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Food & Energy: The Ultimate Nexis

During most of the 20th century, resource prices, whether they be food, water, energy or steel, declined despite strong growth in the world’s population and even stronger growth in GDP. This price fall was due to a combination of new low-cost sources of supply and technological innovation.

But in just the past ten years, demand from emerging markets, particularly in Asia, has erased all the prices declines of the previous 100. A number of factors are conspiring to create a risk that we might be entering a new era of high and volatile prices over the next two decades. Up to three billion people could join the middle class, boosting demand at a time when obtaining new resources could become more difficult and costly. The stress on the resource system is likely to be compounded by increasing links between resources that mean that price shocks in one can swiftly transmit to others. In addition, environmental deterioration, driven by higher consumption, is making the supply of resources—particularly food—more vulnerable.

Resource productivity improvements that use existing technology would satisfy nearly 30 percent of demand in 2030. Fifteen areas, from more energy-efficient buildings to improved irrigation, could deliver 75 percent of the potential for higher resource productivity.

This new era presents opportunities and risks for business. Resource-related trends will shape the competitive dynamics of a range of sectors in the two decades ahead. Resource-intensive sectors are exposed to much higher risk of either increased resource prices and/or of restrictions on their licence to operate. These risks will be particularly acute in the fastest-growing markets where constraints on access to resources and accelerating environmental degradation are most acute. Resource-supplying companies may appear to be positioned for an era of windfall profits. However, they face an increasingly complex set of portfolio investment challenges, especially given a rapidly changing technology and regulatory landscape. In general, businesses will need to rethink how resources might shape profitability across their operations, produce new growth opportunities, and pose new challenges for risk management.

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