Thursday, January 13, 2011

Food prices to soar: Deloitte

Food will become much more expensive in the next decade thanks to a burgeoning middle class around the world, according to a new consumer report from Deloitte Touche Tohmatsu. “Greater consumption leads to a greater strain on resources,” says the Consumer 2020 report, presented this week at the National Retail Federation in New York. “Without sustainable consumption, it will become increasingly difficult to meet the collective expectations and aspirations of the world’s new consumers.”

The report, which projects shifts in consumer behaviour related to demographic, economic and technological influences, says the growing affluence of the middle classes in emerging markets is set to dramatically change food consumption patterns.In the next decade, the world’s population is projected to increase 11%, but the growth in the middle classes is what will affect food supply and prices, the report says: at least 70 million new consumers around the world will be added to the middle class each year, reaching 800 million by 2020.

That is largely due to the boom in emerging markets such as China. “As incomes rise, people typically shift from grain-based diets to diets dominated by ‘high-value’ foods such as fruit, vegetables, meat, dairy products and fish,” the report says. Booming economies can lead to ballooning waistlines, with technology and development in emerging markets spurring a dietary shift to more processed foods.

China’s economy has grown 9% to 10% a year despite the recession, and Chinese have flocked to urban areas and more white-collar jobs. “This has allowed for more spending on food, including Western-style fatty and sugary fast foods, drinks, prepared meals and packaged goods,” the report says.

Rising obesity in emerging markets will likely spark a trend mirroring greater demand for healthy and “functional” foods with nutritional benefit. Those “varied high value foods” will put a greater strain on resources, the survey predicts.“The significant pressure on crop yields and meat production globally will continue to keep food prices high. Food prices will rise further due to the limited availability of suitable land and water, as well as the reduction of global grain stocks due to a number of climate-influenced poor harvests in different parts of the world and new demands for bio-fuel production.”

Bio fuels were primarily responsible for the 105% increase in corn prices between 2002 and 2008, the report noted. As food prices rise, many consumers will be more selective about what they buy and will not be able to spend as much money at restaurants. The report also cautions that climbing food prices might require government intervention in many parts of the world.As consumers in various parts of the world face “the potential reality of empty retail shelves,” it could lead to political instability, price inflation and even food riots of the kind seen in places such as Haiti, Morocco and Pakistan in 2008.

Last week, the United Nations’ food agency (FAO) reported that food prices hit a record high in December, higher than the riot-plagued period of 2008.The report comes after a year of price spikes in agricultural commodities largely due to poor weather, which tightened supply and drove up prices. Last year, U.S. wheat futures prices jumped 47%, corn climbed above 50% and soybeans rose 34%. In addition to bad weather, increased Asian demand is fuelling the spike; it is predicted China will buy 60% of the global trade in soybeans in 2011-2012 twice what it purchased of the commodity just four years ago.

“Such instances make it painfully clear that the additional demands of the new middle class for food will require much better management of land, water, supplies, waste and farming practices,” the Deloitte report notes.

Financial Post
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