London, March 2010

Agriculture has the scope to meet soaring global demand for food by exploiting potential for higher yields and expanded farmland in certain regions, a Societe Generale analyst told Reuters last week.

Achieving large gains in farm output would however take several years and this time lag could bring renewed tensions in food supply in the medium term amid unrelenting growth in global demand, said Emmanuel Jayet, head of agricultural commodities research at French bank Societe Generale.

Falling supplies and surging prices of common grains in 2007 and 2008 sparked unrest in several poor countries and prompted a political debate about how to feed a rising world population.

The United Nations' Food and Agriculture Organisation ( FAO) says farm output would have to rise by 70 percent to feed a projected population of over 9 billion in 2050, and to support this it has called for $83 billion a year in farm investments in developing countries.

"I am fairly confident in the potential for agriculture to produce more and to feed the world population in 2050," Jayet said at SocGen's headquarters in the Paris financial district.

Output of wheat, maize (corn) and soybeans could match a 60 percent increase in demand by 2050, he said, citing a scenario he elaborated on the basis of estimates from SocGen, FAO and other forecasters such as the U.S. Department of Agriculture.

Improvement Potential

Yield gains in countries with high potential for improvement like Russia would account for two-thirds of the extra output, while the rest would come from arable land expansion, notably in South America and Africa.

The extra farm area would represent about 100 million hectares, only a fraction of some 800 million hectares in available crop land worldwide, as estimated by a 2002 study from FAO and research organisation IIASA, Jayet said.

But expanding agricultural output would be a lengthy process and complicated by environmental constraints, he said. While stocks have been rebuilt since the supply squeeze of 2008 thanks to bumper crops and a cooling in demand during a global economic downturn, this respite might not last long. "There could be very sharp tensions in the next five years," Jayet said. "Demand growth won't hold back."

Environmental pressures like water shortages and soil erosion may hinder long-term output gains, and also contribute to higher prices by curbing the productivity growth that has pushed grain prices down in real terms in past decades, he said.

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By Gus Trompiz, Reuters - for Commodities Now