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.
The middle class across the world (households with an annual disposable income over US$10,000 in PPP terms) is expected to rise rapidly to over 1.5 billion households by 2020, up from 1.2 billion households in 2012. The increasing purchasing power of this rising middle class will alter global food consumption patterns from basic staples towards more appetising, nourishing and safe food. This will impact global food demand and security, affecting businesses, consumers and the global economy.
While there is no universal definition for middle class due to different levels of economic development, the number of households with an annual disposable income over US$10,000, measured at purchasing power parity (PPP), is considered to be enough for spending on essentials as well as some discretionary items. PPP is a method of measuring the relative purchasing power of different currencies over the same types of goods and services, thus allowing for a more accurate comparison of living standards;
The global middle class is expanding rapidly thanks to rising disposable incomes in growing emerging market economies. By 2020, over 1.5 billion households globally will have an annual disposable income over US$10,000 measured at PPP, up from 1.2 billion households in 2012;
As the purchasing power of these middle class households rises, their food consumption patterns will shift from having only basic staples towards more appetising, nourishing and safe food. In 2012, the global economy faced its second major food crisis in five years and over the coming years, as demand surpasses food supplies, the global economy will increasingly face pressures of food security;
Rapid urbanisation and deforestation will exacerbate the problem of food security and place added pressure on water and energy resources. Over the 2007-2012 period, the global urban population rose by 2.2% per year reaching 3.7 billion people or 52.4% of the total global population in 2012 and is forecast to reach 55.8% of the total global population by 2020;
The growing problem of food security will have implications on businesses, consumers and economies – particularly in food importing countries. Higher food prices owing to food shortages will be amongst the biggest challenge facing most economies. For example, many emerging and developing economies like Pakistan, Vietnam, Russia, Ukraine, Venezuela and others faced double-digit food price inflation in 2012.
Households with Annual Disposable Income over US$10,000 (PPP) in Selected Regions: 2007 and 2012
Source: Euromonitor International from national statistics
Global middle class rising
Strong economic growth and rising disposable income from low bases have led to a surge in the number of middle class households in emerging and developing economies resulting in the rise of the global middle class. Between 2007 and 2012, the number of households with an annual disposable income of over US$10,000 (PPP) increased by 29.1% reaching 1.2 million by the end of the period; Much of this growth came from the world’s two largest populations, China and India. Over the 2007-2012 period, China’s households with an annual disposable income of over US$10,000 more than doubled, while India’s grew by 50.1%, and together they accounted for over 30.0% of households falling in this category by 2012;
Despite slowing down, China’s economy remains amongst the fastest growing economies in the world spurring income growth. Meanwhile, India’s demographic dividend and large working-age population is playing a key role in its growing middle class. In 2012, China and India had 227 million and 149 million households with an annual disposable income of over US$10,000;
Economies like Indonesia, the Philippines, Vietnam, Russia, Brazil, Nigeria and Egypt are also amongst those who are experiencing a rapid rise in their middle class populations. At the same time, growth in the middle class of many developed economies is slowing thanks to the global economic crisis of 2008-2009 and the slowdown in 2011.
Global food security threatened
This rising middle class will spur consumer demand with middle class households wanting more and more goods and services including food. Consumer expenditure on food from emerging and developing economies rose by 4.6% annually in real terms over the 2007-2012, compared to the average global increase of 2.8% per year during the same period;
This could threaten food security over the coming years. In 2012, the global economy witnessed its second food crisis in five years, the effects of which have not abated in 2013. Though much of this was caused by an increasing number of weather-related disasters which negatively affected harvests of cereals like wheat, soybeans, corn, rice and other grains, food security is also threatened by the increasing population and their rising consumption;
Demand for food is far outpacing supplies leading to food shortages in many countries and causing a rise in food prices. According to the UN, at the end of 2012, global grain reserves were very low leaving little or no room for unexpected events in 2013. With no foreseeable integrated solution available to increase global food production, many analysts believe that low food supplies might become the new norm;
Food security issues will be exacerbated by rapid urbanisation and deforestation putting added pressure on water and energy resources. Over the 2007-2012 period, the global urban population rose by 2.2% per year, faster than the 1.2% annual growth in overall population, and accounted for 52.4% of the total global population in 2012. In Asian economies particularly, increasing urban populations lead to pressures on governments to curb food price rises, undermining incentives to increase food production.
Implications on businesses, consumers and economies
Higher food prices as a result of food shortages affect businesses, consumers and food importing economies. Despite stabilising by mid-2013, prices of many cereals like wheat, corn, rice and soybeans still remain volatile. For example, in June 2013, the food index was up by 9.2% annually on a non-seasonally adjusted basis before slowing sharply to 0.7% annual growth in July 2013; Frequent weather-related disasters and uncertainties in food stocks are forcing many economies to implement protective measures to ensure consistent domestic food supplies. For example, China and India are increasing subsidies for certain groups of the population and considering imposing export bans to stabilise domestic prices;
Food importers and exporters are affected conversely. Food importing countries are affected by rising food import bills, which are then passed on to consumers. This caused significant unrest in African and Asian economies after the global economic crisis of 2008-2009. Food exporters like the USA, Brazil, Argentina and others grapple with the issue of trading off between increasing cereal production and biofuel production;
Poorer economies are most affected by the volatility in food prices as a huge proportion of their spending is on food. For example, in 2012, consumer expenditure on food and non-alcoholic beverages in sub-Saharan Africa accounted for 29.6% of total consumer expenditure compared to the global average of 15.2%;
As the global economy continues to face depleting natural resources like food, water and energy, there will be an increasing focus towards resource management and resource competition, particularly from businesses. Water scarcity, particularly, can be a severe constraint to the expansion of food production in the coming years. According to the United Nations (UN), agriculture uses about 70.0% of all water withdrawals while industry and domestic activities take about 22.0% and 8.0% respectively.
Annual Price Growth in Food Index and Selected Cereals: January 2012 – December 2013
Source: Euromonitor International from trade sources/national statistics
Note: Data for September-December 2013 refer to forecasts
The global middle class is expected to continue rising over the coming years boosted by growth in emerging and developing Asian economies. China and India will continue having the largest and second-largest middle class populations globally with an annual disposable income of over US$10,000 (PPP) in 2020 at 366 million and 218 million households, growing by a massive 50.4% and 39.2% respectively over the 2013-2020 period;
Rising consumption in these households will increase pressures on food security and drive food prices over the coming years unless integrated agricultural policies are put in place to increase agricultural production and safe-guard against weather-related fluctuations in food stocks;
According to the Food and Agriculture Organisation (FAO) of the UN in September 2013, the overall supply-demand in global cereals markets has improved drastically in 2013. However, its projections suggest that the global stock-to-use ratio will be 23.3% higher in 2014 – its highest level since 2002-2003;
Nonetheless, higher maize inventories have led to an increased world cereal stocks forecast, at 569 million tonnes in 2014 – the highest level since 2001-2002. In addition, global cereal utilisation in 2013-2014 was marginally revised downwards to 2.4 billion tonnes, though still 3.2% higher than in 2012-2013.