Only a week ago I was unaware that the world is facing severe food shortages. I should have paid attention to Mr William Doyle, POT´s CEO, who predicted two months ago, shortages and famine during this year (excepting improbable record crop yields).
In contrast to the slowdown in the US economy, China, India and other Asian countries are continuing to experience significant, long-term population and economic growth. Because of this growth, people in these countries require more food and can afford a more nutritious diet that includes protein from meat sources. This requires an ever-increasing number of animals for food production and millions of additional tonnes of feed grains.
These factors have increased pressure on the world's food supply, as global grain consumption is expected to exceed production again this year – for the eighth time in the past nine crop years – and has left only enough supply to meet global needs for less than two months. The problem has been masked for nearly a decade by the world's ability to draw grains from long-held inventories, keeping crop prices artificially low and giving farmers little incentive to significantly increase production. In order to have stocks today equivalent to what they were at the start of this decade, an additional 225 million harvested acres would have been required over the past eight years, or 28 million acres per year, based on the average yield over this period. Now crop prices are moving up sharply, with wheat, corn, soybeans, rice and palm oil recently reaching record levels. These higher prices are driven by the substantial growth in demand for food, which is expected to consume 95 percent of global grain production this year. With grain consumption expected to increase by approximately 30 million tonnes per year going forward, record crops are necessary each year just to match the anticipated demand.
The intense competition for global crops is giving rise to a new concern: food inflation. Even in North America, where food has been plentiful for generations and competition for crops from developing nations has been minimal, the effect on grocery store prices is becoming evident. While higher crop prices are among the factors behind rising food costs, the impact is minimal as farm costs make up less than 20 percent of the end-cost of processed food in the US. Similarly, biofuels have been targeted as part of the problem, but in reality, they consume only 5 percent of the world's grains. The primary driver of food inflation is the ever-increasing demand created by hundreds of millions of consumers choosing more nutritious diets in nations with growing populations and wealth.
With the push for increased food production, the growth in demand for fertilizers has accelerated beyond historical levels. This is especially true of potash, which has been under-applied for years in many regions. A soil fertility shortfall in any of the primary nutrients lessens the impact of the others (LIEBIG's LAW), so many farmers are now attempting to improve the potassium levels in their soil to increase the benefits of all three nutrients. As a result, the compound annual growth rate in potash consumption has exceeded 5 percent annually over the past five years.