11.07.2018

2018 Agbiz Congress - Agricultural markets will grow but prices will remain the same

Agricultural markets will grow but prices will stay more or less as they are today. The only way for agricultural producers to remain in business is to build their margins. This was the message of Prof Marcos Fava Neves, professor at the Business School of Economics, Business Administration and Accounting at the University of São Paulo, Brazil, to the 2018 Agbiz Congress.

Agricultural markets will grow but prices will stay more or less as they are today. The only way for agricultural producers to remain in business is to build their margins. This was the message of Prof Marcos Fava Neves, professor at the Business School of Economics, Business Administration and Accounting at the University of São Paulo, Brazil, to the 2018 Agbiz Congress.

Prof Neves said that the demand for food is expected to increase between 59% and 98% by 2050. “This will shape agricultural markets in ways we have not seen before. Farmers worldwide will have to increase crop production, either by increasing the size of agricultural land to grow crops, or by enhancing productivity on existing agricultural land through improved fertiliser and irrigation practices and adopting new methods like precision farming.”

He said that there will be an increased demand for grain and meat, among others. It is estimated that all of China will switch over to ethanol by 2020 to get rid of carbon pollution. This will create huge opportunities for maize producers, including South African maize producers. Fast growing markets in countries such as China will also provide export markets for producers in other countries. The demand for pork in China, for example, rose by 200 million pigs between 2005 and 2015.

Although markets will grow, prices will stay the same as today, relatively speaking, and the only solution for staying in business would be for farmers to build their margins.

Prof Neves suggested the following methods to do so:

1. Digital tech economy
This means that farmers will have to produce more efficiently with less inputs. Major and constant technological developments will ensure that they will be able to do this. Prof Neves gave a couple of examples such as genetically modified (GM) apples that do not turn brown, meat made from plants, eggs not coming from chickens and drought-resistant crops using less water.

2. Circular economy
More resources will go out from a farm rather than more resources coming in. A sugar cane mill, for instance, could sell additional energy to the electricity network and a feedlot could sell its manure.

3. Sharing economy
This refers to sharing assets and working together. Prof Neves said that developments such as Uber may mean that people will opt not to own a car as cars might become redundant.

In terms of agriculture this will mean that people will outsource their speciality services. A group of farmers may, for instance, do the harvesting for another group of producers. “But you must have an environment that enables you to outsource. Outsourcing will ensure better efficiency in value chains.”

4. A push for agribusiness
Prof Neves said that his message to the private sector in all countries is: What comes first, income generation or income distribution? “We need to promote sustainable inclusion of people and in order to create opportunities for people we must focus on income generation. Business generates income. The role of government is to push the private sector to generate income and they must do this by creating an environment for business to grow,” he said.

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