The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.
Agribusiness is big business and key farming countries are jostling for position to be the leading suppliers of agricultural commodities. Why? Globally, agriculture accounts for 4.5% of GDP, but in dollar terms at US$3,043 billion this is equivalent to more than the entire GDP of France or the UK. With the use of technology and the emergence of large scale producers, agriculture has been transformed into a driver of economic growth. Yet it is not a sector without challenges.
The importance of developing economies in agricultural production has risen sharply. China is now a key player globally with exports of food and live animals increasing by 70% in US$ terms between 2003 and 2008;
Supply constraints play an important role in the industry. The amount of arable land is increasing only slowly; between 2008 and 2013 when the population increased by 6.3%;
Demand drivers include an increase in population, growing incomes in emerging markets and the increasing consumption of calories;
Agriculture is not only about food. Biofuels contribute to demand in the agricultural sector but also create food supply challenges;
The future of agriculture will be about producing more food with fewer resources. The largest economic gains will be seen by those able to produce quality products to stringent safety and hygiene standards.
Agriculture is often perceived to be a sector characterised by low productivity; a sector which countries must move out of if economic growth is to be strong. But this is only one side of the story, with the use of technology and the emergence of large scale producers, agriculture has been transformed and the world’s leading economies are keen to be key players.
The USA is by far the world’s largest agricultural exporter. It exported US$103 billion of food and live animals in 2013. The USA dominates the world in exports of meat, cereals, fruit and vegetables. It is home to some of the world’s largest agribusiness companies including Archer Daniels Midland (ADM), Cargill and Monsanto. The farming sector is increasingly characterised by large, highly-productive farms. Gross value added from agriculture grew by 4.0% in real terms between 2008 and 2013 driven by increases in farm productivity;
The importance of developing economies in agricultural production has risen sharply with Latin America and Asia in particular seeing solid progress in their agricultural sectors. China for example has seen strong growth in its agricultural sector, with exports of food and live animals increasing by 70% in US$ terms between 2003 and 2008. It has risen to become the world’s largest exporter of fish and seafood accounting for 16.2% of global exports. Yet the demands of its home market are ever growing. For example, despite being the world’s largest producer of cereals, responsible for 21.8% of cereal production globally, China is a net cereal importer and indeed the world’s 6th largest cereal importer;
Australia offers an example of a developed economy trying to diversify its economy away from minerals to (amongst other things) agriculture – aiming to be the “food bowl” for Asia. The government aims to promote Australian agriculture by increasing research funding and speeding up free-trade agreement negotiations with Asian countries including China, India, and Indonesia. The driving force behind this is the emergence of the Asian middle class – which is driving consumption of high quality food in the region. It is in this area that Australia hopes to make a name for itself: as a provider of high quality food and agricultural products produced to stringent safety standards. Yet this strategy is beset by challenges including a propensity to drought, a lack of investment and logistical problems.
The World’s Largest Exporters of Food and Live Animals: 2013
Source: Euromonitor International from United Nations (UN), International Merchandise Trade Statistics
Supply and Demand for Food
The supply and demand for food are at the heart of trends in the agricultural sector. In terms of supply:
The amount of arable land is increasing only slowly; between 2008 and 2013 when the world’s population increased by 6.3%, the amount of arable land globally increased by just 1.0% or 14 million hectares – a similar land area to Nepal or Tajikistan;
Climate change and extreme weather events also impact on supply. For instance the drought in the USA in 2012 which still continues in some states, combined with a hard winter in 2013/2014, have served to negatively impact the country’s wheat production. The USA is the world’s third largest wheat producer so this has a large flow-on effect on global markets and prices;
Social and political tensions can also sway agricultural production. For example, Ukraine is an important producer of cereals, particularly wheat. Its production in 2014 is likely to be lower than expected as a direct result of the unrest in the country but also indirectly due to the fall in the currency which makes imported inputs such as fertiliser and pesticides more expensive.
Many of the demand drivers are linked to socio-economic and demographic trends:
The increase in the number of middle class households globally has driven up demand for food. The number of households with a disposable income over US$15,000 (in 2013 prices) has increased by 70% in the BRIC countries alone between 2008 and 2013. In actual terms this equates to an increase in BRIC of 77.8 million households – more than the total number of households in Germany and France combined;
Households with a Disposable Income over US$15,000 in BRIC: 1990-2030
Source: Euromonitor International from national statistics
Note: Data are in constant 2013 price. Data from 2014 onwards are forecast
This growth in income has led to a corresponding increase in consumer expenditure. Globally, consumer expenditure on food and non-alcoholic beverages increased by 14.6% between 2008 and 2013 in real terms, or US$833 billion. 93% of this increase was from emerging and developing countries;
As well as a growing middle class, the global population as a whole continues to expand. We expect it to first surpass 8 billion in 2024, just 12 years on from first surpassing 7 billion;
As a population we are also consuming more calories. Evidence of this can be seen in the rising numbers of overweight and obese people. In a ranking of 85 countries in 2013, 20% or more of the adult population were overweight in 80 of these countries and 20% or more were obese in 32 of these countries.
Biofuels Fight for Growing Space
Agriculture is not only about food, biofuels contribute to demand in the agricultural sector but also create food supply pressures, particularly when food crops are diverted to fuel.
Biofuel production took off in the early 2000s, with production more than doubling between 2004 and 2007 alone. During this period the amount of arable land globally actually declined by 1.2% globally;
The USA and Brazil dominate global production of biofuels. The USA in particular produces more biofuels than the next 19 countries combined. The EU is also an important player.
Second generation biofuels come from non-food crops such as grass, waste such as pulp, and non-food parts of crops such as leaves and stems. It is argued that these are more sustainable, but the former in particular does not alleviate pressures on land and other resources such as water.
Yet from an agribusiness point of view, biofuels have added an additional facet to agriculture and an important revenue stream.
In a nutshell the future of agriculture will be about balancing supply constraints and demand drivers by producing more food with fewer resources. For example, water scarcity has an impact on agricultural production and this is an issue which is expected to increase in importance. 70% of water used globally is for agriculture and some of the world’s largest agricultural producers are also those countries with low or declining freshwater resources.
The largest economic gains will be seen by those countries able to produce quality products to stringent safety and hygiene standards. In food production, traceability is crucial. This gives countries with efficient, well-regulated agricultural sectors something of an advantage.
Food security will continue to be a theme. Countries have been buying up farmland overseas in order to guarantee food security. Chinese agribusiness has already invested in Brazil, Argentina and Ukraine amongst other countries. China is by no means alone in this; Qatar has sizeable investments in Australian farmland, and Saudi Arabia in Ethiopia, Sudan and Kenya. In fact Africa looks set to increase in importance as a destination for foreign investment in agriculture as countries look abroad to secure their food supplies, conserve their water resources, hedge against climate change and meet the demand of their growing populations.