Redrawing the world food map – the BRIC effect

Increasing populations and incomes

The world population is currently approximately seven billion people (says the United States Census Bureau, July 2011) but is estimated by the UN to grow to 7.6 billion by 2020.

The majority of this growth is set to occur in developing countries. “What is striking is that the vast majority of this population growth (86%) is set to take place in large urban centres and mega cities in developing countries,” said the OECD-FAO Agricultural Outlook for 2011-2020.

The migration from a rural to an urban environment means higher incomes, which could increase as much as 50% over the next decade. A Federal Reserve Bank of Kansas City (FRBKC) paper reports: “In 2010, Brazil and Russia enjoyed the highest incomes among the four nations with annual real per-capita GDP reaching around $10,500 each, more than double their levels a decade ago.

“China has emerged as a middle-income country, with last year’s average real per-capita GDP reaching $4,000, up from $1,000 a decade ago. While India remains a low-income country, with an average per-capita GDP of slightly more than $1,000, this figure has doubled during the past decade.”

And according to iCD Research’s report, Packaged Food in BRIC to 2015, the packaged food category in BRIC countries saw an increase of 17.2% from 2009 to 2010, which translates into sales of $558.4bn and accounted for a market share of 26.1%. This increase is set to continue and will grow at a compound annual growth rate (CAGR) of 15.88% between 2010 and 2015 and reach sales of $1,167bn in 2015.

Primary to protein

Possibly the biggest shift in terms of the world food map is a departure from foods in the primary form. “Such a shift in location carries with it a change in the composition of the food basket to more processed, convenience and higher value-added products,” said the FRBKC report. The BRIC countries account for more than 40% of the world’s consumption and as a result we are seeing a growing middle class who are enriching their diets by eating more proteins.

In fact, according to the FAO, the per-capita consumption in the middle-income countries of Russia, Brazil and China averages more than 3,000 calories a day, which is at least 10% above levels a decade ago.

In India it is just 2,300 calories a day, but if the food industry grows at 40% by 2015, as Ernst & Young have stated, then this figure is likely to increase. According to the FRBKC, BRIC protein consumption has risen steadily since 2000 and rose by more than 15% across the four countries.

Staple food market

In terms of how our world food map is changing for staple foods while certain developed countries are projected to remain dominant exporters for a range of products, market shares are gradually shifting to developing and emerging countries.

According to the OEDC-FAO report: “Exports, of mainly grains, from the Russian Federation, Ukraine and Kazakhstan and other countries in Eastern Europe and Central Asia are anticipated to grow very rapidly. Higher exports from Brazil are anticipated for virtually all its main commodities.”

It predicts the share held by traditional top exporters (US, Canada, Australia, Argentina and the EU) is trending down while the Russian Federation and countries in Eastern Europe and central Asia rise towards a 30% share.

According to the OEDC-FAO report world coarse grain production is expected to reach 1,321 Mt by 2020, with significant increases projected for Argentina, Brazil, China, the Russian Federation, Ukraine and the United States.

World wheat production is projected to reach 746 Mt by 2020, about 11% higher than in 2008-2010, with the largest area expansions projected for the Russian Federation, Ukraine and Kazakhstan.

In terms of rice, world production is projected at 528 Mt with an annual growth rate forecast at 1.3%, slower than 2.2% pa in the previous decade.

“Developing countries are expected to account for virtually all of the projected production increase, particularly India, Cambodia, Myanmar and African countries. Among large producers, China is expected to cut output by 7 Mt, as the sector responds to declining domestic consumption and strong competition for land,” said the OEDC-FAO report. Sugar production is predicted to increase by 50 Mt to more than 209 Mt in 2020 with the bulk of the additional sugar production from the developing countries.

India is likely to increase production at such a rate that it will be 50% higher than in 2010.

Demand for processed products

As BRIC consumers’ incomes increase they are also able to afford the household items that enable them to eat more processed foods. According to the Economic Research Service, the last ten years have seen increasing numbers of BRIC households with refrigerators (almost all Russian and Brazilian households) and microwaves (between 10%-30% overall).

This has also increased the demand for processed foods or tertiary processed products such as soups, ready-to-eat meals and canned food. The US Department of Agriculture (USDA) stated that from 2003 to 2008 spending on ready-to-eat meals rose roughly 28% in India, almost 20% in Brazil and Russia, and 12% in China.

This can be confirmed by the packaging industry which is seeing a rise in the demand for folding board and cartons. According to The Future of Folding Cartons: Market Forecasts to 2016, from Pira International, BRIC countries are offering the highest growth for folding cartons of almost 8% annually until 2016. The biggest market shares in food are: baked products (4%), diary (5%), ready meals (5%), frozen food (6%) and dry food (7%).

Demand for frozen food will lead to an additional 500,000 tons of material in 2016 compared with 2010, worth more than $1 billion at 2010 prices, and the demand for folding board for ready meals (includes frozen, chilled and ambient products) will rise by 3.6% over the period to reach a total of 2.6 million tons in 2016 worth $5.3 billion at 2010 prices.

The map ahead

Competition in this new world food map is going to be strong as producers around the world try to produce new demands for processed and protein foods.

But, as the FRBKC paper asserts, the fiercest competitors might be the BRIC countries themselves, depending on their stage of development.

“With arable land for agricultural production available in BRIC countries, competition in their markets could be fierce, especially if Russia, India, and China follow Brazil’s lead to self-sufficiency,” concludes the report.