Feeding the world is a noble cause, but for many farmers around the world today, the agri-food business is both challenging and uneconomical. Take agriculture in Tanzania, for example. According to Tanzania Invest, the country's investment promotion agency, some 80% of the Tanzanian population is employed in the agriculture sector. Tanzania grows a wide variety of food, yet unreliable electricity and poor roads hold the country back from being able to offer the industry good refrigeration and logistics.
With the global population estimated to increase from some 7 billion in 2011 to more than 9 billion by 2050, food sustainability and the issue of world hunger is becoming paramount. Particularly staggering is a claim by the International Fund for Agricultural Development, a specialised agency of the United Nations, that in 2009 there were more than 1 billion malnourished people worldwide and that 31 countries were dependent on food aid programmes. Twenty of those countries were in Africa.
Severe droughts in key food producing countries such as Australia and especially the US do not help. In fact, this year, record heat and drought conditions have created the worst conditions in the US since 1988.
Other issues putting pressure on agriculture are food security and government policies, such as subsidies, trade barriers, tariffs and customs duties. India, for example, is been notorious for having some of the highest tariff rates on agricultural products in the world.
India also exemplifies other issues facing world agriculture. While the country has a large and diverse agriculture industry and is one of the world’s leading agricultural producers, it also is a major consumer, with a population of nearly 1.1 billion to feed. Exacerbating the problem, out of India’s 116 million farmers, about 60% possess less than one hectare of land. Medium to large farms that have more than four hectares encompass just over 7% of all holdings, but account for some 40% of the land farmed.
The fact the majority of farms around the world are run by small farmers puts pressure on agricultural markets, particularly since small farmers do not necessarily have access to data regarding market demand or financing for better seeds and equipment. Seeing opportunities in other sectors, small farmers are also increasingly leaving agriculture and seeking other work.
Consequently, leaders worldwide maintain that “business as usual” will not meet the world’s food needs going forward. In fact, with the world population growing so fast, if the paradigm does not shift, some countries will be incapable of feeding their own people.
As a result, agriculture, despite its risks, has become a critical sector for economic development. Countries around the globe are quick to talk up the benefits of this sector for investment.
Among the hottest markets for agricultural FDI are the US, Australia, Canada, the UK and Brazil. That’s because these are mature markets that offer little risk. Agriculture in these areas is well grounded in R&D via their universities and corporations, which seek to enhance productivity, while services such as refrigerated warehousing, packaging and logistics are plentiful.
Given the current state of world economics, however, most companies find it easier to expand internationally via mergers and acquisitions than making greenfield investments. One example is JBS, Brazil’s largest multinational in the food industry. Since 2007, the company has been acquiring some of the largest meat processors in the US, among them Colorado-based Swift & Co, Virginia-based Smithfield Beef Group, and Five Rivers Ranch Cattle Feeding. It has also acquired a majority stake in Pilgrim’s Pride.
“We are investing billions of our company’s money in the US with a goal to growing the industry, hiring more US workers and increasing demand for US beef and pork around the world,” says Wesley Batista, CEO of JBS USA.
In Canada, Alberta’s Ministry of Agriculture and Development works closely with producers, processors and other stakeholders to support strong sector development and enhance industry capacity. Working collaboratively with the Alberta International Offices, its priority is to promote and increase Alberta's agriculture exports and services through market access, services, trade facilitation, market development and diversification.
The Agri-Trend group of companies of Red Deer, Alberta, provides a good example of this collaborative approach. Its mandate is to help farmers grow better crops and be more profitable. It places people on site who understand local conditions and back up information with scientific expertise. Some of the work involves identifying unusual plant diseases and utilising satellite and aerial imagery to identify soil strengths and weaknesses.
“The impact of our footprint is large,” says Robert Saik, CEO of Agri-Trend. “We work across the whole of Canada, [and] as [far] south as Mississippi [in the US]. We’ve also worked internationally in Khuzestan [in Iran], Ukraine and Australia.”
Pacman's high score
In Europe’s Mediterranean region, Pacman (promoting, attractiveness, competitiveness and the internationalisation of agri-food clusters of the Mediterranean) is a co-operation project that combines efforts of 10 organisations in six different countries where the agri-food sector is important, yet there is a recognition that weaknesses need to be addressed. The goal is to get a better handle on the region’s competitive advantages and positioning, as well as set up a database that makes it easier for transnational food chains to network among countries.
Italy’s Emilia-Romagna region, which is part of Pacman, is particularly experienced in combining traditional and innovation techniques while also achieving high standards for food quality and safety. Its agri-food cluster is basically divided into two main areas: animal and vegetable production. The region houses internationally known brands that are promoted at a host of international trade fairs.
Emerging markets such as Vietnam, Thailand and Malaysia are important for global agro businesses. Multinational companies such as Kraft, PepsiCo, FMC Chemical and Cerboshave been operating In Thailand for some time. “Today they are expanding to do other projects,” says Anawat Chullasewok, investment promotion officer at the Thailand Board of Investment.
An example of this is Pennsylvania-based FMC Corp, which recently announced that it is to invest more than $100m in a new microcrystalline cellulose (MCC) facility in Rayong, Thailand, that will ensure the company’s long-term ability to supply the Asian market with its Avicel colloidal MCC, an ingredient used in food and beverages. The facility, which is expected to come on-line in the fourth quarter of 2014, will increase FMC’s global food grade MCC capacity by 35%.
“Demand for MCC continues to grow rapidly in Asia,” says Michael Wilson, president of FMC’s specialty chemicals group. “This addition of significant new capacity to our MCC network will be needed to supply high-quality products and service to our Asian customers while at the same time providing us with greater flexibility to support global growth with our existing capacity in North America and Europe.”
Agri-food opportunities exist worldwide. If addressed correctly, governments and corporations can help solve many issues. The locations that can facilitate R&D, technology, consulting, logistics and the production of more food with fewer resources will not only attract investment, they will serve the world in feeding its growing population.