The case for investing in Agriculture

Global demand for food is forecast to double by 2050 due to population growth, urbanisation and emerging middle classes in developing countries adopting more westernised diets. At the same time supply is limited due to various reasons including the limited availability of arable land and water, and the plateau of crop yield growth. These are strong forces that are likely to result in increasing commodity prices, higher farm incomes and increasing farm property prices.

GROWING DEMAND

The world's population is predicted to reach 9.3 billion by 2050 (currently 6.9 billion).

In developing markets such as China radical changes in dietary patterns in the past 20 years have resulted in three-fold increases in the consumption of protein products (see figure 1 below).

At the same time there is increasing pressure for quality land to be used for grain production to meet demand coming from US Livestock producers; (it requires 7kg grain to produce 1 kg of feedlot beef) and Biofuel producers (22% of US corn production was used to produce biofuels in 2007/08 and this is projected to quadruple by 2022).

REDUCED SUPPLY

• Urbanisation is gradually swallowing more of the world’s productive, agricultural land. The area of arable land per capita has declined from 0.32Ha in 1961 to 0.18Ha today and by 2050 is predicted to have dropped to 0.12Ha
• Productivity growth slowing down from 2.0% in 1970-90 to 1.1% in 1990-2007
• Water shortages and more volatile weather
• Record low world food stocks.
• Increasing evidence of climate change - evidenced by the 2012 mid-western drought in the USA, the disappointing monsoon in India and dry conditions in Northern Europe.

HIGHER PRICES

The FAO has projected there will be a 4.5 billion litre shortfall in the world’s milk supply between now and 2017. It’s probable that this shortfall will be made up, at least in the next 10-20 years, by milk from developed, high cost countries, providing an attractive prospect for lower cost New Zealand producers.  The OECD-FAO Agricultural Outlook 2012-2020 forecasts growth in demand, production and dairy prices in the long term. Whole milk powder is forecast to grow fastest in production terms over the next 10 years, to be 32% higher than the past decade, due to Southeast Asian demand. 

NZ'S PASTORAL AGRICULTURE 

New Zealand has often been referred to as one big farm. New Zealand has nearly 10 million hectares of productive grassland and agriculture generates almost 50% of New Zealand’s annual export income with most of that generated by the two primary sectors that dominate the New Zealand landscape – Dairy and Sheep/Beef meat products.
Pasture-based livestock systems have been developed and refined to minimise farm labour requirements and generate maximum productivity from improved animal genetics. It has been estimated that the energy requirements per unit of protein in New Zealand pastoral production are only half to one third of those in the United Kingdom and Europe.

WORLD LEADING PROCESSING

The Fonterra story, below, beautifully captures the essence of the New Zealand dairy industry.

Revised January 2013