1 – Follow the Mouths

05 July, 2017

A common movie plot line is where a nefarious corporation or an evil billionaire secretly is funding a criminal enterprise, with the protagonist hot on their tails, trying to find proof to bring them down. This protagonist is invariably told to “Follow the money…”. Similarly, if we want to understand the nature of future grain demand, a good starting point is to “follow the mouths…”.

“How many mouths will need to be fed and where will they be located?”

We each have a stomach, we each need food, and grains are a staple food. So to understand how the demand for grains might change in coming years, we first need to understand about global population patterns. How many mouths will need to be fed and where will they be located?

Figure 1 shows that in the next 20 years there will be around 8.5 billion people to feed – around 1.5 billion more than there are now. By 2050 the human population is expected to top 9 billion people – an increase of around 2 billion mouths compared to today. The largest growth in population will be in sub-Saharan Africa. In 2000, sub-Saharan Africa’s share of world population was 11%, but by 2050 this is projected to grow to 23%. By contrast, in 2000, South and East Asia accounted for around 56% of the world’s population, yet by 2050 their share is destined to slip down to 49%.

By 2050, 3 regions of the globe will have similar sized populations; South Asia, East Asia and sub-Saharan Africa. In effect, there will be a China in sub-Saharan Africa and India’s population will be slightly greater than China’s.

So if the simple strategic mantra is “Follow the mouths”, then emerging demand for grain will be in these three regions; with south Asia and sub-Saharan Africa growing in relative importance.

But is a strategy of “following the mouths” sufficiently worthwhile? Where stomachs reside across the globe may be initially useful information but what a person eats depends on several additional factors including their age, income and food culture. The capacity to pay for food is particularly important, so where on the globe are incomes projected to most rapidly increase?

Let’s start with the BIG picture. Where will most of the world’s wealth reside in coming decades? The following table lists the top-20 economies in 2016 and then for 2030 and 2050; where countries are ranked by the size of their real GDP.

The top 20 largest economies in the world (in 2016 billions USD) Source: PricewaterhouseCoopers, February 2017.

The USA will almost double its real wealth from 2016 to 2050 and China is projected to quadruple its real wealth. Even more outstanding, India is forecast to have a 14-fold lift in its real wealth and Indonesia will have a 7-fold increase. Appearing for the first time in the top-20 list will be 2 African countries, Nigeria and Egypt, who make the 2050 list. By contrast, Australia, the Netherlands and Poland will disappear from contention in the 2050 top-20 list.

Interestingly most of the very wealthy nations in any decade, apart from Japan and Indonesia, are countries that frequently or occasionally are exporters of grains and oilseeds (United States, India, Brazil, Germany, United Kingdom, Russia, France). These nations are often not only able to supply sufficient grains and oilseeds for their domestic purposes but also have or may occasionally have exportable surpluses. So to which countries are these exportable surpluses going? Figure 2 gives the answer.

Figure 2: Top importers of grains, oilseeds, meal and vegetable oils: Shares of import volumes averaged over 2013 to 2015 Source: Extracted from data tables in Australian Commodity Statistics 2016.

About a third of the volume of exports of all grains and oilseeds (including meal and oil) go to China. When other east and south-east Asian countries are combined with China, in total they receive about half of all grains and oilseeds exported.

The three main regions in the world that receive most of the exported grains and oilseeds are (i) east and south-east Asia, (ii) the Middle East and North Africa and (iii) the EU that mainly imports durum wheat, soyabeans, soyameal and canola. Many countries in the EU and increasingly many countries in east and south-east Asia are among the world’s wealthier countries. Hence rather than the seemingly romantic and humanitarian view of grains and oilseeds going to feed the ‘starving millions’, the reality is that most grains and oilseeds are being purchased by increasingly wealthy nations.

But as wealth and incomes increase, what happens to the levels and patterns in grain consumption? That’s a question for discussion in a subsequent blogpost.

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