The case for investing in Agriculture

Global demand for dairy products is forecast to double by 2050 due to population growth, urbanisation, changing diets with increasing disposable incomes and as a result of growing demand for biofuels. 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 eight billion by 2030 (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).

In terms of milk consumption trends, the comparison between Taiwanese and Chinese milk consumption and income trends suggests significant on-going demand growth (Figure 2).

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.

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 FAO/OECD expects this supply-demand situation to result in a 30-40% lift in milk prices relative to their traditional levels.