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Forward Thinking Magazine : August 2010
30 Macquarie Adviser Services 10 9 8 7 6 5 4 3 2 1 19501960197019801990200020102020203020402050 With world leaders continuing to discuss the issues of food security and price stability, we look at some of the drivers of commodity prices and consider the case for investing in agriculture. Food for thought – the investment case for agriculture Commodities in demand There are three main uses for agricultural commodities – food, feed and fuel. Demand for each of these is increasing, driven by global population growth (increasing demand for food), economic growth in emerging markets (demand for feed) and biofuel policies across the globe (demand for fuel). Population growth is a basic factor that drives consumption of agricultural products. As Figure 1 shows, the global population is projected to rise from 6.1 billion people in 2000 to 8.3 billion by 2030 and 9.1 billion by 2050, resulting in an additional 79 million mouths to feed each year. Population growth is expected to be concentrated in developing and emerging economies, which means that some previously self-sufficient countries will need to start importing foods. Rising per capita incomes and urbanisation in these markets is leading to greater consumption of food, specifically higher value foods, such as meat and dairy. As arable land available for farming is limited due to urbanisation, land degradation and climate change, substantial gains in production of higher value foods are most likely to come from intensive production systems. This has a multiplier effect on grain consumption due to the increased demand for grains and oilseeds (such as corn and soybeans), which are used as feed for livestock. The search for alternative, renewable sources of energy has introduced a third competing use - the production of biofuels. Although only four per cent of global grain and oilseeds were used in the production of biofuels in 2007 and 2008, recent growth in biofuel production, encouraged by government policies, is providing an additional and relatively new driver on the demand side for agricultural commodities. World ethanol production is expected to double from 2008 levels to reach 127 billion litres a year by 2017, while biodiesel production is expected to expand from 11 billion litres in 2007 to about 24 billion litres in 2017. Agricultural commodities are also increasingly used for industrial purposes, particularly in the manufacture of products such as paint and glue, adding even further to their global demand. Figure 1: Global population Source: UN Secretariat