Why Agriculture?

November 2009

Why is Agriculture Ripe for Investment?

Growing demand

Growing populations and per capita income in developing markets are increasing consumption and the demand for protein. eg: Changing Dietary Patterns in China

		Urban			Rural
	1990	2006	% Change	1990	2006	% Change
Grain	131	76	-42	262	206	-21
Pork	22	24	+9	11	17	+55
Poultry	3	8	+167	1	4	+300
Milk	5	18	+260	1	3	+200
Fish	8	13	+63	2	5	+150

There is increasing competition for grain worldwide coming from:

US Livestock producers; 7kg grain to produce 1 kg beef.
Biofuel producers; 22% of US corn production was used to produce biofuels in 2007/08 and this is projected to quadruple by 2022.

Limited Global Supply

Urbanisation is gradually swallowing more of the world’s productive, agricultural land. The area of arable land per capita has declined from 0.32Ha in 1961 to 0.18Ha today and by 2050 is predicted to have dropped to 0.12Ha.
Productivity growth slowing down from 2.0% in 1970-90 to 1.1% in 1990-2007.
Water shortages and more volatile weather.
Record low world food stocks.

Future food supply

In the long term supply growth will come from lower cost countries. But the farm development required for these countries (mostly in Asia and South America) to increase their production is significantly constrained by infrastructure, the time taken to develop new farms and the challenges of tropical agriculture.

This is good for already well established low cost agricultural producers like New Zealand. For example it is projected there will be a 4.5billion litre shortfall in the world’s milk supply between now and 2017. Whilst this shortfall will be made up, it is probable that in the majority of additional milk, at least in the next 10-20 years, will come from developed, high cost countries, providing an attractive prospect for lower cost New Zealand producers. Considering these issues, FAO/OECD expects a 30-40% lift in milk prices relative to their traditional levels.