The food industry is having its very own Minsky Moment. You know about M&Ms don't you: those periods of excess and over confidence that follow times of plenty. Then, rather like divorce follows devotion - at least for Kate Winslett it does - overconfidence leads to catastrophe. The Ancient Greeks called this hubris.
In 2008 dollars, US investment in agricultural development abroad fell to $60 million in 2006 from $400 million a year in the 1980s. In rich countries, public investment in research, which had grown annually by more than 2% during the 1980s, shrank by 0.5% annually between 1991 and 2000. These drops are mirrored in Asia and Africa.
Furthermore, aid for agricultural research to developing countries fell by 64% between 1980 and 2003. The Green Revolution that began after the Second World War, and which accelerated during the 1960s and 1970s, saw crop yields rise with metronomic regularity. According to the US Department of Agriculture, wheat yields in the US rose from 26 bushels per acre in 1965 to 43 bushels in 1998. Over the same period corn yields almost doubled from 74 bushels to 134 bushels.
Investment dropped because crop yields kept rising in the developed world, and food was plentiful. Now there are worrying signs. Wheat yields have barely risen since 1998; they stand at 45 bushels per acre. The International Monetary Fund’s index of primary commodity prices rose from a base of 100 in 2005 to a high of 157 in 2008 and fell back to 126 in March 2009, but by May it had risen to 143.
Reserves of oilseed and soybeans are at a 25 year low. In the short term, investors are focusing on record soy and corn harvests but the food system looks fragile. By mid century (see The Mash, Issue 51, Welcome to the Pleasure Dome), 70% of the planet will be living in cities. Another 3 billion people will have to be fed. We could be heading towards famine, but then again we might not, since science can save us. But first we have to overcome our prejudice about bio-engineered crops.
According to Prof William F. Ruddiman, in Plows, Plagues & Petroleum, carbon dioxide levels began their slow rise 8,000 years ago when humans began to cut and burn forests in China, India and Europe. Then, 5,000 years ago, methane concentrations began to rise as a result of irrigation and tending livestock in large numbers. When it comes to the manipulation of plant and animal genomes, Man is an old hand; we have been doing it for at least 10,000 years.
Most of the crops we grow and the animals we breed would not last long in the wild because they are dependent on us to supply food, water, pesticides and herbicides. It is worth remembering this the next time you pay extra for organically grown crops. What you are buying has still been altered by man. It has been that way since civilization began.
The first wave of genetic manipulation was hybridization. This is where growers select for particular traits, such as larger fruit, or resistance to some pests. New tools and a better understanding of genetics meant that companies like Monsanto (NYSE:MON), Syngenta (NYSE:SYT), Dow (NYSE:DOW) and Bisi, the Indonesian seeds company, were able to focus more accurately on the discovery of traits during the 1990s.
However, we are now entering a decade when something new has started to happen. Firstly, between 2009 and 2012 the number of traits for the corn it sells will more than double; by 2020 the increase will be more than four-fold. Over that period Monsanto is also predicting that the amount of acres given over to bio engineered seeds will roughly triple.
One way of explaining what is happening is to use Moore’s Law. This is the law that states that integrated circuits double in power, for no extra cost, every 18 months. Moore’s Law gave us the high tech revolution. This same law has been extending its influence to life itself. You can call this bio-informatics or, as Monsanto has done, computational biology, but it means the same thing.
Just as engineers have used computers to design chips for several decades, scientists are now using them to analyze genomes and model new life forms. In the era of genetic engineering scientists are able to identify, isolate and select the individual genes that produce the traits that we desire. This represents one of those turning points after which life will never be the same again. The pace of innovation in plant sciences is increasing. This may, in turn, confound some of the more gloomy predictions about the Earth’s food supply. Of course, it won’t be plain sailing.
Genes and Prejudice
As we have just seen, man has been selecting for desirable traits in both plants and animals for at least 10,000 years. However, the traits selected have, until now, come from the existing genome of an organism and of the species that will hybridize it. Computers, gene sequencing equipment and science enables us to select genes with the desired traits from other species. We can even take them from animals and place them on the DNA of the plant we would like to grow. At this point, most people develop ethical objections. Should Man play God? Are we creating our own Dr Frankenstein, just as in Mary Shelley’s classic tale?
The facts tell us otherwise. All life on earth, plant and animal, sprung from a single celled life form. Nature, being a prudent guardian of her assets, will wherever possible re-use forms and genetic code rather like an applications developer does in the era of Web 2.0. A human shares almost its entire genome with a monkey, and about 50% with a banana.
The role of a gene is to create amino acids that in turn create proteins. Therefore, the same gene that creates a particular protein in one life form will be used by Mother Nature in another life form. If I take a gene from a jelly fish and put it into a dog, I haven’t put part of a jelly fish into that dog. Instead, I have taken a gene that will lead to the creation of a particular protein. The quality of jelly-fishness can not be identified from a single gene – it is derived from the entire genome. Man’s genome is comprised of 23,000 genes; some animals have even more.
When it comes to playing Dr Frankenstein, Mother Nature needs no help from Man, she has been doing it since life began. As professor Simon Conway Morris explained in a classic study called ‘Life Solutions’ (Cambridge University Press, 2003), nature not only re-uses genes she traffics in body parts too. The same eye found in a squid is found throughout the animal kingdom, including us. Likewise the same bones, overall body design and numerous body parts are reused across different species.
The green movement presents a serious obstacle to the adoption of genetic engineering. Their opposition stems from ideology rather than science. Genetic engineering is a lot more precise, transparent and accountable than breeding. The technology writer Kevin Kelly has a good analogy that illustrates the problem:
Suppose the sequence is reversed. Suppose genetic engineering is what we have done all along. Then some group says, ‘No, we’re going to use this new process called breeding.’ We’ll create all kinds of interesting recombinations, we’ll blast seeds with radiation and chemicals to get lots of mutations, and we’ll grow whatever comes up, pick the ones we like, and hope for the best.
Kelly is making a powerful point. How many realize that even fruits and vegetables that are sold as ‘organic’ may be the result of using radiation to create mutations?
Impact of Reduced R&D
The economists Philip Pardey and Julian Alston have spent their careers investigating the impact of R&D on the seed industry. Their findings suggest that there is a twenty or more year lag from the time that research is carried out to the time it comes to fruition in the food chain. They argue that the reason that the growth in yields started to slow in the later 1990s was a direct result of the food industry’s Minsky Moment. Lulled into a false sense of security by the gains of the Green Revolution, governments and companies have gradually reduced the amount they are prepared to invest in R&D. Today we are living with the consequences.
One of these consequences is that, ironically, the Green Revolution has caused damage to the environment. Yields increased, but the cost of harvesting and growing these crops also increased. Often there is a higher cost for herbicides and insecticides required by the higher yielding crops. Increased water consumption, which has become a serious problem in India and China is another cost. For instance, satellite data show that due to increased crop irrigation, the level of ground water in the aquifers of northern India fell by about four inches a year from 2002 to 2008. This represents the same amount of water as melted from Alaska’s glacier.
To combat this state of affairs we will need to embrace, with some urgency, the fruits of genetic modification. For the last decade or more we have had a planet wide control experiment into the benefits and risks of GM crops. America grows GM corn, soy and rapeseed, whereas Europe does not. We are not aware of any scientific research that suggests that US citizens are any the worse off. Furthermore, nature has not been overrun with GM mutants. Why should it? Just as hybrids find it difficult to compete in the wild against plants that have evolved over hundreds of millions of years to fit a particular habitat, so would GM crops.
China and the Future
Last year Monsanto’s numbers were hit by increased competition for its Roundup herbicide product. However, the seed business is at the threshold of a new growth cycle due to the adoption of biotech to create new traits. There are other changes that suggest that the world’s seed industry could be poised for a new phase of growth.
Profits come from finding solutions to problems. In the food industry there is no shortage of problems. As we have just seen, water depletion is a chronic and serious problem in India. It is also a serious problem in China, a country that has only around 20% of water per capita compared to the rest of the world. Australia and the western grain belt of the US also suffer from water stress.
No surprise then that one of the areas that Monsanto is focusing on is drought resistant corn. Dow Chemical, which is another player in the seed industry, as is BASF (OTCQX:BASFY) and DuPont Fabros (NYSE:DFT), has teamed up with Futuragene (FTGNF.PK), a tiny quoted stock in the UK that has been developing drought resistant crops. With most of the world’s population growth coming from sub Saharan Africa and Asia, drought resistant crops are an urgent need.
Political change is also in the wind. While Europe is still opposed to genetic modification China and other Asian countries are showing clear signs of becoming more pragmatic. Late last year shares in Origin Agritech (NASDAQ:SEED), a Chinese seed company quoted on Nasdaq, doubled in a day when the company announced it had been cleared by the Chinese authorities to sell genetically modified corn seeds in China. Another recent development that suggests that the Chinese have replaced ideology with pragmatism was the decision to allow Monsanto to establish an R&D facility in the country.
In regions such as Africa, there is a need for food supplements, like vitamin A. At present, this need is met through comparatively expensive food supplements, provided as pills. Bio-engineering can graft vitamins and other supplements onto various food crops. Golden Rice, which contains vitamin A, is an example. A carrot that contains increased calcium is another. Delivery in this form is hundreds of times cheaper than sending pills.
Today, it might not feel that we have a food problem. However, there is evidence to suggest that the sharp rises we witnessed in 2008 were a sign of what is to come. Over the last generation the amount of money invested in food research has dropped and the growth in yields has slowed.
However, science has provided us with the tools to increase the pace of innovation in seed development. The signs coming out of China and some other countries are that genetic modification is being looked at seriously. The issue for Monsanto is, can it capitalize on the need for genetically modified seeds in regions such as Asia or Africa, or will it continue to be a company that is heavily focused on the Americas?
Disclosure: Author long Potash, MOO and Futuragene