Agriculture: how important is it for food security?

Agriculture: the importance of guaranteeing food security for the entire planet and the role of risk management in this sector.

May 2, 2024

Hedgepoint Global Markets

Agriculture is one of the oldest practices on the planet. Its relevance goes back through history and contributes to the food security of society as a whole, bringing development and innovation.

With a world population that has surpassed the 8 billion mark, fighting hunger has become a major global issue. Just to give you an idea, the United Nations (UN) estimates that this figure will peak at 9.6 billion by 2050.

On the other hand, the demand for food is expected to increase by up to 70%. This percentage is calculated on the basis of the calories needed by the individual on a daily basis and requires an improvement in people’s eating habits.

Have you ever wondered how to guarantee food for these people? In this sense, investments in the agricultural sector aimed at increasing the production of food commodities are becoming increasingly important.

In addition, because it is subject to factors that cause volatility and impact productivity, players in the sector are looking for ways to manage their risks. The aim is to better meet their financial targets and guarantee food security for the population.

Do you want to understand more about the relationship between agriculture, risk management and food safety? Keep reading our exclusive content!

What is food security and how can we achieve it?

First of all, you need to understand that food security is the right of every citizen. According to the Food and Agriculture Organization of the United Nations (FAO), food security is a situation in which people have it:

  • Permanent physical, social and economic access to safe, nutritious food in sufficient quantity to meet their nutritional needs.

Therefore, there are practices and initiatives that should ensure that people have access to this quality food. As such, there is a set of rules regarding food production. These include:

1.    Sustainability

Responsibility on the part of farmers, as they must use resources conscientiously. Thus, the use of agrochemicals needs to be fully adapted to the specific pest and crop, with attention to the toxicity scale of the products.

The energy transition is essential for promoting sustainability in agriculture. It reduces the carbon footprint by diversifying the matrix. By adopting renewable energy sources, farmers can mitigate the greenhouse gas emissions associated with agricultural operations, such as the use of machinery and transportation.

Find out more:

2.    Precision agriculture

The use of technology to accurately collect data that optimizes production processes, such as irrigation. Producers can then access information in real time, which is essential for decision-making. They can also have greater confidence that the food is safe and free from contamination.

3.    Food packaging and preparation

Taking care of the containers is essential if the products are not to deteriorate. For this reason, the packaging must preserve the integrity of the food and facilitate transportation and handling.

What role does agriculture play in food security?

Agriculture is important for food security in many ways. We’ll explain why below, check it out!

●      Food production and diversification

Agriculture and livestock farming are the main sectors responsible for producing basic foodstuffs, such as grains and oilseeds, cereals, fruit, vegetables, meat, dairy products, among others. It provides the food needed to sustain the world’s population.

In this way, it contributes to guaranteeing food diversity, as it provides a variety of crops that meet people’s nutritional needs. Thus, healthy and sustainable agriculture is fundamental to food security both locally and globally.

In other words, agriculture provides enough food to meet demand, both now and in the future.

●      Access to food

Agriculture influences the availability and accessibility of food. Each country has competitive advantages in relation to certain markets, based on geoclimatic characteristics.

Some countries, such as Brazil, have a favorable climate for planting and producing soybeans, corn, sugar and coffee on a large scale. However, other regions, such as Europe, are unable to excel in these products.

Russia, for example, is an exponent of wheat, as are other countries in the region, while Brazil and the United States produce less of this product. Given the competitive advantages and investments in the sectors of interest, the commodities market gives the population access to diversified products.

Trade flows ensure that, even if we are not major producers of a particular product, we can still access it. This market organization is balanced by price.

The more in demand a product is, the higher its price and the more incentive there is to produce it and invest in the sector. Thus, production and demand balance each other out. Lower prices show a lack of interest, often leading to the choice not to produce or sell a certain product. In more extreme cases, the destination of the area is changed to another crop.

●      Jobs and income

Agriculture is a significant source of employment and income for many people, especially in rural areas. It helps to reduce poverty and promote socio-economic development.

In Brazil, there are around 5 million rural producers, according to the Agricultural Census of the Brazilian Institute of Geography and Statistics (IBGE). The Center for Advanced Studies in Applied Economics (Cepea) also indicates that agribusiness has reached the mark of 28.34 million people employed in the sector.

●      Resilience to shocks and crises

Farmers who use technology and have an in-depth understanding of the risks in their market can increase their resilience in the face of shocks such as natural disasters, geopolitical conflicts or economic crises. This makes it easier for communities to access food even in difficult times.

To give you a better understanding of this issue, we’ve created an exclusive topic on the role of risk management in agriculture for food safety. Read on below!

How does the volatility of commodities impact agriculture and food security?

The volatility of commodities impacts agriculture and even food security in several ways. After all, uncertainties about the production and productivity of agricultural commodity crops have a direct impact on prices. In other words, there are sudden variations.

More established price trends, indicating some imbalance between supply and demand, can impact planting decisions and the adoption of agricultural practices. For example, lower prices in the soybean and corn markets may indicate production exceeding demand, generating higher stocks.

As a result, other products can offer higher margins to producers and trigger a change in the destination of the area. In addition, price volatility has repercussions for consumers, especially the most vulnerable. Sudden increases in food prices can lead to a decrease in access to basic foods, which makes food security a concern.

Commodity volatility can also have wider implications for the global economy. Fluctuations in agricultural commodity prices affect financial markets, inflation and even political stability in countries dependent on agriculture. This can create an environment that interferes with investments and food security programs.

To mitigate the impacts of volatility in agricultural commodities, risk management is essential. Constant monitoring of the commodities markets helps you to respond quickly to changes in market conditions and protect yourself.

Read also:

Risk management in agriculture: how does it relate to food safety?

Market risk management is an important tool for protecting producers from price fluctuations in agricultural commodities.

They are subject to weather phenomena such as El Niño and La Niña, as well as the emergence of agricultural pests and geopolitical instability. In other words: events that can occur at any time and impact prices and demand in these markets.

With sophisticated hedging instruments, we help businesses protect themselves from financial volatility. Contact Hedgepoint and find out more about our products.



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