Farmer Jay Schultz seeds canola near Standard, Alta, May 8, 2014.Todd Korol/The Globe and Mail
As if killing off the miners and drillers was not enough, the commodity markets have tillers of the soil in their sights. The price of food is plummeting around the world. Everywhere there is abundance, harvest are breaking records, grain silos are full. The prognosticators of doom in the Green fraternity who protest that the planet cannot feed so many people are again being proven wrong. More food is being grown on less land than ever before.
This year, the grain harvest will be 1.99 billion tons, a whisker shy of last year's all-time record. According to the International Grain Council, global stocks will be at a 29-year peak in 2015/16 with record wheat inventories. Prairie farmers are drowning in silos filled to the brim with wheat and the glut has sent prices down by 20 per cent price. It's the fourth year in which grain production has exceeded consumption worldwide and according to the Food Price Index published by the UN's Food and Agricultural Organization (FAO), the cost of food worldwide has fallen by a third since the index peaked in 2011.
We are now experiencing a global slump in farm prices. In part, this is due to the slowdown in the Chinese economy and the disruption to trade caused by the sanctions against Russia. But the unwanted food mountain is also due to better technology, higher-yielding grain varieties, more efficient land management and cheaper raw materials, notably energy. It's been lovely for consumers but tough for farmers as breakfast gets cheaper.
At the other end of food chain, Glencore is reported to be in talks over the sale of a stake in Viterra, the Regina-based grain handling business, acquired as recently as 2013. A sovereign wealth fund from the Middle East is said to be interested and one might wonder if a consortium of Canadian agribusiness investors could be persuaded to buy a national asset back at a discount.
We are used to hearing shrill cries of woe from Malthusians who want to believe that the world is always heading towards a food crisis and a famine caused by uncontrolled population growth. The reality is likely to be quite different. Firstly, population growth is stabilizing – even in the developing world where countries such as Bangladesh are rapidly approaching nil growth rates of fertility. Meanwhile, there is evidence that food consumption patterns may change markedly as populations age. According to a recent report in the Financial Times, rice consumption is in sharp decline in Japan, falling by a fifth over the last two decades. Not only are tastes changing, with young people eating more wheat but government figures indicate that the calorie intake of the Japanese is falling as the population gets older.
Moreover, we are not just getting better crop yields per acre but there are signs that we are farming less land. Land use statistics from the FAO suggest that global land area used for agriculture peaked in 1998 and continued to decline until 2011, the last available statistics. Even more surprising are the effects of climate change: in the Sahel region of Africa, an area once notorious for drought, there has been a noticeable increase in rainfall. Researchers at the National Centre for Atmospheric Science at Reading University in the U.K. found rainfall was 10 per cent higher per day in the period from 1996 to 2011 than during the period from the 1960s through the 1980s when severe droughts wrought havoc on the fragile societies living on the edge of the Sahara.
The improved moisture content in the soil is raising crop yields from Senegal to Sudan. What is significant is that a region once relegated to agricultural destitution appears to be showing signs of recovery. Moreover, hunger is rapidly diminishing across the globe. The evidence can be seen in the FAO's map of world hunger; for the period 1997-99, 22 countries were classified as suffering from high levels of chronic undernourishment. Today, the number has fallen to just five: Haiti, Namibia, Zambia, Central African Republic and North Korea.
Canadian farmers can assume there will always be demand for the product of the prairies, as long as it is priced keenly. There is great merit in the being the biggest, the cheapest and the most reliable producer. However, it is worth considering whether the price surges of the last seven years are more indicative of the future than the long-term trend. According to USDA statistics, wheat prices have been declining in real terms since the 1950s, apart from a brief surge in the 1970s and two spikes over the recent decade. Those two periods were characterized by a surge in energy costs for farmers.
We are now moving quickly downhill past an energy bump. It would be unwise for Canada to assume there will be a rapid climb back to expensive oil and surging farm prices. Agricultural is becoming more efficient everywhere with easy access to price information for even the poorest farmers. For Canadians, it means having to operate at greater levels of efficiency than ever before.
Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K.