Global Food Demand
The value of agricultural land continues to rise in line with a growing population which requires additional food to be produced on a finite supply of agricultural land. There are strong incentives to invest, as productive agricultural land is a sector where demand is soaring and supply is dwindling. Global agriculture has a number of factors influencing this demand driven expansion. These include:
- Population growth. By 2050 there is projected to be a global population of more than 9 billion people (Figure 13). Effectively, there will be 70 million additional people for agriculture to feed each year. This means that each hectare of agricultural land will need to produce food for more people, as shown in Figure 13.
- The rise to middle class. Around the world, hundreds of millions of people are rising to middle class status. This group is characterised by rising incomes, with new found wealth in the developing world.
- Income growth changes diets. As income levels increase, demand for food rises in two ways:
- Income growth results in people eating more. As incomes rise so does calorie consumption per capita; and
- Individual diets also shift towards a higher protein, more resource intensive diet. Put simply, millions of new meat eaters are coming to the table annually.
Rising food demand leads to increasing demand for agricultural land. This is driven by concerns for food security of a large, growing and hungry world population.
Currently Asia is a prominent destination for Australian agricultural exports. The Directors of FarmInvest Australia believe Australia is ideally situated close to Asia and there is a significant opportunity for Australia to capitalise on the expected changing demands for food in Asia as shown in Figures 14 & 15.
Against the backdrop of increasing demand, agriculture must overcome significant constraints to supply. These include:
- A reduction in the availability of productive land – due to urbanisation, soil degradation and changes to climate, the availability of productive agricultural land is becoming scarcer. There is not capacity to expand agricultural land to meet demand. This means that existing agricultural land assets are likely to become more valuable as they cannot be replaced.
- Water – all agriculture relies on the availability of clean water, whether it is applied through rainfall or irrigation. It is a heavily consumed and increasingly precious resource. The UN report “Water in a changing world” forecasts that half the world population will be living in areas of acute water shortage by 2030.
- Resource efficiency – with a changing world diet involving more meat and other protein there is a change in how efficiently soil, water and energy are used to produce food. Feeding livestock is much less resource efficient than growing grains for human consumption, placing further pressure on agricultural land and water resources.
Agricultural Commodity Trends
Demand for agricultural products is beginning to outstrip supply. In some cases, there have been rapid increases in real global food prices. International food prices began rising in 2002, with real prices having remained above previous lows for more than ten consecutive years. This is the longest sustained cyclical rise in real prices experienced in the last 50 years. The supply constraints are expected to keep prices high, with food prices forecast to stay above historical levels.
Capital Growth Trends for Agricultural Land
According to the FAO, demand for productive land is directly related to increasing demand for agricultural commodities. Therefore, increasing demand of agricultural commodities in the face of a finite supply of productive land will continue to underpin the growth in asset prices. Supply of productive agricultural land cannot be increased, creating potential for strong growth in value. Agricultural land assets display a number of investment characteristics that are particularly appealing:
- Values have been shown to increase at a faster pace than the rate of inflation;
- Values have proven resilient under varying market conditions.
Institutional investors acquire agricultural land as a safe, longterm investment that generates income and is less likely to depreciate when the value of other investments fall.