As income and population increase, how does that affect global demand?

Articles
May 14, 2009

As income and population increase, how does that affect global demand?

Despite a downturn in the U.S. global economy, agricultural policy experts suggest incomes have increased by $2 to $10 per day in other countries. In China, per capita income has tripled since 2000—from $1,000/year to $3,000/year—generating approximately $3 trillion in additional spending power (2008 vs. 2000), much of which is spent on grains, meats and dairy. Even in developing countries, the poorest are estimated to spend as much as 70 percent of their incomes on food. In the U.S., the average is 10 percent. More money means more food choices and richer diets. As a result, people are eating more meat, dairy, fruits, vegetables, and edible oils – creating rapid demand growth for agricultural commodities. Growing affluence in China, India and elsewhere is increasing demand for resource-intensive meat and dairy products. As incomes increase, a greater percentage of the population is also choosing to move from the countryside into the city. In 2008, for the first time, more people in the world lived in urban areas than in rural, and by 2020, 60 percent of the population is expected to be urban. China alone is predicted to add 350 million people to its cities—more than the entire population of the United States today. This could be one of the biggest migrations the world has ever seen—leading to greater competition for land, changes in diets and an increased demand for food.

Despite a downturn in the U.S. global economy, agricultural policy experts suggest incomes have increased by $2 to $10 per day in other countries. In China, per capita income has tripled since 2000—from $1,000/year to $3,000/year—generating approximately $3 trillion in additional spending power (2008 vs. 2000), much of which is spent on grains, meats and dairy.

Even in developing countries, the poorest are estimated to spend as much as 70 percent of their incomes on food. In the U.S., the average is 10 percent.

More money means more food choices and richer diets. As a result, people are eating more meat, dairy, fruits, vegetables, and edible oils – creating rapid demand growth for agricultural commodities. Growing affluence in China, India and elsewhere is increasing demand for resource-intensive meat and dairy products.

As incomes increase, a greater percentage of the population is also choosing to move from the countryside into the city. In 2008, for the first time, more people in the world lived in urban areas than in rural, and by 2020, 60 percent of the population is expected to be urban.

China alone is predicted to add 350 million people to its cities—more than the entire population of the United States today. This could be one of the biggest migrations the world has ever seen—leading to greater competition for land, changes in diets and an increased demand for food.

Foreign Affairs Magazine reported that the income elasticity of demand for food is estimated at around 0.5, meaning that if income rises by 20 percent, the demand for food rises by 10 percent. The price elasticity of demand for food is only around 0.1—indicating that people have to eat, and they do not eat much less in response to higher prices. If the supply of food were fixed, in order to choke off an increase in demand of 10 percent, after a 20 percent rise in income, the price of food would need to double.

Even modest increases in global income can drive food prices up alarmingly unless matched by increases in supply.

And there is no doubt that demand will continue to increase; especially as population increases. According to the U.S. Census Bureau, global population will reach 8.9 billion by 2040 and 9.4 billion by 2050 before stabilizing around 9.7 billion later in the century.

Food Security Senator Richard Lugar predicts if the trend toward richer diets increases, 9.2 billion people may eat enough food to feed 13 billion people at today’s nutritional levels.

We can see the effects of growth on crops such as grain. Currently, by 2023, the world will need close to 400 million more metric tons of grain. In seven of the past eight years, the world has consumed more grain than it has produced.

The agriculture industry has a challenge—a population that is growing, moving and has more money to spend on food. Just to meet the demand, it’s estimated that more food will have to be produced over than next 50 years than has been produced in the past 10,000 years combined.