The long term fundamentals are attractive for owners of productive farmland. Supply and demand dynamics, underpinned by demographic and environmental factors, point to steady growth in dairy commodity prices – this will assist potential appreciation in farmland prices.
The supply and demand dynamics of the global dairy industry are forecast to drive dairy commodity price appreciation over the coming decades.
- Owning farmland provides direct exposure to rising dairy commodity prices and appreciating land value.
- Land is an attractive asset class, offering relative stability, a natural inflation hedge. It is a hard asset, and is finite in supply.
The Global Food Story
The fundamental outlook for dairy commodity prices is favourable with annual consumption growth of dairy products in developing nations such as China forecast to exceed production growth, creating a growing supply shortage.
Growing Demand
The world population is forecast to reach 9.3 billion by 2050 (currently approx. 7 billion).
- The food requirement in 2050 will be 80% larger than it is today.
- Demand for protein is increasing as more people move into the middle class bracket; there is a clear trend of dietary switch to animal protein in developing nations.
Constrained Supply
Competing land use for food production such as biofuels.
- Urbanisation and desertification continue to reduce availability of land.
- The availability of fresh water for food production is diminishing as emerging economies grow.
- Increasingly extreme weather patterns impacting agricultural yields.
- Agricultural productivity growth is slowing.
Global Protein Consumption
- Global protein consumption has grown steadily over the past 50 years, with the trend set to continue. Consumption in Asia still heavily lags developed nations – China consumes 20% less than average of developed nations.
- Developing nations will consume more protein as disposable incomes rise and consumers seek higher quality sources of nutrition.
- Dairy is widely regarded as safe and nutritious, and is versatile, with various food applications.
The outlook to 2020 reveals that global consumer demand for dairy products simply cannot be met. This is especially an issue for China, India, and MENA (Middle East and Africa).