The world’s population continues to explode!

Feeding the World

Basic survival for us humans and just about everything else living; more and more investment funds are focusing on food and water production – why?

What are the facts?

Starting with water; estimates suggest that the world population will increase by 40 percent to 9 billion by 2050. As their purchasing power increases, developing countries like China and India are consuming more and more goods that require water for their production. Meat, for example, can take up to 10 times more water to produce than cereal crops. Several studies have concluded that demand for water is increasing at twice the rate as the world’s population.

Water is one of the strategic resources of the 21st century, along with food and energy resources. Increased investment in water infrastructure and water treatment will be necessary in order to meet higher demand. Clearly humanitarian issues are the prime concern. It has been suggested that investing in water will go some way to tackling the problem by improving the living conditions of people all over the world, thereby providing an ethical element to such investments. It’s also argued that receiving a reasonable financial return is not just profiteering, or in contradiction with the need, since the funds sponsor projects worldwide, which taxpayers and charities alone cannot entirely fulfil. A parallel here exists with the privatisation of water supplies in various countries.

To illustrate how the water market is likely to evolve over the coming few years, let’s look at the figures. In China, for instance, investment in water conservation was a record 142.7 billion Yuan (US$20.9 billion) in 2009, over twice the 2008 expenditure. This trend is unlikely to ease up if Beijing wants to reach its ambitious economic goals and prevent the social and political unrest that would, almost certainly, result from water shortages.

The developed countries have more stringent regulations and, for that reason, the European Union intends to invest a total of almost €350 billion in new infrastructure between 2006 and 2025. And by 2019, the United States is expected to invest some $900 billion in the same sector.

It has been mooted that investing in water will go some way to tackling the problem by improving the living conditions of people all over the world, thereby providing an ethical element to such funds. It’s also argued that receiving a reasonable financial return is not just profiteering, or in contradiction with the need, since the funds sponsor projects worldwide, which taxpayers and charities alone cannot entirely fulfil. A parallel here exists with the privatisation of water supplies in various countries.z

Notwithstanding all these financial commitments, nation states will not be able to meet the increasing global demand for water on their own. When many countries are looking for ways to reduce their sovereign debt, both industry and private citizens will need private sector involvement, as well. The so-called “water outsourcing” market’s share of this segment is already significant, with an estimated $260 billion current annual turnover.

In light of these facts, the world faces a daunting challenge in the coming years. The scale of the problems might lead one to question the reality of achieving the necessary goals. The theory goes as follows. Firstly, unlike fossil fuels, water is a renewable resource. The water cycle is similar to a closed circuit. Water evaporates from the world’s oceans into the atmosphere, only to return to the surface in the form of precipitation. The total available water, therefore, remains basically stable. However, the problem is that we can only use a miniscule fraction of the world’s water, approximately 0.25 percent, as the rest is in the form of saltwater, glaciers and wastewater.

Global demand for soft water will therefore exceed supply in the years to come, resulting in an inevitable price increase. As we speak, the world water market stands at aroundUS$500 billion, which is growing steadily, at an annual rate of 6 percent. There are many listed companies involved in this trend, which offer attractive opportunities for investors. One part of the industry that looks particularly promising is the water desalination sector, which is enjoying higher rates of growth. This technology allows freshwater to be created from seawater, at a reasonable cost, in regions where drinking water is scarce.

Experience has shown that a careful selection of companies, within the water sector, who offer a competitive advantage over their peers, with a solid outlook for growth and attractive multiples, should continue to offer higher returns, when compared to the MSCI World Index.

Food – what’s needed?

For a sweeping overview of the risks we face and the potential solutions, the place to start is the document known as the Beddington’s report. It was compiled by the British government under the auspices of the chief science adviser, Sir John Beddington. In addition to the report itself, the home page for Global Food and Farming Futures offers links to dozens of papers, most of them specially commissioned for the project, that review the science of issues related to the food system.

The overall conclusion of the Beddington’s report is that, to meet rising demand, the world has no choice but to move to more intensive agriculture, especially in regions where productivity is low today — but that it needs to do so with maximum concern for the long-term environmental and economic sustainability of that intensified production.

The report includes recommendations on virtually every major problem plaguing the food system today, from coping with climate change to alleviating water scarcity to cutting food waste. Separately, Dr. Beddington is chairman of a new commission that is zeroing in on the issue of climate change and agriculture, with recommendations due late this year.

Oxfam, the global relief group, recently published an analysis of the food situation and the risks in coming decades. The themes echo many of my own findings and those of the Beddington’s report, but the Oxfam report has a sharper tone on certain issues, particularly relating to the behaviour of corporations, investors and governments in rich countries. Raymond C. Offenheiser, head of Oxfam American branch, was recently on the radio talking about these issues. One of the major conclusions of the Oxfam report is that food prices could easily double from today’s high levels by 2030, with climate change likely to be responsible for a major part of that increase. The above section on food contains extracts from The New York Times’ article by Justin Gillis.

As time goes on the private sector will, we believe, increasingly play a valuable, sustainable and economically viable role in funding vital programmes that meet the challenges facing us all concerning the supply of food and water for an ever increasing population.

pattayatoday.net