Study shows that as prosperity rises, demand for metal and energy commodities increases, but food remains steady
Farmers have been told repeatedly that the rapidly expanding global middle class will generate unrelenting demand for their products, but that may not be the case.
“When it comes to agriculture, we don’t see much growth in demand,” John Baffes, senior economist with the World Bank, told delegates at-tending the Feeding the Global Middle Class conference.
That flies in the face of the mantra trotted out at hundreds of other conferences that says people are going to eat more meat as they enter the middle class, resulting in greater grain consumption because it takes 6.5 kilograms of grain to produce one kilogram of meat.
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Agriculture industry officials are excited because the global middle class is expected to grow by three billion people between 1990 and 2025. That was the size of the Earth’s entire population in 1960.
Canadian agriculture minister Gerry Ritz is one of the people salivating about a surging demand for agricultural products.
By 2030, half of the planet’s eight billion people will belong to the middle class, with two-thirds of them living in Asia, he told delegates at the same Saskatoon conference.
“The Chinese middle class is growing by the population of Canada every year,” he said.
“If every consumer in China had a bacon cheeseburger and a beer once a month, we couldn’t supply it as a country.”
Canada provides about two percent of China’s agricultural imports. There’s room for that to expand to five to 10 percent, he said.
Baffes was far more pessimistic about the demand outlook. Statistics show that global consumption of most agricultural commodities hasn’t increased as dramatically as assumed during a period of prosperity in places like India and China.
The United Nations Food and Agriculture Organization says cereal imports in the two countries has trended down by four percent per year from an average of 14.4 million tonnes in the 1980s to 6.3 million tonnes over the past three years.
Another study shows there has been a downward trend in caloric intake in India since the early 1990s, despite rising incomes.
Yet another shows that the combined average annual increase in grain consumption in China and India was lower in 2002-08, a period of rising income, than it was from 1995-2001.
“I think these numbers are very telling in the sense that you have this huge growth in income, doubling or tripling,” Baffes said in an interview following his presentation.
Income elasticity, which measures the responsiveness of demand to rising income, is close to zero for food commodities. It’s much more pronounced for metal and energy commodities.
The one exception to the rule is oilseeds. Edible oil demand is on the rise around the world because it is a product that is used extensively in restaurant and packaged foods.
“As people get wealthier, they tend to eat in restaurants more and they tend to eat packaged foods more,” said Baffes.
“That is why we see this huge growth in edible oils versus the other kinds of agricultural commodities.”
Baffes agrees with the general premise that consumers will consume more meat as they enter the middle class.
But he believes that shift has already largely taken place in markets like China, Brazil, Mexico and Turkey.
People consume more meat when average per capita income rises from $500 per year to $3,000 per year. Those countries are already well beyond that threshold.
Meat consumption will rise as more people enter the middle class, which is defined as having $10 of spending power per day, but it won’t be the “revolution” that many agriculture industry officials are expecting, he said.
Ritz doesn’t put much faith in what the economist is saying because Canada’s export statistics back up the notion that demand for agricultural products is growing in lockstep with the burgeoning middle class.
“We’re seeing our exports to (Japan) and China grow exponentially when it comes to grain and oilseeds,” he said.
Ritz expects there will also be more demand for the quality products produced in Canada, such as high protein wheat.
