Food security is now the big issue and it is starting to shape corporate strategy. The hungry world is driving takeovers.
We already have news for example of BHP Billiton's hostile bid for the world's biggest producer of the fertiliser feedstock, Potash Corp. of Saskatchewan. The miner is targeting a new growth area with the global changes in food production and the peculiarities of the potash market. Rising standards of living in China, one of the world's largest consumers of fertilizer, and India are putting increasing pressure on farmers to produce more crops. The problem is that the amount of agricultural land is declining so the most effective solution for increasing yields is commercial fertilizers from potash and other fertilizer makers. And with potash, there are only a few players who can control the price.
"Potash, for all intents and purposes, is food," Vincent Andrews, the agriculture analyst for Morgan Stanley told the New York Times. "Because without potash, you are not making corn and soybean, and without corn and soybean, you are not making chicken or beef, and that's what people want to eat."
At the same time, Canadian fertilizer company Agrium has made a $1 billion takeover bid for Australian grain producer AWB Ltd. As business commentator Ian Verrender correctly observes, it's all to do with the global food shortage. "Rapid development of the Asian region, and particularly China, are expected to result in greater demand for high-quality food. And as one of the world's biggest food exporters, Australian agribusiness has found itself on the world's most-wanted list."
Last year, Kraft bought Cadbury and the acquisition has sent Kraft's profits soaring.
Writing in the Edmonton Journal, Professor Sylvain Charlebois from the University of Guelph, Ontario says we are seeing a profound transformation in food production with climate change, rising prices and loss of arable land. It's not a crisis, he says, just a recalibration between supply and demand. "We are merely going through a transition period in our food production and distribution systems. More than a billion people will join the middle class by 2030, and many of them won't live near arable lands. This will put a strain on grain supplies and will expose food systems to significant systemic pressures. No one knows how things will evolve over time, but we are definitely seeing the beginning of a new world order in food."
And it will drive more takeovers of companies in the food production chain.
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