If you’re in the agriculture industry the prevailing wisdom is clear. Global agriculture has an enormous — maybe insurmountable — challenge ahead of it. By 2050, our global population will reach nine billion.
Big Idea
Christophe Pelletier: The key challenge is going to be feeding the animals, not the people.
Everything is so much more global and interconnected that there really is no such thing as a local solution to these issues — and that has implications all over the place. For example let’s look at the implications of the increase in consumption of animal protein. In the emerging countries, consumption of meat is rising. If you have 1.5 billion people in China, and their meat consumption rises by 10 kilograms a year, that’s a lot of meat.
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But it becomes even more complex if you look at the changes in the type of meat they’re eating. Years ago, they were interested in what were basically byproducts. In the pork business they wanted offal, chickens were wing tips and feet and in salmon they wanted the heads. As they get wealthier, they want the same products we do. So we’ve suddenly got new competition for the products we want, as well as a challenge for the processors who are losing markets for these byproducts, which affects their efficiency and profitability.
I think that this is going to be one of the key challenges for agriculture and it’s going to affect everyone, including grain producers.
CP: The question of food security is very complex — much more complex than just producing more food. Yes, there are hungry people, but simply producing more food isn’t the answer if the real problem is that they don’t have enough money to buy it.
One of the great ironies is that about two-thirds of the people who are hungry in the world are actually small farmers, but they don’t produce enough food for their needs and they don’t have enough money to buy more.
The simple truth is that we have a lot of room for improvement in our food system. There are areas where we could make changes on the production side — making improvements to production methods such as herbicides and pesticides and fertilizers to allow crops to reach their genetic potential, for example. There are places like Canada that do this now, and there are places where these tools are not widely used.
The larger question, though, is what we can do to improve our use of these products after production and harvest. Today about 20 per cent of the food that’s produced globally is wasted. In rich countries that happens at the end of the food supply chain in homes, at restaurants and in grocery stores. In poor countries it happens because they lack the basic infrastructure to get their products to market and they lack the infrastructure to store it. I think addressing this spoilage and waste, making those infrastructure investments, is probably our single greatest opportunity to increase our global food security.
CP: It’s interesting that you mention energy efficiency, since those are exactly the sorts of questions that I encourage people to ask themselves. We’ve been in an era of cheap energy, but the same pressures that can be seen in agriculture — new consumers who want more and better things — can be seen here too. At the same time, the available energy resources are finite unless we get a renewable energy breakthrough, and it would seem we’re still quite some distance from that.
If oil hits $500 a barrel, what does that mean for your industry?
I encourage people to identify these risks now, rather than wait until their backs are up against the wall and it’s already a big problem. By then, it’s too late.
One of the problems of having cheap resources is that we then can’t clearly identify the true value of them. It encourages us to waste them. I’m from Europe originally — I was born in France and I lived and worked for a long time in Holland — and I can see this every day in Canada. People run their water out the tap forever, and they walk around in shorts and T-shirts in the middle of winter. In Europe, these resources are more expensive so we change the shower heads in our homes and keep our houses at 19 C and put on a sweater if we’re chilly.
In agriculture this plays out in a number of ways — take irrigation as just one example. The most common forms of irrigation are either surface flooding or sprinklers of one sort or another. That can be very wasteful, and in places like the U.S. southwest, where water is at a premium, they’re using new technology that places tapes in the root zones and the water is placed there. That can be expensive and labour intensive, but if the cost of water is high enough, I’ve seen paybacks as short as two years.
CP: Yes, I think it is. It really is as simple as “money talks.” Farmers don’t and won’t make their decisions based on anything else. They’re not running charities, and while they may like the lifestyle of farming, fundamentally they’re running a business and they want to make a profit. They’ll make the decisions that will make them more money. But if they can correctly identify some of these risks, and make their plans accordingly, they’ll be more successful.
Where we tend to see problems is where governments make decisions and provide incentives to do things that wouldn’t otherwise be done. Maybe something outrageous like the government of Canada for some reason deciding to subsidize pineapple production in Canada. It makes no sense, but if the incentive were large enough, farmers would do it. In the real world, we can see that in olive oil production — there are huge parts of Spain where olives are grown simply because there was a subsidy from the EU to grow olives. Or in wine, where a subsidy caused a whole lot of vines to be planted. Then the price of wine fell and now those vines are being taken out.
CP: It’s always a bit dangerous to make general statements — there’s always some parts doing things well, and other parts not doing them as well. Generally though, I think it does come back to listening to their markets. Farmers are really good at producing products and then pushing them out to markets. But if that’s what they’re doing, they’re not going to be identifying problems and then providing solutions.
By getting a better idea of what your customers’ problems are, you can probably find more success.
CP: I guess that’s one way of putting it, and certainly I do expect over time to see good profitability and rising prices, but I think a better way of putting it is that I expect to see much greater volatility. All of these complex issues that we’ve talked about — rising and changing demand and finite resources for example — will have an effect on each other and will then have an effect on the prices farmers receive. For example, growth in animal protein consumption will place pressure on feed grain supplies, those prices will rise and that will hurt the profitability of the livestock sector. If the prices rise high enough they’ll limit livestock production because it’s no longer profitable and that will cause feed grain prices to fall.
Then there’s the issue of input prices. If the price of farm products rise, the manufacturers of farm inputs will see more demand, which will cause the price of these products to rise. So as you can see, it’s not simple at all, it’s very complex. But yes, generally speaking, even with this volatility, I would say that being a farmer is going to be a pretty good place to be over time. CG
