Recently we discussed the pattern of crop yields that have resiliently shrugged off adversity during the growing season in the U.S. and Canada over the past number of years. The result of advancements in genetics, technology and farming practices have allowed markets to be less fearful of a production shock relative to what they were in the past. But it’s not just North America, or the developed countries, that are the source of growing grain supplies. In fact, the potential may be even greater in emerging ag markets.
This past season Russia grew its largest total grain crop since the era of the Soviet Union, at 133 million metric tonnes (MMT), 15 percent higher than the previous year. The rate of the production growth in South America has been running faster than what has been seen in North America and Europe. Reports suggest that China may eventually allow the growing of GMO corn after state-owned ChemChina took over Syngenta (they allow the import of certain GMO varieties, but not the cultivation of them). Over the years the Former Soviet Union and South America have become formidable exporters in crops that used to dominated by the U.S., Canada, Australia and Europe.
While these regions have made tremendous strides, further gains will be made. Many farms are employing the latest technology and best practices, but this hasn’t yet permeated throughout the entire industry. Infrastructure gaps limit the pace at which crops can move into global markets, whether it’s the long distance that Brazilian soybeans need to be trucked over poor roads, or port capacity that caps how much of Russia’s enormous wheat crop will get shipped in this marketing season. Infrastructure takes a long time to be upgraded, but it is slowly happening, which will only make these countries more competitive in global markets going forward.
One region that doesn’t get as much attention, but has tremendous long term potential, is Africa. It has over half of the world’s total uncultivated arable land, and a tropical climate that allows for a long growing season. The challenges to materially improving production are enormous, whether it’s raising yields on existing land or pulling new acres into production, but so are the possibilities if the investments in education, technology and infrastructure are made.
Finally, a lot of supply can be ‘found’ as waste and spoilage gets reduced. It’s estimated that as much as one-third to half of all food produced gets wasted. Some of this reflects the abundance of our developed societies, and the ease of throwing food away when groceries represent a relatively small share of the wallet. But much is also basic production that is lost in developing regions due to poor storage facilities and practices. Even simple improvements in this area can make a meaningful difference.
The ‘traditional’ developed countries will always be an attractive place for agricultural investment. We boast a strong rule of law, good infrastructure and highly educated and innovative farmers. However, the competitive supply pressure is only going to increase as other countries more fully utilize their own tremendous natural resource endowments.
Jonathon Driedger, Senior Market Analyst