Food Supply

Abstract

The topic of food supply includes subjects such as the world food situation, food crises, food security and global diversion of production. The topic gives rise to many questions. An important question is whether access to food will be a limiting factor for the world's development and population growth. At the global level, to date, food production has been able to keep pace with population growth. The improved food situation in recent decades has largely been achieved by increasing productivity. As a result, the level of food security—calculated as the prevalence of malnourishment in the world—has improved. Food crises have played a major role in food supply and in the global security of supply, and it seems likely that food crises will occur more frequently in the future.

10.1 Introduction

The topic of “food supply” gives rise to many questions, but few precise answers. While economists and other experts generally agree about demand, i.e., how many people will need to be fed in the coming decades, they disagree about the supply side, i.e., by how much agricultural production and supply will have to increase in the future.

An important question is whether access to food will be a limiting factor for the world's development and population growth. This question has been debated for several centuries—at least since Malthus first presented his theories on population growth in the late 1700s.

Who will feed the world, and do we have enough resources to meet the increasing demand resulting from population growth? Furthermore, we have the paradox that we have both hunger and an abundance of food at the same time. More people die from diseases connected to obesity than from starvation.

Additionally, food crises, which are further exacerbating the food situation, not least in the less developed countries, are occurring more frequently: Is this a wake-up call and a warning that food supply may be uncertain in the future?

Or will the world's population gradually move further up Maslow's pyramid of needs because the basic need for food has been met?

Or is it more a question of purchasing power that is the challenge rather than the availability of food? Calculated in calories, there is enough food in the world to feed everyone.

Should the less developed countries increase their food supply and food export, and what is the future role of different countries and regions regarding the global food supply in the future?

Will new green revolutions be able to boost the supply of food to such an extent that production is able to keep pace with population growth? There is no doubt that technology will play a crucial role in terms of solutions to food scarcity in the future. Technology in the form of plant breeding, mechanization, innovation and knowledge sharing will be absolutely necessary. Plant breeding was behind the green revolution in the 1960s, which reduced hunger and famine in large parts of Asia. A new green technological revolution that addresses the issues of sustainability and food safety is probably needed.

As previously discussed, in the future, food production will have to increase in line with population growth to make it at least possible to feed everyone. However, the likelihood of this occurring may be seriously hampered by, e.g., the adverse effects of climate change, biodiversity loss and the destruction of habitats.

Achieving an adequate food supply is a challenge both globally and locally: Globally because food crises, pandemics or insufficient food stocks result in expensive food and locally because poor growth or a poor economy and purchasing power lead to hunger. Global and local foods each have their own advantages, and the question is whether they can coexist and if so how.

10.2 World Market Shares: Developed and Developing Countries

The supply of agricultural products and food from developing and less developed countries is changing, and their role on the world market is following a fairly stable trend.

Developing countries are mainly agricultural countries as the agricultural and food sectors account for a large proportion of total production, value added and exports. Furthermore, in several developing countries, the agricultural sector accounts for over half of the total employment and exports, while approximately 75% of poor people worldwide live in rural areas with the majority of them being dependent on agriculture.

In general, the extent to which a country or region contributes to the global supply of agricultural products and food depends on many factors, which may be linked or counteract each other:

• Comparative advantages including land, water and the climate are basic resources that have a significant influence on a country's capacity for international trade.

• Agricultural and trade policy can restrict or support exports.

• The countries’ economic and technological development is important. With increasing economic growth in a country, the relative importance of agricultural production and agricultural exports will diminish.

• Supply and demand are important factors as, e.g., high domestic demand will limit exports.

• Good infrastructure and access to markets are important prerequisites for the capacity to export. By the same token, their absence often limits less developed countries’ capacity to export.

• A well-functioning international market for agricultural and food products is also an important prerequisite for exploiting production and export potential. To a certain extent, the presence of a market system based on the international division of labor is necessary.

Some of these factors suggest that exports of agricultural and food products from developing countries will rise, while others suggest the opposite.

On the one hand, a relative decline in the export of agricultural and food products may be the result of developing countries seeking to promote the industrialization process. Developing countries’ desire to encourage industrialization at the expense of agricultural and food production may be due to, e.g., limited access to exports and a deterioration in the terms of trade. Developing countries can encourage industrialization by moving resources (labor, capital, research, etc.) from the agricultural and food sectors to industrial sectors, which will result in a reduction in agricultural and food production.

Developing countries’ limited export potential is also, to a large extent, a consequence of their agricultural policy. A relative decline in agricultural and food exports may also be the result of an increase in domestic demand due to increasing prosperity and purchasing power.

On the other hand, some conditions imply that developing countries should increase their agricultural production and exports. Agricultural and food production is often one of the few comparative advantages possessed by developing countries. To ensure maximum international competitiveness, it is necessary to focus on the sectors with the greatest comparative advantage.

Developing countries also need to develop exports to gain access to foreign currency to pay for the imports that are needed.

Based on these considerations, it is striking that the developing countries’ share of global food exports has been falling for a long time, but has increased recently (see Fig. 10.1).

Fig. 10.1

(Note Based on the FAO’s definitions of developed and developing countries. Source Author’s calculations based on statistical data from FAO)

Developing countries’ share of total food exports, 1961–2021

The figure shows that, in the late 1900s, the developing countries’ market share in terms of food exports reached its lowest point. This was especially the case for the least developed countries, where exports ceased almost entirely. From the early 1960s to the early 1990s, the developing countries’ total market share fell by more than 50%; from 22 to 10%. Subsequently, their market share increased, which may have been due to the WTO negotiations regarding the liberalization of trade in the agricultural and food sectors.

The fluctuation in the developing countries’ market share is the result of several factors; factors related to the specific products, or related to competitive conditions in specific countries.

Figure 10.2 presents two examples of less developed countries increasing their world market share, i.e., taking market share from high-income countries, in the agricultural and food segment.

Fig. 10.2

(Note (i) Green beans—Less developed countries: Morocco, Guatemala, Kenya, Senegal, Egypt, Malaysia, Botswana, Ethiopia, Oman, Rwanda, Myanmar, Dom. Rep., Tanzania, Indonesia and Uganda. (ii) Cut flowers—Less developed countries: Columbia, Ecuador, Kenya, Ethiopia, Malaysia, Vietnam, Thailand, Costa Rica, Guatemala, India, Nigeria, Zambia, Tanzania, Zimbabwe and Egypt. Source Own calculations based on statistical data from FAO and UN Comtrade)

Developing countries’ share of the world market (export) for green beans and cut flowers

Green beans are an example of labor-intensive vegetable production, and they are increasingly being produced in less developed countries and exported as fresh products to high-income countries. Countries in Africa and Asia, in particular, have increased their production in recent decades. A list of the most important export countries, in decreasing order of importance, is given in the notes to Fig. 10.2.

Low labor costs, year-round production and well-developed logistics are important factors behind this increase in agricultural production in several less developed countries. In many cases, retail chains in high-income countries drive and control the value chains through backward integration in that they set the quality standards and regularly check the quality of the products in all links of the value chain. The size and market share of the retail chains in relation to their suppliers in the value chain confirms that market power is indeed concentrated in the retail chains.

In terms of cut flowers, there has been a global trend for several: The production of cut flowers has moved from high-income countries in the West to Africa, South America and Asia, which reduces energy and labor costs. Thanks to the well-developed tourism and aviation industries, it was relatively easy and cheap to send the flowers to high-income countries by plane—often in the cargo hold of passenger planes. Investors, mainly from the Netherlands, established large horticultural companies in the low-cost countries. Environmental legislation was more lenient in these countries, which is another reason for the increase in offshoring to these countries.

Figure 10.2 presents the change in the developing countries’ share of the world market (export) for cut flowers from the beginning of the 1990s, which is when the less developed countries began to take an increasing share of world trade from countries in the West.

The increase now seems to have stopped: less developed countries and low-cost countries such as Colombia, Ecuador and Kenya account for approx. 40% of the exports, while western countries, especially the Netherlands, account for 60%. This distribution has been stable in recent years. From the start of 2020 to the end of the period shown, exports from less developed countries fell slightly, which was primarily a consequence of the Covid-19 pandemic.

Looking forward, the trend of a declining market share for the developing countries that began in the late 1900s will not return. Instead, the subsequent trend of an increasing share of the world food market for the less developed countries is likely to continue: An efficient international division of labor and an increasingly globalized world will strengthen the foundation for these countries to achieve an increasing share of the world market for food in the coming years.

10.3 Malthus and Food Supply

It is often debated whether we have reached the point at which food production can no longer keep up with population growth. The recent food crises with sharply rising agricultural and food prices make it relevant to ask this question. The discussion concerns the long-term global food supply and whether we will be able to feed an ever-increasing population. The balance between food production and population growth was discussed for the first time several centuries ago, and one of the first theories in this area was put forward by Malthus.

Thomas Robert Malthus (1766–1834) was an English economist who was best known for his pessimistic view of the relationship between population growth and food supply. According to Malthus, the amount of food available is decisive for population growth. The population will always have to live on a subsistence minimum because if they got more than this, population growth would just accelerate thereby reducing the amount of food available and forcing the population to live on the subsistence minimum again.

Malthus assumed that food production increases linearly, while population grows exponentially when food is not a limiting factor. According to Malthus, population growth and food production were on a collision course, and an equilibrium would emerge at a level at which the amount of food produced determined the size of the population. Food production per capita will remain constant and the population will live on a subsistence minimum. Malthus's assumptions are illustrated in Fig. 10.3.

Fig. 10.3

(Source Own production)

Malthus’s assumption about growth in food production and population

According to Malthus, food production is a limiting factor for the population. Malthus’s theory was formulated in the book “An Essay on the Principle of Population from 1798”. Malthus's assumption is still relevant—more than 200 years later, cf. Box 10.1.

Box 10.1 Malthus is Still Relevant—200 Years After His Theory was Published

• Was Malthus right?

  The answer: He might be, if we don’t get our act together... If we don’t pay more attention to our farmers, Malthus might come back to haunt us.

  (Schuman, 2011)

• Malthus foiled again and again

  Agriculture has repeatedly met Malthusian watersheds — and has overcome them.

  (Trewavas, 2002)

• Could Malthus be right after all?

  Will Land Degradation Prove Malthus Right After All?

  (Wiebe, 2003)

• Was Malthus completely wrong?

  Malthus was wrong in the Eighteenth Century, and his followers are wrong today

  (villysgaard, 2015)

• Malthusianism in the twenty-first century

  Malthusian theory has not expired and still makes sense …

  (Montano & García-López, 2020)

• Do Thomas Malthus's words still hold water?

  Do we need another green revolution to boost food production and save us from Thomas Malthus’s prophesy?

  (Gera, 2022)

• This time is different! Or is it? Neo-Malthusians and environmental optimists in the age of climate change

  Not limited to the food supply, neo-Malthusianism focuses on a wide set of scarcities arising from increased resource consumption and depletion.

  (Gleditsch, 2021)

It is fairly easy to show whether the situation in recent decades matches Malthus's predictions about food production and population: The population is increasing at a faster rate than agricultural and food production. Figure 10.4 presents the change in the global population and agricultural and food production in total and per capita since 1961.

Fig. 10.4

(Source Own calculations based on statistical data from FAO)

Change in global population and agricultural and food production in total and per capita

The figure clearly shows that the world’s total production of both agricultural and food products has increased far more than the world’s total population. The production per capita increased by almost 50% from 1961 to 2019.

At the global level, to date, food production has been able to keep pace with population growth. The world has never before produced as much food per capita as it does today. In the years 1961–2010, the average supply of food per person has increased from 2.200 calories per day to over 2.960 calories per day, cf. Fig. 10.5.

Fig. 10.5

(Note Lack of data continuity in 2009–2010. Source Own calculations based on statistical data from FAO)

Food supply: Daily calories per capita 1961–2020 in selected regions

As can be seen in Fig. 10.5, food production has kept up with population growth in the last 40–50 years. It is particularly noteworthy that Asia has witnessed such a significant increase, which is due, among other things, to the green revolution that started in the mid-1960s, when new varieties and production methods were developed and introduced. The new types of crops were wheat, rice and corn. In general, East Africa experienced a very slow increase in food supply during the period, although the increase became more rapid from around 1990 onwards.

North America experienced the largest increase in food supply from a level that was already high.

Therefore, it seems that Malthus was wrong—at least for now—although there is no indication that he will be proved right in the near future either. Malthus was unable to explain or predict the future relationship between food supply and population growth due to his two basic assumptions.

Firstly, Malthus assumed that population growth was exponential, but this is not the case as there is a correlation between economic growth and population growth. In the short term, increased income leads to accelerated population growth due to improved health and reduced mortality in the population. However, in the longer term, increased income reduces the number of births, which results in a significant deceleration in population growth.

As can be seen in Fig. 10.6, the number of births decreases with increasing income, and the birth rate has, in general, been continuously falling in the world for the last 60 years.

Fig. 10.6

(Note Birth rate: The annual number of live births per 1.000 population. Source Own presentation based on statistical data from World Bank)

Birth rate, income and trends

Figure 10.6 illustrates a significant correlation: the number of births, and thus the population, declines in line with increasing economic welfare (GDP per capita). The figure also shows that the global birth rate halved, on average, during the period. The trend is the same in the five selected regions, but the birth rate is still high in low-income countries.

Similarly, Fig. 10.7 shows that the fertility rate decreases with increasing income, and that the fertility rate is, in general, decreasing worldwide.

Fig. 10.7

(Note Fertility rate: The number of children that would be born to a woman if she were to live to the end of her childbearing years and bear children in accordance with age-specific fertility rates of the specified year. Source Own presentation based on World Bank [2022])

Fertility rate, economic welfare and trends

Figure 10.7 shows a clear correlation between the fertility rate (number of births per woman) and a country’s economic development (GDP per capita) in that the fertility rate decreases with increasing economic development. The figure also shows the point at which the fertility rate = 2, i.e., the point where the population remains constant. In North America and the EU, the fertility rate is below 2, but in these regions, immigration is likely to result in a constant or increasing population.

Another factor that Malthus did not take into account is technological development, which has spurred strong growth in agricultural productivity. Fertilizers, pesticides, plant breeding, economies of scale, advisory services, training, etc., have been significant drivers of increasing production. When Malthus was alive, an individual needed an area of approx. 20.000 m² to produce enough food to feed one person (Evans, 1998), today, only 1.800 m² is needed (Sect. 9.2), which clearly illustrates the significant progress in agricultural productivity that has been made thanks to technological advances in agriculture since Malthus’s time.

The improved food situation in recent decades has largely been achieved by increasing productivity. Since 1961, the world's total grain production has increased by almost 250%. In the same period, the grain area has increased by approx. 15%, which means that the increase in productivity (measured as grain production per hectare) is 200% cf. Fig. 10.8.

Fig. 10.8

(Source Own presentation based on statistical data from FAO)

Change in the world’s total grain production, area and productivity

The figure indicates that increasing productivity has been decisive in terms of being able to feed a rapidly increasing population in recent decades. As discussed in Sect. 9.5, increasing agricultural productivity can be considered a megatrend.

Because the underlying factors that contradict Malthus's assumptions are relatively stable and persistent, Malthus will probably not be right in the future either. However, as previously discussed there is still some disagreement about the future global food situation, and whether Malthus's prediction will soon be fulfilled is disputed.

Economists and other experts generally agree about demand, i.e., how many mouths will need to be fed in the coming decades. On the other hand, they disagree about the supply side, i.e., by how much agricultural production and supply will have to increase in the future. There are many unanswered questions about future food production including whether there is a limit to production and what effect further technological progress will have on our capacity to produce.

As previously discussed, land is a limited resource. Although unexploited agricultural land still exists in the world, technical, economic and environmental barriers will limit the potential to expand the agricultural area. At the same time, urban development, etc., will limit the agricultural area. Increasing productivity is key when assessing the potential for feeding an ever-increasing global population.

Productivity growth will, at some point, slow down as there is some upper limit to how many agricultural goods can be produced on earth. However, several opportunities for increasing food production exist, especially through the transfer of knowhow to developing countries. Improving cultivation methods in the developing countries would facilitate an increase in productivity.

On the other hand, several conditions can/will limit productivity growth in the future such as high input prices, water shortages, the degradation of soil or groundwater, legislation regarding the use of fertilizers, pesticides, biotechnology, etc., and other similar interventions.

High productivity can also lead to harmful environmental externalities as, e.g., fertilizers and pesticides can pollute water resources, reduce biodiversity, etc.

Four types of constraints on productivity growth exist: economic, technical, environmental and legislative.

Overall, the conclusion is that the food situation has improved in recent decades as the average food produced per person has increased worldwide. The prerequisites for increasing the average food produced per capita in the coming years are also present. A continued increase in and dissemination of knowledge in plant breeding, livestock breeding, productivity growth, agricultural management will contribute to increasing agricultural production at a faster rate than population growth.

However, new megatrends and, not least, disruptions such as climate change may be decisive game changers that could make Maslow's predictions more realistic.

Malthus’s pessimistic predictions can probably be avoided, but it will require the continual development of efficient and sustainable technologies that can increase the world’s total agricultural and food production. It also presupposes the fair dissemination of technological progress and distribution of economic welfare if local or regional examples of the Malthusian theory are not to become reality.

10.4 Food Security

Food security has been defined by the FAO (2008) as follows: “people, at all times, have physical and economic access to sufficient safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life”.

Food security encompasses the following four dimensions (FAO, 2008):

• Food availability: The availability of sufficient quantities of food of appropriate quality, supplied through domestic production or imports. Involves the “supply side” of food security. Whether a sufficient amount of food is available is determined by the level of food production, stock levels and net trade.

• Food access: Individuals having access to adequate resources, so they can acquire appropriate foods for a nutritious diet. Involves incomes, purchasing power, expenditure, markets and prices.

• Utilization: How food is utilized through adequate diet, clean water, sanitation and health care, so the individual achieves nutritional well-being, whereby all their physiological needs are met. This emphasizes the importance of non-food inputs in food security.

• Stability: Populations, households and individuals having access to adequate food at all times. This stability is not undermined by sudden shocks such as food crises, unemployment, adverse weather conditions or political instability.

For food security to be realized, all the above four dimensions must be fulfilled.

In recent decades, the level of food security—calculated as the prevalence of malnourishment in the world—has improved. As can be seen in Fig. 10.9, the share of people in the world who are malnourished decreased from 13% in 2000 to 8% in 2018, when it started to increase and reached close to 10% by the end of the period shown. The increase after 2018 was due to the food crisis and an increase in the price of food, which began in mid-2020, extreme weather conditions and drought, and conflicts. In 2021, almost 800 million people were suffering from malnutrition.

Fig. 10.9

(Source Presentation based on World Obesity Federation [2023], and statistical data from FAO)

Prevalence of malnourishment and obesity in the world (percent)

Parallel to this, obesity has increased cf. Fig. 10.9.

Obesity is a growing problem in almost all countries. Although it is most serious in the richest countries (America and Europe), it also occurs in some regions of Africa. The connection between income and obesity is far from clear. However, the increase in both malnutrition and obesity in recent years is a paradox.

Ensuring food security in the future will depend on many factors that have an effect in the short or long term. Food security for example depends on the presence of the following biological, technological, economic and political conditions:

• Increasing and improved agricultural and food production achieved through increased productivity, extension services, education, etc.

• Ensuring the construction of adequate infrastructure, value chains, market access, and reducing food loss and waste

• Purchasing power

• Income differences within and between countries

• Food crises and market instability

• International food aid and aid organizations

• International trade and agricultural policy

• Climate change

• Population growth

Population growth is, of course, a significant factor in any assessment of whether food security will exist in the future. Population growth is expected to continue until the 2080s, when the world’s population is expected to be just under 10.5 billion, after which a gradual decline is expected. However, the rate of change will differ greatly between continents, cf. Fig. 10.10.

Fig. 10.10

(Source Own presentation based on statistical data from FAO)

Population growth in 21st Century according to the UN

The figure illustrates that the largest increase in population will occur in Africa. By the end of the 21st Century, almost 40% of the world’s population will be living in Africa compared to 13% at the beginning of this century.

From a food security perspective, the fact that population growth is so unevenly distributed and is so rapid in Africa is problematic. A major increase in population in regions with a high level of malnourishment is critical for the food security.

Africa’s share of the total number of malnourished people in the world increased from 25% in 2000 to 36% in 2021. However, Africa is home to 18% (2021) of the world’s population, so the malnutrition challenge is significant in Africa.

In general, future population growth is expected to take place in regions that currently have a high level of malnourishment, cf. Fig. 10.11.

Fig. 10.11

(Note Projected population growth [2022–2250] and malnourishment [2021, percent]. Source statistical data from FAO)

Projected population growth and malnourishment

Figure 10.11 illustrates a correlation between the expected growth in population up to 2050 and the level of malnourishment in 2021. The population growth is especially occurring in East, Middle and West Africa, while East and Middle Africa, in particular, have a high level of malnourishment. This correlation, which may encompass several interrelated factors, does not bode well for future food security.

As previously mentioned, increasing production and productivity will play an important role when it comes to future food security. Also in this context, unfortunate correlations can be identified: population growth is especially occurring in areas with low productivity, cf. Fig. 10.12.

Fig. 10.12

(Source Own presentation based on statistical data from FAO)

Projected population growth and productivity in maize production (2021)

The low yields may indicate that there is unexploited potential for future increases, or they may be the manifestation of relatively poor conditions for crop production in both the short and long terms. The unexploited potential is probably significant from a purely biological point of view, but exploiting the potential will require significant measures and resources.

10.5 Food Crises

Food crises—in this context, defined as short-term periods of rapidly rising global prices for basic agricultural raw materials—have played a major role in food supply and in the global security of supply. Food crises contribute to hunger, food insecurity and market turbulence. Farms, food companies and other companies in the food cluster will also often be affected by the volatility and unpredictability that follows in the aftermath of a food crisis.

Food crises cannot be characterized as decidedly stable or predictable trends. Nor are food crises systematic fluctuations—cycles—which often occur in agricultural markets.

Food crises are primarily the result of temporary shocks (drought, rising energy prices, etc.), and long-term market conditions (increasing consumption, productivity growth, etc.). These shocks are often exogenous to the agricultural and food sectors, which means that food crises are difficult to predict, as is any longer-term trend.

Despite this unpredictability, it seems likely that food crises will occur again in the future: the question is, therefore, whether food crises are isolated cases, or are there repeated cases where underlying driving forces also in the future will create continuous food crises? If the latter is the case, food crises are likely to also occur in the future, and we will have to adapt to a world with future but often unpredictable food crises.

As can be seen in Fig. 10.13, there have been three serious food crises so far this millennium.

Fig. 10.13

(Note Weighted averages for all types of wheat. Shown as monthly averages in current prices. Source Own presentation based on statistical data from USDA)

Historical food crises: Wheat prices in the USA, 1960–2023

For many decades, the USA has been the most important marketplace for commodities including grains. Therefore, the price change in the USA is considered to be indicative of an international price or a world market price.

The figure presents the change in the price of wheat, which is one of the most important agricultural products for international production and international trade. According to the figure, 4–5 dramatic increases in price, or food crises, have occurred in the past 50 years. The price increases were relatively short-term, often a maximum of 1–2 years, after which the markets stabilized, so a sustained increase in the price did not occur. Thus, the previous food crises are so-called price bubbles.

In order to understand the emergence and development of food crises, a better understanding of the complexity of price formation and its underlying factors is necessary. For this purpose, the drivers can be divided into five categories depending on the way in which they influence the price. The five categories are as follows: Supply, demand, uncertainty, automatic stabilizers and self-reinforcing conditions (see Fig. 10.14).

Fig. 10.14

(Source Own presentation)

Drivers behind the change in international prices for agricultural and food products

As the figure shows, many factors, which may be interrelated or endogenous or exogenous in relation to the agricultural and food sector, may affect the price of agricultural and food products. Drought will typically affect both supply and productivity, and in this case, sustained increases are necessary to meet increasing demand. Some conditions affect prices in an upward direction, others in a downward direction. For a more detailed discussion of the individual points, see Hansen (2013).

In a food crisis situation, drivers in all five categories will play a role. The drivers “stock changes”, “bioenergy”, “export restrictions”, “oil prices” and “productivity” are all very important, and their impact on markets and on prices is briefly discussed below.

The size of grain stocks is a very important explanation for the change in the price of grain. To a large extent, the future grain prices can be predicted based on current stocks.

Since the beginning of the 1980s, there has been a clear correlation between the size of grain reserves and international grain prices (see Fig. 10.15).

Fig. 10.15

(Note Reserves: Wheat and coarse grain, Price, Wheat. Source Author’s calculations based on statistical data from USDA)

Change in the size of grain reserves and international grain prices

Stocks are the world’s total grain stocks as a percentage of consumption. The price is a weighted average for the USA.

During the food crises (2007–2008 and 2010–2011), grain reserves were very low or declining and only amounted to approximately 17–20% of world consumption. When reserves are low, as they were during the recent food crises and during a period in the mid-1990s, the grain price is typically high.

Production of bioenergy, or biofuels, which primarily consist of ethanol and biodiesel, was one of the major reasons for the increases in grain price that occurred during the 2007–2008 food crisis.

Bioenergy may also contribute to relatively high grain prices in the future: Biofuels use, to a varying extent, agricultural products as raw materials or compete, at least, with agricultural products for agricultural land. Therefore, there is a close interaction between biofuels, grain prices and food crises.

The production of biofuels has increased significantly since the beginning of the 2000s, and a major share of, e.g., corn production in the USA is now used for energy, cf. Figs. 10.16 and 10.17.

Fig. 10.16

(Source Own presentation based on (OECD & FAO, 2022), and statistical data from USDA)

World production of biofuels

Fig. 10.17

(Source Own presentation based on OECD & FAO [2022], and statistical data from USDA)

Share of total corn used for ethanol in the US

The increase in the total global production of biofuels will probably continue in the future. Even though uncertain factors such as prices for oil, energy and grain have a major influence on the profitability of bioenergy production and despite many political agendas, there is general agreement that bioenergy will continue to have a role in the overall energy supply. This means that bioenergy production will remain a potential driver behind future food crises.

The introduction of export restrictions will also potentially affect prices and thus contribute to a food crisis. Export restrictions may have several purposes and also several consequences for the international agricultural and food markets (OECD, 2010):

• Improving the terms of trade

• Contributing to food security and the stabilization of final consumption price

• Stabilizing intermediate consumption price and developing processing industries

• Increasing public receipts

• Redistributing income

• Stabilizing export earnings

Most importantly, food security and the stabilization of food prices are the specific objectives of export restrictions.

As shown in Fig. 10.14, export ban belongs to the group of self-perpetuating measures, which reinforce the price effects of a food crisis: export restrictions simply reduce the supply on the world market, which pushes prices upwards. At the same time, the normal market mechanism, which usually results in an automatic price stabilization, is decoupled, which results in both higher and more volatile prices on the world market. Conversely, export restrictions can contribute to lower and more stable domestic prices to the advantage of some and to the disadvantage of others.

Studies have shown that export restrictions on agricultural goods became more widespread during the food crises of 2007–2008 and 2020–2011, cf. WTO (2019), WTO (2020). The WTO (2020) concludes that, among other things, export restrictions may increase considerably in times of crisis in the food sector. The data also seem to suggest that some of these restrictions may remain in place for long periods of time even continuing after the period of crisis has ended.

Even though export restrictions go against WTO principles, they are introduced nevertheless, which indicates that the WTO—despite more widespread liberalization and an increasing number of member countries—is unable to prevent the use of export restrictions during food crises. We can expect that export restrictions will also be used in the future, and that they will exacerbate future food crises with increasing and more volatile world market prices.

Oil prices—or more generally energy prices—also have an impact on the prices of agricultural products, especially grain. The prices of oil and wheat follow each other, cf. Fig. 10.18.

Fig. 10.18

(Source Own presentation based on statistical data from FRED and USDA)

Prices of crude oil and wheat

For a long period, the correlation between the price of oil and the price of wheat is clear and significant. There are several explanations for the fact that oil and grain prices are connected, and that the correlation has become stronger in recent years:

Firstly, agricultural production is relatively energy intensive. When energy prices rise, the costs of, for example, grain production will also rise, and sooner or later this will result in rising grain prices.

Secondly, grain is also used for energy production. With rising energy prices, it will be more attractive to produce bioenergy based on, e.g., grain. Therefore, the demand for—and thus also the price of—grain will increase when the energy price rises.

“Productivity”, which is an important factor and creator of increased production, is a longer-term driver that can also create or prevent food crises. The most recent food crises since 2000 have occurred after a year in which the demand for wheat exceeded the supply, cf. Fig. 10.19.

Fig. 10.19

(Source Own presentation based on statistical data from USDA)

World supply and demand for wheat

The figure presents the world’s total supply and consumption of wheat. While supply may vary significantly from year to year, demand is more constant. In order to meet increasing consumption—and thus avoid or limit future food crises—increasing production is necessary. With a relatively constant agricultural area, productivity increases are crucial to ensure increasing production year after year.

Productivity growth thus has two significant effects: Firstly, it contributes to a long-term real price decline for wheat. Secondly, annual changes in productivity—years with falling or sharply increasing harvest yields—will in the short term affect price levels and thereby increasing the likelihood of food crises, cf. Fig. 10.20.

Fig. 10.20

(Note Price is 12-month moving average and deflated with inflation. Source Own presentation based on statistical data from USDA)

Wheat: Long-term real price change and yield in the USA

Figure 10.20 illustrates this inverse long-term relationship between price and productivity with wheat production in the USA. A short-term correlation can also be seen where productivity changes—especially declining productivity—affect the price. This indicates that sustained productivity growth is necessary to reduce the risk of short-term price increases and food crises.

In conclusion, assessing the probability of food crises in the longer term is complicated as many factors influence market conditions and the formation of prices for agricultural products. Several of the most important driving forces such as those that helped create the recent food crises are, however, relatively persistent and consistent. Therefore, the probability of more food crises in the longer term is high.

10.6 Local and Global Food Supply

Agricultural and food markets are evolving and there are many trends some of which counteract each other. New consumer segments are emerging and growing, inspiration from foreign food cultures is creating new demand, and international marketing are also having an effect on the markets.

Two opposing trends have emerged in the agricultural and food markets in recent years: On the one hand, there is a clear trend toward more globalization, liberalization and more similar international consumer demands are increasing. Globalization implies greater international trade, larger transnational companies and more movement across national borders in terms of capital, labor, knowledge, etc.

With globalization, the raw materials will be bought in whichever country they are cheapest, and thus the localness will be diluted or disappear. In this way, producers and consumers can “shop around” and find the cheapest or best goods from anywhere in the world.

A distinct trend is that the foods must be of uniform quality everywhere in the world, and they must fit into the food industry’s or retail’s global brand strategy. The focus is on large-scale operations with marketing via global advertising and global branded goods. Technological development and mass communication make it easier to market products on international markets, which means we get more uniform products.

Retail trade is also becoming increasingly international with an increasing share of their turnover taking place in foreign countries. Although some adaptation of the product range occurs in response to the demand of the individual countries, in general, the food supply will be characterized by uniformity due to the internationalization of the retail trade.

The increasing global supply can be easily demonstrated empirically as it is illustrated by the growth in international trade, the internationalization of retail chains, etc.

On the other hand, a number of market and consumer trends toward a greater focus on the local, close and original are becoming increasingly important. Some consumers are demanding food that is produced and sold in the local area. This is not a new trend, but it has intensified in recent years.

The growing awareness of local food is an international trend, although it is generally a niche segment.

The demand for local food may be a counter reaction to the increasingly globalized and industrialized food supply. The demand for local food encompasses a desire to get back to the roots. This new trend is also closely related to consumers’ desire for traceability in that some consumers prefer to be able to trace their food back to the individual farmer who produced it.

Some characteristics of the local and global food supply are illustrated in Fig. 10.21.

Fig. 10.21

Some characteristics of the local and global food supply

Many retail chains have adopted this trend: They try to profile themselves in this segment, and they get access to more unique products than perhaps their competitors have. At the same time, the retailers place themselves in a stronger market position: Whereas they previously depended on a few large food suppliers, they now have access to several smaller suppliers, which gives the supermarkets a much stronger position in the value chain. Therefore, the supermarket chains strengthen their negotiating position and gain greater market power by increasing their focusing on local food.

Several studies have demonstrated an increasing trend with regard to local and regional food, farm shops, local sourcing, consumer preferences for locally produced food, etc., cf. Low et al. (2015), Hestermann and Horan (2017), Martinez (2021) and Sindal (2019). However, empirical analyzes of the change in the demand for local food are scarce because local foods are not particularly well defined. National and local foods are often equated, while in other cases, in order that a product may be labelled local food, the producer must demonstrate that there is a close connection and short geographical distance from the site of production to the location of the sale. Finally, the food supply will in many cases be local or national without there being an explicit preference or demand for local food.

Also on the supply side, initiatives that increase the focus on local products have been developed: Small local dairies and microbreweries are often established based on a local identity. The producers have attempted to differentiate their products from the large global brands, and have placed greater emphasis on proximity to the manufacturer, local characteristics, etc. The products may partly meet local demand, but they may also be sold on international markets with a “local identity or history” or a regional label. Therefore, local products are sold internationally.

Farmers’ direct sales to consumers via, among other things, farm shops is also an indicator of preferences for local supply. According to Augère-Granier (2016), on average, around 15% of EU farmers sell more than half of their production directly to consumers. However, this mainly applies to small holdings. There are significant differences between countries: the share of holdings involved in direct sales is almost 25% in Greece, 19% in Slovakia and around 18% in Hungary, Romania and Estonia, but it is less than 5% in Malta, Austria and Spain.

The major differences between countries indicate that the viability of selling directly to consumers is influenced by several factors: during economic growth and industrialization of the value chains, central distribution centers, retail chains and international trade become more important. As a result, farmers’ direct sales to consumers are less significant. At a later stage, the demand for a local identity, traceability and close proximity becomes increasingly important—cf. Maslow’s pyramid of needs—and thus preferences for local foods increase.

Factors other than economic growth are also important including the industrialization of agriculture, cultural conditions, infrastructure, etc.

However, there are examples of governments or producers arguing for local food and shorter value chains in an attempt to protect domestic agricultural production and domestic farmers, but this is just protectionism and not in itself an argument for local food.

With regard to predicting how the trend for local food will develop in the future, the starting point is to recognize that the trend toward a greater focus on local food is one of several trends, and that it is probably only a niche. Some farmers may increase their profitability by switching to local production in collaboration with food companies or retail chains. The question is, however, whether such partnerships are equal and sustainable in the long term.

Problems connected to climate change will probably be an even stronger driver in the future, and they may spur the development and reinforce the demand for local food due to reduced transportation costs and negative effects on the climate.

Local and global food supply can easily coexist, and it is not a question of either one or the other. Both local and global supply meet a demand, and both will be present in the future. The question is what the balance between local and global food supply will be in the future.

The balance will depend on both the supply and demand side:

On the supply side, the extent to which the supply of foreign goods is limited on domestic markets will depend on the number of technical, economic and political trade barriers in place.

On the demand side, the extent to which consumers have a preference for local food will be decisive. Sometimes anti-globalization waves or backlashes occur whereby consumers seek out food with greater traceability and transparency regarding the underlying production process. This demand is also supported by widespread national marketing in which food produced on the domestic market is given a special status and value. If the anti-globalization wave is long-lasting and intensifies, it can be expected to spur the demand for local food. Finally, the geopolitical situation will also be a significant factor in this connection.