Global food prices have doubled in the last decade and have risen nearly 16% since the beginning of 2009. The agriculture boom of the 2000’s has been driven by surging growth in developed markets as diets change and emerging economies boost per capita wealth. They’ve seen the excesses of the developed world and they’d like a piece of the action.
Nomura Group is confident that this is a long-term macro trend that will continue in the years ahead:
“We expect another multi-year food price rise, partly because of burgeoning demand from the world’s rapidly developing – and most populated – economies, where diets are changing towards a higher calorie intake. We believe that most models significantly underestimate future food demand as they fail to take into account the wide income inequality in developing economies. The supply side of the food equation is being constrained by diminishing agricultural productivity gains and competing use of available land due to rising trends of urbanization and industrialization, while supply has also become more uncertain due to greater use of biofuels, global warming and increasing water scarcity. Feedback loops also seem to have become more powerful: the increasing dual causation between energy prices and food prices, and at least some evidence that the 2007-08 food price boom was exacerbated by trade protectionism and market speculation.”
These are powerful macro trends at work. The rapid wealth expansion of emerging economies, supply side constraints and the growth of market speculation make a strong case for this macro trend to continue in the coming years, if not decades. While I am skeptical that rising food prices will alone result in inflation in developed economies it’s undeniable that these are long-term trends that investors must consider when formulating a global macro outlook over the coming decades.