Agribusiness


Article of the Day

The Future of Agriculture – Economist

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The seafood counter historically is the only place in the grocery store where we have been hunting and gathering, and that is rapidly changing to a farmed environment. And with the interest in local and domestic production, sustainability, and carbon footprint, the emphasis is now on producing more seafood here in the U.S.
~ Joe Hankins –  Director, Freshwater Institute

Six Reasons Salmon Production in Iowa is Interesting

I am part of a startup business, Inland Sea, that in September publicized for the first time an intention to build a recirculating aquaculture system facility to produce salmon in Iowa, specifically a site in Harlan.  With a two-acre footprint, this large-scale, bio-secure and efficient facility will result in weekly harvest of approximately 100,000 pounds of salmon, 5.3 million pounds annually.

ras-tank-renderingRendering of Salmon Production Tank ~150 feet in Diameter

We believe indoor fish production is the emerging frontier of aquaculture and the most promising systems to emerge for indoor, efficient production are recirculating aquaculture systems (RAS), and it’s been interesting for the last month to get a deeper sense of other people’s thinking on the topic.  As we’ve conducted a series of public meetings about the Inland Sea-Harlan project, a sense of people’s interest in the project has emerged based on the questions they ask.

A common question to the Inland Sea team, however, is why we became interested in this opportunity.  The top six include the following.

  1. The technology model has been proven elsewhere – Multiple RAS salmon production facilities are currently operational in Europe. These European RASs have demonstrated capability as environmentally sustainable and scalable, with the ability to guarantee both the safety and the quality of the fish produced.
  2. Competitive unit economics – The economics of aquaculture starts with feed conversion. One advantage fish have over land animals is feed conversion. Fish need fewer calories, because they’re cold-blooded and due to living in a buoyant environment, they don’t fight gravity as much. It takes roughly a pound of feed to produce a pound of farmed fish; it takes almost two pounds of feed to produce a pound of chicken, about three for a pound of pork, and about seven for a pound of beef. The salmon produced in a model facility in Denmark has demonstrated a feed conversion ratio of approximately 1.10.
  3. Salmon consumption has upside potential – U.S. salmon demand grew rapidly in the 1990s, and has been relatively flat since because of higher prices and constrained supplies. Salmon passed tuna as the second highest consumed seafood in the U.S. in 2013, coming in at 2.7 pounds per capita compared to 3.6 pounds for shrimp and 2.3 pounds for tuna. In addition, salmon is the only seafood consumed primarily as a premium product rather than frozen or canned.  A one pound uptick per capital in U.S. salmon consumption would require about 60 Harlan facilities worth of production to fill.
  4. The next model of salmon production – Due to biological constraints, seawater temperature requirements and other natural constraints, seaside farmed salmon is primarily produced in Norway, Chile, UK, North America, Faroe Islands, Ireland, and New Zealand/ Tasmania. Seaside salmon aquaculture production has reached a level where biological boundaries are being pushed. The Chilean industry, for example, has had significant struggles with disease, sea lice, and algal blooms in recent years. In addition, seaside salmon aquaculture production can occur only in a few areas globally because of water temperature and there is little upside production potential remaining. Future production growth of any significance will need to come from RAS systems.
  5. A fantastic food – A good aim for a food business is to make a fantastic product, and salmon from RAS production fits the bill with great texture, taste and nutrition profile.  And, of course, fresher is better.  Salmon has been termed by nutritionists as a superfood for its health impact. It is one of the best sources of omega-3 fatty acids, particularly EPA and DHA, which are nature’s heart medicines.
  6. Iowa and aquaculture are a fit – The major input for salmon, like any animal protein, is feed. Iowa is one of the lowest cost feed ingredient locations in the world. Another major input for RAS salmon is electricity, and Iowa has one of the lowest kWh prices in the nation. Finally, the salmon you eat in the Midwest travels approximately 4,000 miles from Norway or approximately 5,500 miles from Chile. We anticipate that salmon production in Iowa will have an out-of-the gate transportation cost advantage of approximately $0.50 to $1.00, aside from a freshness advantage.

We know other agricultural entrepreneurs working on aquaculture projects, driven by similar reasons to ours at Inland Sea.  But what other opportunities may be driven by one or more reasons similar to the above?  What opportunities are there for other proteins?  How might technologies deployed in RAS systems (sensors, water treatment, precision feeding, biological controls) be deployed for agricultural production beyond fish?  What opportunities for entrepreneur may emerge as new industries emerge in new areas?

Video of the Week

What do you know that no one else understands? – Peter Thiel

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“All great thinkers are initially ridiculed – and eventually revered.”
~ Robin S. Sharma

Contrarian Agriculture

Contrary
adjective
          Opposite in nature, direction, or meaning.

The most entrepreneurial paths are those that are new and untried.  Identifying those paths comes, at least in part, from the way the entrepreneur looks at and interacts with the world around him or her.  While pleasing other people is not a bad habit, agreeing too quickly with others on the way the world works today dampens one’s ability to identify interesting opportunities.

My contention is that entrepreneurs find ways to be contrarian.  In doing so they uncover ideas, pathways, and ultimately businesses that are trail-blazing.  Peter Thiel gets at this in interviews and his book Zero to One by asking ‘what truth do few people agree with you on?’

One method I suggest to students for putting your inner contrarian to work is to capture it in a persona.  In my case, I envision a neighbor of my grandfather named Vladi.  Vlcdi was dead before I was even born, but I still recall Grandpa’s tales about the sheer orneriness of Vladi, and some of the funny reactions to his behaviors.  So my inner contrarian takes the form in my mind of a German-accented farmer in 1930s bib overalls growling disagreement at those people and situations he encounters, just for the amusement of it really.

Another means of honing your contrarian skills is to examine bits of conventional wisdom and where you may differ from it.  Conventional wisdom is the body of ideas or explanations generally accepted as true by the public or by experts in a field.

Five examples of what I take as conventional wisdom in agriculture includes the following.

  1. Agriculture’s primary challenge between now and 2050 is how to feed the growth in world population from today’s 7.4 billion to the 9.4 to 10.0 billion in 2050.
  2. Cheaper energy means that supply chains in agriculture will be longer.  The distance between where agricultural and food products are produced and where they are further processed/consumed/used will increase.
  3. The most significant resource constraints for agriculture will be land and water.
  4. The emerging middle class in countries with rapid economic growth are adopting western diets.
  5. Economies of scale will continue to heavily impact farm and business size, with increasingly large farms and agricultural businesses occupying a bigger part of markets.

What does your inner (or outer!) contrarian tell you about any one of these five examples of conventional wisdom in agriculture?  Reply to this post.  In addition, reply not only to this post but to those of other respondents.  Do you disagree with any of these examples of conventional wisdom? Unleash your inner contrarian!

Headlines and Articles

Agriculture in China rapidly modernizing – Pig Site
U.S.-EU trade agreement could benefit agriculture – Capital Press
Salt poisoning costs agriculture $27 billion annually – Nature World
Beyond disruption: The age of the impact entrepreneur – Wired
Problems are only hurdles in front of goals – Entrepreneur
The future of innovation belongs to the mega-city – Washington Post
Amidst public controversy China debates GMO development – Forbes
This is the path of innovation – Globe & Mail
There’s no ‘there’ there with latest ‘deflation’ scare – Forbes

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Whether manufacturing becomes of greater or lesser relative importance in China than in the United States, it is certain that there will be need for a constantly increasing agricultural production, and that the fullest utilization of the arable land consistent with a permanent agriculture should be a major concern of the Chinese government.. 
~ O.E. Baker, 1928 Issue of Foreign Affairs, Agriculture and the Future of China

Opportunities for US-China Investments in Agricultural Innovations

I recently published a paper with the Paulson Institute, Opportunities for US-China Investments in Agricultural Innovations and New Technologies.  The paper outlines four models that can link US and Chinese investment activity, particularly private sector investment, to help yield productive new avenues of commercial collaboration. All four models focus on animal protein supply chain technologies. That is because agricultural innovation in this realm is of particular importance to demand side developments and rapidly changing consumption patterns in China.

The models focus on early-stage agricultural business development activities, representing a new element of US-China private sector engagement. Although mergers and acquisitions (M&A) between US and Chinese agribusiness and food companies—for example, the acquisition of Smithfield Foods by Shuanghui—may continue to be an important part of strengthening agricultural ties, collaborative early-stage commercial activity promises to deliver more enduring impact. Connecting investors, business people, and entrepreneurs from both countries has the potential to build collective knowledge and imagination, resulting in greater indigenous agricultural innovation in both countries.

The United States has in many ways set the global standard for agricultural innovation. And China, for its part, has made significant strides in agricultural productivity as well. China continues to both rapidly integrate innovations from abroad and to develop homegrown innovations. But is the rate of agricultural innovation adoption in China rapid enough to meet the growing food needs of a huge and increasingly wealthy population?

The average family in the United States today spends 10 percent of its disposable household income on food, while that figure is double in China. Both of these figures have declined over time—in the United States over an extended period, and in China more dramatically in the last thirty years. When families spend less of their income on food, it represents a relative gain in prosperity as disposable income can then be spent on other necessities, leisure, or luxury items.

The decline in food prices is directly related to the rise of agricultural productivity over the last thirty years. The key factor responsible for such significant gains is innovation, not just previous gains from input intensification and crop-area expansion. It takes significantly fewer resources today to produce one calorie of food than it did in the past, with much of the credit for that improvement attributable to agricultural innovation.

For this reason, investment in agricultural research and development (R&D) is an important driver of agricultural innovation. But while public sector spending on such R&D is important to both the United States and China, it is private sector investment in both R&D and commercialization that will determine the ultimate effect of future agricultural innovations.

This raises an important question for the United States and China: are there opportunities to link private sector investment activity in agricultural innovation and connect the agricultural innovation engines of the two countries?

This paper suggests four models could link US and Chinese private sector investment, and thus yield productive new avenues for commercial collaboration. All four models focus on animal protein supply chain technologies. That is because agricultural innovation in this realm is of particular importance to demand-side developments, and rapidly changing consumption patterns, in China.

Model One: Joint Agriculture Fund. Such a fund, backed by US and Chinese equity partners, would have an explicit focus on investing in businesses with technology relevant to both the United States and Chinese animal protein supply chains. Chinese investors would be limited partners in the fund itself, but personnel with deep experience in, and perspective on, Chinese agriculture would help to bring unique capacity to the fund’s portfolio companies. The goal would be to help them scale portfolio businesses in both the United States and China.

Model Two: Joint Agriculture Accelerator. In this model, Chinese investors would partner with a US-based organization to start a US-China Agriculture Accelerator. Such an accelerator would provide participating businesses with office, laboratory, and/or engineering space, as well as access to mentors, skills training, a support network, and ultimately connections to investors and customers. The joint accelerator would, as is customary, often take an equity stake in businesses that participate in the program.

Model Three: University Student Incubators. In this model, US and Chinese investors would help to create student incubators at US universities, with the explicit goal of supporting development of startup businesses created by teams of both US and Chinese university students. Startup businesses that emerge from this student incubator would have market potential in both countries.

Model Four: Emerging Africa Agriculture Fund. This model would combine Chinese and US investors (and potentially third-country investors), as well as agribusinesses from both countries, into partnership active in third countries where agricultural development is a pressing need. One opportunity that stands out is the prospect of investment in greenfield agriculture projects in Sub-Saharan Africa. Such a fund would aim to discover projects where mutual participation would benefit the Africa-based project but also build opportunities for participating US and Chinese agribusiness partners.

The rise of the Chinese consumer has been one of the most important drivers of change in global agriculture in the last 25 years, and that process is only beginning. Combined with the emergence of middle class food consumption habits across emerging markets, the resulting demands on agricultural production systems represent among the most important economic and environmental challenges of the next 50 years.  To meet these challenges, these four models represent opportunities to link investment activity in agricultural innovation—and connect the agricultural innovation engines of the two countries at the center of global agriculture.

Headlines and Articles

The four new breeds of entrepreneurs – Wall Street Journal
Agriculture officials urge drone rule changes – News Observer
Impact of agriculture in American history – IVN
Innovations in the dairy industry – Janesville Gazette
Crop prices at rock bottom and agriculture stocks – Forbes
Agriculture – The key to Africa’s development – allAfrica.com
Unmanned aircrafts: a future for the agriculture industry – The Collegian
Steve Blank: ‘Entrepreneurship is a calling, not a job.’ – Entrepreneur

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You cannot modernize the economy in Africa without starting with agriculture. 
~ Prof. Calestous Juma

Entrepreneurial Value Chains in Africa

Projections of a 9 billion global population and its need for doubled food production by 2050 are cited often, becoming the common language of the challenge and opportunity facing the global agri-food system. Nowhere is that challenge more vivid than in many parts of Africa.

On the one end of the value chain stands consumers, with an emerging middle class in many African countries now demanding much more from agriculture and the food industry. There are now more than 50 cities in Africa with more than 1 million populations, some exceeding this mark substantially.  I’ve visited four of those cities in the last three weeks in Dar es Salaam, Tanzania (4.4 million), Accra, Ghana (4.0 million), Kumasi, Ghana (1.8 million), and Kampala, Uganda (1.97 million). These metropolises are part of Africa that is projected to grow to a 2050 population of 2 billion people, double that of today.

Proliferation of fast food restaurants, a sure sign of emerging middle class affluence, is lacking today in most of Sub-Saharan Africa, though there are some chains from South Africa present. A friend works with the owner of the first three Subway restaurants in Tanzania and Kenya. Three! I saw a KFC store in Accra, and a billboard advertisement. However, not a Starbucks in sight. No McDonalds either. Even without these global brands, there are many more local restaurants than you would have seen three, five, or ten years ago and supermarkets that carry a variety of local, regional, and global brands.

On the other end of the value chain is where the challenge lies, agriculture. The systems of efficient agricultural production, processing, and logistics present in other parts of the world have largely not emerged as yet in most of Africa, but need to very quickly. There is much public sector and NGO activity related to development of agriculture, but what is lacking is private sector competition, innovation, and subsequent wealth creation.

Imagine you are a native of a country in Sub-Saharan Africa and an aspiring Ray Kroc (McDonald’s founder), someone who wants to create a number of restaurants that specialize in quick-serve, high quality, consistent food items. You’re confident in demand so long as you can create the right atmosphere and serve high quality items at an affordable price.

You begin to think about supply of key ingredients, and start with ground beef. You research beef products available, but find out there are only 3 beef abattoirs in the entire country where you want to launch, none processing more than 200 cattle in one week. After visiting them, you have serious concerns about basic safety and quality control standards.

You then decide that perhaps imported beef, from the U.S., EU, or Brazil, is an option for higher quality, consistent beef products. After discovering the high per kilo price of imports, however, that doesn’t seem realistic for a start-up restaurant that aims to have price points for the masses.

You turn to research about beef production in your country. Maybe there is a source of high quality cattle and you can create an alliance with them for processing the animals. After some research, you find out that there are no feedlot-style cattle producers in the entire country. Zero.

We use the term ‘value chains’ a lot in agriculture and food industry. Value chains are the set of actors and activities that bring a basic agricultural product from production in the field to the consumer. The challenge in Africa is not just development of value chains, it is creation of value chains from the bottom-up.

It is extremely difficult for someone from the U.S. or another country with highly developed agriculture to appreciate the task. Those who want to see production of various agricultural commodities and food ingredients can’t set their sights on just one value chain activity. You can’t plop a Midwestern crop production operation down, for example, as there is no developed market and logistics for all that it could produce. You can’t create a meat processing business because there is no modern packing facility to source meat from and there are few livestock producers of scale to provide the basic input anyway.

The missing element has been value chain entrepreneurs, those willing to build entire value chains with all the associated problems and pains in doing so. The market wants high quality, consistent ground beef, for example? A value chain entrepreneur will do what it takes to deliver that product to the market place and it will likely involve level of direct investment and partnerships in beef production, beef abattoirs, beef processing, and cold chain logistics. There is simply no other way. The value chain will, of course, develop over the course of time, and entrepreneurs and companies will become more specialized in more specific parts of the value chains. But for now, it all needs to be done.

I have had the opportunity to meet during my most recent travels (and prior travels to Africa) the value chain entrepreneurs that will make good things happen. Perhaps fittingly, I think the most interesting projects are those where farmers are involved. Sometimes farmers from abroad, the U.S. and Brazil, for example, partnered with someone they’ve met from Africa. Other times, it’s African farmers who are developing their operations beyond production agriculture and into processing, wholesale, and retail activities. Sometimes, it’s agribusiness people coming back to start their own operation, or young professionals returning to near their home villages to develop their own agricultural businesses.

Capital is needed to develop entrepreneurial value chains in African agriculture, but there are two types of capital to keep in mind. One, certainly important, is financial capital. Scalable agricultural production, processing, and logistics simply cannot be developed without financial investment. Secondly, and I believe more important, is human capital. What is desperately needed is the human talent and spirit that can gather resources, identify opportunities, overcome obstacles, and build companies that will ultimately deliver affordable, high quality commodities, ingredients, and food to the emerging consumer base in Africa. That is, entrepreneurs.

Farm to Fork – Raja Najjar’s Talapia Restaurant, Accra, Ghana. Farm raised fish offered directly to consumers starting at 5.90 cetis or $2.45 per plate.

Trends Impacting the Food and Agribusiness Value Chain

In the last post, I addressed three areas of significance for innovation in the global food and agribusiness sectors in response to a survey that the International Food and Agribusiness Management Association is conducting with McKinsey & Company to better understand where the global growth opportunities are in food and agribusiness across the value chain.

Another question I addressed in the survey was related to the value chain.  Three trends I believe will have significant  impact on the value chain for food and agribusiness I listed in response to the survey are below.

Information at your fingertips

When we launched our first Internet-based electronic commerce application at E-Markets in 1997 for contracting specialty grains and oilseeds, the novelty was in tying participants from across the supply chain into a single information system.  The results were more efficiency, better coordination, and a system of traceability.  Today, that software application is described as cloud computing, a trend that is just beginning to take shape.

The foundation of cloud computing, information available at any node, combined with mobile devices will have powerful implications for many industries, agriculture and the food industry included.  The information-at-your-fingertips metaphor is a powerful one.  As business people and consumers demand this capability for how they make transactions and interact with information, there will be many changes in how business is conducted.

A student start-up emerging from the Agricultural Entrepreneurship Initiative Student Incubator Program, ScoutPro, is a great example.   Michael Koenig’s observation as a crop scouting intern was that he could do his job much more effectively if he had crop pest data at his fingertips, not as a cumbersome catalog carried in a field, but rather as a software application.  Eighteen months later he and his team have launched  company that provides mobile applications for crop scouting.

At the consumer end of the food business, there will be ramifications for the industry as well.  Consumers want more information at their fingertips, and it will affect their purchasing choices.  ShoptoCook, for example, provides consumers at the point of purchase with recipes, shopping lists, and other information.  If your company has an sku item in a recipe ingredient list pulled up on a kiosk at a retail store or on a smartphone, do you think it’s important to have a position in the list?

Nutrition Literacy

There are many signs of a higher proportion of consumers becoming much more literate, or at least interested, in nutrition.  There is also much more being published at the consumer level regarding the science of nutrition, the interaction of the body with various ingredients and compounds.  This will have significant impacts on food demand.

The boundaries of nutrition and science are being pushed, particularly by athletes and fitness buffs.  A fuller understanding of athletic performance and how it’s affected by nutrition has been a fact among high-performance athletes for some time, but there is evidence of this seeping into broader consumer markets as well.

For example, there has been fast growth among athletic nutrition franchises such as Complete Nutrition and Nutrishop. While these stores cater to the portion of the market focused on exercise, fitness, athletic performance and nutrition, it is a fast-growth market.

P90x is a personal training program that has become a cult-like phenomenon, with something close to 4 million people in U.S. using this extreme (90 minutes per day) personal fitness regime.  Part of that regime is nutrition, with a detailed nutrition guide that provides a philosophical and scientific base for health, fitness, and nutrition.  If 4 million people in the U.S. are following a nutrition plan like this, it points to an important trend where a higher proportion of consumers become much more discriminating in food and ingredient choices.

A regional grocer, HyVee, has developed NuVal, a food-scoring system that helps consumers see – at a glance – the nutritional value of the food they buy.  It doesn’t prevent my kids from grabbing the bag of Doritos, but it is interesting to hear them talk about and compare the nutrition labeling scores on various products.

New Supply Chains

The agricultural supply chain is the system of organizations, people, technology, activities, information and resources involved in moving and transforming commodities and food products from inputs to final customer.  There are trends pointing to changes in traditional supply chains and supply chain relationships.

First, I believe that a higher proportion of supply chain developments are currently being driven by events and issues at the production end of the chain.  Whereas processors have historically held much sway in the industry for structuring supply chains. today there is greater scarcity of production capacity rather than processing capacity.  This leads to many supply chain decisions being dictated by production issues such as access to supply, access to land resources, access to transportation infrastructure, etc.  I’ve written in a past post (Economic Center of Gravity in Agriculture) that a very interesting dynamic in agriculture today is the migration of the economic center of gravity toward the production side of the supply chain.

The dynamic in supply chain structure changes is expressed in many ways.  One example is the fragmentation of supply chains previously driven purely by scale economies.  In Iowa, a beef packing plant that has been more or less closed since 1999 in Tama is set to re-open this summer, but under a new model.  Rather than compete in commodity beef markets, where it would lose on scale economics, it will become a very large custom kill facility where beef producers can work to develop more regional and specialty supply chains. With beef supplies in the U.S. at historic lows, it is certainly an interesting time to launch the venture.

Perhaps the more interesting are supply chain trends playing out in countries other than the United States.  In Brazil, for example, there are cases where small numbers of farmers who collectively plant hundreds of thousands of acres of oilseeds are obtaining funding for development of their own oilseed processing facilities.  In Africa, a fundamental challenge to agricultural development remains development of viable ‘smallholder supply chains.’

The overall picture is one of supply chains emerging in global markets with a greater variety of structures and systems than have characterized agrifood markets in the past.

 

Innovation in the Food and Agribusiness Sector

I recently filled out a survey that the International Food and Agribusiness Management Association is conducting with McKinsey & Company to better understand where the global growth opportunities are in food and agribusiness across the value chain.  They are working to gain a broader perspective from industry experts, practitioners, and academics.  I’ll look forward to seeing the results of the survey mid-year.

The questions were timely for me in that I’m scheduled to give a talk to a group on the same topic in late March, so I had a chance to spend some time thinking about opportunities.  Three areas of significance for innovation in the global food and agribusiness sectors I addressed in response to the survey are below.

Technologies for greater productivity

Agriculture and the food industry face the challenge of producing more, which is nothing new, but the scale of production increases needs to pick up.  As global population moves over 9 billion around mid-century, food production needs to double.  Given crop land constraints, 70 percent or greater of this production increase is going to need to come from increased in productivity, getting more output for each unit of input.

Development and application of new technologies that increase productivity has been the story of agriculture for the last century, and certainly needs to be for the next century, even at a greater scale.  Where does it come from?  Plant and livestock genetics?  Mechanization?  Scale?  Process engineering?  Supply chain management?  Information technology?  All of the above in my estimation.

One concern about agricultural productivity is related to investment in basic agricultural research.  Basic research is carried out to increase understanding of fundamental principles.  It is not intended to yield immediate commercial benefits.  However, in the long term it is the basis for many commercial products and applied research.  Modern government, historically the important source of funds for basic research as a public good, is increasingly constrained by other budget priorities.

In 2009, for example, the U.S. Federal Government budgeted $57 billion for basic research, much of that going on to research institutions like universities.  Of that total, only $1.7 billion (3 percent) went to agriculture-related research through the U.S. Department of Agriculture.  The private sector will continue to drive innovation in agriculture and the food industry, but one wonders why the U.S. Federal Government spends little more than any one of the big plant sciences companies annually on agricultural research.  Monsanto, for example, will spend $1.4 billion on research and development in 2012.  Corporate R&D spending by its nature will be more applied and related to commercialization, but there needs to also be basic research that creates the pipeline of technologies that can be commercialized 10, 20 and 30 years in the future.

Food niche markets

The growth and emergence of niche markets in agriculture and the food industry is quite interesting and opens up huge doors for innovation and entrepreneurs.  There have, of course, always been niche markets in the food industry.  Whether ethnic tastes, regional specialties, trendy ingredients, or whatever, the way people eat changes through the course of time with fad and fashion emerging and fading.

What is happening today, however, is bigger and has more significant repercussions for the structure of agribusiness and the food industry.  Since the dawn of refrigeration the construction of mass marketing in the 1940s, much of agribusiness and the food industry in developed countries has been built around the idea of commoditization, creation of systems that deliver mass produced, largely undifferentiated products to consumers very efficiently and with rigorous safety standards.  I don’t use the term commoditization in a derogatory way.  The growth in productivity and efficiency in the U.S. agricultural and food sectors has enabled the proportion of disposable income spent by consumers on food in the U.S. to go down from almost 30 percent in the 1930s to almost 10 percent today, a good thing indeed.

What seems to be changing among a higher proportion of U.S. consumers today is a reawakening to a richer array of ingredients and sources of foodstuffs, a partial break away from the mass market if you will.  Income constraints are most certainly an issue for most food consumers, but the depth of demand for niche products is significant.  Demand for organic and ‘local’ foods approached $40 billion in 2011 in the U.S.  As similar trends take hold across the globe it represents both a challenge and opportunity for the industry.

Africa agricultural development

I believe the agricultural development needs of a single continent represent a singular challenge and opportunity, Africa.  For any number of reasons, agricultural and economic development has lagged in most African countries.  This needs to change, and it will.

The FAO projects that Africa population will increase from 1 billion today to 1.8 billion in 2050.  It is imperative that Africa greatly expand its agricultural production capacity, but there are significant obstacles, political, cultural, economic, to doing so, both from within Africa and from forces outside the continent.

In many countries in Africa today, more than 80 percent of the population is one drought away from starvation.  Yet in some of those same countries there is much potential for agricultural development.  I assert that in many countries agricultural development is the necessary foundation for economic development.  The basis for economic development and wealth creation is specialization of labor.  This cannot occur where the bulk of the population spends most days just trying to provide for their basic needs.  For example, a rural peasant woman in modern Malawi spend her time roughly as follows*:

  • 35 percent farming food
  • 33 percent cooking, doing laundry and cleaning
  • 17 percent fetching water
  • 5 percent collecting firewood
  • 9 percent other kinds of work, including paid employment

In the U.S., we can go to a grocery store and trade our labor (wages) for products resulting from the efforts of ten of thousands of others simply by what we place in a single grocery cart.  There are significant pockets of Africa where people spend a high proportion of their day’s labor simply working to feed themselves.  This is poverty.  Prosperity involves moving from self-sufficiency to interdependence on others who specialize in their labor and become more productive.  This process has to start in much of Africa with development of agriculture.  Bill Gates recently made remarks and wrote articles that get to the heart of matter related to use of modern agricultural technology.

In the next post I’ll write about trends that will create growth and business opportunities within the agricultural supply chain.

* Page 40. The Rational Optimist. Matt Ridley.

Agricultural Opportunities and the U.S.-China Relationship

China’s next leader, Xi Jinping, is set to visit Iowa this week, one of three stops in the U.S.  It’s a chance for him to visit old friends from Iowa, but also to take up discussions on agriculture, a pressing issue for China.

In a post last August, I wrote that the limits of production capacity of agriculture in China create a frontier of opportunity for U.S. agriculture.  Untapped agricultural production capacity in the U.S., from more abundant natural resources as well as acumen in agricultural technology, can and will play a significant role in meeting the demands of Chinese consumers.

Based on my past trips to China, current work on two case studies about agriculture and agribusiness in China, and preparation for a trip back to China in June, I will offer several considerations related to agriculture and the U.S.-Chinese relationship.

First, U.S.-China ties are important to global peace and prosperity.  Despite occasional strains, the ties between the U.S and China have continued to progress in the forty years since President Nixon’s 1972 visit to China.  Long-term, it’s difficult to imagine a world that enjoys widespread peace and prosperity where there are not strong ties between the U.S. and China.  The economic, agricultural, and geopolitical issues of the future hinge on the relationship between the two countries.

While both countries have an interest in continued development of ties, both sides need to appreciate the many differences between the countries.  China’s cultural, social, and geopolitical norms and views are woven through a very long history and one that is quit different from the U.S.  U.S. politicians and business people will do better where they have some appreciation for this.

Like a good business, I think both sides need to approach relationships from the perspective of solving problems.  The basic question those involved in U.S. agriculture need to ask when forming up ideas about working with the Chinese, is how we are helping them solve their problems.  If there is a product, technology, set of knowledge or experience, or relationship that can solve a problem, the Chinese will listen.

In particular, I think the Iowa angle is about solving agricultural productivity problems in China.  The center of power in agriculture and the food industry has gravitated toward agricultural production, the capacity to produce more.  Iowa is an epicenter of high productivity agriculture, and insofar as our businesses, organizations, and universities can provide solutions to these issues for China, there is a good chance of a mutually beneficial relationship.

Like many countries, food security is a sensitive topic for the Chinese.  Food scarcity is still a memory for some in China, and this results in hesitancy to significant increases in food imports and dependency on other countries for food needs.  Part of the answer to China’s long-term food needs is likely increased imports of certain commodities and products, but it is also about importing know-how and technology that helps them maximize domestic resources and become part of increasingly interwoven global agricultural supply chains.

Xi Jinping’s trip to Iowa is based on relationships developed in the past with Governor Branstad and with Iowa families.  This rightly puts continued relationship building at the center of the visit.  In China, it’s not business until it’s personal.  Relationships and the trust that flows from them are very, very important.  Xi’s visit and the events that surround it will serve as a very important building block for relationships that result in new opportunities for both countries.

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