A recent Food Agriculture Organisation (FAO) paper predicted that global food production must increase 70% by 2050. According to the FAO “world population is expected to grow by over a third (or 2.3 billion people) between 2009 and 2050″ and that this increase in population to 9.1 billion from the current 6.8 billion would require an overall 70 per cent increase in food production because of the effect of population growth combined with rising incomes.
The demand for cereals for food and animal feed is projected to reach some 3 billion tonnes by 2050. Annual cereal production will have to grow by almost a billion tonnes from the current 2 billion tonnes and meat output by over 200 million tonnes, the FAO said. The FAO also stated that ”the production of biofuels could also increase the demand for agricultural commodities, depending on energy prices and government policies.”
FAO’s Assistant Director-General Hafez Ghanem noted that “feeding everyone in the world by then will not be automatic and several significant challenges have to be met.”
Using the FAO data combined with the assumptions set out below, food prices would have to double in real terms, and increase 10 times in nominal terms, in order to balance supply and demand by 2050. Assumptions:
- Production increase required by 2050 = 70%
- Current annual productivity growth (10 year trailing average) = 0.9% pa
- Price elasticity of demand for food = -0.25 (highly inelastic demand)
- Total production increase by 2050 based on current productivity growth = 44%
- Real Price Increase required to match supply and demand in 2050 = 100%
- Annual inflation = 4%
- Nominal price increase required to match supply and demand in 2050 = 972%
Arguably demand for food in emerging economies is even more inelastic than in the west. The closer you are the minimum daily calories the more you will pay for food. This may mean that the real price increases over time would be larger because most of the population growth that the FAO is projecting will occur in emerging markets.