April 2011
By Greg Duerksen, Managing Partner, Kincannon & Reed
As I write this, I am in Nairobi, Kenya listening to farmers and politicians clamor for change. Feeding the world is back.
Just five years ago, food production wasn’t a major part of the public discourse. But today a surprising number of policy makers and influencers know that we need to double global food production by 2050 and are open to policy and investment priority changes. The reappearance of price spikes in agricultural commodities and food, such as occurred in 2008, is scaring governments accustomed to cheap food. Consequently, we see more discussion on the subjects below:
The debate on technology use is changing. Depending on whether you are a glass half full or glass half empty kind of person, the European parliament is either softening or abdicating in its views on GMOs (Genetically Modified Organisms). Some historically Luddite activist groups are recognizing that advances like Bt corn and Roundup Ready® have led to dramatic reductions in pesticide use, water use, and soil erosion, and that technology is necessary to feed the world. We hear from developing world agriculturalists that there is a growing desire for access to modern technology. Often, it is remarked that "We have tried organic farming for the past 10,000 years and look where it's gotten us. Let us try something new." For some wealthy consumers, "fresh and local" has become more important than organic or GMO-free.
Vast investments in transportation infrastructure are needed. Ports, railways, and roads must be upgraded, expanded, or built in places like Latin America and Africa if we are going to feed the world. For example, it's cheaper to transport rice from the farm in Vietnam to the coastal population centers of West Africa than it is to transport rice from the farming centers of their own countries just a couple of hundred kilometers inland.
The food chain's risk management tool box is not big enough, robust enough, or used enough. This is true everywhere in the system from the farm level to the government trade, economic, and agricultural policy levels. Inexplicably, many farmers have not used the pricing and insurance tools available to them and, in effect, seek risk. And now, agricultural producers may lose some futures market and contractual tools because of government reaction to the global financial crisis or because certain interest groups oppose integrated meat and poultry production systems. Many manufacturers say they are hedging when actually they are speculating. After decades of trade barrier reductions and opening of markets, some governments are imposing export bans when local prices rise or erect new non-tariff barriers to protect local farmers or manufacturers. The result of these and a long list of other acts of omission and commission lead to increased risk and volatility.
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