Stern message from down under

by Arvin Donley
Share This:
The consensus of market experts at the annual Australian Grains Industry Conference (AGIC) was that the combination of growing demand, drought-impacted supplies and the global credit crunch will cause grain prices to remain volatile over at least the next 18 months.
More than 700 delegates attended the conference at the Crown Conference Centre in Melbourne, Australia, and they heard a common theme from the speakers: the current drought in the United States on the back of crop failures in Argentina and Brazil has driven global grain prices to record levels, giving the Australian industry the opportunity to capitalize on its excellent 2012 crop.
In their presentations, Graham Hodges, deputy chief executive officer of Andrea-Noris Zahn AG, and Alex Duncan of the U.S.-based firm McDonald Pelz Global Commodities, both forecast short-term uncertainty in the global grains market despite a strong outlook in the long term thanks to a growing population of middle class consumers in developing countries.
Delegates to AGIC included 60 international visitors from countries including the U.S., Canada, Vietnam, India, Singapore, Egypt, the United Arab Emirates, France and Indonesia. Attendees included all levels of the grains industry supply chain, from production to logistics to marketing. AGIC is hosted by the Australian Oilseeds Federation, Grain Trade Australia and Pulse Australia. Presentations from the conference are available at Conference organizer Rosemary Richards said the program was aimed at generating debate among key industry figures and facilitating new trade and investment opportunities for the industry.
Feeding the world
Given the current drought situation in North America and other parts of the world, delegates listened with great interest to Duncan’s presentation: “Can the World Produce Enough Food?”
“The short answer to the question — Can we feed ourselves over the next 30 to 50 years? — is yes,” Duncan said.
To analyze this issue, Duncan used a “Food Security Matrix” which included the following categories: demography, weather/climate change, storage/logistics, technology, arable land, fisheries, water and price.
Duncan said one encouraging trend is the world population is not growing as fast as expected. He noted that in most developed countries, the current birthrate per woman has dropped to under 2. “China, for example, now has a birthrate of 1.6, Korea is at 1.4 and in many Western European countries the birthrate has fallen to as low as 1.2.”
He said only 17 countries have a birth rate over 5, and most of them are in sub-Saharan Africa. However, that particular group could add as many as 120 million people to the world over the next 30 to 40 years.
In terms of climate change and its impact on agriculture, Duncan offered a blunt assessment. He said there is no question the earth is warming which will affect rainfall patterns worldwide and cause sea levels to rise due to ice melt in the Arctic and Antarctic.
He noted that in Greenland, which has the largest reservoir of ice in the world, ice is melting four times faster today than it was just four years ago.
“They’re talking about a sea rise of as much as five to six meters over the next 100 years,” he said. “The reality is that millions of hectares of land are going to be flooded over the next 100 years if the earth has not stopped warming up.”
Although only a small percentage of land currently dedicated to crop production would be included in that scenario, he said the number of people that would be displaced because of the sea rise would be the equivalent of the combined populations of London, New York and Mumbai.
Not only will every arable hectare need to be utilized, but the grain that is harvested must not be wasted. Duncan said it will be important to have adequate grain storage to prevent crop spoilage.
“India, this past year, had a massive crop of wheat but is losing millions of tonnes due to insect and rat infestations and the grain not being stored properly,” he said. “To smooth out some of the curves in what happens with the highs and lows of food production worldwide, we have to put more money into storage and infrastructure.”
He praised China for making great strides in increasing grain storage capacity in recent years, but noted that “most of the rest of the world is not getting the job done.”
“We need the political will to get this done, and we also need money, which unfortunately is in very short supply today in many parts of the world,” he said. “It’s not going to happen very quickly.”
Regarding the issue of arable land, Duncan is optimistic that the amount of land dedicated to crop production will increase in the coming years. He said there is currently 14 million square kilometers of land dedicated to agriculture production but there is potential to utilize up to 49 million square kilometers, he said.
He pointed to Brazil, the former Soviet Union and Eastern Africa — particularly Sudan — as areas where agricultural production could be significantly expanded.
“We are going to continue to lose some land to urban expansion, but I believe that will more than be offset by the increase in production elsewhere,” he said.
Even with the expansion of arable land, the world cannot be adequately fed over the next 40 years without biotechnology, Duncan said. Although the use of biotechnology in crop production currently faces resistance in some parts of the world, most notably Western Europe, it must be part of the equation.
“It’s going to be more prevalent in the world going forward,” he said. “It has to be. If we are going to feed an extra 2 to 3 billion people, we can’t do it without plant breeding and advanced plant breeding techniques.”
Managing water supplies, particularly if climate change leads to more dryness and drought in key crop-producing areas, is also a key component in the food security matrix that Duncan discussed.
Even though only 16% of the world’s cropland is irrigated, that land yields 36% of global crop production, said Duncan, noting that the latter number could jump to 50% in the coming years.
It is important to note that some of the world’s most populated areas rely heavily on irrigation. More than 80% of the cropland in Pakistan is irrigated, 70% in China and over 50% is irrigated in both India and Indonesia.
“The big problem with irrigation is the poor drainage and the fact that 55% of the water that’s devoted to irrigation is lost in transit,” said Duncan, adding that this sort of inefficiency must change going forward.
Duncan ended his presentation with a warning that diverting large amounts of grain and oilseeds to biofuel production cannot continue if the mission of feeding a growing population is to be accomplished.
“I don’t think it’s sustainable,” he said. “We are using too much of the world’s food production in our gas tanks.”
Duncan said about 12% of world’s grain production last year, or 275 million tonnes, was earmarked for biofuels production. The United States used about 28% of its corn crop in 2011-12 for biofuels production. This year, if the ethanol mandate stays in place and with the reduced crop, that number will be closer to 35%.
The problem, Duncan said, is there is no room in the current equation for a drought.
“We cannot control the weather but we can control the use of biofuels,” he said.
If climate change continues to trigger drought in key grain production regions in the coming years, Duncan believes more pressure will build on the political establishment to get rid of grain-based biofuels.
“I don’t think that will happen this year, but the trend is clear that if we an event where there’s 18 months of drought worldwide and we have massive increases in grain prices, the politicians will have to change the mandates to some extent,” he said.