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Farmland Supply and Investment Fundamentals

With more mouths to feed and increasingly affluent emerging market consumers demanding a high protein, more resource intensive diet, agriculture sits at the intersection between population growth and an expanding global economy. Through biofuels and biomass, agriculture is also correlated with oil scarcity and rising energy prices. On the supply side, climate change, fundamental limits to further cropland expansion and a plethora of pressures on existing production, make keeping up with rising demand increasingly challenging.

Recent developments support this view. Over the last decade, annual consumption of grain has outstripped production in more than half of years. As a result, per capita global grain stocks have been moving lower than the historical average (bottoming out at 68 days of total supply in 2008). This has been accompanied by sharp rises in agricultural commodity prices and an unprecedented series of food crises. After the post-2008 correction the trend of rising prices resumed despite a sluggish global economy, culminating in food riots in Egypt and the Middle East (which many believe played a pivotal role in fomenting the sweeping political change of the Arab Spring).

Some key indicators of the supply and demand picture are summarised below. For a more detailed analysis and source references for the data presented in this section and other information on farmland as an asset class, see our Downloads Section.

The best land has already been used

Arable land expansion has slowed down substantially in the last 50 years. This implies that much of the best arable land is already in use. Read more

Trends-in-total-global-arable-cropland-area-between-1961-and-2007

The world’s population continues to increase rapidly

Every day the world’s population increases by more than 200,000 people. 1 billion people were added in the last 10 years. By 2050 the population is projected to grow by 40% to 50%. Read more

Actual-and-projected-human-population-growth-in-developed-and-developing-countries-from-1750

The per capita amount of arable land has halved in 50 years

The demand increase due to a daily population increase of 200,000 people is substantial. At 0.74 hectares of total grazing and arable land per person this means an additional area of farmland the size of Greater London or twice the size of Singapore, New York or Tokyo is required every single day to feed the new arrivals. This isn’t happening, so the amount of farmland per person is declining every year. Read more

Trends in per capita availability of arable land between 1961 and 2006

The gap between supply and demand is widening

Since the middle of the last century the rate of population growth has exceeded the rate of cropland growth to an ever increasing extent. Between 1961 and 2000 the world’s population increased by 113.9%, whereas the total amount of arable land globally only grew by 10.2%. The arable land area per person in 1961 was 0.42 hectares. In 2007 the per capita availability of arable land had halved to 0.21. Read more

Percentage-change-in-agricultural-land-and-population-between-1700-and-2000

There is very little undeveloped farmland left

Most of the usable land has already been cultivated. Much of the remaining land is either desert (or too dry for farming), ice (or too cold for farming) or forest (which is required as a carbon sink to help mitigate the effects of global warming). Read more

Estimated global agricultural land use in 1700 compared against actual global agricultural land use in 2000

There are fundamental limits to further cropland expansion

Future international agreements on climate change will likely strengthen the protection of the forested areas and natural ecosystems still remaining on the planet and further inhibit future cropland expansion. Agriculture and deforestation are already responsible for over a quarter of all greenhouse gases. Read more

The greenhouse gas effects of agriculture and deforestation compared to other sectors in 2008

Share of crop production increases by region of the world

The doubling of world cereal production between 1961 and 1991 was achieved mainly through increased yield per unit area and greater cropping intensity resulting from the “Green Revolution” (85% percent contribution) with only a small part of the growth coming from increased cropland area (15% contribution). Read more

Share of crop production increases by region of the world

The Green Revolution relies on the use of fertilisers and pesticides to increase production

The Green Revolution has been almost entirely responsible for supporting the expansion of the human population in the last half century. As a result of the Green Revolution, the use of fertilisers increased by roughly 700% between 1960 and 2000, with similar increases in pesticide use, but cereal production only increased by 167%. This means a fourfold increase in the use of chemical inputs was required to achieve each unit of production gain. Read more

Total global nitrogen fertiliser use between 1960 and 2000

Total global pesticide production and imports between 1940 and 2000

Production gains from the Green Revolution are diminishing

Global cereal production increased annually by an average of 3.6% between 1960 and 1970 but only by 0.6% between 1990 and 2000, however, food demand has continued to increase exponentially. Read more

Average annual production increases during the four decades between 1960 and 2000

It is becoming harder to increase global food production by conventional means

This is because as more marginal land is brought into production and further production is forced out of the limited cropland available, a larger amount of fertiliser is required for each unit of yield. In 1960 one tonne of fertiliser produced 80 tonnes of cereals. In 1995 one tonne of fertiliser produced only 20 tonnes of cereals. Read more

Trends in the nitrogen-fertilisation efficiency of crop production between 1960 and 2000

Population is increasing faster than food production

Because of diminishing production gains from the Green Revolution and reduced cropland expansion in the face of increasing population, cereal production per capita has been on a declining trend since the early 80′s. Read more

Long-term trends in average per capita cereal production

Farmland is being lost to land degradation

Productive farmland is being lost to soil erosion, salinization and other forms of land degradation at an average annual rate of 35,000 km2, equivalent to 95 km2 per day or 1,109 m2 per second. This is equivalent to an area roughly the size of Tokyo, Singapore or New York every week or one International Football Association standard football pitch every 7 seconds. At current rates, total losses could exceed 30% of all agricultural land by 2020. Read more

Map of global soil degredation in the year 2000

Farmland is also being lost to urban development

The number of people living in urban areas is forecasted to increase from 2.9 billion people in 2000 to 5 billion people by 2030 and 6.4 billion by 2050. As a result, the size of built-up areas will increase by 75% by 2030 and 225% by 2050. If all of the forecasted expansion were to take place on cropland, this would equate to an area larger than France by 2050. China alone lost more than 14.5 million hectares of arable land (an area larger than England) to urbanisation between 1979 and 1995. Read more

Past and projected global rural and urban populations from 1950 to 2030

Farmland and yields are increasingly impacted by drought

The agricultural sector is responsible for 70-85% of human water consumption. Due to climate change effects, the number of dry areas in the world has doubled in the last 50 years and droughts have increased in many regions. Read more

Trends in rainfall variability in the Sahel region of Sub-Saharan Africa

The increase in dry areas gloabally between 1950 and 2005

General water shortages are increasingly impacting yields

Many regions of the world already suffer from water shortages. 63% of the combined population of Brazil, Russia, India and China are already living under water stress. Demand for water is projected to increase by 70-90% by 2050. Water scarcity could be responsible for yield losses in the range of 1.7-12% in major cereal producing regions by 2050. Read more

Global water stress levels in 2000

Floods are negatively impacting yields

At the other extreme, irregular rainfall patterns due to climate change are also resulting in increased flooding in a number of areas. The total number of floods globally has more than tripled in the last 15 years. Agriculture requires regular, moderate rainfall, so floods have a negative as opposed to a positive, impact. Read more

Trends in climate disasters since 1980 versus earthquakes

Combined climate change effects will put substantial pressure on future agricultural productivity

Global temperatures are expected to rise by a further 0.4 degrees Celsius between now and 2030. Climate change effects could lead to an overall global decline in agricultural productivity of between 1 and 10 percent by 2030. Production declines of between 15% and 27% by 2030 are forecast for some African countries. Read more

Trends in global average surface temperatures between 1880 and 2008

Demand is increasing due to changing eating habits

It requires 3-10kg of grain to produce 1kg of meat. This means increasing meat consumption has a demand multiplier effect on grain supplies. 35-40% of all cereal produced in 2008 was used as livestock feed. Total meat production in the developing world (including China and India) has increased by over 300% since 1980 and is projected to double again by 2030. Read more

Comparative growth rates for production of selected animal products and feed grain use in developing countries between 1961 and 2001

The richer a population becomes, the more meat it consumes

US consumers currently eat over twice the meat of Chinese consumers yet the Chinese population is more than 4 times the size of the population of the US. This means that if per capita Chinese meat consumption increased to two thirds that of US meat consumption, it would be equivalent to adding an entire additional USA to global feed grain demand. Read more

The relationship between consumption and per capita income in 2002

Chinese demand is increasing but its cereal production is decreasing

Chinese cereal production is declining whilst its population continues to increase by roughly 9 million people a year from its current level of 1.3 billion. Per capita production of grains in China peaked in 1996. China now imports an increasing proportion of the grains it consumes. Read more

Total Chinese cereal production between 1960 and 2007

The 2008 price spikes were supported by fundamentals

2008 saw record lows in global grain stocks. When commodity prices reached their peak, average global grain stocks reached 18.7% of annual global utilization, equivalent to 68 days worth of global supply, well below the long-term average. Read more

Ratio of global grain stocks to usage rates

Hunger rates are rising

The number of undernourished people in the world continues to rise both in absolute terms and as a proportion of the total population. The total undernourished stood at 900 million people in 2007. Read more

Number of undernourished people in the developing world, 1990-92 to 2007

Hunger rates are rising

Food supply is becoming more volatile

Due to climate change related extreme weather events affecting yields, food production levels are becoming more volatile. Read more

Deviations from trend in wheat and coarse grain yields between 1995 and 2007

Food prices continue to rise despite the global downturn

Despite deflationary fears and the global recession, food prices continue to rise. Between December 2008, the post-correction low point and June 2009, food prices had risen by just under 20%, or 41% above the 20 year average. Read more

Food prices over the last 20 years

Increasing popularity of biofuels is a major new source of demand

Biofuels are the ‘third F’ driving demand for agricultural commodities adding ‘fuel’ to the traditional demand drivers of food and feed (for livestock). Higher oil prices are changing the nature and composition of the demand for food crops due to the rising use of grains such as wheat and corn for the production of biofuels. Demand from biofuels has more than tripled in the last decade. Read more

Global production of biodiesel and ethanol between 1975 and 2005

Higher oil prices mean higher demand from the biofuels sector

The breakeven price for producing ethanol from corn is $50 per barrel of oil. Sustained oil prices at 2008 levels of $140 per barrel of oil could support corn prices of US$300 per tonne. Read more

Breakeven prices in terms of the crude oil price for maize with and without subsidies

People are spending less on food now than in the past

Despite rising agricultural commodity prices, food expenditure as a percentage of total consumer spending remains near all time lows. Agricultural commodity prices could rise by over 400% and still be lower (as a percentage of global expenditure) than in the early 60′s. Read more

Trade in commodities as a share of total global merchandise trade

Demand for food remains strong even at higher prices

Price elasticity of demand for food is low. This means consumers tend to absorb higher food prices and sacrifice expenditure in other areas. Food price inflation has been higher than overall inflation in the past few years. In China food inflation was almost triple background CPI inflation between 2007 and 2008. Read more

A comparison of rising food prices and overall inflation in different countries between 2007 and 2008

Agricultural commodity prices could easily rise further

Adjusted for inflation, current agriculture commodity prices remain deeply discounted to previous highs. This suggests significant scope for further increases in agricultural commodity prices, and with them, farmland values. Read more

Trends in commodity prices relative to income between 1971 and 2007