We are facing a severe global food crisis, warns Jeremy Grantham

Respected fund manager Jeremy Grantham believes we are in a global food crisis that is only going to get worse, but offers some useful tips on to profit from the situation.

"We are five years into a severe global food crisis that is very unlikely to go away."

The stark warning on the world's food supply comes from Jeremy Grantham, one of America's most respected fund managers.

Writing in his latest quarterly letter for asset management firm GMO, the British-born 73-year-old warns that the consequences will be far reaching. "It will threaten poor countries with increased malnutrition and starvation and even collapse. Resource squabbles and waves of food-induced migration will threaten global stability and global growth."

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Corn prices have spiked recently, thanks to a severe drought in the US. But Grantham has been warning of a long-term commodity shortage for some time. Moreover, he was one of the few to predict the financial crisis.

For him, the rapid increase in population is the major cause behind the crisis.

"We need to increase food production by 60% to 100% by 2050 to feed at least a modest sufficiency of calories to all nine billion-plus." Another factor is increasing emerging market wealth, says Grantham, which will mean pressure "to deliver much more meat to the rapidly increasing middle classes of the developing world".

Unfortunately meeting these production targets won't be possible, reckons Grantham. Some crops, such as grain, are hitting a "glass ceiling" where "further increases in productivity per acre approach zero".

Likewise fertiliser, which has fuelled a farming boom in the last 50 years, is now so common that simply adding more won't give a sufficient boost to yields. A lack of fresh water in certain nations is another limit to growth, while bad farming practices have damaged the ability of the soil to grow crops.

As if all that wasn't bad enough, Grantham thinks climate change will make farmers' work even more challenging. "There will be increased weather instability, notably floods and droughts, but also steadily increasing heat. The last three years of global weather were so bad that to draw three such years randomly would have been a remote possibility. The climate is changing."

In the long run, Grantham thinks the only solution will be to reduce the global population. However, despite the gloomy mood of the piece, the veteran investor has some useful tips on how readers can profit from the situation.

"Investors should expect resource stocks those with resources in the ground to outperform over the next several decades as real prices of the resources rise. Farming and forestry, though, are at the top of the list." In practical terms, Grantham thinks "serious long-term investors should have a very substantial overweighting in a resource package at least 30%".

James McKeigue

James graduated from Keele University with a BA (Hons) in English literature and history, and has a certificate in journalism from the NCTJ. James has worked as a freelance journalist in various Latin American countries.He also had a spell at ITV, as welll as wring for Television Business International and covering the European equity markets for the Forbes.com London bureau. James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.