Feeding the world – the future of agricultural commodities
- World population to reach 9.1 billion by 2050 (UN Population Divison)
- Demand for agricultural commodities to grow at 4% between 2015 and 2030 (FAO)
- Weather patterns, the environment and production challenges all impact on agri-commodity prices (easyMarkets)
The world population is expected to reach 9.1 billion by 2050, according to the United Nations Population Division, placing more pressure on nations and agricultural producers to meet rising demand for food. Complicating this challenge is a shrinking rural labour force, which is expected to strain our ability to feed the world over the next three decades, according to the Food and Agriculture Organization of the United Nations (FAO).
The world population is expected to grow by nearly a quarter between 2016 and 2050, producing an extra 1.7 billion people who will require food and nourishment. Agricultural commodities are already a multitrillion dollar global industry and for investors, agricultural goods in the form of grains, softs (cocoa, coffee, sugar, fruit and similar) and livestock are a key component of the global commodity market.
Nikolas Xenofontos, Director of Risk Management at leading online trading services provider easyMarkets, explains,
“Agricultural commodities are a fascinating area of investment. They make up a large share of global gross domestic product and attract investment from all corners of the globe. Agriculture on this scale is a complex undertaking, with environmental factors, weather patterns and production challenges all impacting on the supply – and the price – of these commodities.”
Agriculture is already one of the biggest contributors to global warming and this is expected to worsen as demand for agri-food products continues to grow. Over the coming decades, producers therefore have the dual challenge of producing more food while simultaneously reducing their carbon footprint. Maximizing crop yields, using resources more efficiently and reducing waste will be considered crucial for ensuring the sustainability of this industry and guaranteeing that humanity’s growing population is adequately fed, according to National Geographic’s Five Step Plan to Feed the World.
While demand for agricultural products continues to rise, it has done so at a slower rate since the 1990s. Agricultural demand grew by only 2% between 1989 and 1999, down sharply from previous decades, according to data from the FAO. This is attributed to slower population growth and the fact that a significant portion of the globe’s population had reached relatively high levels of food consumption, thereby limiting the scope of further increases.
Future demand for agricultural goods is forecast by the FAO to rise only 1.4% between 2015 and 2030. The combination of slower demand growth and efforts to more efficiently mass produce agri-foods could impact how commodities are priced and ultimately traded in the financial markets.
Investors also need to be wary of the impact of drought and severe weather patterns on production. The impact of the El Nino weather pattern on sugar prices serves as the perfect example. Raw sugar futures gained a staggering 31% over just four weeks, spiking at $16.71 per pound on 23 March 2016.
Like most industries, the future of agricultural commodities will be tied to supply and demand. In the case of agriculture, however, special consideration must be given to environmental degradation caused by factory farming, deforestation and other potentially adverse practices. According to the United States Environmental Protection Agency, more carbon dioxide in the atmosphere may lead to greater environmental risks that could further degrade crop yields. Global warming is also impacting livestock and fisheries, which could further threaten our food supply.
These considerations will likely be played out in the financial markets over the years, as investors speculate on these fascinating and essential commodities.
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