Food security is making the headlines again. On Thursday the UN Food and Agriculture Organization’s (FAO) Food Price Index showed global food prices at the highest level since records began in 1990. Up for the seventh month in a row, prices are well above the 2008 levels which sparked riots, and the FAO noted they were likely to rise further. This is one of the reasons Nicolas Sarkozy, taking over the rotating Presidency of the G20 for 2011, put addressing commodity prices including food as one of the priorities on his agenda. The World Economic Forum in Davos discussed growing food security challenges, with World Bank President Robert B. Zoellick suggesting ahead of the meeting that the biggest challenge facing the developing world in 2011 is the risk of a big boost in food prices. With the events unfolding in Tunisia, Egypt and beyond it is clear that this warning was very prescient. While the fundamental reasons for the civil unrest are many, increasing food prices combined with increasing poverty have played a role. The question is where to from here in terms of future food security? Can we actually do anything to rebalance supply and ever-increasing demand? What are the implications for business?
Since the end of last year it has become more and more obvious that the world is facing greater challenges in terms of security of basic needs: food, water and electricity. As the world population hurtles towards the 7 billion mark in the next year and possibly over 9 billion by 2050, the pressures will increase – but it’s not just population which is impacting our ability to fulfill basic needs. Natural disasters, which the UN estimates cost the world US$ 109 billion in 2010, have flooded arable land, damaged crops and more. Climate change is leading to desertification of large parts of the world and more volatile weather conditions impacting crops. High levels of waste in the food supply chain – estimates suggest between 30% and 50% of food grown – mean we grow much more than we need.
A UK Government report on The Future of Global Food and Farming released at the end of January suggests that the era of cheap food is at an end, with real prices of key food commodities potentially rising 50% to 100% in the next four decades. This is against a backdrop of 925 million lacking enough to eat today, with a further 1 billion suffering from “hidden hunger” because they do not have essential nutrients in their diet – while 1 billion people over-consume, creating an epidemic of health conditions associated with obesity.
The report calls for an agricultural revolution to tackle the challenges ahead. However, a new “green revolution” as the world experienced from 1950 to 1970 will be more challenging this time. Then, a massive program of investment in agricultural research and infrastructure averted the potential for mass famine through huge increases in farm productivity, transforming food importers into net exporters, and making food both abundant and cheap. Today, productivity gains have slowed and will require increasing levels of biotechnology and or genetic modification of foods, which faces public opposition in many countries. In addition, water is becoming scarcer – agriculture uses 70% of global water resources – while energy prices are increasing and agricultural development assistance has fallen dramatically in the last decade.
Unless there is a collective effort and unprecedented international coordination and innovation to address the root causes of food insecurity, the likely results of growing food prices and scarcity will include increased poverty and starvation, and widespread civil unrest and economic instability. We are already seeing this starting to play out in Egypt and Tunisia where rising food prices have contributed to the popular revolts – with the risk of a vicious circle as instability adds further upward pressure to food costs.
So what can we do to tackle the challenges? One of the report’s key conclusions is that there needs to be focus on “sustainable intensification.” This means enlisting all available technologies to produce more food on the same area of land without damaging the environment and biodiversity, and while avoiding excess inputs of other resources including energy. It also means minimizing waste and addressing the unsustainability of current farming methods. Technology is not enough. We need to get much smarter about how we manage the entire food system (including packaging) from field to plate. The other key message is that we need to get much smarter about managing the governance of global food system. Self-sufficiency is not the answer for countries, nor are unilateral export bans at the time of food crises, which contributed to the 2007-2008 food price spikes. Free trade is essential, as global food supply is interconnected but the system needs reforms to maximize the benefits of globalization. While the report also highlights the need to address climate change, refocus on eliminating hunger and developed informed policies, the other (more actionable) nugget I took away was a recommendation to contain the demand for the most resource-intensive types of food. Did you know that a hamburger with just 150g of beef requires 2,400 litres of water to produce! Changing consumption behaviors may be a tough challenge as increasing incomes mean people consume more and more expensive foods, but may have benefits in terms of the obesity epidemic.
What are the implications for business? Assuming we do not address the challenges laid out in the UK report, commodity price rises will impact the profits and value of companies which are large consumers of these resources. For example, Unilever reported higher profits this week but eroding margins, with investors fearing it will suffer from continuing input price increases along with the other big consumer goods companies. Investors will also reduce investment in perceived areas of risk. The FT reported that investors have pulled US$ 7 billion out of emerging market equity funds this week, the biggest withdrawal in three years, amid fears of growing Middle East turmoil and rising food inflation increased fears of economic and political instability. Consumers will see food prices increasing on the shelf – and move to cheaper products, with a potential knock-on effect on health and hunger. Competition for resources will also be exacerbated with the potential for conflict economically and geopolitically.
It’s not a good picture. However, many businesses are recognizing the challenges and taking them on. I recently blogged about Unilever’s Sustainable Living Plan which is an outstanding approach to making its whole business approach and products more sustainable. Coca-Cola and SABMiller are taking on the challenge of more sustainable water use, with impressive advances. Nestlé, a founder member of the Sustainable Agriculture Initiative, launched in 2002, has many initiatives underway to improve sustainability throughout its whole food system, as well as focusing on educating consumers about healthy nutrition. Major food retailers such as Wal-Mart and Tesco are putting great effort into sustainability – and again educating consumers, who are more and more aware of the issues themselves. Businesses are already making a significant difference to the future of food security as leading companies step up to the challenge – and more will follow driven by consumer demands as well as real business benefits. Consumer behavior may also start to change in terms of over-consumption as advances in transparency of origins, resource footprint and nutritional value of food continue.
Where we are lagging is in the collective effort and unprecedented international coordination and innovation, i.e. international agreements on reforming trade particularly in food, and in encouraging state and private-funded innovation in the technologies we need to improve agricultural productivity. Once again, the G20 needs to step up, as do the members of the WTO to get the Doha round finally agreed. Nicolas Sarkozy, we wish you luck and patience in your G20 commodity agenda. To all the politicians and diplomats involved – please take a lesson from business; words will not feed the world.
