Jeremy Grantham: Agriculture is humanity’s biggest challenge

Veteran investor Jeremy Grantham is bearish on the future of the human race. Yet that could prove profitable for investors - Grantham believes commodity prices will soar.

The English-born co-founder of GMO, one of America's largest asset management firms, is well respected among investors. In 2007, he predicted the financial crisis, which he described as "watching a train crash in slow motion".

Given his reputation for studying and predicting bubbles, his bullish stance on commodities will reassure those who feared that commodity prices have outstripped fundamentals and due a fall.

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Grantham has long been warning of a "paradigm shift" of higher prices across nearly all commodities. Yet in his latest quarterly letter he singled out the supply of agricultural commodities as the least able to meet rising demand.

He notes that while supplies of energy, water and metals will come under pressure, "with foresight and planning (we) will adjust our behaviour enough to be merely irritated rather than threatened" by those problems.

But "the trouble really begins with agriculture", says Grantham. "It may have the responsibility for feeding an extra two to three billion mouths, an increase of 30% to 40% in just 40 years."

Two of the three main ingredients for fertilizer, "potassium and phosphorus, cannot be made. They are basic elements". This means that agriculture depends on "finite mined resources, which, if used wastefully, could easily cause a severe problem within 50 years".

Soil erosion is an even more pressing issue. "Ancient Greece, Central Italy under the Romans, Syria, Iraq, and many others all suffered from the effects of soil erosion limiting their populations and reducing their economic and military power."

Now it is our turn, says Grantham. Scientists at Cornell University believe that deforestation, modern farming methods and climate change induced weather patterns have caused the world to lose one-third of its arable land over the last 40 years.

Luckily there are solutions to these problems. Different farm systems, recycling fertiliser and genetically modified crops can all help. Which means "farming will be a satisfying and enriching experience if, on a global basis, we rise to the long-term agricultural challenges".