Feeding the world

At the moment, there is little such talk. A series of good harvests together with new acreage have increased crop reserves, and this has helped to calm concerns. Meanwhile, fear of a renewed economic weakness have focussed minds elsewhere.

However, the fundamentals will sooner or later reassert themselves. The global population is set to increase from around 6.6 billion at present to 9 billion by 2050, and food demand will grow with it. But the relationship between population growth and increased food demand will not be linear because, quite literally, the tastes of the world’s population are changing.

As living standards improve for hundreds of millions of people in the emerging economies, they are eating more protein - meat is replacing vegetables. The massive shift we are presently seeing toward urbanisation, particularly in China, is also supporting this change in diet. Since 1985, average Chinese meat consumption per head is up around 2.5 times. It takes 5-7kg of grain to produce 1kg of beef, and so the demands on the agriculture sector are going to be huge and will involve the need for more water, animal feed, fertiliser, machinery and land.

This change in the world's diet is one reason why a recent joint report by the UN's Food and Agriculture Organisation (FAO) and the OECD predicts that, whilst there will be a 35 per cent increase in population, there will be a 70 per cent increase in food demand by 2050. Higher prices are forecast at least for the next decade.

Investment opportunities

But this theme has many permutations. One of the ways to increase crop production is to cultivate more land, and indeed since 2006 the equivalent of a second US corn belt has been added to the world's land under cultivation. But it’s now getting harder to find new land: new acreage is being offset by urbanisation and degradation. The US Department of Agriculture estimates crop area will only increase by 0.5 per cent a year, which will be insufficient to meet expected demand. Little wonder many countries in the Middle East and Asia are negotiating the rights for land in Africa in return for infrastructure investment.

Another factor to consider is the increased strain put on our water supplies. Agriculture is the world's largest consumer of water, and in many parts of the world farmers are struggling to produce their traditional crops because supplies are drying up. I touched on this theme earlier this year (, 14 May 2010). The UN estimates that more than a billion people live with water shortage today, but that by 2025 this figure will have doubled.

There will continue to be productivity increases, but these may be slowing. The agricultural revolution that followed the Second World War did increase crop yields through the use of better machinery and fertiliser. Most large-scale farms have now embraced this revolution, but the smaller units predominantly in the emerging economies continue to find modern machinery prohibitively expensive. Meanwhile, genetically modified crops do boost crop yields but continue to meet opposition, and so their effect has been limited.

The ingenuity of mankind should never be underestimated, and so solutions to such problems will be found. Increased trade, technological advances such as "precision farming", and the production of more effective fertilisers, seeds and chemicals to boost crop yields will all play their part. And in doing so, they will present investment opportunities.

My chosen investment to date has been the Sarasin Agrisar Fund in the Growth portfolio. It's also and parent company is the Dutch mutual Rabobank, the world's leading bank focussed on the agriculture sector. International generalist trusts such as Scottish Mortgage also pursue the theme strongly.

Otherwise, I have made no changes to the trust-based growth and income portfolios during July and remain happy with their modestly defensive positions.

John Baron waives the fee for this article in lieu of donations by the FT Group to charities of his choice.