong signals, in the form of high market prices, which will lead to increased levels of investment. The impact of investment will inevitably be slow as it takes time for crops to grow. Nonetheless, Dickie emphasises that sufficient land is available to dramatically alter the supply side balance in the industry within a matter of just years. According to HGCA research, some 188 million hectares of unused potentially arable land is available in the world. This includes set-aside land in the UK – one of the legacies of intervention in the market by the EU. In Europe and central Asia, former Soviet countries such as Ukraine have idle land banks which are already being brought back into use. However, by far the largest portion of unused land, over 100 million hectares according to HGCA, is in Brazil. Dickie believes that the current market conditions in the farming industry mean that – for the first time in decades – the ploughing of virgin land in the Brazilian sertão may be approached as a capital investment with a payback term measured in years – in the same way that payback on any other capital investment is measured.
ouise O. Fresco, University Professor of the University of Amsterdam, a Supervisory Board member of Rabobank Nederland and a ‘Crown Member’ of the Social and Economic Council of the Netherlands, points out in a recent article that “5% more land has been seeded so far” this year and comments that: “There is some potentially fantastic farmland available which is not yet used to its full potential, like in the former Soviet Union”.
An increase in the hectarage of land under cultivation is just one likely response to high agricultural commodity prices. A parallel response is also evident in the agrochemical industry. IRIS is forecasting rapid growth in the markets for crop protection and resistance as well as yield improvements. An added incentive for investment in these fields is the prospect of climate change: the Intergovernmental Panel on Climate Change (IPCC) expects that total food production will decrease if the average temperature rises by more than a few degrees. IRIS anticipates growing levels of investment in “more efficient farming techniques which generate higher yields and the adaptation of crops to changing climate conditions”.
IRIS see scope for improvements in yields in Asia, where poor quality crop protection and fertilisers tend to be the norm, offering potential growth opportunities for the agrochemical majors: Dupont, Syngenta, Dow Chemical and Monsanto. Dickie comments that “price is a very good fertiliser”. He expects to see growth in the use of traditional fertilisers in the short term and makes the point that: “Nigrogen has its place to play while commodity prices are high”.
Fresco points out that “the gap between average and potential yields is still big virtually everywhere. The technology is there, it’s just the market that is performing poorly.”
Longer term, however, the problems associated with the use of nitrogen and other products will require alternative solutions to traditional fertilisers and pest control products. Solutions are emerging in the fields of genetic modification and in the ‘green chemistry’ space. IRIS expects that “biotech companies that produce genetically modified crops will play an important role in the future”. IRIS also points to companies active in GM to avoid the use of pesticides, where products include Herculex®, produced by Dow AgroSciences, a division of Dow Chemical, which is “a type of corn with in-plant protection against worms”, and Monsanto’s Roundup Ready®, “a GMO which can resist herbicides”.
According to IRIS, there is also likely to be a role for genetic modification to grow crops that are more resistant to drought, for instance, and which can stand soils with a high concentration of salt, or, conversely, can survive extreme rainfall or floods. They also note the scope for genetic modification to raise the nutritional value of food.
David Dent, academic and author of ‘Integrated Pest Management’, describes conventional agrochemicals as having been: “broad spectrum, effective against a wide range of pests, toxic to non target species, applied in high volumes and hazardous for operators to use”. Despite efforts by the industry to improve standards, Dent considers that there is still a wide range of products on the market which are far from environmentally friendly – and some which remain toxic to non target species – including humans!
Dent describes conventional pesticide development as concentrating on the identification of a “single magic molecule and its analogues” that could in some way interfere with or nullify the effect of a biochemical pathway. Only a few molecules out of many thousands would ever reach the point of becoming a new product. Dent regards biotechnology and transgenic or GM crops as one possible alternative to conventional agrochemicals. He also identifies a “third way” forward which marks a shift when compared to the traditional approach in which the agrochemical industry carries out research and development. Dent’s “third way”, being pursued by a group of innovative companies, is based upon a combination of ‘green chemistry’ (environmentally friendly chemicals) and intelligent design technologies (IDTs).
Some of the most innovative solutions being proposed for the agriculture industry have been developed by smaller companies rather than the industry giants. In the following section we discuss a number of companies with technologies for improving crop yields, ranging from innovations in the ‘green chemistry’ space (both working on the chemistry of the plant and in the pest control space) to technologies relating to the use of water, to improve the efficiency of food production.
Many of these new technologies also have applications for biofuel crops. In theory there is sufficient capacity for agriculture to produce substantial volumes of biofuels using second generation technologies, particularly from non food crops or from waste biomass. As Fresco comments in her column “Food is not oil”:
“…..there is no ‘food OPEC’ that can have the world in a stranglehold. There is not a single technical reason why we could not feed a future world of nine billion people.”
|< Prev||Next >|