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Higher demand, higher prices

Global equity investor says world food demand is likely on the rise

When it comes to global food consumption, there’s one trend Vikram Mansharamani is willing to bank on.

“As the world gets more money in its pocket, it’s putting more meat in its mouth,” Mansharamani told attendees at the Canola Council of Canada’s conference in Banff last March. Mansharamani is a global equity investor and Yale lecturer.

Global protein consumption has been rising steadily — 450 per cent over the last 50 years, he told delegates. Meat consumption per capita generally stays flat until it hits a tipping point, Mansharamani said. “And that tipping point is somewhere around $5,000 GDP per capita.”

More than half the world’s population is nearing that tipping point, with population-weighted gross domestic product (GDP) of $4,100 per capita as of 2013, Mansharamani said. That population resides in a group of countries he tagged the “Future 15”: Pakistan, India, Nigeria, Vietnam, the Philippines, Egypt, Indonesia, Ukraine, Algeria, Thailand, Iran, China, Peru, Columbia and South Africa.

People wondering what will happen when the Future 15 hit their tipping point only need look at their recent predecessors. China is one.

“It shouldn’t surprise any of us that they acquired Smithfield Foods, the world’s largest pork processor,” said Mansharamani of China’s growth. The fact that canola seed exports to China are “going through the roof” is part of this story of China reaching the tipping point, he added.

Implications of more demand

Mansharamani believes rising meat consumption will push food prices higher. “The transmission mechanism is feed.”

High food prices hit hardest in regions where workers spend a big chunk of their wages on food because they simply can’t afford the price jump, he explained. Once the UN Food Price Index stays at 210 or above, people riot virtually every time, he said.

In 2013, the index averaged 209.9 for the year, and unrest bubbled up in Pakistan, Thailand and other regions. “We were on the edge,” he said.

“It gets scary when food prices go up. Social systems break down. Political systems can break down,” said Mansharamani.

Political unrest isn’t the only potential consequence of a growing global population. As farmers grow more grain, they’ll need to source fertilizer for those crops.

Morocco and the Western Sahara have nearly three-quarters of proven phosphate rock reserves, Mansharamani told delegates. “That is scary because that means in the land of food and fertilizer, Morocco will have more power than OPEC had in the land of oil.”

Although some countries consider Morocco and the Western Sahara one nation, the regions are ensnared in a territorial dispute that has spanned decades.

“This is not geopolitically-stable terrain. Yet it may hold the key to supporting plant growth in the long run,” Mansharamani said.

He ventured that countries might start developing strategic fertilizer reserves, much like strategic petroleum reserves. “Might the mere act of starting to acquire those reserves create a hoarding mentality that generates the price action that reserves are supposed to avoid?”

Mansharamani also told delegates that demographers’ assumptions about Africa’s population could be off-base. Most demographers assume that a higher income means a lower birth rate. But as incomes rise in Africa, birth rates have held steady.

Child mortality rates, which cover children under the age of 18, are assumed to hold steady as incomes rise. But child mortality rates in Africa have dropped as incomes have increased.

“So mortality rates are falling and birth rates are staying high. The average woman in Africa today will have 4.2 children. You need 2.1 to sustain a population,” said Mansharamani. The end result could be even more people on the planet than expected.

Signs that he’s dead wrong

Mansharamani believes the world is on a road to higher food prices, but acknowledged that he could be “dead wrong.”

One of Mansharamani’s assumptions is that the GDP of the Future 15 will hit $5,000.

“But what if it doesn’t,” he asked. Business confidence is likely low in Ukraine right now, he said. Thailand has had riots in the streets and farmers blocking its roads. Iran is currently in the home stretch of lengthy nuclear talks with the U.S. The question is whether Iran will enter the world economy as a responsible actor, Mansharamani said.

Changing demographic policies could throw a wrench in Mansharamani’s predictions. China is now relaxing its one-child policy because of skewed demographics.

“China will soon have more retirees than new entrants into the labour force. That has big economic implications,” he said. Other regions might see the imposition of social policies to limit population growth, he added.

Mansharamani is also banking on rising meat consumption among the Future 15. But 1.3 billion of those people live in India, a society with historical norms and cultural biases against eating meat, he said. Two states in India have tightened bans on beef sales, a move that’s not sitting well with non-Hindus, Channel NewsAsia reported in mid-March.

But Mansharamani thinks people in India will eat meat, although it’s not clear how much. He pointed out India has the third-largest Muslim population in the world. Channel NewsAsia noted the country has one of the world’s largest cattle populations and is a major exporter of everything from beef to leather.

If Indians do eat more meat, it will move the needle, Mansharamani said.

“So watch what happens in the news flow relating to Indian meat consumption.”

About the author

Field Editor

Lisa Guenther is field editor for Grainews based at Livelong, Sask. You can follow her on Twitter @LtoG.

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