As China gets wealthier, its middle class is also getting hungrier, which will result in bigger returns from the agricultural sector, suggests Sylvain Charlebois, dean of University of Guelph’s College of Management and Economics.
In fact, rising demand for food worldwide has made farmland “the new gold,” said Charlebois, who spoke at the Canadian Institute of Financial Planners 2012 annual conference held in Vancouver on Tuesday. As an example, he pointed to the price of an acre of land in Ontario. Today, it costs $16,000 for an acre of farmland in Guelph, Ont., whereas eight years ago it was half that price.
In addition to farmland, the prices of coffee and cattle will also rise because of increased foreign demand coming from China, added Charlebois: “As the middle class in China becomes wealthier, they will want to drink more coffee, which means the prices for coffee will continue to rise.”
Beef prices will follow a similar trend. As the growing middle class in China acquires more wealth, it’s expected that they will begin consuming more expensive meats in their diets; currently, pork is the staple.
“Better genetic research has also made beef a more stable livestock compared to swine,” he added.
Furthemore, “food insecurity” — the perpetual fear of being unable to meet food demands — could also push up prices for fertilizers such as potassium chloride and potash, added Charlebois: “Farmers are turning to these fertilizers to improve their crop yields.”
This means that prices will soar for non-potash fertilizers, as farmers seek alternatives to Potash Corp., which has a monopoly in the space and charges between $800 and $1,000 for a ton of potash, Charlebois pointed out: “When you charge farmers too much for a commodity, they will seek cheaper alternatives.”
Meanwhile, when it comes to other food sources, the future of barley and wheat prices remains uncertain as the Canadian Wheat Board’s monopoly on western wheat and barley comes to an end on Aug. 1. Since 1943, farmers in the west have been forced to sell their wheat through the board.
But as barley is used to produce wheat, Charlebois expects a slight pickup in barley prices — again because of rising demand for the grain from China.
On another note, Charlebois said that there will also be a “decoupling” between energy and agriculture as there will be less of a focus on producing fuel from crops such as corn. In the U.S., about 40% of farmer corn crops were dedicated to energy.
“We see a shift away from these energy projects, which has had an impact on the price of corn and energy prices in general.”
For Canadian food exporters, the high Canadian dollar, relative to the greenback, will continue to remain a headwind. But innovations in food manufacturing technology remain a boon for the sector — and will hopefully ensure Canadian farmers can meet export demand for crops.