Outsized appetite in a finite world

Gwynne Dyer says the current round of drought-induced surges in crop prices is just a taste of what could come if consumption is not checked

PUBLISHED : Friday, 17 August, 2012, 12:00am
UPDATED : Friday, 17 August, 2012, 1:35am

Two months ago, the US Department of Agriculture forecast the biggest corn harvest in history: 376million tonnes. After two months of record heat and drought in the US Midwest, it has dropped its forecast to 274million tonnes. It is now forecasting the price per bushel could go up to US$8.90.

The heatwave in Russia is also cutting deeply into Russian wheat production. There will still be enough for domestic consumption, but Andrei Sizov of the Moscow-based farming consultancy SovEcon said last week that he expected Russian wheat exports to drop. For this and other weather-related reasons, wheat prices are on their way up too.

High wheat prices hit human consumers directly, but high corn prices hit even harder in the long run because huge amounts are used to feed animals and provide oil for processed foods. World food prices in general are on the way back up, and it's beginning to look like a pattern, not a series of accidents.

Meanwhile, on a different planet entirely, the McKinsey Global Institute, the business and research arm of management consultancy McKinsey & Company, published another report in June. It's the latest in an endless series of ever-bolder estimates by various "global institutes" of how fast the demand for goods and services is growing around the world.

The themes of McKinsey's new report, "Urban World: Cities and the Rise of the Consuming Class", are familiar enough. The world's economic centre of gravity is moving to Asia; huge numbers of new "consumers" will be joining the global market by 2025; there are wonderful opportunities for investors.

Then come the numbers. As the emerging economies grow, they'll all start buying fridges and baby food and, eventually, cars. But nowhere in the report does McKinsey deal seriously with the impact of a predicted total of 2.6billion consumers on world demand for food.

Yet meat consumption soars as incomes rise. Feeding animals to produce meat puts huge pressure on grain resources, so all food prices rise, for rich and poor alike. Combine the rise in meat consumption with an extra billion people and severe constraints of food production, most of them related to climate change, and world food prices in 2025 could be two to three times higher in real terms than they are now. That means that the poorest starve, and that a lot of McKinsey's promised new "consumers" don't make it into the middle class after all.

The same rationing by price is likely to apply to everything else that matters. Indeed, the prices of energy and raw materials, which fell consistently through most of the 20th century, are already back up to where they were in real terms a century ago. In 13 years' time, the poor will be more desperate than ever, and political stability in many developing countries will be just a memory.

The demands of consumers, like the sheer number of human beings, can in theory expand indefinitely, but on a finite planet with dwindling resources and a changing climate, the cost of meeting consumer demand is going to go up very steeply.

And as for China, the poster child for miraculously fast economic growth - well, China has one-seventh as much water and one-tenth as much arable land per capita as North America. When things get tough, that is going to matter a lot.

Gwynne Dyer is a London-based independent journalist