Improving efficiency in producing and converting edible calories when demand weakens could throw new social challenges
Neelkanth Mishra | Last Updated at July 1, 2020 00:14 IST
(This was published in the Business Standard: link)
Will food be the channel through which unprecedented monetary intervention may drive inflation? Will the earth run out of land and freshwater in feeding a growing human population? Cropland after all is just 12 per cent of the earth’s land area, and pastures another 25 per cent: Ratios mostly unchanged for the past three decades, with limited further scope for multi-cropping at scale. In addition to the steady growth in human population, rising incomes shift diets towards more expensive calories, like from fats, which have a much larger land and freshwater footprint.
To understand these issues better, we at Credit Suisse embarked on a deep dive into the demand-supply of edible calories required to build bodies and sustain life.
Demand for calories mostly rises in line with population, helped along by falling malnourishment and a rise in the average body weight; larger bodies need more calories to build and sustain, and as subsequent generations are taller and heavier, this means need for more calories. Global calorie demand rose 2 per cent annually for nearly five decades since 1960, but fell to 1.5 per cent over the past decade as population growth slowed. Per capita demand growth has stayed unchanged at 0.5 per cent over longer periods, but over shorter periods, it gets affected by income growth, particularly in low- and middle-income nations.
This is because demand for carbohydrate calories tends to stagnate at 1,800kcal/day per capita; incremental calories thereafter come from more expensive sources: Fats (mainly vegetable oils and meat with most of the latter being poultry and pork), or a switch within carbohydrates from the much cheaper cereals to expensive sources such as fruits, vegetables, pulses and milk.
Even before the coronavirus-driven lockdowns disrupted economic momentum across the world, global gross domestic product (GDP) growth in 2019 had been the lowest in a decade. In theory, calorie demand per capita should be the least impacted item of consumption when incomes fall, but that is not so in reality. In addition to the factors explained above, this is because lower-income households may cut food intake. In Nepal, for example, Yale University researchers have documented food insecurity during the April wheat harvest that was usually seen during the lean season in normal years, when up to a quarter of respondents of large-sample surveys of poor rural Nepalis and Bangladeshis reported restricting meals or portion sizes. These factors imply weak growth in per capita demand for calories.
On the other hand, the process of capturing sunlight into edible calories has continued mostly undisrupted. Rising yields per hectare continue to increase supply across crops: A trend the current crisis is unlikely to change. Cereals are already in surplus, as evidenced by a steady rise in inventories, mainly in China and India. India, in particular, endowed with 12 per cent of the global cropland, even though it accounts for just 2 per cent of global landmass, has been catching up on land productivity metrics, and is now struggling with surpluses. Acreage globally is shifting to direct/indirect production of fats: Palm, corn and soya, for example, have seen 86 per cent of incremental acreage since 2000.
While climate change and disruptions in weather patterns are now well-documented, the frequency of weather disasters has not risen since 2000 (outside Africa they have, in fact, become less frequent). Improving irrigation, strategic inventory reserves and rising food trade have also helped cut volatility in supply of non-perishables. There are always new challenges though, for example, the current locust scare in east Africa and south Asia.
Even the process of calorie conversion through livestock into meat, eggs and milk is becoming more efficient. Feed conversion ratios (the number of input calories into livestock to get one edible output calorie) tend to range from 4 to 12, depending on the type of meat. This is mostly the energy spent in building animal parts that are inedible, and in sustaining their metabolism. For this reason, fats also have a much larger freshwater footprint than carbohydrates per edible calorie: By some estimates, 10 to 50 times as much freshwater is needed than for cereals.
However, rising industrialisation and consolidation are reducing feed conversion ratios and water use and also bringing down supply response times. For poultry and pork, the water use per tonne of meat is 40 to 60 per cent lower in industrial production than when produced through grazing or mixed farming. Take the example of pigs: The indigenous hairy black hogs that we often see running around villages grow to 60 kg in weight in one year; the pink pigs (slightly less sturdy in what they can eat and with weaker immunity), on the other hand, can reach 90 kg in six months.
Artificial meats are even more efficient in calorie conversion. Studies sponsored by an artificial meat producer, so not completely unbiased but still indicative, show 90 per cent lower greenhouse gas emissions, 93-99 per cent lower need for freshwater and land, and 46 per cent less energy consumption than livestock-based meat. Although plant-based meat was only 3.5 per cent of the global meat demand by value in 2018 and expected to be about 7 per cent by 2025, it would continue to whittle down the input calorie demand.
There are many implications of steady improvement in production and conversion of edible calorie supply when demand is flattening. The first, and most important, is resumption of low food inflation: It was a major factor driving down overall inflation over the past few decades. This should continue, though some temporary supply disruption-driven spikes, mostly in perishables, cannot be ruled out. Excess money supply currently seen globally can in theory drive overall inflation higher, but it is unlikely that food, which carries a 25 per cent to 45 per cent weight in the consumption basket, would be the channel.
At least to the extent that the surpluses are due to supply growth and not demand weakness, this should support lower prices for fats and proteins, and thus healthier diets. For packaged food companies, which can hold on to prices even as input costs fall, this also means better margins. It would also mean less pressure on land: By our estimates, the increase in fat demand through meat would need an additional 10 million hectares for corn and soya production by 2025; but by then, there would be 75 million hectares surplus in cereals. Satellite pictures have been documenting an increase in leaf cover globally.
However, this also means continued pressure on incomes for the more than 900 million people globally involved in agriculture. To protect farm incomes, governments have been raising subsidies, which now account for half a trillion dollars, or 20 per cent of global agricultural GDP, but these may not suffice, causing social and political challenges.