Investing in the Future of Food (Part 2 - Chew On This)
By the time I retire in 2050, the population of the earth will increase from 7 billion to 9 billion people – for some context, that’s the equivalent of adding another United States and Brazil to the world. Consider too, there is expected to be a major shift in prosperity among nations. According to the following chart from Goldman Sachs’ economists, in 40 years the United States will be almost half as prosperous as China and India will come in a close 3rd.
In the meantime, the United States still dominates in agricultural capabilities and practices in the global market; currently one US farmer feeds approximately 155 people worldwide (by comparison 1 American farmer fed about 26 people worldwide in 1960). By the year 2050, they will need to double production to keep pace.
Currently, the US uses a massive 41.4% of its landmass for farming but only possesses roughly 4% of the world population. By comparison, 20% of all the mouths on earth to feed reside in China and must rely on less than 10% of the country’s total mass for farming. Obviously, the demand far exceeds the supply and the problem continues to grow. China is rapidly becoming a consumer society, but the world’s largest manufacturing center can’t keep manufacturing without food to feed its workers and its people. In the same sleeve, its manufacturing livelihood continues to ruin soil and rivers through poor farming practices and irresponsible farming measures. Obviously, we are aware that practices are bad, but we aren’t fully aware of the magnitude given that specific farming information is often blocked or prohibited to disclose by the Chinese government, and therefore flawed numbers are often reported to the IMF.
Consider the following charts from the Earth Policy Institute which demonstrate just how huge the Chinese demand for meat (especially pork) is compared to the United States
China has a hearty appetite for protein but has little clue on what constitutes sustainable and appropriate agricultural practices that won’t result in unhealthy, unsaleable livestock, and must learn from the United States. Rather than American farmers establishing presence overseas, Chinese companies would rather acquire assets within the United States, learn proper methods and sell food to the world and themselves—we saw this firsthand with the recent acquisition of Smithfield Foods (SFD) to learn the raising techniques of swine and other livestock. Just how bad are its current practices? Consider the appalling discovery of nearly 60,000 diseased pig carcasses dumped in the Huangpu River— a prominent water supply for surrounding cities. The government’s equivalent of the FDA prohibits the butchering and distributing of diseased animals, but in a country with a vast black market, farmers were able to bribe butchers into processing bad meat anyway. Several of these black market butchers were recently given life-in-prison sentences and with nowhere for farmers to dispose of diseased animals … well … the details aren’t pretty.
The point is clear: the developing world depends on the US far more for survival than many investors actually understand. While agricultural stocks may appear to rise and fall all over the place, long-term, these companies face very real issues and fortunately already have solutions in the pipeline. The question is do you have enough agricultural exposure in your portfolio to take advantage of this kind of future?
In the next edition, I will discuss two cases which give rise to how agricultural stocks are confronting the future head-on. Stay tuned!