It’s easy to get stupid with future demand projections, ones that tell you prices should just keep going up for what you produce.
That’s was the situation with the “nine billion people to feed by 2050” mantra of the 2000s, which allowed some to assume high crop prices would continue forever.
And it’s still the situation with the projection that the developing world’s rising “middle class” will produce such a steep demand curve for meat that livestock producers will be living in a golden age in coming decades.
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Lots of people are saying that right now about Chinese pork demand.
There are three problems with relying on long-term demand-boom projections to build your business or industry:
- Trends don’t always last.
- It’s bad math.
- It might not apply to you.
How about the seemingly unstoppable trend toward higher meat consumption in giant populations such as China and India?
I’ve covered lots of outlook sessions that present this trend as an unstoppable force, one that justifies the “good times ahead” tenor of many contemporary agriculture sessions.
It’s probably true that developing nations will consume more meat in the future as their consumers earn more money. People like to splash cash on meat for festivals and holidays as soon as they are able.
However, it’s foolish to consider that this trend will automatically continue or happen at a rate that is greater than the world’s ability to produce more meat.
China is the great hope for meat exporters with a gigantic population, a small land base and declining fresh water sources that make livestock production there difficult. To some, that creates an equation that ends up with us supplying them with huge amounts of meat and them supplying us with lots of money.
Chinese demand might grow but perhaps not in the steady way commodity producers such as farmers need. For instance, China is sucking in pork this year, boosting world prices and making it easy for North American pork producers to clear their inventories.
However, that’s a result of ham-handed Chinese government economic manipulation.
A couple of years ago, the Chinese government moved aggressively to reduce hog production, causing thousands of farms and hundreds of thousands of “backyard hog” pens to close.
That was a response to environmental problems with small farms and their willingness to dump their sows in the river when they lost money.
Pork production crashed, the government has realized it went too far, too fast, and domestic meat prices have skyrocketed.
In response, it has opened the floodgates to imports, cheering North American hog producers, as I heard much about at the World Pork Expo in early June.
However, Chinese government health officials last week recommended that its consumers in the future eat only half as much meat as they do today, dropping per capita consumption from more than 60 kilograms to less than 30 kilograms.
That’s unlikely to happen without drastic government action. People almost everywhere increase meat consumption as soon as they can afford more than peasant food, so making Chinese people happy with a low-meat diet would be a challenge.
This is likely just a way to chill nearby demand and say encouraging words about a long-term food security risk for China.
However, as it has demonstrated in the past, the Chinese government can take drastic actions when it chooses, so it is conceivable it could find ways to slash demand and stop imports. It does that now regularly with non-tariff barriers.
As well, its producers could become hyper-efficient, like ours — many already are — and manage to meet domestic demand.
So whatever you think about future demand projections and the complicated math of how our pork, beef and crops will be needed in foreign markets, there’s one undeniable truth in bulk commodity food production: nothing beats being the lowest-cost producer.
For all the talk about expanding Chinese and world demand, nothing is for sure, except the unchanging truth that lowest-cost producers tend to survive the ups and downs of the economic cycles and higher-cost producers seldom live to see brighter futures.
It’s nice to hear about booming Chinese and developing world demand and to imagine that this rising tide will raise all ships, but there will always be squalls, and it’ll be as easy to sink in the future as it has been in the past.
