Farm Ireland

Tuesday 22 August 2017

Price spikes and volatility will characterise markets as the world’s population tops 7bn

John Shirley

Recently we held a reunion of the UCD/TCD agriculture and horticulture graduates from 1970. It was good to meet former companions. Apart from the ever youthful trio of Eamonn Tully (Cavan), Jack Lynn (Mayo) and Pat McGuinness (Down), most had gone almost as blonde as myself.

Class colleague Professor Maurice Boland from UCD contrasted the world of 1970 with 2010. Among the many changes over the 40 intervening years, one of Maurice's facts really got me thinking – the great leap in the world's human population. At 2.8bn in 1970, the population has grown to an estimated 6.86bn today.

The interesting part of the deal is that we continue to go forth and multiply at a rate of knots. It is reckoned the world population is growing at the rate of about 9,000 an hour. That's another 6.69m extra mouths to feed since our reunion on October 15.

The other side of this coin is that available land supply is shrinking. The shrinkage from erosion, building and desertification is reckoned to be taking place at a rate of 1ha every 7.7 seconds.

In the past, I have been sceptical of claims that, globally, we are running near the tipping point in terms of the world food supply and demand balance.

With more than 8.5bn productive hectares – which includes forests – there is still huge global potential to expand food output. But with so much waste, inefficiency and poor political leadership around, maybe we are closer to the tipping point than many believe. Irish farmers, and food producers worldwide, could be on the cusp of a most interesting period.

Certainly, with almost 7bn people on the planet, we are in new territory. Also, it's hardly a coincidence that we are seeing spikes in world prices for so many basic food commodities coming at the same time.

For most of the past 40 years, the big bogeyman for Irish and EU farmers was the threat of having to work at prices. The threat waved over us has been, ‘what would happen if import tariffs and export refunds were reduced? Irish and EU farmers are a cosseted lot’.

Now all has completely changed. The world price bogeyman has evaporated. First to come into line was the price of grain. It hasn't been easy but Irish wheat and barley growers have been operating at world prices in recent years. Then we saw the world dairy products trading at a price that would equate to the milk price paid to the Irish farmer. The most recent surge has been in the price of beef. Incredibly, the price of beef cattle in South America has doubled in the past 12 months. Two weeks ago, the factory beef price reported from Brazil was the equivalent of 274c/kg. At the same time, Irish farmers were paid 267c/kg (excluding VAT) for O-grade steers.

Other commodities are also peaking. The world cotton price is up more than 100pc since the start of last year and is still rising, coffee beans are up 60pc on last year and four times the rate witnessed at the start of this decade.

Even the world sugar price is surging again, provoking controversy across Europe over our flawed ‘sugar reform’ policy.

In all cases, an excuse for the price surges can be made. The cotton spike is due to Pakistan floods, grain is due to Russian drought, etc. But the underlying trend is that commodity price spikes are more frequent and more wide-ranging than before. They have to be linked with demand and a more heavily populated Earth.

I accept that there is also huge scope for increased global food output especially across the former USSR but bad farm management is endemic across much of the globe. Others will argue that the population growth is in poorer countries that cannot afford to pay for extra food but China and India no longer fit into this category.

There is no doubt that increased price volatility will be part of the farming future, especially if politicians have no strategy for food security. Small surpluses and small deficits will cause major commodity price swings. Irish farmers must keep their production costs down in order to ride out the downturns and cash in on the price surges. Even the highest of commodity price spikes will not make small-scale food production a viable prospect, but for commercial farm units, the future looks better than at many times during the past 40 years.

We still have the challenge of farmers getting an ever-declining share of the retail price for their produce. The global power of supermarkets is only slightly dented by commodity shortages.

Ach is sin cogadh eile.

Irish Independent