From a small northwestern observatory…

Great article today in The Economist on world-wide food demand/supply. This is a hot-button issue right now, because in the emerging world, food price inflation (along with energy inflation) is critical. For a copy of the article, click here.

The linkage between food demand/supply and real estate is critical, but less than obvious. IN a very simplistic way of thinking, increasing the food supply requires increasing acreage devoted to crop and grazing land, right? Actually, technology has disentangled this equation. During the past 40 years, the world has increased the production of some key crops (wheat, corn) by as much as 250% with little change in the amount of pasture and crop land in the world (according to recent data from the U.N.). The Economist estimates that demand increases in the next 40 years will only be a fraction of the increase in the past 40 years, nonetheless distributional issues (among other things) lead to regional shortages, price inflation, and erratic agricultural investment patterns.

From a real estate perspective, the real issues are in logistics and distribution. A generation or two ago, a significant portion of the world’s population lived either on the land (as subsistence farmers) or not far removed from the land (in villages or towns directly served by surrounding farms). This was even true in the U.S. — we tend to forget that prior to WWII, the majority of Americans lived on farms and ate what they grew.

Development of the developing world leads to a disruption between the source of food and the demand for food. First — and less obvious — city dwellers demand a more balanced diet. Millions of Chinese peasants who subsisted on a rice-oriented diet a generation ago are now moving to the burgeoning cities, and demanding meat, vegetables, and other staples we take for granted in the west. This phenomenon is being repeated all over Asia, Africa, and South America. Note that of the top 25 largest cities in the world, only six are in the U.S. or Europe (New York, Los Angeles, Moscow, Paris, Chicago, and London). This trend will accelerate in the future.

Thus, the problem accelerates. It’s not just a matter of moving a sack of rice from the Chinese countryside into Beijing. It’s a matter of moving a sack of tomatoes from Chile or a side of beef from Australia into Beijing. This requires not only transportation but also the multi-modal logistics train to support that transportation. This may very well be the most exciting real estate related challenge of the rest of this century.