At the first World Food Summit held in 1974, then United States secretary of state Henry Kissinger bravely proclaimed global hunger would be eradicated by 1984. As it turned out, he was horribly wrong – as have been other politicians in the ensuing three decades who have made similarly bold political commitments that have fallen way short of the goal of providing an average of 2 000 calories to every adult daily. That’s the minimum dietary energy requirement as laid out by the United Nations Food and Agriculture Organisation (FAO).
While South African politicians prevaricate about the consequences of ill-considered land distribution policies, there’s a very real global challenge in ensuring the planet will be able to sustain the world’s anticipated population growth over the next two generations. All things being equal, the UN expects the world’s population to rise from current levels of around 6,5bn to 9bn over the next 40 years. That’s like adding another half of the world’s current population to a planet with already strained resources.
NGO grouping One World Network says sub-Saharan Africa and South Asia are the regions most affected by hunger, with 15 African countries listed as having the incidence of hunger impacting on more than 35% of their populations, while in South Asia 46% of children are underweight. A series of high-level regional meetings culminated last year in the World Summit on Food Security, acknowledging mounting concern about the sustainability of food supply.
Britain’s top science institution – The Royal Society – has launched a study into human population growth and how it will affect social and economic development in coming decades. Its findings are due in 2012 and will help inform long-term decision-making. In 1930 there were just 2bn of us: that number has more than trebled in 80 years, making the 2050 projections look fairly conservative.
Population is at the centre of the debate about issues as wide-ranging as climate change, water resources and the destruction of biodiversity. It’s also central to the ability of the planet to sustain such a vastly increased number of human beings, as well as the multitude of animals that will feed them and the grain required in turn to sustain them.
It’s daunting, but for investors it’s a theme upon which they want to capitalise.
Entrepreneurs, financiers and a growing number of hedge fund managers – including the likes of George Soros – are buying up food production capacity in parts of Africa, while commodities trader Anthony Ward’s group Armajaro Holdings is plotting opportunities in the food sector. Armajaro, which has cornered 15% of the world’s cocoa stocks over the past decade, is adept at capitalising on agricultural commodities and is now setting up a private equity fund aimed at investing in roads, ports, storage facilities and productive farmland. Ward told the London Daily Telegraph: “Food will go to a price where it encourages these developments.”
While providing optimal pricing opportunities for producers, the activities of financial speculators in food markets aren’t universally welcomed. Groups such as the World Development Movement (WDM) roundly condemn the growing role played by hedge funds and banks in commodity markets. In its report The Great Hunger Lottery, WDM says “risky and secretive” financial bets on food prices have exacerbated the effect of poor harvests over recent years. It argues volatility in prices makes it harder for producers to plan what they’re going to plant.
Meanwhile, multinationals are seeking to benefit from the demand they anticipate will come not only from population growth but also from rapidly increasing urbanisation and the emergence of a burgeoning and demanding middle-class consumer.
Executives such as Ellen Kullman, CEO of DuPont, see considerable opportunity for businesses like hers. “There are going to be 50% more people to feed in the world 50 years from now. We need 70% more food on the same amount of land, and science, technology and innovation can bring that,” Kullman said at a presentation at the Gordon Institute of Business Science in July. “We have to work locally with governments around the world and with regulatory authorities to get greater acceptance of the benefits of technology.”
The African continent has around 25% of the world’s arable land and contributes just 10% of global food production. Much of that is due to land policy and the preponderance of subsistence agriculture. But there’s also an aversion to GM crops, which require large-scale, capital-intensive agriculture to be effective.
A recent report by global consultancy McKinsey – What happens next? – details the best guesstimates of human development over the next half century. Researchers maintain there will be considerable demographic shifts in the world’s population, leading to the largest urban migration in human history. Current estimates suggest 1,5m people will move to urban areas weekly – most in developing markets, where opportunities are seen to be more favourable than in rural areas.
“A huge shift is under way in consumer markets: somewhere north of 70m people are crossing the threshold to the middle class every year, virtually all in emerging economies. By the end of the decade roughly 40% of the world’s population will have achieved middle-class status by global standards – up from less than 20% today.”
While that creates enormous challenges, it brings with it great opportunities for multinationals such as Procter & Gamble, which hope to add 1bn new customers over the next decade as ever-increasing numbers of people become consumers of its products. Increasingly, global consumer products companies are reporting a growing proportion of their earnings are coming from emerging markets, with food producers Kraft and Nestlé among those highlighting the growth in those markets.
There are consequences to this rapid evolution. As growing numbers of people urbanise, so do their expectations and their demands also grow, putting pressure on businesses and governments.
“The tension between rapidly rising resources consumption and environmental sustainability is sure to prove one of the next decade’s critical pressure points,” write the McKinsey researchers. The Seventies saw food shortages in large parts of Africa and Asia and highlighted some of the problems facing policy makers. But though the evolution or hybrid crops have allayed some of the fears about our ability to provide enough food, the politics of genetically modified food is fraught with complexity.
Population growth is a classic Catch-22: it puts increased strain on already stretched resources while at the same time providing impetus for economic growth, courtesy of a larger workforce that provides ever-increasing goods and services to a burgeoning population. Without it, where would future economic growth come from other than by the gradual rise in living standards?
The year to April 2008 saw a doubling of the FAO’s cereal price index. Considering the fact that poor households spend a considerably higher proportion of their monthly budget on food than richer households, they have no protection against price volatility other than to reduce the nutritional value or the volume of what they consume.
The FAO/OECD’s Agriculture Outlook 2010-2019 predicts continued real increases in food prices over the coming decade, fuelled by demand from the more successful developing countries. It warns there will be “further episodes of strong price fluctuations”.
The impact of the manufacturing of biofuels on food prices is hard to quantify, although one IMF estimate attributed one-third of the 2008 price spike to that industry. Ethanol and biodiesel require large quantities of crops that would otherwise be consumed as food to be used as additives to fossil fuels in an effort to lessen our dependence on oil.
Concerns for the future of food security have resulted in countries such as China and several net food importers, such as the Gulf States and South Korea, buying swathes of farmland in developing countries in an effort to secure food supplies due to concerns that a lack of transparency about land deals in poor countries could compromise local land rights and ultimately the food security of those particular countries.
Was the spike in food inflation in 2008 a warning of things to come or are we, as some suggest, entering a period of perpetual food crisis? While population issues may pose a medium-term threat, the better global standard of living increasingly enjoyed by the development of an ever-increasing middle class is creating immediate pressures on existing resources.
Will the production of biofuels – coupled with poor harvests and a rapidly growing global population – culminate in a run on food stores? It would send prices spiralling, making the 2008 spike in food prices as countries, such as Egypt, hoarded rice rather than exporting it look like a Sunday School picnic – without the sandwiches.
Food production is complex and goes way beyond the simple issue of land. As population pressure mounts, so does the pressure on fossil fuels required not only for large-scale mechanised cultivation but also used in fertiliser production, while clean water is scarce and the increased use of pesticides has numerous long-term consequences, such as groundwater pollution. For example, scientists in Britain are looking at the decline in bee and other insect numbers with concern, as they’re required to pollinate crops.
Water is needed not only in the form of rain or irrigation for agricultural production, but also in the industrial processing of food. For example, SABMiller uses an average 4,3 litres of water to produce one litre of beer.
The World Economic Forum argues that water will become a more important investment theme in 20 years than oil, as its scarcity is likely to worsen any global food crisis that might occur.
Fish resources are also under considerable strain. Fearmongers suggest ours could be the generation that runs out of wild fish. An unlikely prospect? Just ask the fishermen of Kalk Bay or Hout Bay about the size and quality of their catches and the returns they’re receiving from their boats compared with 20 years ago. A recent report in The Journal of Science indicated the rate of decline in fish stocks and suggested there will be little to fish by the middle of the century if current trends continue.
At a recent Food Security summit in London, new Pick n Pay chairman Gareth Ackerman, who serves as current chair of the Global Consumer Goods Forum, warned food security is one of the most important issues facing the retail industry worldwide. Said Ackerman: “In most developing countries, agriculture is the largest source of employment, and international agriculture agreements are crucial to a country’s food security. World Trade Organisation member states are debating the liberalisation of markets and its implications for the food security of whole communities. There’s a desperate need for a rapid return to stability and predictability in world markets if the manufacturing, supply chain and retailing of consumer goods are to flourish to the benefit of the communities and societies in which we operate.”
Among Ackerman’s concerns was the fact that around 50% of all current grocery sales in the US are centred on five top food retailers – a position probably not dissimilar to that in SA, where his own Pick n Pay is a key player. However, Ackerman argues the global corporate consolidation in food retail, distribution and production is worrying and points to several large global groups opening buying offices in SA in an effort to secure top quality domestic product for export. Firms such as Wal-Mart, Tesco, Waitrose and Sainsbury are all sourcing South African product directly, making it increasingly difficult for SA’s retailers to access suppliers competitively.
“This is an alarming issue. Governments around the world need to be taken to task and be challenged about the reforms they institute, which could ultimately impact food security,” he says.
See Vic de Klerk’s report (page 20-21) for a different view. LAND REFORM | Playing politics with foodThe land reform process has become a political hot potatoTHE ANC’S SINGLE-MINDED focus on land reform has put South Africa’s food security at risk. Of the 6 million hectares of farmland that has been redistributed since the end of apartheid, 90% is no longer productive. Given the fact that only 12% to 14% of SA’s land is suitable for agricultural production, the politics of land directly impacts our ability to independently provide enough food for our rapidly growing population.
There are obvious reasons why such a high number of redistributed farms have become unproductive – chief among them being a dismal lack of Government support post-settlement. The National Treasury estimates that, at best, less than one in 20 beneficiaries have had access to any of Government’s facilities aimed at helping finance and support emerging farmers.
Government admits its land reform process has become a risk for food security, but the issue is a – forgive the term – political hot potato and the source of considerable tension and debate within the ruling party, providing a powerful target for President Jacob Zuma’s political opponents.
Land reform is also a prickly subject and its ardent supporters point to the mandate of the ANC’s Polokwane conference that the process should be speeded up to meet the ambitious land transfer target. It aims at delivering 30% of SA’s productive farmland into black hands by 2014. Any deviation from that is deemed not to be ANC policy.
Formalising that shift is tricky and any departure is likely to be used against Zuma in the battle for power and position ahead of the ANC’s next elective conference in 2012. Nevertheless, the administration has been trying to lead a rethink. Rural Development & Land Reform Minister Gugile Nkwinti has already publicly declared the 2014 target won’t be met. He thinks 2025 would be more realistic and he’s clear about the issues that must be prioritised. In May this year Nkwinti told Finweek: “We want to balance acquisition and use those hectares (Government) buys for food production.”
He has powerful backing on that score. ANC secretary general Gwede Mantashe told Finweek in a 2009 interview that SA needs a programme that’s “going to maintain the level of productivity of the land”.
While it’s unclear if – and how successfully – the long-awaited Green Paper, which was already supposed to be tabled in Parliament, will balance competing political interests and calls to nationalise all farmland, it’s expected to echo Mantashe’s sentiments. The paper, which will detail Government’s land tenure policy overhaul, is also expected to emphasise support for farmers who have already received redistributed farmland.
In effect, Finance Minister Pravin Gordhan’s 2010 Budget has already paved the way for the shift to increased support for those who have already received land. The equivalent of 25% (R254m) of the 2010 land reform Budget will be used to resuscitate about 200 commercial farms that have fallen out of production since being redistributed.
Government has also adopted a tough stand against beneficiaries who, in Nkwinti’s words, don’t – with the right kind of support – make a go of a farming concern. They’ll have their farms taken away. “If they don’t use the land, we’ll take it. Aside from the money the State spends on acquiring the land, when farms aren’t productive it also costs the State revenue. No country can afford this (allow viable farming concerns to become and remain unproductive),” said Nkwinti.
Unisa Professor Dirk Kotzé argues there’s little margin for error when it comes to the very important issue of land reform in SA. While Kotzé acknowledges Nkwinti’s department has been underfunded against what it’s been expected to achieve, he says it doesn’t take rocket science to work out why such a high number of redistributed farms have become unproductive.
Aside from a department notoriously lacking in skill and efficiency, Government’s drive to acquire farmland has meant there’s been a dismal lack of post-settlement support for beneficiaries of farms. This situation is exacerbated by the fact Government hasn’t exercised any control when it comes to giving farms to people who really want to farm commercially.
While it would appear Government and the ANC leadership have seen sense when it comes to reconciling land reform and food security issues, translating sense into policy and balancing that with competing political interests isn’t so easy. That’s precisely why the department just missed its third self-imposed deadline to table a Green Paper in Parliament and the reason why it will provide a critical dipstick as to whether the centre in the ANC is holding and, if so, how well.
Politics aside, the stark reality for SA is that it runs the risk of becoming a net importer of agricultural goods. This country was given a dramatic wake up call in 2007 when agricultural imports exceeded exports for the first time. Should SA become dependent on imports it would make the country even more vulnerable to global economic shocks and – courtesy of our notoriously volatile exchange rate – put additional pressure on the SA Reserve Bank’s battle against inflation.
Countries that are net food importers are also generally losers in the global trade stakes and – aside from the fact SA recovered quickly from the 2007 situation and is again a net food exporter – the key question the ANC has had to ask itself since 2007 is why investment into this country’s agricultural sector has declined over the past 14 years and why the number of commercial farmers in SA has dropped from 60 000 to 40 000 over the past decade.
Aside from the fact that South African farmers have to compete with heavily subsidised farmers in other parts of the world, according to the World Bank one of the key reasons for that reduced investment is the uncertainty SA’s land reform process has caused.
According to Stellenbosch University agricultural economist Nick Vink, uncertainty and trying farming conditions are further exacerbated by a shortage of incentives for established farmers to look for new opportunities in different kinds of farming and crops. That means as the world’s appetite for meat increases and as the demand and price of feed (vegetable proteins, such as sunflower seeds and soya) rockets, so does SA’s import bill.
That’s partly why the Institute for Poverty, Land and Agrarian Studies (Plaas) at the University of the Western Cape questions whether Government should be focusing on redistributing commercial farms at this stage. Plaas argues it should be focusing on giving support to the 200 000 small black farmers who already exist. It should help them grow their operations into a bigger and more commercial scale.
“One of the main concerns is the absence of and need for a wider vision for the agrarian restructuring land reform is to bring about. Beyond changing the race of the landowning class, what further types of transformation – the sizes of landholdings, of ownership structures, of tenure arrangements, of production regimes, of labour use, of settlement patterns, of investment and markets – might be brought about? Those are the fundamental questions that are now brought to the fore,” says Plaas’s Ruth Hall.
Focusing on existing, smaller farmers and on supporting beneficiaries of redistributed farms is, of course, by no means as politically sexy as renewing promises to redistribute swathes of land. However, University of Stellenbosch agrarian economist Professor Nick Vink says there’s only one way to ensure agricultural land remains productive: supporting and growing black farmers who are already farming.
That support has to be very specific. For example, small farmers have to operate in an environment where it’s no longer possible to buy fertiliser in small amounts or deliver a few bags of harvested maize to a mill – it has to be done in bulk. Farming has also become a highly technical game requiring skills.
Thanks to our large supermarket culture, the nature of farming has changed to accommodate the fact such retailers tend to deal only with big farming operations.
“You’ve got to create structures where people can actually farm and where there’s a possibility of small farmers growing out of being small,” says Vink, pointing out the dichotomy between the insufficient support to emerging farmers, their lack of access to markets and Government’s intention to boost SA’s agricultural production, wealth and employment by increasing the number of black, small-scale farmers.
“Unless you do that (implement the right kind of support effectively) you’re wasting your time with your small farm programmes,” says Vink, who adds land and agrarian reform isn’t difficult. SA has made it very difficult and, in the process, missed a golden opportunity for land and agrarian reform over the past 16 years. This country can’t afford a Green Paper that tries to please everyone.
BRUCE WHITFIELD and TROYE LUNDNO NEED TO WORRY | Story of the mealie cobThe modest seed guarantees the best food security South Africa has ever hadEVERY RIPE MEALIE COB now hanging from a dead mealie plant, of which there are currently many in South Africa, provides between 250g and 300g of mealie grain. The maize price is now fractionally above R1 000/t or R1/kg. Four mealie cobs give 1kg of grain, so each cob is worth around 25c to the farmer. Those are the same cobs we bought for at least R3 each from street vendors earlier this year when they were green mealies.
SA and its neighbouring states are the world’s largest producers of white maize. It’s basically turned into white mealie meal, which is used to make pap, southern Africa’s staple food.
Any argument about food security, especially in southern Africa, must start with the modest mealie. Our country’s commercial farmers usually plant around 15 000 seeds/ha in poorer dry conditions to 40 000 seeds/ha in areas with good rainfall, such as Mpumalanga and parts of KwaZulu-Natal. This country’s average production is already more than 4t/ha and the crop currently being harvested is estimated at a record 12m t.
The table, from the US Department of Agriculture, still gives SA’s production as 9m t/year. Even though that’s only about 2% of the total of 524m t/year worldwide, it still made us the world’s eighth largest maize producer last year.
But back to the modest mealie grain and food security: SA’s local demand for maize is about 8m t/year. That’s divided virtually 50:50 between human consumption – pap – and indirect human consumption: that’s the meat we eat, which is reared on maize.
SA’s current crop (around 12m t) is four times more than domestic requirements and it’s that surplus that brought the price on Safex’s agricultural division down over the past year from R1 700/t to the current just more than R1 000/t. What does that mean for SA’s food security? First, there’s enough – and very cheap – maize for all our needs. That’s for pap as a staple and for pap around the braai.
There’s also enough yellow maize in SA for Rainbow Chicken and Astral, the two big broiler producers in the country, to raise all the chickens they want. From the moment the egg is laid until the broiler lands on your table is only around 50 days. With the very cheap and abundant yellow maize it’s no surprise the price of fresh chicken is now the lowest it’s been for many years. Any retailer now charging you more than R25/kg is greedy.
Super grade beef comes from grain-fed animals. In the feedlot, cattle eat yellow maize, rather than white, because yellow maize improves their sight. Every young ox eats about 7kg maize to produce 1kg of meat for you. With the price of maize falling from 170c/kg to the current 100c it costs the feedlot owner less to produce 1kg of meat.
Don’t be concerned. With our approximately 8m cattle in SA, new chickens that can be bred so quickly and an almost uncomfortable oversupply of maize, our basic food security – pap and meat – is very safe. (I understand there’s also an oversupply of red wine in SA.)
In a country with an oversupply of grain and meat it’s easy to extend the situation to fruit and vegetables. “We can’t make any profit out of maize over the next year,” a maize farmer complained the other day. But they won’t stop farming, because maize farmers are in regions where it’s fairly easy to switch from maize to potatoes and even onions. In fact, many mealie farmers can switch to vegetable production quickly and easily. To put a fresh tomato on the market takes only about 12 to 16 weeks. We’ll always have vegetables – trust our farmers.
It’s not quite so easy to put new fruit on the market. The trees – that’s not counting bananas and paw-paws – need about five to seven years to produce fruit. But SA has no shortage of fruit or fruit trees. Unfortunately for consumers, our leading producers export the best quality fruit, mainly to Europe and the United States. But there’s no danger of us being without fruit in SA. So relax, people, relax.
The current cold fronts are being harsh on some of the young vegetables still being grown. You can be sure the prices of early pumpkins, which will be on the market by September and come mostly from Limpopo, will be expensive and scarce. But it’s no food crisis, as some newspapers warned about a week ago.
FOOD PRICES | Where are they going?OVER THE past year Finweek predicted on several occasions the increase in food prices in the middle of the year – which is where we are now – would be almost nil. In other words, we predicted food prices now would be the same as a year ago, even though there were large numbers of visitors in South Africa recently. Few believed it; but that’s not important. Sometimes it’s nice to hear the facts from someone else.
Last week the giant Shoprite group – with an annual turnover of almost R70bn – said the following about its latest results:
Turnover for the 53 weeks to 30 June 2010 was up 13,6% – despite the fact that food inflation for the full period was just 2,2%, compared with 15,8% for the same period to June 2009. And that’s not all. Shoprite says food inflation for the six months between January and June this year was only 0,2%. That’s right: not 0,2%/month but just 0,2% for the whole six months.
Last week, Massmart also issued a trading update and reported a similar stagnation in food prices at its outlets.
But we have to look a bit further than SA. In its recent comprehensive survey Agricultural Outlook for 2010-2019, the OECD and the UN’s Food and Agricultural Organisation said: “Global agricultural production is anticipated to grow more slowly in the next decade but remains on track to satisfy estimated long-term demand. In spite of the recent economic crisis, the agricultural sector has shown remarkable resilience, with strong supply response to recent high prices and continuing demand growth.”
That means farmers are quick and willing to produce more if prices rise. The diagram showing the prospects for prices is good news for consumers, but not so good for producers. The orange bars give the expected average prices for the various products over the next decade. The green bars represent the excessively high prices of the 2007/2008 period, when the people in the East nearly came to blows over the price of rice and when the Mexicans had to subsidise the price of their tacos, which are made with maize.
The diagram (with its forecasts of lower prices) also shows – if what we learned in Economics 101 was right – the supply of agricultural products will be good over the next decade, otherwise prices wouldn’t be so low.
In brief, it’s not the farmers’ fault that in some places there’s famine and uncertainty about food security. Speak to the politicians about that...
VIC DE KLERK