Fuel is just one factor in the commodity boom that is expected to continue due to income and population growth, freer trade and globalization, and resource scarcity, according to a Rabobank report, "The Boom Beyond Commodities."
"While biofuels will be responsible for a significant share of added demand for commodities in the coming years, food will remain by far the primary consumer," said Rabobank Food and Agribusiness Research and Advisory (FAR) vice president Michael Whitehead.
According to the report, demand for the `4 Fs'-food, fuel, feed and fiber-is set to continue to increase worldwide. The combined effects of this increased demand are pressuring agriculture to operate more efficiently, which has led to more investment in the industry.
Additionally, transportation networks around the world are being improved and countries with extensive natural resources that were previously relatively inaccessible are now far more accessible. This will further boost investment in agriculture and increase the value of inputs, particularly in South America, Eastern Europe and Southeast Asia.
Despite recent shocks to the global economy caused by the credit crisis and soaring food and energy prices, companies operating in the food production and agricultural sectors are expected to achieve extremely strong growth in the years ahead.
"Looking ahead particularly at energy crops, the overall supply and demand situation for the future remains delicately balanced, with a number of the world's major grain, oilseed and sugar markets heavily reliant on more normal seasonal conditions in the coming years to ensure adequate production response to meet strong demand growth," said Whitehead.
Additionally, there will be a high level of rural-urban migration over the next 10 years, particularly in China and India, which is expected to keep price levels high. The forecast is that every day around 50,000 people will move to the cities where the demand for food and energy is even higher than in the countryside.
At the same time, industries affiliated with biofuel will also require increasing volumes of crops.
These industries will consequently also be a key driving force behind the growing demand for commodities, inputs and natural resources.
Beyond demand for commodities, the scarcity of resources-land, water, labor, inputs, etc.-is also a factor that will keep prices high. For example, in the year 2000, nearly two billion people lived in cities world wide; this is expected to double by 2030, which will further decrease the available arable land for agricultural production.
Additionally, over the last century, global water use has grown by more than twice the rate of population.
The combination of increased commodity demand and decreased resources make the outlook for agriculture equally challenging and promising.
"Challenging, in the sense that both food and non-food demand for agricultural production will continue to increase against limited resources. Promising as industries continue to innovate to improve factors such as yields, productivity and long-term sustainability," said Whitehead.
Rabobank provides global financial services for institutional and retail banking and agricultural finance solutions in markets around the world.
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