China’s increasing economic strength could drive up the price of key food ingredients as it attempts to secure supplies at the expense of other nations, a leading economist has warned.
The spiralling world population - estimated to rise by 2.5bn to 9bn by 2050 - plus increased competition for limited resources, could put supply chains at serious risk, warned a leading economist. This, together with the looming recession around the world, offered “scary prospects” for the UK, he added.“We are increasingly finding ourself out-manoeuvred - especially in Africa,” said think tank IGD chief economist James Walton. “China is now exporting inflation for everybody else.”
It was a position supported by Sainsbury chief executive Justin King, who noted the increasing competition for African and South American produce from emerging countries such as China.
Walton warned of the negotiating power which arose from China’s huge foreign currency reserves. He was speaking at a breakfast briefing before last week’s IGD annual convention on the timely subject of ‘The world turned upside down’. Competition for water, energy and artificial fertilisers would drive up costs, he said.
“Unless something is done we face an oil gap within a decade,” argued Walton. He predicted that the gap would amount to 37M barrels a day by 2018. And, he argued, “biofuels were creating as many problems as they solved”. However, Angus MacIver, group marketing and communications director for supermarket Morrison was confident that: “Over time, we will find ways of moving out of an oil-based economy.”
Governments were trying to present a more optimistic outlook. And several other commentators at the convention, including Tesco UK marketing director Carolyn Bradley and executive director Lucy Neville-Rolfe, suggested that food price inflation had peaked in the UK. But Walton offered a far gloomier prospect.
Global disputes had flared up because of increases in commodity prices, he claimed, and “protection and subsidy were back in fashion”, with more powerful nations trying to tie up exclusive supply chain deals.
The food security argument was later picked up by National Farmers’ Union president Peter Kendall who said: “I’m not sure other countries see feeding the UK as their priority.” But Sainsbury boss Justin King argued that some people were mistakenly mixing up sustainability with security of supply. “They are different things,” said King. “I believe very strongly in sourcing from Africa … although security of supply is a very real issue.”
King suggested it was all about growing things where they were best produced. He gave the example of East Fens, which he said should be used to grow root vegetables and not sugar beet. “That dig for Britain idea is a big mistake,” he claimed.
Walton suggested the current mayhem in the financial markets would enable China to expand its foreign investments. We used to have “gunboat diplomacy”, he said. “Foreign currency diplomacy is a silent weapon.”
He also warned of the increasing power of sovereign wealth funds, basically state-owned investment funds from predominantly oil-rich nations. These, he claimed, would be a “key investor” for the grocery business in the years to come.
“Today there is one global market place in which every individual and every business has to compete,” said Walton. And while traditionally having a major influence on commodity pricing, “the US has become hopelessly addicted to Chinese credit”, he argued.