The report is called The Future of Food and Farming, and was put together by the Government Office for Science in London. It pretty much said we need a new agrarian revolution, or else global starvation will become a major challenge in the decades ahead.

So who put the report together? Well, it involved 400 leading experts and stakeholders from about 35 low-, middle- and high-income countries across the world.

And these are the key conclusions.

“The global food system will experience an unprecedented confluence of pressures over the next 40 years. On the demand side, global population size will increase from nearly seven billion today to eight billion by 2030, and probably to over nine billion by 2050; many people are likely to be wealthier, creating demand for a more varied, high-quality diet requiring additional resources to produce. On the production side, competition for land, water and energy will intensify, while the effects of climate change will become increasingly apparent. The need to reduce greenhouse gas emissions and adapt to a changing climate will become imperative. Over this period globalisation will continue, exposing the food system to novel economic and political pressures.”

The report said that “hunger remains widespread, with 925 million people experiencing hunger. Perhaps another billion are thought to suffer from ‘hidden hunger’, in which important micronutrients (such as vitamins and minerals) are missing from their diet, with consequent risks of physical and mental impairment. In contrast, a billion people are substantially over-consuming, spawning a new public health epidemic involving chronic conditions such as type 2 diabetes and cardiovascular disease. Much of the responsibility for these three billion people having suboptimal diets lies within the global food system.”

The report then said: “Many systems of food production are unsustainable. Without change, the global food system will continue to degrade the environment and compromise the world’s capacity to produce food in the future, as well as contributing to climate change and the destruction of biodiversity. There are widespread problems with soil loss due to erosion, loss of soil fertility, salination and other forms of degradation; rates of water extraction for irrigation are exceeding rates of replenishment in many places; over-fishing is a widespread concern; and there is heavy reliance on fossil fuel-derived energy for synthesis of nitrogen fertilisers and pesticides. In addition, food production systems frequently emit significant quantities of greenhouse gases and release other pollutants that accumulate in the environment.”

So that’s pretty depressing stuff. What can be done?

The report said: “New technologies (such as the genetic modification of living organisms and the use of cloned livestock and nanotechnology) should not be excluded a priori on ethical or moral grounds, though there is a need to respect the views of people who take a contrary view. Investment in research on modern technologies is essential in light of the magnitude of the challenges for food security in the coming decades.”

And yet while it wants to see new technologies, it also warned of risk associated with that. It said: “The human and environmental safety of any new technology needs to be rigorously established before its deployment, with open and transparent decision-making.”

And that’s the problem. The world’s population is growing, and food needs to be produced in greater quantities. To do this, new technologies need to be developed, but there are risks associated with that.

We don’t want to be too dismissive of this report – we are sure it is broadly right. But scientists do have a tendency to fail to grasp how economies and businesses tend to react to changing conditions. The food challenge will inevitably to lead to new ways being found of producing food.

As for current levels of starvation. The problem here is not so much that not enough food is produced, rather it is the way the food that is produced is distributed.

 See: The Future of Food and Farming: Challenges and choices for global sustainability

Even so, the failure of economists to call the upheavals in Tunisia was pretty shocking.

Back in September last year the IMF said: “Tunisia’s growth could increase gradually and reach an average of about 5 percent over 2010-14, provided that policies and reforms planned by the authorities aimed at enhancing Tunisia’s competitiveness, developing new markets, and supporting new sources of growth in sectors with high added value bear fruit.” While the IMF report did warn that employment needed to increase, the biggest worry it had over Tunisia related to a possible slowdown in Europe hitting its exports.

The truth is that for decades the regime in Tunisia should have been an affront to all who cared about human rights. Poverty and high unemployment aside, it seems that one of the big problems with the Tunisian government is that it practised what one can only call, for want of a better phrase, a form of secular fundamentalism.

Did you know that while it’s not illegal for a man to have a full beard in the country, it is considered very dangerous. There are even reports of Tunisians returning to their home country after being abroad for an extended time, and being forced to shave before they are allowed entry. It is a similar story with the hijab, the scarf that Muslim women like to wear. There are even reports that anyone who is known to pray regularly in a mosque is hounded by the country’s secret police.

And now the people are rebelling. Once again Twitter may become the communication tool of an uprising. And yet if the regime does finally get overthrown, there is real risk the country will then turn on the Western countries that backed its government – you can’t blame them.

Organisations such as the IMF were simply dreadful in their reporting of the country. But then that’s not new. If you want to look for a reason why China refuses to let the yuan appreciate, look at the treatment of the Asian tigers in the late 1990s at the hands of the IMF.

There are social consequences of economic policies, and sometimes there are economic consequences of the social consequences.

Portugal went along and did it yesterday. It successfully sold 1.25bn euros’ worth of bonds. Markets had expected its sales push to fall flat. Well done you, Portugal. Mind you, the interest rate it is paying on these bonds is an average of 6.719 per cent. Compare that to the yield as of this morning on ten-year UK government bonds of 3.64 per cent, or 3.04 per cent for German bunds.

So Portugal keeps insisting it doesn’t need help. When she joined the euro its populace were pretty chuffed. To them it felt as if their country had joined the Premier Division, and they were proud of their new status. And maybe it is this same pride that is stopping Portugal from holding its hands up, and saying, Okay, we need help.

So, it could go to the EU, and could avail itself of the money it needs, and would almost certainly pay much lower interest rates. Its pride might be hurt, but in other respects it would be the winner.

Of course, one solution to the problem facing the likes of Portugal might be these euro bonds. The bonds are issued on behalf of all Eurozone countries, and as a result Portugal and co. will pay much lower interest rates.

But Germany doesn’t like that idea. You can understand why. Germany, the frugal country that made such sacrifices to fund reunification is pretty unenthusiastic about any kind of bailout.

But then it’s a little puzzling. On the one hand we are told the Eurozone cannot fail, and no country will default. On the other hand, euro bonds are quashed. Well, which one is it? You can’t have both.

That’s why the celebrated economist Kenneth Rogoff, co-author of the highly acclaimed book “This time it is different”, said in the FT this morning: “Eurozone macroeconomic policy is incoherent on so many levels, it is hard to know where to begin. The basic strategy is to hope that fiscal tightening in the periphery combined with generous liquidity relief from the core will solve all ills. The only problem is that the populations of Greece, Ireland, Portugal and perhaps Spain, cannot be asked to suffer recession indefinitely so that foreign creditors can be repaid. Rather than contemplate reintroducing the drachma, the eurozone decided to celebrate the new year by taking in Estonia. Estonia is a great country, and it deserves a lot of support. I grew up on Estonian grandmaster Paul Keres’ chess books. But did it really make sense to add another emerging market at this time?” See: Euro looks set to win the race to the bottom http://www.ft.com/cms/s/0/bd4a8af0-1e59-11e0-bab6-00144feab49a.html#axzz1AoBm2GVu

Meanwhile, data out yesterday showed that Germany expanded by 3.6 per cent in 2010 – at least that’s what the provisional figures say. It was the fastest growth rate since reunification. Mind you, it wasn’t enough to reverse the contraction in 2009, when the Germany economy shrunk by 4.7 per cent.

German exports grew by 14.2 per cent, but household spending was up by a paltry 0.5 per cent. For as long as Germany’s growth in GDP outstrips growth in household spending, Germany is adding to global imbalances, and probably making the problems in the indebted bits of the Eurozone worse. And yet, Germans are scared that tax will rise to fund the bailout of Greece, Ireland, Portugal, Spain and co. As they are scared they spend less, making worse the problems in those same countries that they are so worried about.

Earlier this week, China’s latest trade figures were released. And of course, her trade surplus is still massive – $13.1bn in December. But, once again, import growth outpaced export growth. Exports jumped 17.9 per cent from the same time the year before, and imports by 25.6 per cent.

In the past, rises in Chinese imports were often a symptom of a need for her to buy in more products to feed her export boom. In other words, previous rises in imports actually offered little hope China was rebalancing. But this was not the case this time. Mark Williams, Senior China Economist at Capital Economics said: “The strong import performance has been driven almost entirely by domestic demand rather than the needs of import processing firms in the export sector. As long as policymakers can keep inflation under control without having to resort to drastic tightening (as we expect), import demand should remain strong in the months ahead. That raises the prospect that China’s trade imbalance could be reduced relatively rapidly over the next year or two without the need for major policy shifts. China usually runs substantial trade surpluses at the end of the year, but the December surplus was the smallest since April. In seasonally-adjusted terms, the surplus was the second lowest since 2004.”

There are a couple of worries. First of all, rising commodity prices appear to be the main reason why China’s imports rose, in which case we may not be seeing a fundamental switch in China. Second, the trade surplus with the US rose by 26 per cent, so US politicians won’t be much placated by the latest trade data.

But it is clear wages in China are rising, and are likely to increase at an even faster rate over the next few years as China runs out of workers to migrate into the towns. As China’s wages rise, it seems almost inevitable that China’s imports will rise, too.

And now we come to the second bit of promising news.

India has only gone out and bought itself 180 spanking new airplanes from Airbus. And 150 of the aircraft being ordered are the A380. We are not sure what the order is worth, but if the advertised price means anything, the deal is worth around $15.6bn. Mind you, call us cynical if you wish, but we guess there was a certain amount of negotiation with this deal. If India really did pay the published price, then the moon really is made of cheese.

Nonetheless, if you think about it, this really is a massive deal. China’s trade surplus in December was less than the list price of the Airbus aircraft.

It goes to show, those who fear that the rise of China and India is an ill wind, are not only being disingenuous towards the Indian and Chinese people, who no doubt deserve to be lifted out of poverty, but actually the rise in these countries is an opportunity for the West. At least, it’s an opportunity for Western economies that can learn to adjust rapidly, and don’t get themselves embroiled in the impossible task of hanging onto a sorry system that is suffocating life out of some eurozone economies.

Portugal is raising itself 1.25bn euros today. And it may be forced to hold out the begging bowl and ask the EU/ECB /IMF for help.

The real worry is that her government is insisting all is okay and there is no need to ask for help. Unfortunately, the lesson of 2010 seems to be that the time to panic is when governments say there is no need to panic. Both Greece and Ireland denied they needed rescuing, right up to the moment they were being given the economic equivalent of mouth-to-mouth resuscitation.

But regardless of whether Portugal is forced to go asking for help today or not, over the course of this year around 25bn euros’ worth of Portuguese government bonds mature. It seems inevitable that sooner or later she will wave the white flag.

But frankly, authorities can fund a bailout of Portugal without breaking sweat. In all it is thought Portugal needs around 45bn euros over the next two years. Frankly, the EU/IMF/ECB can not only afford to lend her that money, they can afford to re-lend it a few years later if Portugal needed to borrow more money to pay off the interest on her previous loan. For that matter, much the same can be said of Ireland and Greece.

Even if Belgium succumbs, the finance can be made available without too much hardship. The fear relates to the danger it will be Spain, or worse than that, Italy. Authorities are determined that the euro will survive, but if Spain and Italy fall under the market’s spotlight, and frankly in recent days the spotlight has been getting very close, then surely no amount of political will can stand in the way of at least some countries being ejected, or voluntarily leaving the euro.

Meanwhile, in Germany, it seems that later today we will be told 2010 was one fantastic year for the German economy. We will know more later.

You could understand a certain amount of schadenfreude coming from Germany, but actually we are seeing quite the opposite. German consumers are so worried about the eurozone debt crisis, and the danger that Germany will have to pick up the tab, leading to tax hikes, that they are holding back on their spending.

It is quite ironic. If German consumers spent more, we would move a big step closer to seeing economic stability in the Eurozone. In reality, German consumers are still proving a frugal lot, precisely because they fear economic instability in the Eurozone.

And finally, there’s Japan. The last few days have seen two reports out of Japan, the Coincident Indicator, and the Leading Indicator. They both suggest the Japanese economy contracted in Q4 last year. Japan’s economy expanded by a brisk pace indeed over the last year or so, but alas, it appears there is a good chance she has fallen back into recession.

Brazil seems to be the country that is doing the most sabre rattling. Last year, her finance minister warned of an impending currency war, and this year she has taken steps to curb speculation in the currency markets, and in the process has opened herself up to the criticism she is trying to manipulate her currency.

Brazil is being hit by a carry trade – that’s when investors borrow from countries such as the US where interest rates are so low, and lend in countries such as Brazil where rates are much higher. But it is not just Brazil that is suffering. Korea, Indonesia, and to an extent India, are also being hit by similar flows of hot money.

And in these very same countries inflation is becoming a fear. To curb rising prices, rates should go up, but if this happened the interest rate differential with the US would grow and the carry trade may become even worse.

So the money floods in, and currencies soar against the dollar.

No wonder they are up in arms. No wonder Uncle Sam is being accused of being a currency manipulator by the back door. The US, they say, is being hypocritical. It accuses China of manipulating its currency, and then via quantitative easing does the same thing. Shakespeare put it well: “By any other name currency manipulation would smell so rotten,” or so Romeo said to Juliet.

But look a bit closer and the story is not quite so simple.

At the time of writing, one Brazilian real equals 0.592 US dollars, whereas back in January 2009, there were 0.42 reals to the dollar. So, sure, the dollar is a lot cheaper in terms of Brazilian currency today than it was two years ago. But then, if you wind the clock back to July 2008, just before the collapse of Lehman Brothers, then there were 0.64 reals to the dollar. In other words, before the economic crisis got going, the dollar was even cheaper than it is today.

However, before you quickly conclude that Brazil has no case, and its accusations against the US are not well founded, you may want to wind the clock back even further.

The fact is that for most of the noughties, the dollar relative to the real was more expensive than it is now. 2008, up to the moment that Lehman Brothers went, may have been something of a blip. In fact, for a five-year period between the midpoint of 2001 and the beginning of 2006, the dollar was more expensive than it was even in January 2009 when it hit its recent high.

So, sure, US politicians could point to the relationship between the real and the dollar, and tell Brazil to stop bleating, that in 2008 the dollar was cheaper than it is today. But Brazil can retort, stop being economical with the truth; 2008 was a fluke, and for most of the last decade the dollar was much more expensive than it is right now.

PwC reckons that by 2050, what it calls the E7, that’s Brazil, Russia, India, China, Indonesia, Mexico and Turkey, will be 50 per cent larger than the current G7 – US, Japan, Germany, UK, France, Italy and Canada. China is expected to become the world’s largest economy by 2025, and India, says PwC, has the potential to nearly catch up with the US by 2050.

The projected list of fastest growing economies to 2050 is headed by Vietnam, and the top 10 includes Nigeria, Philippines, Egypt and Bangladesh.

As for Blighty, in the league of the world’s largest economies, by 2050 the UK is expected to be in ninth spot, behind China, US, India, Brazil, Japan, Russia, Mexico and Indonesia (Russia, Mexico and Indonesia are all expected to be around the same size). Intriguingly, PwC expects the German, French and British economies to be roughly the same size in 2050.

John Hawksworth, PwC’s chief economist said that: “As far as the destination of UK exports goes, there hasn’t been much of a change in the last 10 years even though there has been a big shift in the global economy. UK growth was based on property speculation and financial speculation, and now that those bubbles have burst, the question is what our areas of competitive advantage are going to be. It is going to be quite a challenge and it is not going to happen overnight. There has been a shift in government thinking towards the need for a more positive industrial strategy, but that is a complete reversal of the way we have been going for the past 30 years.”

But if you think the PWC report paints a worrisome picture, you had better take a deep breath. Dambisa Moyo, a former Goldman Sachs economist, who was born in Zambia but now lives in London, has penned a new book entitled: How the West Was Lost: Fifty Years of Economic Folly – And the Stark Choices Ahead. And it’s strong stuff.

Ms Moyo’s previous book, Dead Aid, argued that aid to Africa was ineffective and was responsible for keeping the continent poor. It was a massively influential and controversial book, and now she has done it again.
The book states: “If nothing else changes it from its current path it is almost certain that America will move from a fully-fledged capitalist society of entrepreneurs to a socialist nation in just a few decades… The trouble is, it won’t be just any socialist welfare state… the US is on a path to creating the worst and most venal form of welfare state – one born of desperation from many years of flawed economic policies and a society that rapaciously feeds on itself.”

What we find quite interesting is this comment. Ms Moyo said: “I hope the book will be picked up by people who are saying: ‘I don’t want to hear all this noise. I just want a clean perspective on what the heck is going on around the world and how is it that we have got to this point.’ ”

She makes a good point. There are so many books out there on the economy at the moment, but many of them are making little more than noise. They get hung up on economic theory, arguing that such and such a theory is dead, and then they launch into a detailed blow-by-blow description of banking folly.
But economists give themselves a heightened sense of importance. The underlying trends – trends such as demographics, technology and the shakeup in global power – are what really count, and what are really shaping the global economy, and economic theory is completely inadequate in describing what’s going on.

However, the switch away from Western dominance doesn’t have to be bad news. The challenge for the West is embracing the change and turning it to our advantage rather than fretting about an uncertain future.

See: The World in 2050, by John Hawksworth and Gordon Cookson And, How the West Was Lost: Fifty Years of Economic Folly – And the Stark Choices Ahead

The Brazilian government is worried about hot money. So, investors take their money out of the US, which as you know is printing money faster than you can say ‘quantitative easing is a Ponzi scheme’, and borrow at an interest rate close to zero, and then re-lend it in Brazil. So money flows into Brazil and its currency then rises. (This is also known as a carry trade. In the noughties the US and the UK were on the receiving end of a carry trade, as money flowed from Japan – where rates were zero – to Western markets, creating credit that in part funded the credit boom.)

To try and curb hot money flows, Brazil’s central bank has introduced a new reserve requirement for its banks, limiting their holdings of foreign reserves. The new requirement means 60 per cent of all ‘dollar sold positions’ (that’s to say bets the dollar will fall against the Brazilian real) over $3bn will now have to be deposited free of interest at the Brazilian Central Bank.

Neil Shearing, Senior Emerging Markets Economist at Capital Economics said: “The move aims to reduce speculation that the real will appreciate further and in this respect should be viewed as the latest shot in the now infamous currency war.”

But Brazil is not alone. Chile is known for its hands-off attitude to currency markets, but has taken steps to try and keep its peso down.
In 2010 currency war was just talk. Economists, central bankers and finance ministers alike in the emerging world hate quantitative easing, and see it as a back door attempt by Uncle Sam to manipulate its currency. Then, they say, the US has the gall to complain when they take actions to stop their own currencies from rising.

Regardless of who is right in this debate, a currency war mutating into a trade war probably poses the biggest downside risk to the global economy in 2011.

But don’t go so fast.

Surely it all depends on what’s causing Chinese food inflation.

Some say it’s demand, and that growing incomes are creating hikes in food prices. But if that is so, this may not be so bad. As Capital Economics pointed out yesterday, much food is produced by the poorest families in China. So if food goes up in price, but farmers are able to produce at maximum capacity, we are in effect seeing a transfer of wealth from the towns to the countryside. For many, this will be a good thing.

If food is going up because of one-off factors – crop failures, droughts, and so on, then expect prices to fall back soon.

It is odd. For some time people have been saying wages need to rise in China, and have been lamenting the lack of wage growth in China over the last few years. They say this lack of balance between rising corporate profits and wages is creating bubbles.

And then when wages do start to rise, they say “Hello, a bubble is forming.”

It seems that for some analysts and commentators, when the question of China comes up they say the answer is “A bubble is forming,” and then ask “What’s the question?”

So put all that together and what do you get? Well, around 15 million spare workers. Capital Economics reckons we could be just three years away from running out of workers to migrate into the towns.

 And that means China could be close to what is known as the Lewis Turning Point. This is a state in economic development, named after former Nobel Memorial Prize in Economics winner Ken Lewis, when industrial wages begin to rise quite rapidly as the surplus labour from the countryside tapers off.

 So what are the implications of that? Well, quite a bit, actually.

 There are some other points, too. First there is the spoilt brat syndrome, or is that a generation who are unwilling to work for little more than slave labour wages. Call it what you will, but it seems that younger Chinese are less enthusiastic about living six months of the year away in dormitory-type accommodation.

Secondly, in any case the Chinese population is ageing. The Chinese baby boomers – typically born in the 1960s and early 1970s – are not getting any younger. The one-child-per-family policy was introduced in 1978, meaning the first of this generation are now 32. In fact, the number of Chinese workers between 15 and 34 is now declining quite rapidly.

 So what will happen?

In part, it seems that some companies will relocate so that they are closer to the supply of labour. This in turn will help make income distribution across China a little more evenly spread.

 But what is clear is that Chinese wages will rise. The process has already begun, and one assumes that for the next few years Chinese wage growth will be faster than the growth in China’s GDP.

 This change is a good thing. It is good for the Chinese themselves, of course, but it is also good for the global economy.

As wages rise, consumer demand will go up, imports will increase, global imbalances will, theoretically at least, start to ease.

 But does this mean inflation, not only in China, but across the world?

Well, if cheap Chinese labour over the last decade or so led to cheaper products in the West, then the obvious answer to that question is that higher Chinese labour will indeed lead to more expensive products, and that globally prices will go up.

 But you need to bear in mind that much of the pressure on commodity prices, especially oil and metals, has come from Chinese investment. If consumption takes over from investment as the driver of Chinese growth, then some commodity prices may well fall.

The Chinese are already great meat eaters, so rises in wages are not likely to lead to a significant increase in demand for meat.

So maybe we will see a reversal of the patterns seen in recent years: manufactured goods will increase in price, and commodities fall.

But two other factors may help to stop global inflation from getting out of control.

First of all, just because China is running out of labour, it does not mean she is running out of capacity to increase productivity. In fact, Chinese productivity per head is still very low relative to the West, meaning there is lots of potential to improve productivity. So, for as long as the increase in wages per hour does not rise faster than the increase in productivity per hour, inflationary pressures will be minimal.

But secondly, we forget China is not the only developing country in the world. There are plenty of workers across the developed world who could yet migrate from their countryside into towns, from farms into factories. The truth is, the global economy has lots of surplus labour.

It does seem, however, that the underlying factors that created the credit boom and then the crunch in the West are unwinding. Chinese consumption is set to rise, investment growth will slow down, meaning China’s trade surpluses with the US and Europe will surely fall.

But put these changes in China in the context of a shift in the global economy away from the great savings glut that built up over the last 30 years: see yesterday’s piece: Interest rates set to rise as economic tectonic plates shift – is this good or bad news?

Right now there are four major factors at work. There’s the shift in China. There’s the global shift towards investment and away from savings as the developed world beyond China starts to catch up with the West. There’s the retirement of the baby boomers. And finally there’s technology, as growing computing power and the Internet in turn lead to remarkable advances elsewhere, such as in genetic science.

The next decade or so will probably see more changes in the global economy than any other decade for a very long time indeed.