Analysis: Russian drought, fertilizer bid stoke food debate

By Gerard Wynn

LONDON (BestGrowthStock) – The Russian drought has intensified a debate about food security in a warming world and helped frame a multi-billion-dollar takeover bid for fertilizer company Potash Corp as a bet on rising food prices.

Aid agencies and other experts say world farming needs exceptional investment, and perhaps some luck, to feed the world’s growing population — an extra 2.2 billion people by 2050, according to U.N. projections. Food prices are not expected to return to the historic lows of the 1990s.

BHP Billiton made a $39-billion bid this week for the fertilizer company, the world’s biggest takeover offer so far this year.

Analysts say the drought in Russia and Ukraine this summer, the worst in more than a century which damaged the harvest, is not an immediate threat to global food security, rather a supply shock of the kind that has followed failed harvests in history.

But they say it has shown how rising global demand for grains, partly for biofuels, has shifted wheat production to areas where harvests are less reliable.

Climate change could fuel that instability, while a global system of stable trade and reserves can offer a buffer.

“Production centers are moving rather rapidly from northern hemisphere, Western Europe, very certain production environments to areas like the Black Sea where yields are very erratic,” said Abdolreza Abbassian, head of the U.N. food agency’s grain body.

Russia, Ukraine and Kazakhstan have a rising share of world grains supply, 30 percent now compared with 4 percent 10 years ago, with the potential to increase land and yields, he said.

“What is certain, with or without climate change, is the instability of the market. We should have more years like this where these countries have unexpected droughts or floods and crops get destroyed right before the harvest.”

The drought will cut the wheat harvest of Russia, the world’s third biggest exporter, by about 30 percent. Analysts say Russia may even have to import this year.

The global harvest will fall by about 4 percent, estimates the Food and Agricultural Organization (FAO), but only from two successive bumper years.

Goldman Sachs last week forecast steep declines in wheat prices from present levels on 3-12 month horizons, given stocks.

Food prices rose across the board two years ago in a far more serious crisis fueled by poor harvests, lower reserves and higher oil prices than now.

FUTURE CRISES?

Food production increasingly has to compete with biofuels for land and for water with urbanization, while rising affluence is driving meat consumption, a less efficient use of land to produce calories compared with grains.

Whether the world can feed itself through future failed harvests turns on improving yields, reserves, education, development, efficiency and distribution, to balance climate change, depleted groundwater and rising fertilizer costs.

Climate scientists forecast seas will rise by up to about 1 meter this century, which may inundate important rice producing areas such as in Vietnam and Bangladesh, as well as higher global temperatures and more droughts and floods.

Global population and food consumption is expected to peak this century.

Some environmentalists point to a scenario where the best farmland is gone and the Green Revolution in food production has sowed reliance on energy-intensive, polluting fertilizers and groundwater depletion for irrigation.

“We’re totally disrupting the ecosystems that support us, if we added another 2 billion people they will do much more damage … will face great horrors,” said Stanford University’s Paul Ehrlich, author of “The Population Bomb” which in 1968 cued a decade of worry about human survival.

“There is a food crisis in the making, period, when it’s going to hit who knows,” he told Reuters, adding his book had been “much too optimistic.” He estimated the planet could sustain in the long term a population of 1.5-2 billion people.

FAO estimates that more than 1 billion people are underfed now, compared with 878 million in 1970 when such records began.

Lester Brown, founder of the Worldwatch Institute, cited forecasts of “a perfect storm” of aquifer depletion, rising food demand, soil erosion, sea level rise and climate change by 2030.

“My own sense is it’s much closer,” he told Reuters.

“I think water is the most imminent factor, if not reducing harvests then at least making it more difficult to expand production,” he said, estimating at least 400 million people were dependent on a food “bubble” from over-pumped groundwater.

The answer was a more efficient farm industry, said India’s M. S. Swaminathan, who led the Green Revolution in India.

“Lowering of the water table is an alarming situation,” he said, as two thirds of Indian irrigation was from groundwater.

“The evergreen revolution is increasing productivity in perpetuity without ecological harm,” he said, referring to a term he had coined for using rain harvesting, organic manures and nitrogen-fixing plants, to support aquifers and fertilizers.

India’s food security was not under threat, given huge stocks, but certain crops such as potatoes and wheat were especially vulnerable to temperature rises, he said.

Precision technologies and crops which eked out fertilizer and water were some of the best long-term investment bets in the agriculture sector, said Deutsche Bank’s Bruce Kahn.

(Editing by Janet Lawrence)

Analysis: Russian drought, fertilizer bid stoke food debate