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Inflation: towards a new agricultural model?

The situation is a given: eight billion people cannot be fed with the current production conditions. The players involved, especially the younger generation have to be aware of the challenges that will have to be accepted. There are great opportunities for them but also for the older generation.

On the occasion of the HORSCH Practical Field Days 2022 in France, Philippe Dessertine, economist and member of the High Council of Public Finances, explained that since January 2020 the health, geopolitical and economic crises have been changing the perception of agriculture dramatically. Especially the financial sector understood that without agriculture which is feeding the population there will no longer be any economic activity! As they are well aware of this fact, the stakeholders invest in the agricultural sector. And their capacities are significantly higher than those of the budget of the CAP.

The inflationary mechanisms are part of the difficulties that have to be overcome – in the industrial countries but especially in the poorer countries where the tensions around the food supply are the reasons for instability. This is why Philippe Dessertine emphasised: “We have to convey to the young generation that agriculture is strategically important.”

Slow down inflation

The economist pointed out that inflation is the result of an imbalance between money and wealth. Too many debts in relation to the achieved wealth is the breeding ground of inflation. In 2007/2008 the gross domestic product amounted to 80,000 billion US Dollar and the global debt to 140,000 billion. Today these figures amount to 92,000 resp. 250,000 billion! A situation that, thus, already existed before the Covid-19 pandemic and which was even intensified by the increase of the available cash. The interest rates and the low energy costs belied this phenomenon. The energy crisis combined with the conflict in the Ukraine was the trigger.    
One of the fears that are fed by inflation is the price/salary spiral: the companies increase the salaries as a reaction to the increasing prices. Thus, labour costs rise, too, which in turn also affect the prices. “Inflation is a race with no winner”, Philippe Dessertine warned. However, the situation can be coped with if all stakeholders behave the same: not hold back cash and reduce payment terms. The money loses in value, but the consequences are the same for everyone. To get out, we have to continue to create wealth – not switch to safe-haven currencies like gold, jewels or land – and continue to invest.

Change of the added value

According to Philippe Dessertine, given the current challenges – climatic and demographic – the agricultural sector has a unique chance: an added value that is based on the aspect of sustainability of production and on the capacity to reduce the CO2 output. What counts is less the financial result of a company but rather the effect (for the environment, man, society…). This is the case of the manufacturer Tesla whose ranking is significantly above those of the competitors that produce more cars. The investors have to measure the newly created value. This can be done via the administration of the data (stored carbon, agro-ecological indicators, yields…). Philippe Dessertine compared this change of the economic model with the transition from horse to car. And in case of this transition the added value mainly rests on man: without producers there will be no agriculture.

Towards a new balance

Christian Huyghe, scientific director of the National Institute of Agricultural, Nutritional and Environmental Research, described the basics for a new agricultural model. “For each turnround you have to agree upon the objectives that have to be achieved“, he pointed out. One of the problems is the global food safety against the background of an increasing urbanization. This means big logistic challenges for food production which get harder and harder to handle by the developing countries. “To subsist, people take the animals with them into the cities. This, of course, increases the health risks“, Christian Huyghe explained. So the question is raised about the food change and about the analysis of the actual need for proteins. According to Christian Huyghe, a reorganisation of the food chain and new balances are essential. In this respect, the required reduction of the gas emission and the greenhouse effect have to be taken into account.