Key Trends and Challenges for Global Agricultural Marketsin the Presence of Disruptive Technologies

Josef Schmidhuber, Deputy Director, Trade and Markets DivisionFood and Agriculture Organization

Rossi-Doria Lecture 2018

Rome, 12 December 2018

Part 1:

The big picture - a 2050 perspective

Source: UNPD, 2016

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Increments over 10 yearsPopulation(bn)

Global population growth to continue, but at a slower pace

Urban agriculture: Basic statistics and indicators

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Rapid urbanization to continue (global level)

Urban Rural

Commodity prices are expected to continue their long-term trend

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Long-term real price trends

Wheat Maize Lineare (Wheat) Lineare (Maize)

Part 2:

Zooming in: the next 10 years

The price outlook

• Supply and demand

fundamentals keep real

international reference

price trends slightly

declining.

• The additional

resources can be

mobilized below current

price levels.

• Most commodity group

prices follow similar

trends due to

substitutability and

complementarities.

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1999 2004 2009 2014 2019 2024

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= 1

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Projected FAO Food Price Index

Nominal Real

Population growth

Annual growth rate in % Millions

2008-17 2018-27 2017-2027

World 1.19 0.98 784

Africa 2.61 2.39 344

Mena 2.04 1.61 83

Latin America & Caribbean 1.14 0.85 58

North America 0.77 0.71 27

Europe 0.11 -0.02 0

Asia and Pacific 1.04 0.74 351

China 0.53 0.20 32

India 1.25 0.97 138

Oceania Developed 1.58 1.25 5

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Population projections:

Slower growth overall, growth poles in Africa and South Asia

Source: UN-Statistics/population 2017 revision

Income growth

0%

1%

2%

3%

4%

Industrialized economies

2008-2017 2018-2026

Large emerging economies still dominate income growth

Source: OECD Economic Outlook, IMF World Economic Outlook, related authorities, and OECD and FAO Secretariats.

0%

1%

2%

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9%

2008-2017 2018-2026

Emerging economies

… but at high and growing income inequality

• High income

inequality in

developing and

emerging markets

• Not all consumers

stand to benefit from

income growth, slower

growth for demand-

responsive foods

(meats, milk) in

developing countries,

the reverse holds for

developed countries

Energy market and prices

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in U

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rice

sin

US$

/t

Energy sector links

Corn (maize) Crude oil

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-23

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-25

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oil

[US$

/bb

l]

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rn [

US$

/t]

Crude oil no longer driving corn prices

Corn (USD/t) Crude oil (USD/bbl)

Saturated mandates and no market incentives

Agricultural policies

China’s support to agriculture (TSE)

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OECD Combined China

• Chinese agricultural

subsidies (TSE) now

equal those of all OECD

countries combined.

• Policy measures aimed

to ensure domestic food

security.

• Main instruments are

procurement prices, a

temporary reserve

system for maize, wheat

and rice and respective

TRQs.

• Policy reforms in the

maize market are already

in effect, further steps in

rice and wheat markets

are expected.

High initial grain stocks and low inventory demand

High cereal stocks dampen inventory demand over the medium term

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Grain stocks at record levels

Coarse Grains Rice Wheat

SDG challenges

Undernourishment

In developing regions the number of undernourisheddropped by 211 million since 1990-92

• The WFS goal was missed by a large margin: it would have required some 265 million less than the current estimate

• The baseline suggests that the SDG target of eliminating hunger will even be missed by a larger margin, i.e. by about 650 million

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Number of Undernourished

Actual and predicted WFS and SDG targets

GHG emissions and Climate Change

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Gigatonnes Co2 eq.World Greenhouse Gas Emissions from Agriculture (Co2 eq.)

Crop Residues Burning - Crop residues Enteric Fermentation Burning - Savanna Manure Management

Manure left on Pasture Rice Cultivation Manure applied to Soils Cultivation of Organic Soils Synthetic Fertilizers

Part 3:

Possible “disruptors”

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Investment disruptors

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1. SDGs ambitious agenda, requiring vast financial

resources (e.g. $4.2tr v $0.14tr)

2. Public finance is insufficient, need to mobilize other

sources; the private sector?

3. Equity investors are urging enterprises to move towards

RBC, sustainable production, processing, distribution,

i.e. sustainable supply chains.

4. Companies are discovering sustainability as a sales

promoter, including in food and agriculture

5. No practical guide for the private sector to move

towards RBC in food and agriculture

Background: “pull and push” towards sustainability

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1. Guidelines, conventions, soft-laws, “rights” developed

by FAO/CFS

2. Guidelines, conventions, soft-laws, “rights” developed

by other IOs

3. Take the various conventions and guidelines and

• Focus on sustainability

• Translate them into practice

• Make them actionable by the private sector

4. Compile, in close cooperation with the OECD, the

“Guidance for Sustainable Agricultural Supply Chains”

How can FAO be part of the solution?

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The guidance

1. A brief review of the

various guidelines

2. A practical due diligence

framework (5 steps)

3. A model enterprise policy

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How to mobilize private funding for development

• Sustainability seal

• Subsidized loans

• Blended finance

• Tax incentives

• De-risking strategies, VC for innovations

and start-ups.

Creating the basis for innovative financing opportunities

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Amara’s law: We tend to overestimate the effect of

a technology in the short run and underestimate the effect in the long

run.

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Urban agriculture and its disruptors:“Controlled Production Environments”,

“Smart farms”, “smart cities”

What are controlled environments?

• Come in many different forms: Vertical, semi-closed greenhouses, container agriculture, etc. often with hydroponics, aquaponics, etc.

• Become ever more important with urbanization: new opportunities for agriculture, delivering fresh, local, safe, traceable, healthy food.

• Control the growing conditions for unusual, uncontrolled environments: cold/hot/dry and harsh growing conditions

• Thrive on know-how, technologies, vicinity to consumers

• Favour high-price, premium produce: fruits and vegetables: tomatoes, egg-plants, peppers, micro-herbs, berries, even crop carriers for medical components.

• Very high yields at low resource needs (except for energy)!

• Combination of technology packages to make it a “disruptive technology”?

Controlled environments: a “disruptive technology”?

• Not for food security, neither locally nor globally!

• Full integration of the technology packages (genetics, AI/ML/ robotics/IoT, full climate control, cooling, heating, LED, light programs), by far not fully exploited.

• Full integration into international supply chains, GVCs (genetics, seedlings, fertilizer, LEDs, etc.)

• Full integration into horizontal supply chains, just in time production, etc.

• High tech variants have made inroads in China (300 ha), Japan, South of France, the NL (Westland 400ha), UK, US (Maine, Arizona, California).

• Basic technologies are tried and tested under the harshest climatic conditions (Russia, GCCs).

Source: National Geographic 9/2017

Photo: National Geographic 9/2017

Source: National Geographic 9/2017

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Biological disruptors

• Gene-editing: CRISPR CAS 9 and TALEN (Transcription

activator-like effector nuclease)

• Will gene-editing be considered “GM”?

• USDA: no (13 April 2018) • EU decision: yes, GMOs

• TR4 Banana wilt• Personalised nutrition

Biological Disruptors

• Finless food/fish• “Clean meat”• Faux meat: insect-based proteins• “AgriProtein”: Organic waste

insects (fly larvae) oil+protein+soil• Faux meat: plant-based proteins• https://www.future-meat.com/

Alternative proteins

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Alternative proteins: 3 basic options: cellular meat, plant protein-based meat and insect-based meat

Company Product Cost comments

Finless food/fish Clean fish (“no

catch”), cellular blue

tuna

~ US$5000/kg Start-up

Memphis meats Cellular meat, meat

balls

~ US$10,000/kg 2015, large

investments by

BGates, RBranson

JUST meat (former

Hampton Creek)

Cellular meat Unknown, not yet

competitive

mosameat Cellular meat Unknown, not yet

competitive

SuperMeat Cellular meat Unknown, not yet

competitive

Start-up, partners

w/ PHW Group

Bug Foundation Insect based

meats/burgers

US$12-15/burger Operational

Umami Burger Cheese and

vegetables

US$13/burger Operational

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IT and Tech disruptors

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DBs for “disintermediation”Applications:Land and other registries

• Trade finance and facilitation (Maersk, IBM)• Smart contracts, auto-execution• Better statistics • Traceability for food safety, speed and accuracy

rules of origin, social and environmental attributes

• Anti-fraud, authenticity• Platform technology

for AI, ML and apps likecrypto-anchors

Large efficiency gains in global supply chain management 3 most important, remaining challenges: scalability, interoperability and

process-product links. Crypto-anchors address the process-product links >>>

DLT/Blockchain

• DLT + crypto-anchors (e.g. edible shade of magnetic ink, $0.1 RFID chips, digital fingerprints) embedded into food/drugs/pesticides to ensure traceable transactions of authentic products along a (global) supply chain

• IBM: first practical applications: 18 months, mainstream:

5 years

Fixing process/product links with crypto-

anchors

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Big Data - ML - AI

FAO/AMIS Price sentiment

Subject scopes

Agriculture

infrastructure

Environment

EnergySociety

Regulation

Policy & Governance

Politics

Negotiations

Elections

Finance &

investment

Market

condition

Monetary

policy

Commodity

Price prediction

Topics &

Sentiment

Market

Sentiment

and Price

Prediction

● Topics are extracted by the algorithm

● Using the topics and the sentiment of each article leads to a new metric: the

topic sentiment

● Sentiments are continuously generated (by the machine) as new information

arrives (it is a dynamic learning process)

● Machine gathers data – Machine learns- Machine decides – Machine

predicts. No economic/fundamental information given about changes in

sentiment

● Machine makes price predictions but those predications are not published -

for the time being!

Price Prediction in a nutshell

Future work

● Improve the accuracy and consistency of our

forecasts

● Feed it with Tweets

● Automated write-up (chatbot) – “Emma”

● Multilingual interpreter

● Projecting trade matrixes

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Robots will cut pesticide usage by 90%

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Roy Amara’s law reformulated in the context of Agriculture 4.0:

“Be aware of the short-run hypes, but be ready to reap the long-term

benefits”

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Thanks

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Political/trade disruptors

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• US – EU/G7 trade conflict • US - China trade conflict• Multilateral structures in

jeopardy: WTO, G7/G20, OECD, NAFTA, mega-regionals

• China debt crisis

Political and trade disruptors

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Health, biosecurity and NCDs

The shape of things to come?

Personalised nutritionSmart farms, smart cities

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Rapid urbanization to continue (global level)

Urban Rural

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• NCDs• Personalized nutrition• Neutra-ceuticals• 3-D printed foods

Health Disruptors

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• Self-optimization and preventive health:

optimize food to minimize risk of getting sick

• Biomarkers for interaction between

food/LDL/HDL Cholesterol and genome,

food/blood glucose and genome, prostate

cancer, etc.

• Sciona: gene-testing of 19 genes to

optimize personal diet

• Neutri-ceuticals

Personalised nutrition: Nutrigenomics

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Consumption(kcal/pc) and GDP p.c. (62 Developing Countries)

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• A new “gilded age”?

• Winner takes all (DTLs to break this)?

• Growing monopolies, global, need for regulation (WTO)?!

• Need to shift from Darwinian to Schumpeterian processes?

• More disruption needed?!

• Bounty, wealth longevity, but even more so dispersion and

inequality.

• Paradox: slower productivity growth (TFP) overall, high

productivity growth concentrated in the hands of a few, huge

differences across companies (not so much across

countries)

• First time that people move from higher to lower productivity

jobs (education, not technology). German social contract as a

role model? Livelong learning, social and societal inclusion,

a case for UBIs?

• Watch this: http://www.imf.org/external/mmedia/view.aspx?vid=5772879577001

Post scriptum: some general thoughts