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How demographics impact the cost of capital – Peter Zeihan

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…because of demographic aging on a global scale, the United States is emerging as the only market over the long-term. 

In the United States, you have the market, the financial capital, the labor system, the consumption base, the energy—and you can project power out, rather than have to defend your own borders. That does not exist anywhere else on the planet, and is not going to exist anywhere else on the planet in the next fifty years.
~ Peter Zeihan (excerpts from Reasons the U.S. will Dominate the World Economy, Forbes) 

Driver of Food Megatrends – Demographics

I’ve given a number of talks in the last two years on megatrends that will determine the future shape of agriculture.  I build my analysis of megatrends on a foundation of three drivers.

  1. Demographics – Statistical data relating to the population and particular groups within it.
  2. Economics – Knowledge concerned with the production, consumption, and wealth creation.
  3. Culture – How human achievement is communicated and celebrated in society.

Framework for Megatrends

The fun part of these talks is the look-forward: How are megatrends expressing themselves in changes we see today, and how will they shape the agriculture of tomorrow.  Therefore, I typically don’t spend time elaborating on how I derive the megatrends I propose.

In the next three weeks, I’ll use this forum to elaborate briefly on demographics, economics, culture, and how each shapes impactful megatrends.  I’ll start with demographics.

I borrow heavily in my thinking about demographics from Peter Zeihan,  Zeihan is a geopolitical strategist who specializes in global energy, demographics and security. He analyzes the realities of geography and populations to deepen the understanding of how global politics impact markets and economic trends.  His two books, The Absent Superpower and The Accidental Superpower are provocative reads.  He, more or less, predicted Brexit and the election of Trump.

Zeihan’s analysis boils down to the idea that most of the developed world outside the United States, has reached it productive peak.  Mature workers, 45 to 65 years old, are at their productive peak and are in net savings mode.  For societies as a whole, this leads to ready supplies of capital and output growth.  But now that’s begun to shift as those workers turn to retirement and begin to hold on to and burn their savings and then take their production out of the marketplace.  Capital becomes more expensive and growth lags or sags.  There simply aren’t enough workers at younger demographics to make the world work the way it has for the last century.

Developed World Demography Without US 2030

Zeihan’s chart of demography of the developed world excluding the U.S. in 2030 tells the story.  There isn’t a bench in the younger demographics to replenish those retiring from the workforce.

China Demography 2040

The same holds true for China.  The one-child policy has in two generations moved China to one of the most rapidly aging populations in the world, important due to sheer numbers (1.4 billion people).

US Demography 2030

Meanwhile, U.S. demographics in 2030 are projected by Zeihan to be on a more sustainable track.  Higher birth rates than other developed countries along with immigration keeps the younger demographic groups recharged.

What about demographics and food?  Below is a table with a simplified view of how I analyze the impact of demographics on food choices, consumption and spending.

 

Demographics of Food

For the United States these demographic drivers hold a few clues as to current and future trends.

  • Trends related to health and wellness are linked closely to demographics.  A higher proportion of the population puts health concerns toward the top of their list when making food choices.  Growth in organic food sales is a manifestation of demographics, for example.
  • Many tag those born in the U.S. between 1980 and 2000 as millennials, and their food choices are notable for a couple reasons.  First because that demographic is big, having by some counts now surpassed the baby boomer demographic, counting somewhere between 75 and 80 million people.  So there are a lot of them.  Second, their food choices tend to mimic older demographics sooner than past generations.  Millennials make food choices earlier based on lifestyle and health, often in spite of budget constraints.  In a 2013 survey of U.S. consumers conducted by a student research group at Iowa State University, it found that Millennials made food choices based on health issues just as often as older demographics.

In a nutshell, food trends in the U.S. related to origin, production method, and health impact will not go away.  In fact, we are likely still in the early stages of those sorts of trends in consumer food demand.

For countries outside the United States, it’s a mixed bag.

  • Europe, Russia and most Eurasian countries are not growth markets from a demographic perspective.  The population is aging with birth rates much below death and net-migration in most countries so the amount of calories needed to support those populations is in decline.
  • In China the demographic picture is aging also, but that is offset by income growth.  However, the interplay of demographics and income growth makes future food consumption predictions really difficult to nail down.
  • Many countries across southeast and southern Asia as well as Sub-Saharan Africa have the most positive developing country demographics.  Food demand increases are a sure-thing and will be significant.  The significant question is where it will be produced.

In next week’s post I’ll address economics as a driver of food megatrends.