Is Food going to be the next Oil?

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It is quite clear that we are seeing the end of recession and have taken the high growth path. However, the acute problem we’re facing is still unknown to us: FOOD SECURITY. Yesterday, Food inflation had aggravated to 11%.

Just take a look at the world around you :-

‘In 2008, a Dubai-based investment firm acquired 800,000 acres in Pakistan. In 2009, Saudi Arabia signed a deal for 1.2m acres of farmland in Tanzania’.

‘Morgan Stanley has bought 40,000 h.a of farmland in Brazil. Goldman Sachs invested US$300m to acquire 10 poultry farms in China.’

Food items

Why are investors going land frenzy? Or is it leading to the Oil way? Let us look at what is common between them.

  • Current oil and land reserves insufficient to support the needs of the world 20 years , Both resources are being depleted at a faster rate than their generation.
  • Origination is concentrated while demand is globally spread
  • Both Oil and Food prices hit all time high in 2008, rising prices are pre cursor to shortages

Food consumption and Production

In the above table, on one hand there is oversupply of Oil in Middle East while and undersupply in Asia pacific areas.

Food surplus

Image source: IDFC research

Coming to agriculture, production and consumption points are globally distributed. This is also similar to oil where there is surplus in one region and a deficit in another.

What alternatives do we have?

We have alternatives for Oil like other sources of energy such as biomass, wind power, solar power, ethanol based fuels, etc. Also recent uses of clean technology have potential to contain the demand of oil by making units operationally efficient.

Unlike oil, Food doesn’t have any alternative. One third of arable land is lost due to soil erosion, demand for biofuel reduces land availability for food production, and Industrialization is also major issue which is reducing the proportion of cultivable land. In short: Arable land is depleting but food consumption is increasing.

How can we contain the situation of Food crises?

On productivity side, I think the best way to contain this issue is improving the technology for food cultivation. Better seeds, better irrigation facilities, better fertilizers and pesticides

On economics side, efficient price discovery is also important. Like US and Europe, new age commodity exchanges offer good potential. Regulations regarding land acquisition may also help since 80% of farmers cultivate on small parcels of land. If regulations prohibit large corporations to buy huge parcels, economies of scale could help revamp agricultural production

The future is not known to anyone but right steps today will help us to deal with this crisis which is not so far. It will not be far that one of our basic need from “Roti Kapda Makaan” is set to go through a dynamic shift!

Your thought ?

  1. Jessica Blox says

    I have placed my order at http://www.aakashtablet.com.

  2. William Yung says

    Don’t forget that with India and China’s GDP’s growing so fast, there is also the enormous increase in demand from the change of diet. It takes 7-20X as much land to produce a pound of meat as it does for grains.

  3. Madhav Shivpuri says

    Rishab, Nice and informative post.

    Altaf, very nice and informative comments.

    I think we need to do few things:
    1. Open up agricultural sector to non-agricultural citizens. Though ordinary citizens might want to own a farm, there is a restriction that if you are from non-agricultural background and didn’t have forefathers whom you can demonstrate were farmers, then you can’t own agricultural land. This reduces wider ownership though there can be affordability and good intention.

    2. Stop vegetable rotting. Improve and quicken distribution.

    3. Provide incentives for farmers not just by providing cheaper agri products like pesticides and fertilizers, but by providing services like transportation, hospitals, schools, banks, insurance, computers, entertainment (theaters…) and other things in villages and towns at subsidized costs. Life is not just cheaper resources! Get creative.

    4. Last but not the least, for heavens sake, harvest rain water productively. For centuries the country has depended on monsoons but once the clouds empty their stock, there is nothing to hold it and utilize it productively. Its like a common man who works for a paycheck. When he gets salary at the end of the month, everything is spent within 2 weeks and all he does is wait for the next paycheck! So there should be a way to store it (saving account, investments) until is required.

    63 years since independence. Still struggling for basic necessities and infrastructure. Isn’t it a ripe age for change?

  4. Altaf Rahman says

    Further to teh above, I would like to add the following :
    In India anotehr major problem is area of land holding. Its less than 1/2 acre!!
    Imagine two different situations One in US witha farmer with 1000 acres and another in India with a farmer having 1/2 acre. So Imagine in India on a land of 1000 acres there are 2000 farmers with their land, their borders, their different selection of crop.
    Now in US the farmer uses mechanized way of garming to get more output from his 1000 acres.
    In India the borders of the plots, a bund made by soil itself occupies 25% of the land. So cultivable land is reduced by 250 acres to net 750 acres.
    Now out of the 2000 farmers 400 select rice, 400 select suger cane, 400 select fruits, 400 leave with out crop as no loans are available.
    As the area of cultivation is reduced to 1/4 acre on average the farmer can not employ mechines. He has to get things done manually which increases cost, reduces output.
    So the best way is for govt to find a way by which small farmers are taken out (this may look rude but there are many ways like offering him job in food process industry) increase average plot size to get more output from same land.

  5. Altaf Rahman says

    There are oterh factors effecting food supply situation too.
    The population is growing at above 2% in India (Birth minus death). To support this growing population we need to produce at more than 2% growth. This is considering two facts – one is to cater to 2% growth and second is increase in quality of life which requires more food than what is consumed earlier.
    The above can be taken care by following means :
    1) Reduce wastage : In India almost 30% food grains, 40% vegitables, 50% fruits are wasted due to lack of cold storage facilities and silo storage systems. Every district head quarter should have grain silo systems and every small town should have cold storage facility. In developed countries very less is wasted by utilizing surplus produce by agro process industry.
    2) Increase farm land : On teh contrary what is happening is reduction of farm land. Fertile land on fringes of cities is converted to real estate to cater to housing demand. By increasingly utilizing river water wastage flow into oceans during mansoon by developing canal systems we can bring more land under cultivation which we are not doing.
    3) Increase productivity : This is a controvertial subject. Most of the high productivity is done by genetically modified foods which is wrong ethically. We can not increase productivity continuously with in ethical limits. Atleast we can reduce pests by good management.
    So we have to stick to point 1 and 2 only.

    Now some global facts regarding food industry !!
    An Indian has made us proud. Mr. Karuturi Srinivas (I think thats the name)
    He came to know that Ethiopia allows lease of agricultural land at 1 dollar per year!!
    He now owns 3,000 square kilometers of land in Ethiopia. That is 7.5 lakh acres!! He is now the world’s largest farmer. The best advantage for him is his lands are on the banks of perennial rivers so he dont have to look for rains. He is worlds largest rice producer.!!
    Now imagine, India imports 2 million tons of vegitable oil and 2 million tons of pulses (daal)every year at the lowest count. Imagine if Mr. karuturi signs an agreement with govt of India to sell that much every year!! He can have assured market and India can have assured supply.
    I was mentioning only a single story in Ethiopia. Now imagine all the oppartunities in further leases of Ethiopia and neighboring countries like Sudan, Kenya.
    The whole world land area is constant but population is growing. If you can link these two pieces of the puzzle, you will realise that the future is for those who own largest land piece.
    @ Rishabh !! Nice article.

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