gcrispin, Following on from our recent chat regarding your stock choices, especially those related to the agricultural sector, I came across, what I thought was, a rather interesting and pertinent article in the July 25th. issue of TIME magazine (page 47).
It begins with an observation, made back in 1798, by Thomas Malthus in his treatise, ‘An Essay on the Principle of Population’.
Malthus thought we could never overcome two basic laws of nature, viz. ...
a) the planet’s population grows EXPONENTIALLY, whereas ...
b) food production increases ARITHMETICALLY.
According to him “the power of population is indefinitely greater than the power in the earth to produce subsistence for man.”
Looking around us we see signs of food prices nearing historic highs, driven upward by an ever larger, ever hungrier population. Apparently over 900 million people go to bed hungry every night, while we add over 200 million mouths to feed every day. In the interim, land, water and other resources, needed to produce additional food, edge closer to their apparent limits.
Some say that Malthus may not be altogether correct in his assumptions. Even though the world’s population has increased about 7-fold since his time, food production has more or less kept pace, at least enough that we don’t suffer mass starvation.
Nevertheless, the global food industry is at a crucial point. In the 2010-2011 season, we consumed more grain than we produced, and food prices rose dramatically as a result.
Globally, food costs 39% more today than just a year ago, according to the FAO (the UN’s Food & Agriculture Organization). Grain reserves are in decline relative to our needs.
The FAO projects that food production must increase 70% by 2050 to meet the growing demand of an expanding population.
Ironically, the roots of our food crisis are thought to lie in what is considered to be a great leap forward for humanity .... the Alleviation of Poverty in the developing world.
As the poor in China, India and other emerging economies escape destitution, they can afford to load up their plates more than before !
Grain consumption in the developing world has increased over 80% in the past 30 years compared with only 22% in the advanced economies. In addition, the wealthier in Beijing and Rio are changing their diets to include more meat and other luxuries that were once out of their financial reach. The amount of meat consumed has doubled over the past 3 decades.
To raise this increased livestock more grain and corn are diverted to that demand.
But, at the same time, there’s been an increasing demand and pressure put on the corn industry due to the popularity of Bio-fuels. In 2000 only about 6% of America’s corn harvest was used to manufacture Ethanol. Now it’s about 40%, which would be enough to feed at least 350 million people, according to some sources !
And so on, and so on ......
Of course, there are those who have taken another view compared to Malthus.
Economist, Adam Smith believed that free markets solve problems like food shortages.
Scarcity signals Opportunity, which can attract Investment, Stimulates Production and Encourages Innovation.
Maybe that’s what investors need to interrogate and look out for ...... |
