FUTURE VIEW

Feeding tomorrow’s cities

Better farming techniques, greater mechanisation, improved storage and logistics and changing consumption patterns are necessary if the world is to feed its growing urban population.

A growing, and increasingly urbanised, population is one of the defining trends of the 21st century. There are already 7.7 billion people in the world: the population will reach 9.5 billion by 2050, increasing demand for food and putting pressure on already stretched water, land and energy resources. Over the same period, the number of people living in cities will grow from 54% of the world’s population or 3.4 billion people to 66% or 6.3 billion people, making it harder for food to reach the people that need it.

“More affluent people consume more, they usually consume products, such as red meat, that are more resource intensive than their previous diet.”

Meanwhile, the percentage of people defined as middle class will rise from 23% – or 1.8 billion – to 52% or 4.9 billion people. While reductions in poverty and improvements in people’s standards of living are welcome, they create potential problems in terms of food supply. “More affluent people consume more,” explains Jurjen Witteveen, economist at ING. “Moreover, they usually consume products, such as red meat, that are more resource intensive than their previous diet.”

The amount of agricultural land available is broadly fixed (or even shrinking, given the pressures of urbanisation). Moreover, the world has finite amounts of fresh water: by 2030, there is expected to be a gap of around 40% – or 2,700bn cubic metres – between the supply of, and demand for, fresh water (1). As a result of these constraints, increases in food are largely dependent on higher levels of productivity per hectare (and per animal) and improvements in efficiency.

An increasing population, growing urbanisation and increased consumption therefore create significant challenges for the world’s governments, corporates, farmers and citizens. However, there are steps that can be taken to ensure the world’s cities can feed themselves in the future.

Improving agricultural production

Improving the use of technology and implementing best practises are critical to increasing agricultural yields. “Farming practises have not evolved in some countries, including many in Central and Eastern Europe (CEE), for example,” says Pieternel Boogaard, head of agricultural finance, CEE at ING. “Often there has been a failure to invest for many years, if not decades. As a result, there may be limited mechanisation, inefficient ways of working and ineffective methods of irrigation, pest and weed control.”

Tackling a legacy of under investment is often difficult. For example, in many countries in CEE, as well as in China, large-scale private land ownership is prohibited, making it hard to achieve the economies of scale required for investment in technology and new techniques (in China, the State owns the land, and farmers are granted land use rights, which until recently they could not transfer). However, alternative solutions, involving cooperatives for example, are available and increasingly agricultural is being liberalised around the world.

“Multinational corporations can help local farmers with techniques and technology when they enter a market.”

Sharing knowledge about modern farming practises is crucial to increasing food production. “Multinational corporations can help local farmers with techniques and technology when they enter a market,” says Boogaard. FrieslandCampina, one of the world’s five largest dairy companies, has a Dairy Development Programme to bring about the development of local dairy farming in in Indonesia, Thailand, Vietnam, Malaysia and Nigeria. The company purchases a portion of its required raw materials locally in order to stimulate the local economy and gives local famers advice to enable them to run their businesses optimally and raise the quality and quantity of their dairy production.

“As well as efforts by individual companies, countries such as the Netherlands have extensive knowledge of large-scale production, mechanisation and intensive farming that they can share with emerging market countries,” says Boogaard. Netherlands is the world’s third largest export of food-related machinery and the fourth largest exporter of agricultural machinery.

Making storage and logistics more efficient

While increasing production is important to feed the world’s growing cities, making sure that produce reaches consumers in an edible state is as important. “In many African countries, agricultural techniques have improved markedly in recent years,” notes Marco Gulpers, equity analyst at ING. “However, often storage facilities are of poor quality, with no cooling, for example, so a huge amount of produce simply rots and is wasted.”

Similarly, many countries have inadequate infrastructure, such as road, rail or ports: as a result produce is often damaged in transit. “Logistical problems at ports in Brazil, for example, cause delays and create significant wastage problems for agricultural exporters,” adds Boogaard. According to the UK's Institution of Mechanical Engineers, improving roads, storage structures and storage technology has the potential to reduce losses of cereals worldwide by 250 million tons each year, equivalent to over 10% of production (2).

“Modern retailers have developed incredibly sophisticated logistics operations with centralised hubs that move vast quantities of goods.”

Governments around the world must tackle infrastructure problems if they are to address growing demand for food as a result of increasing population. “In addition, international agri-business firms and retailers can drive innovation in storage facilities and logistics to reduce waste,” says Boogaard. Gulpers adds: “Modern retailers have developed incredibly sophisticated logistics operations with centralised hubs that move vast quantities of goods throughout the value chain at high speed while maintaining quality through cooling. Global retailers are gaining share in many emerging markets, side-lining small ‘Mom and Pop’ stores and will provide much-needed logistics expertise.”

To reduce time to market and minimise waste, many countries are developing urban farming projects. “Russia is attempting to solve some of the logistics problems of providing fresh produce to cities by locating large numbers of greenhouses around the edges of cities,” says Boogaard. China is also experimenting with indoor agriculture in urban areas in order to ensure food safety and quality near urban centres. Land reform is likely to further encourage the creation of huge greenhouse compounds around the country (3). Meanwhile, the city state of Singapore is overcoming its space constraints through by building vertical farms.

Focusing on consumption

Increasing production and reducing waste is essential to feed the world’s growing cities. However, many experts believe it is simply unrealistic for the growing numbers of middle class people around the world to adopt a Western-style diet. While consumption patterns vary by country, many increasingly affluent countries adopt patterns similar to those in the US and Europe, with increased consumption of meat and other energy-intensive proteins. This is not just inefficient from a resources perspective, but also has health implications, as growing levels of obesity and diabetes in many countries indicates.

“Governments have an important role to play in changing consumption patterns.”

“Governments have an important role to play in changing consumption patterns,” says Witteveen. “For example, China’s government is encouraging potato rather than rice consumption because potatoes require less water to grow.” It takes 2,497 litres of water to produce 1kg of rice compared to just 287 litres for potatoes, according to the Institution of Mechanical Engineers (4). China’s economic planning body has recently expanded a programme to add potatoes to China's list of food staples, including bread, steamed buns and noodles so that they represent 30% of the content of these products (5).

Gulpers adds: “Many governments are favouring chicken consumption as chicken has a feed conversion ratio (FCR) of 2-to-1 – it takes 2kg of grain to produce 1kg of meat – compared to red meat’s 9-to-1 ratio.” FCRs vary significantly by producer (depending on the feed used and other farming methods employed) so regardless of the type of meat reared efficient practises are important. It is also important to take in account the cultural preferences of each country. For example, China tends to favour pork consumption (which has a FCR of around 4-to-1).

An evolving approach to agriculture and consumption

The food challenge now facing the world is enormous – especially in emerging market countries, where most of the population growth will occur. Fortunately, as outlined above there are numerous solutions available to improve crop production, harvesting, transportation and storage. The scale of the challenge is likely to require additional innovative thinking, however.

Cities around the world also need to consider not only how to supply their growing population with food but take a holistic view of food, waste and energy management (and, in particular, promote the use of renewable energy). For rapidly growing cities in emerging markets, they are some powerful global examples to draw on, including cities in the Netherlands, where garbage is viewed as a raw material. Ultimately, cities need to start to become circular economies and shift from a 'take, make and waste' approach to a 'reduce, reuse and recycle' mindset.

Many countries with fast-growing cities have already recognised the importance of taking a broader view of food, waste and energy issues. “Jilin province in China has embarked on an ambitious drive to promote the use of biodegradable packaging made using polylactic acid in an effort to reduce waste and improve the environmental footprint of food products, for example,” says Gulpers. “Increased food production doesn’t have to be in opposition to environment objectives – it’s not either-or. Waste reduction benefits consumers by reducing costs as well as improving sustainability: everyone wins.”

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  1. 1. McKinsey quoted in ING, The third industrial revolution, March 2010
  2. 2. David Williams, Population and grain supply, www.imeche.org/knowledge/industries/energy-environment-and-sustainability/news/WorldFood, accessed September 15, 2015
  3. 3. China’s indoor agriculture industry, www.indoor.ag/chinas-indoor-agriculture-industry, accessed September 16, 2015
  4. 4. Institution of Mechanical Engineers, Global food: waste not, want not, January 2013
  5. 5. Move over rice-the potato is taking root, www.chinadaily.com.cn/china/2015-01/09/content_19278303.htm, accessed September 15, 2015

The View is the online magazine of ING Wholesale Banking