While browsing the aisles of my local supermarket last week, I found a 3 pound bag of yellow onions on sale for $2.50. It was a good bargain, so I snapped up a bag to take home.
Unfortunately, that sack of onions found a home on top of another bag I forgot I’d already purchased over the weekend.
Chances are you don’t spend much time thinking about onions. In fact, if you’re like me, you probably wouldn’t notice if the price of onions rose 40 or 50 percent over the course of a year. The average American eats about 11 kilograms of onions a year, the average Briton 10 kg and the average Canadian 8.5 kg. At my local prices, a doubling in the price of onions works out to an additional $20 per year on my grocery bill.
But onions are a big deal outside the developed world. In fact, onion prices were frontline news while Yiannis Mostrous, associate editor of Personal Finance and editor of Global Investment Strategist, was traveling in India.
Onions are a staple of the Indian diet. The typical Indian eats about 9 kg of onions per year, about the same amount as consumers in the US, UK and Canada. But the average Indian consumers about 60 percent of the average American’s daily caloric intake and 70 percent as many calories as in the average developed-world diet. Onions and onion prices are a big deal in India.
At the end of 2010, onion prices had increased 40 percent from the prior year. This surge in prices prompted the government to ban onion exports indefinitely and remove import duties on vegetables in an effort to grow supplies. Authorities even ordered state-run trading companies to repatriate inventories of onions being held outside the country.
India isn’t the only country struggling with higher food prices. In China, the government tapped into reserve grains stored in state-owned warehouses to alleviate near-term supply shortages.
The Indian governments’ efforts may provide a degree of short-term relief, or at least convince citizens that the authorities have made an effort to combat food price inflation. But the Indian government’s moves are equivalent to prescribing a Band-Aid and painkiller as treatment for a gushing head wound.
Look at the year-over-year change in wholesale foods prices in India and consumer food prices in China. With the exception of a brief period in late 2008 and early 2009, food prices have been on an upward trajectory in both countries.
And both countries are currently experiencing inflation close to the high levels of 2007-08, when a rapid jump in food prices caused social unrest in many emerging nations–even toppling one government.
Now we face a new round of unrest. High food prices have contributed to the recent ousting of the Tunisian government and the massive protests in Egypt.
The uptrend in prices has nothing to do with financial speculators as some have suggested. Rather, it’s caused by the basic forces of supply and demand.
The most important trend is the increase in protein and meat consumption underway across the emerging markets.
Source: Food and Agriculture Organization of the United Nations
The key to understanding growing global demand for food is to stop counting calories and focus on the types of foods consumed. It isn’t the quantity of food people eat, but the content of their diet that matters–a point most investors miss when analyzing agricultural markets.
This graph depicts meat and cereals consumption in four different countries: the US, Germany, China and Bangladesh. Cereals include products such as rice, corn, oats and wheat but exclude grains used to brew beer. Meat includes beef, chicken, pork and other meats but excludes butter, eggs, milk and other animal-derived products. Meat and cereals are two of the most important sources of total calories consumed in most countries around the world.
On an annual basis, the average US or German consumer eats about 110 to 115 kilograms (roughly 250 pounds) of cereals. China is a fast-growing emerging market, and Bangladesh is one of the poorest countries in the world. But the average consumer in both China and Bangladesh eats far more cereals than their counterparts in the US and Germany. The typical Bangladeshi consumes the largest total quantity of cereals each year, some 181 kilograms (400 pounds).
From this graph, a clear correlation between a country’s wealth and meat consumption emerges. The US and Germany annually consume 123 kg and 88 kg of meat per capita, respectively; China consumes just 54 kg and Bangladesh consumes just 3.6 kg.
Economic growth in developing nations is driving an epic shift in global diets, the likes of which the world hasn’t seen since the Agricultural Revolution of the 18th and 19th centuries. As consumers’ disposable incomes rise, their diets tend to become more diverse and meat consumption tends to increase. China’s meat consumption has grown by more than 20 percent per capita over the past decade, while consumption of basic cereals has declined by more than 11 percent. Rice, which alone accounted for close to 40 percent of all calories consumed by the average Chinese citizen in 1977, now accounts for one quarter of the typical Chinese diet.
From an agricultural standpoint, this shift presents a problem. Meat, fruits and vegetables are far more agriculturally intensive products than rice and other cereals.
It takes 7 kg (15.4 pounds) of feed grain to produce 1 kg (2.2 lb) of beef; 4 kg (8.8 lb) of grain to produce 1 kg of pork; and 2 kg (4.4 lb) of grain to make 1 kg of poultry. As consumers eat more meat, there’s a huge multiplier effect–demand for feed grains goes up by a multiple of the increase in meat consumption.
This trend explains the huge jump in China’s corn consumption.
As you can see, corn consumption has soared in China, especially since the 1980s. The majority of the corn consumed in China is used as animal feed.
The supply side of the equation is even more frightening. Some countries, including the US, have made great strides toward increasing crop yields per acre of arable land. However, global stocks of key agricultural products easily dwindle to dangerous levels.
According to data from the US Department of Agriculture, world stockpiles of corn may fall to 50 days of estimated use, the second-lowest since 1976. China has indicated that a desire to rebuild strategic inventories back to comfortable levels, which means that the country will need to increase imports to record levels.
Clean water, essential minerals, even the topsoil we need to grow food growing perilously scarce.
Be it China or India, corn or wheat, the bottom line is clear: We’re running out of the resources we need to survive.
The growing global food crisis is one of the biggest investment opportunities of this decade.
You have the choice to watch from the sidelines, or to jump in today for some of the greatest profits of your lifetime.
Over the next 20 years, the world’s population will grow 27 percent. Yet arable land will shrink 18 percent, per capita water supply will drop by a third, and global oil production will fail to meet soaring demand.
The challenge is daunting: more people to feed–and less land, water and energy to produce food.
Though governments won’t admit how serious the crisis is, they’re pouring billions of dollars into averting calamity.
They’re retooling power generation systems and even re-plumbing an entire country.
World leaders have pledged hundreds of billions of dollars to reverse the crisis. Right now, annual spending on these issues tops $126 billion, on its way to a projected $209 billion per year.
That’s an astounding $23,858,447 per hour to be spent on cleaning up our water, developing new sources of energy, increasing food production from existing farmland, and making food healthier and more nutritious.
It’s the largest project in human history, costlier than any war, and companies are falling over each other to get in on the bidding.
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