Rabobank Warns of Increased Food Scarcity and Price Fluctuations

Worldwide food production will be unable to keep up with population growth because the harvest of commodities is lagging behind. This will be accompanied by price volatility for these commodities.

Sep 27 2011 --- Rabobank believes the world is set to face a period of increasing scarcity of food commodities in the next ten years. This also marks the beginning of a fundamental transition in the global food and agriculture sector. The prices of commodities will rise further and there will be increased volatility. While this is not a new phenomenon in itself, what is happening this time is genuinely different. These conclusions are set out in the ‘The Impact of Agricultural Price Volatility on Sourcing Strategies’ report that was presented in Washington during the Rabobank Duisenberg Lecture that was held in conjunction with the Annual Meetings of the IMF and World Bank.

Worldwide food production will be unable to keep up with population growth because the harvest of commodities is lagging behind. This will be accompanied by price volatility for these commodities. Rabobank believes solutions to these problems can be found in partnership with all the players in the production chain, ranging from knowledge institutions to traders, governmental agencies and producers. They will need to join forces with the farmers in an effort to double production in a sustainable manner. And this will have to be achieved with half as much water, agricultural land, fossil fuels, fertilizers and chemicals. Only then will there be enough food for the total world population in 2050, which will have then risen by 50% to nine billion.

While Rabobank foresees the emergence of new alliances, it also anticipates that governments will increasingly organise their supply of commodities themselves. This is because their citizens will need to have food.

‘Grain or soybean, for example, will have to be grown in areas in which the agricultural land produces the most commodities. I am thinking about countries including those in the Black Sea region and in West Africa,’ says Sipko Schat, Member of the Executive Board of the Rabobank Group. He believes we will see this happen in 30 to 40 years. ‘But this will require free trade and fair division agreements, which are currently still a long way off.’ Otherwise the primary sector, in other words the farmers, will come under pressure from all sides. They should receive a higher price for their products. The proceeds in the chain should consequently be divided more fairly in order to enable this. This can be achieved by making guaranteed, sustainable production and purchase agreements with the farmers. The case studies in the report demonstrate how producers in different F&A sectors are already actively involved with the farmers in order to guarantee sustainable production. ‘If they join minds and think a couple of steps further ahead, it will be possible to produce twice as much with less water and energy. We absolutely believe that.’

Rabobank also believes technological progress can be beneficial in relation to increasing yields. ‘We are talking about the welfare of the world,’ Schat explains. ‘While there is not yet a shortage in the West, there will be in the longer term if we do not invest in sustainable and efficient production.’

Source: Rabobank