Wednesday, November 5, 2014

Sunny Verghese of Olam on structural trends

No slides during his talk but slide deck will be given later. Olam has stopped powerpoints for the last two years to improve communications. Previously, analysts will know Sunny Varghese was famed for big powerpoints.
He's now talking about FAO food index, previoys price declines and inflection to price rise in last decade plus. China inflation largely due to food prices. He expects higher food prices to stay with us.
Demand drivers. Population: 9 billion plus people by 2050 and many most populous countries will be in Africa. Per capita income: rising faster than in past on larger populations, notably China and India doubling in 12 and 16 years. Income and middle class size as low/mid/high income consume 2600/3000/3600 calories respectively.
Another game changer is urbanisation. Urbanites consume 2.5X dairy, 3.5X meat than rural. West consumes over 130kg per capita and it's not just culture as HK and Taiwan consume over 100kg meat.
Supply is "shot in foot" by biofuels. FAO blames 2008 price crisis in most part to misguided policy on biofuels. Plus there's loss of farm land over time. Supply affected by declining productivity growth that has halved more recently and is now below population growth. Expansion car usage means there's set aside 0.74 ha for each new China car and take away farm land.
Water tables are receding in large zones. Olam is the world's largest corporate farmer and knows that wells now cost $0.5 million, going to depth. Wars might come about over food and water if it can happen over oil. 1300 liters of water for a big breakfast. One calorie needs one liter if water. 55 liters for personal need and 1-2 liter for drinking. China imports water by importing soybeans.
Climate change. Evidence is there from extreme weather events.
We need lot more investment on agricultural research. So much spent on defense but hard to find sufficient spend on food. Also to reduce 40 percent wastage. 
Can companies create value without destroying the environment. Nature does not issue invoices. Olam buys 2 billion bees a year for its almonds estates for $80 million.
Can we have inclusive growth? 400 people have more money than 4 billion. Such massive inequality usually addressed by revolution. Politicians are not working on this.

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