7 billion and counting

Throughout the world, as rural areas depopulate and a younger, increasingly educated population moves towards towns and cities, the concept of “working the land” is rapidly becoming a thing of the past. When it comes to agricultural produce, the global population is increasingly made up of consumers, not producers.

Needless to say, population growth is not geographically uniform. With a woman’s tendency towards large numbers of children inversely proportional to the amount of education she receives, the developing world is expected to account for more than 95% of future population growth. Crucially, high birth rates generally coincide with high child mortality, so despite the ongoing emergence of a more affluent, socially secure middle class in the developing nations, the shift away from high fertility rates as child mortality decreases can typically be expected to take a whole generation.

As a result, with a seventh of the globe’s people currently living in slums, population growth is a veritable social emergency in many parts of the world. What’s more, the FAO estimates that in 2010 there were close to a billion undernourished people in the world, while UNICEF claims that around a fifth of the world’s population lives on less than a dollar a day.

Clearly, the world needs to produce more food, more efficiently, and more cheaply to feed its continually growing population.

In many countries, the population landscape is throwing up another sort of problem too. China, for example, is currently staring down the barrel of its own demographics gun. As the delayed effects of its famous “one child” policy take hold, a nation formerly faced with overcrowding now finds itself with a sub-replacement fertility rate (1.4 per woman, considerably below the necessary replacement rate of 2.1). China also faces the additional problem that – despite teetering on the brink of population destabilisation – it has almost a fifth of the globe’s population to feed, on less than 10% of the world’s available arable land.

Moreover, China is not alone in facing the realities of an inadequate birth rate and an ageing population. More than 20% of people in the developed world are over 60 (a figure expected to grow to 30% by 2100), and indeed the era of youthfulness even in the developing regions has already peaked (with 19.1% aged 15-24 in 2005). Russia has been reduced to promising $11,500 to every woman having a second child, and across Europe rural areas in particular are seeking increasingly novel ways to attract youthful inhabitants; to take one extreme example, the Spanish village of Castelnou offers tax breaks, free land and even a municipal babysitting service as an incentive for families to move into the area and restart the local population.

The US, conversely, is unusual among Western nations for its relatively high population growth, courtesy of high immigration and (more controversially) its significant levels of teen pregnancies. Indeed, developed countries the world over would find their population growth rates severely depleted without the bolstering effect of immigrant communities.

Consequently, with developed world population growth rates propped up by immigration, and developing nations progressing steadily towards the consumption-heavy and often wasteful lifestyle historically embodied by the West, an ever growing list of challenges must be faced. Feeding more than 7 billion people will require serious changes in the way the world’s resources are allocated and used. How will the earth’s resources support a world of more than nine billion increasingly aging, urbanised consumers?

From an investment perspective, it is important to invest for the long term in the whole food chain, rather than to speculate on short-term price trends. We focus on investing in a diverse range of companies seeking to increase volumes of food production through better quality seeds, fertilizers, irrigation and equipment as well as those companies adding value at the consumption end of the spectrum.

With the constant risk of supply shocks and policy errors, climate change and hyperconvergence in developing economies, the food and agriculture theme is likely to be one where change will occur faster than many anticipate.