Can we meet our need for resources?

The English thinker Thomas Malthus argued in his famous essay on population that there was no longer sufficient land to feed the world’s rapidly growing population, threatening wider poverty and famine.  However, this postulation proved to be unfounded as the agro-industrial evolution transformed Europe, North America and eventually the world.

More recently, conventional wisdom held that market forces would put another constraint on resources – with higher prices limiting people’s consumption power. Until ten years ago, this prediction was largely unfulfilled. During most of the 20th century, resource prices actually declined, despite strong growth in world population and even stronger growth in GDP. Prices fell because of a combination of new, low-cost sources of supply and technological innovation.

But in the past ten years, demand from emerging markets, particularly in Asia, has erased all the price declines of the previous century. 

A number of factors create a risk that the world might enter a new era of high and volatile prices over the next two decades. Up to 3 billion people could now join the middle class, boosting demand at a time when obtaining new resources could become more difficult and costly. The stress on resources will probably be compounded by increasing links among them – links which mean that price shocks in one can swiftly be transmitted to others. In addition, environmental deterioration, driven by higher consumption, is making the supply of resources, particularly food, more vulnerable.

To deal with the great challenge of meeting the world’s needs, we have to be innovative in the whole process of expanding resource supplies – the ways they are produced and extracted, converted and used.  

The challenges will be far from easy. There are many barriers, including the fact that the capital needed each year to create a “resource revolution” is estimated to be more than US$3 trillion globally by some estimates, comparatively large when we consider the size of today’s global economy of $70 trillion per year.  Additional capital requirements will also be needed to pursue climate-change and universal-energy-access agendas.

Specifically, there are a few areas for immediate actions. First, energy efficiency for buildings will have to be achieved. Improving the efficiency of residential and commercial buildings is the single largest opportunity. We have to provide incentives to retrofit buildings with improved insulation as well as energy-efficient heating and cooling systems and water heaters. A broad range of companies can cut costs and boost returns by making their buildings more energy efficient.  

Second, minimising food waste will be necessary. The world generates about 10 million tonnes of food waste every day – 20 to 30 per cent of all food along the value chain. In developed countries, the vast majority of waste occurs during processing, packaging and distribution. Developing countries waste a significant share of their food after harvest because of poor storage facilities and insufficient distribution infrastructure. More than 60 per cent of the food opportunity lies in reducing perishable waste – which requires modern cold-storage systems and better transport approaches. Both represent significant business opportunities, particularly in developing countries. 

Third, next-generation vehicles have to be promoted. The future cost competitiveness of electric and hybrid vehicles will depend on technological-learning rates in producing batteries and electric engines versus internal combustion engines, which are themselves improving as well. Opportunities should abound for companies able to deliver breakthroughs in energy-efficient vehicles.  

Policy-makers should consider action on three fronts: unwinding subsidies that keep prices artificially low and encourage inefficiency; ensuring enough capital is available and that market failures associated with, for instance, property rights and incentives, are corrected; and bolstering society’s resilience by creating safety nets to help very poor people deal with change, and educating consumers and businesses to heed the reality of future resource constraints.  

In the 20th century, governments and businesses did not have to worry about resource productivity; they could focus on capital and labour augmentation and economic growth. Over the next 20 years, the world economy will undergo a dramatic change: growth will be harder to achieve and resources must be at the heart of public policy and business strategy. 

 

Dr Chodechai Suwanaporrn is executive vice president, corporate strategy, PTT PLC.