Thankful for a Big Trend11/26/2018
It is somewhat ironic that, in the week leading up to the Thanksgiving holiday, there were plenty of headlines to challenge the most festive of spirits. Sunday evening started with news that the Pacific Rim summit concluded without a joint agreement for the first time in 29 years, as the U.S. and China refused to budge from their entrenched positions on trade.
Dow Jones Industrials dropped a quick 4% in three days on a variety of concerns, including the prospect of lower world economic growth. On Wednesday, the Organization for Economic Cooperation and Development (OECD) lowered its forecast of world GDP growth from 3.7% in 2018 to 3.5% in 2019 and 2020, citing trade issues and rising interest rates as escalating risks. (http://www.oecd.org/…)
Meanwhile, many of DTN’s friends and customers were still trying to finish harvest after a month or more of pulling stuck equipment out of muddy fields — a disappointing and frustrating finish to what had earlier looked like an ideal growing season in many parts of the Midwest.
There was one piece of news this fall, however, quietly overlooked by most, but now that harvest is almost done it deserves larger exposure, especially in this season of giving thanks. I am referring to the annual update on extreme poverty, put out by the World Bank each year around this time.
It is a topic I first wrote about three years ago (https://www.dtnpf.com/…). I am still drawn to the subject, not just because it carries the ultimate Thanksgiving message, but also because it keenly explains the source of the biggest trend in agriculture — the increasing demand for higher protein diets among large populations of the poor.
On October 4, 2015, the World Bank announced it expected the number of people living in extreme poverty to fall below 10% of the world’s population for the first time in history. It took three years to verify, but on September 19, 2018, the World Bank confirmed that the number of people living on less than $1.90 a day (their definition of extreme poverty) fell by 68 million to 736 million in 2015, close to 10% of the world’s population.
The World Bank issued a full report on October 17, estimating that extreme poverty now stands at 8.6% of the world’s population, a slower rate of descent, but still making progress. They also said one-half of the people living in extreme poverty today are in just five countries: India, Nigeria, Republic of Congo, Ethiopia and Bangladesh
(p. 29 of World Bank’s report, “Poverty and Shared Prosperity 2018” https://openknowledge.worldbank.org/…).
The prospects for improved living standards for India’s 1.36 billion people continue to look promising after the number of those in extreme poverty dropped from half a billion in 1990 to 216 million in 2015. On Wednesday, OECD estimated real GDP growth for India at 7.5% for 2018 and 7.3% for 2019.
Sub-Sahara Africa, on the other hand, remains a stubborn source of poverty with no easy solution in sight. Twenty-seven of the world’s 28 poorest countries are in the region, “all with poverty rates of 30%” (p. 2). The World Bank attributes the lack of progress to reliance on extractive industries, prevalence of conflict and vulnerability to natural disasters, like drought.
How does this relate to U.S. agriculture? Just as we witnessed how rapid economic growth in China led to expanding pork production and an insatiable demand for soybean imports, a similar trend is happening in India today, albeit at a more moderate pace.
Double the income of a wealthy country like the U.S. over the next 10 years and few of us would eat more meat than we’re already eating. But double India’s income the next decade and we’re likely to see significant changes in diet and as a result, higher grain demand. Given India’s vegetarian tradition, beef probably won’t be high on the menu, but poultry is becoming increasingly popular as incomes rise.
According to The Economic Times, “ICRA (a credit rating agency and division of Moody’s) expects domestic broiler meat demand (in India) to grow at the rate of 7% to 8%… in medium to long-term” (“ICRA predicts decent growth for domestic poultry industry” by Sutanuka Ghosal, April 4, 2018 at https://economictimes.indiatimes.com/…).
At a time when U.S. grains are plentiful and prices are depressed after six consecutive years of good weather and good genetics, and a time when soybeans in particular are piled up like giant anthills across the Central Plains, I find gratitude in the knowledge there is one powerful trend at work in the world, which still points to increased grain demand ahead.
Happy day after Thanksgiving to all!
Todd Hultman can be reached at Todd.Hultman@dtn.com
Follow him on Twitter @ToddHultman
Source: Todd Hultman, DTN