Welcome!

News Feed Item

Will China's Consumer Boom Spark U.S. Shortages? It Could Happen -- If the "Boomerang Effect" Isn't Kept in Check

BCG Research Shows That the Rise of the Middle Class in China and India Could Prompt Widespread Shortages and Inflation, but Smart Investment, Policies, and Technologies Could Forestall Crisis

BOSTON, MA -- (Marketwire) -- 03/05/13 -- Chinese and Indian consumers are living well and eating well. And that could spark a global crisis. The consumer boom in China and India will touch off global inflation and could lead to food and water riots if investment, policy, and technology don't keep pace.

Without smart, quick action by the private sector and government alike, surging Chinese and Indian demand for premium foods will lead to commodity volatility, runaway food prices, and worldwide water shortages as the "boomerang effect" brings the unexpected impact of Asian growth to U.S. shores.

That's the conclusion of research by The Boston Consulting Group (BCG). The main findings are presented in "The Boomerang Effect," a Perspective that is being released today, and "The $10 Trillion Prize: Capturing the Newly Affluent in China and India" (Harvard Business Review Press, October 2012), a recent book by BCG consultants Michael J. Silverstein, Abheek Singhi, Carol Liao, and David C. Michael.

The Perspective is part of BCG's Game-Changing Program to help leaders and their companies capitalize on the opportunities created by the seismic shifts in the global economy.

"Chinese and Indian consumers are celebrating their newfound wealth by eating like Americans: they're shifting their diets from grain to meat," Silverstein said. "Their wealth is a good thing. It creates new markets and new opportunities. But it can also lead to global traumas: highly inflated food prices across the U.S., as well as dangerous worldwide shortages of key natural resources, especially water.

The Boomerang Effect Brings Surprising Outcomes from Asia to the U.S.

"This is an example of what we call the boomerang effect -- a set of hard-to-foresee outcomes that come home to roost as a result of developments far away," Silverstein said. "We have seen it before. In the early 1990s, direct investment in China led to a flood of cheap goods and permanent shifts in the U.S. labor market. This time, it's different. The Chinese and Indian middle-class consumers have developed new food preferences that will lead to hypercompetition for commodities such as feed, corn, and water. Climate change is already creating droughts worldwide and bringing the threat of famine, food riots, and water wars in Asia. This new surge in consumer demand will worsen the strain in Asia and the U.S. as well."

But the boomerang effect doesn't necessarily lead to chaos, Silverstein added. "Crisis can always lead to opportunity. Smart investments and policies can limit the impact of inflation and shortages."

Step by Step: How Changing Food Tastes in China and India Could Spark Crisis

According to BCG, there are only a few steps between booming wealth and changing tastes in China and India and global crisis:

  • Wealth -- and consumption -- is skyrocketing in both India and China. By 2020, there will be 2 billion economically able Chinese and Indian consumers -- 1 billion of them new to the middle class. In both nations, lifetime consumption patterns are changing radically. Chinese born in 2009 will consume 38 times more than those born in 1960. Indians born in 2009 will consume 13 times more than those born in 1960.

  • Doing well means eating well, and that means eating meat. Consumers in China are celebrating their wealth by abandoning their traditional diets, shifting from grain toward chicken and pork. Chicken and pork accounted for 4 percent of daily calories in China in 1960; by 2020 they could account for as much as 28 percent. The surge in demand is forcing China to become a net importer of chicken and pork.

  • For meat, you need livestock. For livestock, you need feed. Feed is in short supply. Demand for chicken and pork means demand for feed grain -- lots of it. It takes 2 kilograms of feed to produce 1 kilogram of chicken and 6 kilograms of feed to produce 1 kilogram of pork. In 2010, 99 percent of China's corn production went for feed -- a figure that also represents 20 percent of global corn production for that year. The result is that China is no longer self-sufficient when it comes to corn. China's corn imports will increase from 1.7 million tons in 2010 to 15 million tons in 2015 -- the equivalent of U.S. exports of 600 million bushels.

  • Put a strain on the global feed supply? You're going to pay for it. All the figures above mean that China's corn consumption will have significant global impact, and prices will surge well beyond current levels. Global corn consumption is projected to rise 3.2 percent per year from now through 2020. That means a 40 percent increase in overall consumption. And that means corn prices could increase as much as 57 percent from 2010 through 2020.

  • Expensive corn means expensive food -- including here at home. Demand for corn in China drives up beef prices in the U.S. Feed is 55 percent of the cost of raising cattle. And grain is 60 percent of the total cost of feed. So a 57 percent increase in the cost of feed by 2020 could lead to a 20 percent increase in beef prices. That hits home. A Big Mac, which cost about $3 in 2003 and goes for just over $4 today, could, by 2015, easily cost $5 -- or even more.

  • There's no meat without feed and no feed without water. To grow feed grain, you need large quantities of water. China's shift to meat consumption leads to a tenfold increase in the need for water. And the water supply is already in crisis. Worldwide, water consumption is already ahead of sustainable supply and is growing at 2.2 percent a year. In China and India (which depends on China for much of its water), water supplies are strained by drought. India could have 600 million people without water in 25 years.

  • The water crisis brings it all back home. Water is a problem in the U.S., too. It is becoming difficult to irrigate land there, and a new dust bowl is a real possibility. Water restrictions are already in place in Western states, and the price of water in some U.S. cities is already equivalent to those in Israel. U.S. water riots aren't out of the question. But short of that, scarce water means costlier food. The last dust bowl -- from 1931 through 1936 -- killed off 30 percent of corn production and drove corn prices up 115 percent. Right now, U.S. food exports to China require an 18 percent annual increase in water consumption. Higher corn prices, the result of drought alone -- leaving out other factors -- could double the price of chicken by 2018.

Getting Ahead of the Crisis: Policies Can Help, and Companies Can Prosper

Is the worst-case scenario inevitable? Not necessarily, Silverstein said. "Famine and food riots are a reality in India, and water wars between China and India are a genuine risk. But innovation can help. Smart policy decisions can mitigate the worst effects and create opportunities for companies that are sharp and nimble."

BCG lists the following among the private- and public-sector initiatives that could help:

  • Microirrigation that delivers water directly to plant roots could increase the efficiency of water use by 50 percent.

  • Innovations in seed technology, including genetically modified organisms, can mean higher food production with no increase in water consumption.

  • New policies that price water at market rates, could, said Silverstein, "lead to more efficient water use, as it already has in Israel."

"The boomerang effect doesn't have to end in riots and fewer hamburgers for Americans," Silverstein said.

For more information, please go to www.bcgperspectives.com/10trillionprize.

Follow Michael Silverstein on Twitter @MJSilverstein.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or [email protected].

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 78 offices in 43 countries. For more information, please visit bcg.com.

About bcgperspectives.com

Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back almost 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed via PC, mobile, iPad, Facebook, Twitter, and LinkedIn.

The BCG Game-Changing Program

We are living in an age of accelerating change. The old ways are rapidly becoming obsolete and new opportunities are opening up. It is clear that the game is changing. At The Boston Consulting Group, we are optimistic: we think that the fundamental drivers of growth are stronger than they have ever been before. But to capitalize on this trend, leaders need to be proactive, to challenge the status quo, to make bold moves -- they need to change the game, too. The decisions they make now, and over the next ten years, will have an extraordinary and enduring impact on their own fortunes as well as on those of their organizations, the global economy, and society at large. To help leaders, and to mark our fiftieth anniversary, BCG is pulling together the best ideas, insights, and ways to win -- to own the future. This publication is part of that endeavor.

The Boston Consulting Group
Eric Gregoire
Global Media Relations Manager

Tel +1 617 850 3783
Fax +1 617 850 3701
[email protected]

More Stories By Marketwired .

Copyright © 2009 Marketwired. All rights reserved. All the news releases provided by Marketwired are copyrighted. Any forms of copying other than an individual user's personal reference without express written permission is prohibited. Further distribution of these materials is strictly forbidden, including but not limited to, posting, emailing, faxing, archiving in a public database, redistributing via a computer network or in a printed form.

Latest Stories
Enterprise architects are increasingly adopting multi-cloud strategies as they seek to utilize existing data center assets, leverage the advantages of cloud computing and avoid cloud vendor lock-in. This requires a globally aware traffic management strategy that can monitor infrastructure health across data centers and end-user experience globally, while responding to control changes and system specification at the speed of today’s DevOps teams. In his session at 20th Cloud Expo, Josh Gray, Chie...
Learn how to solve the problem of keeping files in sync between multiple Docker containers. In his session at 16th Cloud Expo, Aaron Brongersma, Senior Infrastructure Engineer at Modulus, discussed using rsync, GlusterFS, EBS and Bit Torrent Sync. He broke down the tools that are needed to help create a seamless user experience. In the end, can we have an environment where we can easily move Docker containers, servers, and volumes without impacting our applications? He shared his results so yo...
Creating replica copies to tolerate a certain number of failures is easy, but very expensive at cloud-scale. Conventional RAID has lower overhead, but it is limited in the number of failures it can tolerate. And the management is like herding cats (overseeing capacity, rebuilds, migrations, and degraded performance). In his general session at 18th Cloud Expo, Scott Cleland, Senior Director of Product Marketing for the HGST Cloud Infrastructure Business Unit, discussed how a new approach is neces...
"This week we're really focusing on scalability, asset preservation and how do you back up to the cloud and in the cloud with object storage, which is really a new way of attacking dealing with your file, your blocked data, where you put it and how you access it," stated Jeff Greenwald, Senior Director of Market Development at HGST, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
Businesses and business units of all sizes can benefit from cloud computing, but many don't want the cost, performance and security concerns of public cloud nor the complexity of building their own private clouds. Today, some cloud vendors are using artificial intelligence (AI) to simplify cloud deployment and management. In his session at 20th Cloud Expo, Ajay Gulati, Co-founder and CEO of ZeroStack, discussed how AI can simplify cloud operations. He covered the following topics: why cloud mana...
FinTechs use the cloud to operate at the speed and scale of digital financial activity, but are often hindered by the complexity of managing security and compliance in the cloud. In his session at 20th Cloud Expo, Sesh Murthy, co-founder and CTO of Cloud Raxak, showed how proactive and automated cloud security enables FinTechs to leverage the cloud to achieve their business goals. Through business-driven cloud security, FinTechs can speed time-to-market, diminish risk and costs, maintain continu...
Docker containers have brought great opportunities to shorten the deployment process through continuous integration and the delivery of applications and microservices. This applies equally to enterprise data centers as well as the cloud. In his session at 20th Cloud Expo, Jari Kolehmainen, founder and CTO of Kontena, discussed solutions and benefits of a deeply integrated deployment pipeline using technologies such as container management platforms, Docker containers, and the drone.io Cl tool. H...
Everything run by electricity will eventually be connected to the Internet. Get ahead of the Internet of Things revolution. In his session at @ThingsExpo, Akvelon expert and IoT industry leader Sergey Grebnov provided an educational dive into the world of managing your home, workplace and all the devices they contain with the power of machine-based AI and intelligent Bot services for a completely streamlined experience.
Kubernetes is a new and revolutionary open-sourced system for managing containers across multiple hosts in a cluster. Ansible is a simple IT automation tool for just about any requirement for reproducible environments. In his session at @DevOpsSummit at 18th Cloud Expo, Patrick Galbraith, a principal engineer at HPE, discussed how to build a fully functional Kubernetes cluster on a number of virtual machines or bare-metal hosts. Also included will be a brief demonstration of running a Galera MyS...
Enterprises are universally struggling to understand where the new tools and methodologies of DevOps fit into their organizations, and are universally making the same mistakes. These mistakes are not unavoidable, and in fact, avoiding them gifts an organization with sustained competitive advantage, just like it did for Japanese Manufacturing Post WWII.
It is of utmost importance for the future success of WebRTC to ensure that interoperability is operational between web browsers and any WebRTC-compliant client. To be guaranteed as operational and effective, interoperability must be tested extensively by establishing WebRTC data and media connections between different web browsers running on different devices and operating systems. In his session at WebRTC Summit at @ThingsExpo, Dr. Alex Gouaillard, CEO and Founder of CoSMo Software, presented ...
DXWorldEXPO LLC, the producer of the world's most influential technology conferences and trade shows has announced the 22nd International CloudEXPO | DXWorldEXPO "Early Bird Registration" is now open. Register for Full Conference "Gold Pass" ▸ Here (Expo Hall ▸ Here)
In his session at @DevOpsSummit at 20th Cloud Expo, Kelly Looney, director of DevOps consulting for Skytap, showed how an incremental approach to introducing containers into complex, distributed applications results in modernization with less risk and more reward. He also shared the story of how Skytap used Docker to get out of the business of managing infrastructure, and into the business of delivering innovation and business value. Attendees learned how up-front planning allows for a clean sep...
Amazon started as an online bookseller 20 years ago. Since then, it has evolved into a technology juggernaut that has disrupted multiple markets and industries and touches many aspects of our lives. It is a relentless technology and business model innovator driving disruption throughout numerous ecosystems. Amazon’s AWS revenues alone are approaching $16B a year making it one of the largest IT companies in the world. With dominant offerings in Cloud, IoT, eCommerce, Big Data, AI, Digital Assista...
"Our strategy is to focus on the hyperscale providers - AWS, Azure, and Google. Over the last year we saw that a lot of developers need to learn how to do their job in the cloud and we see this DevOps movement that we are catering to with our content," stated Alessandro Fasan, Head of Global Sales at Cloud Academy, in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.