Former Ghana and Brazil Presidents win World Food Prize

I was very pleased to see the announcement that the 2011 World Food Prize was awarded to  two former Presidents who did so much for their country's food production capacity.

Former President Lula of Brazil and Former President Kufor of Ghana both transformed the capacity of farming and agriculture in their countries through a combination of strong assertive government policy and strong alliance building across big and small farmers and agribusiness.

A fabulous outcome and what an inspiration.

Fresh Food Artistry at the Boatshed

We went for a run on the beach this morning and then went to the Boatshed Market in Cottesloe to buy some fruit and vegetables.  The standard of produce at this place is always reliable and high quality - and there is a passion for food and good service.

This morning we were struck by the quality of the display.  It was amazing.  All the vegetable items arranged so carefully - aligned, balanced, poised.

Even the brussell sprouts were arranged so that they all faced the same way in their stack.

The vegetables were bursting with vitality and energy and screaming "buy me - I'm good for you".

I snapped an iPhone photo of part of the display.

Then we had to find out who the Fresh Food Artist was.  We asked Trevor (who explained he was the tropical fruit guy) and he said the vegetable displays were done by Robert Stedman - who restocks the shelves each night starting at 10 pm.

Well Robert, you are a true genius.  I salute your talent and thank you for your work.

Dear readers, if you are ever in Perth - check out the fresh vegetable displays at the Boatshed Markets.

And thank Robert Stedman for making your day a little bit better.

Despite the riots - is food still too cheap?

We have been reading about increasing concern of governments around the world about rising food prices, and the flow on effects on political stability.  Some commentators are saying that a big cause of the recent unrest in the Middle East was the significant recent rise in basic food commodities such as wheat and corn.

Maybe,  however, food is still too cheap.

The Australian Central Bank - the Reserve Bank of Australia (RBA) - operates under an independent charter (similar to the US Federal Reserve system) and is highly respected for its economic research.  The RBA's 2011 March Quarter Bulletin contains an article titled "Developments in Global Food Prices" which provides some interesting insights.

While the article discusses the trends that  those of us following the rising prices in food commodities over the last few months are familiar with - such as the dramatic rise in the price of food in the last few years;

And in particular in East Asia;

the article also contains this chart, which shows the real price of food relative to US GDP - since the early 1900's:

I found this the most interesting chart of all.  

The RBA article does not really explore the message of this chart in depth - but what the chart is saying is that - in spending power terms - food is still cheaper now than it was over 100 years ago - and even now it is only just as expensive as it was in the 1980's.

From the point of view of a farmer or an investor in a food production asset, food is still too cheap!  

The good news however is that the slope of the curve is heading in the right direction.  

As food prices start to reflect the real costs of the land and water inputs, we will see more investment into food production assets.  The agile first movers are already active - don't be left behind.

Go Long on Food and Water!

We know that the global focus on food security is finally starting to penetrate the thinking in the coastal suburbs of urban Australia when we see an article in the weekend edition of the Australian Financial Review with the title “Boom Goes The Farm” (Australian Financial Review, April 9-10, 2011, page 21).

Graphic from Australian Financial Review, April 9 2011, page 21

Australia is one of the most urbanised societies in the world.   Of our 25 million people, well over 80 per cent of us live in the major and mid sized cities spread around the coast.  Across the  vast dry interior there are only a handful of communities with populations over 50,000 people and most communities are much smaller.  This means that most of us live a long way away from our food production industries (both physically and mentally).  And we probably haven’t really given much thought to where our food comes from.

So what does the current global food security scare mean for Australia? 

We must never forget that food is water,  transformed by plants.  

Add some elements (Nitrogen, Phosphorous, Sulphur  & Potassium - plus some critical micronutrients) and sunshine together - apply the magic of photosynthesis in the leaf of a plant (or algae in the oceans) - and through arcane magic - these ingredients transform water into carbohydrate and protein.   Most of the world’s animals and humans then eat these plant outputs directly to sustain their lives.

The small percentage of the world’s humans who have much more money than the rest (and that includes Australians) prefer to eat their protein in the form of meat - where the carbohydrate produced by plants (or algae) is transformed into the muscles of animals (or fish) - which we then eat.  

This is a much more expensive way to create protein than just eating plants - and also requires the use of a lot more water that is used to grow the food and provide the drinking water for the animal being grown for its muscles.

Regrettably, as well as being one of the most urbanised countries in the world, southern Australia is also one of the driest areas in the world. And the outlook for the impact of climate change on water availability in southern Australia - where most of us live - is very sobering.  

Basically - we will have much less water within our lifetimes.

Last year Australia’s government owned scientific research organisation known as CSIRO released it’s projections for the impact of climate change on Australia.  I live in the South West of Western Australia so I was particularly interested to see their projection for where I live.

Source:  CSIRO Water for a Healthy Country Program

Basically, CSIRO says we are either going to get a little bit dryer - or very much drier!

So turning our attention back to the Boom Boom goes the farm article.  It looks like a once in a lifetime opportunity for Australia's food industry to really make a contribution.  Particularly if we can build more brand value up the supply chains and raise the real price we receive for our food within the farm gate.

Graphic from Australian Financial Review, April 9 2011

I share the optimism of those who are excited by the future outlook for Australia’s food industries as we look to contribute our skills and expertise in food production to helping feed the world.  

However, I am concerned that we are too slow to recognise how precious fresh water is.

When we eat  - we are eating  water.  

When we export food, we are exporting  water.

Just as rapidly as we think about implementing a price on carbon to start to mitigate the impact of climate change, we need to introduce pricing for water that truly reflects how scarce it is and will become.  

And for investors looking for a good asset class for a balanced portfolio, I totally agree with Larry Fink, CEO of BlackRock - quoted in the same Australian Financial Review article mentioned (see extract above).  

“Go long on agriculture and water.  Put them in the bottom drawer and go to the beach”. 

Feeding the Cities

McKinsey has been releasing some interesting work on their projections about the future urban world recently.  

Their research concludes that by 2025 - 600 cities will contribute 62% of global growth and 2,000 cities will account for 75% of global economic growth.

Further more, the world's big powerful cities will be in East Asia, and some of the  big powerful cities in the current advanced economies will decline in significance:

You will notice that a lot of the big future cities of the world - as ranked by their GDP - will be in China.

I was pleased to see Bangkok there too (I love Bangkok!).

In Australia - Sydney will hang in there as one of the top 60 cities of the world  - but Melbourne won't.

Thinking about this, I can't help thinking about how these big future cities are going to feed and power themselves.

The FAO releases its Food Price Index reports regularly.  The February 2011 report released on 3rd March showed that global food prices are at the highest level recorded since the FAO commenced their data series:

I say that food, energy and water assets (FEW) hold the key to future prosperity!  Watch to see where the Chinese are investing - they are patient long term strategic investors.  And hunt for undervalued FEW assets around the world.

These are exciting times as we work to feed the world's cities - with vision, innovation and tenacity!