The impact of 7 billion people on commodity markets


On Monday, we “officially” hit a global demographic benchmark – there are now 7 billion people on the planet.

The projection of the United Nations Population Fund is artificial, but signals a much larger trend: The growth of the planet’s population over the past half-century has been surprisingly rapid, adding an additional 1 billion on average every 13 years.

Does it matter for the global commodity markets? The question is important because population growth is often cited as a reason why commodity prices are high.

Since Thomas Robert Malthus wrote “An Essay on the Principle of Population” in 1798, a succession of reports, including “The Population Bomb” by Paul Ehrlich, have focused on doomsday scenarios linking rapid population growth to resources. rare and expensive natural products. Yet the price of commodities – in real terms, after adjusting for inflation – has sometimes barely responded to population growth. The 90s were paradigmatic. The decade saw a period of low commodity prices even as the world’s population experienced its fastest growing in recent history – adding one billion people in just 11 years and rising from 4 billion in 1987 to 5 billion. in 1998.

The weak link between rapid population growth and commodity prices in the 1980s and 1990s was the reason Julian Simon, a conservative economist, won a $ 1,000 bet against Mr. Ehrlich, an environmentalist, on the impact of the population on raw materials. Mr Simon and Mr Ehrlich made the famous bet in the early 1980s, betting on the real price of five metals – chromium, copper, nickel, tin and tungsten – over a ten-year period. In 1990, Mr. Ehrlich wrote Mr. Simon a check for $ 567.07, representing the decline in the value of metals over the decade.

For the Cornucopians (believers in the ability of science to move forward fast enough to feed the world) the bet settled the debate: the Malthusians – who associated rapid population growth and high commodity prices with scarcer natural resources – were wrong .

Yet the past decade has proven that the debate is far from over. If Mr. Simon and Mr. Ehrlich had wagered not over a ten-year period, but over a much longer period of 30 years, Mr. Ehrlich would have won. In real terms, the price of a basket of chromium, copper, nickel, tin and tungsten is higher today than it was in 1980.

So why did the price action of the 2000s turn out to be so different from that of the 1980s and 1990s?

The simple answer is that commodity prices respond to multiple factors, with the population being one.

The 1980s and 1990s saw other great forces at play: the recessionary effect of high oil prices, the response of supply growth to previous high prices, and the impact of technological change. Agriculture was paradigmatic of the latter. The Green Revolution, which triggered an increase in agricultural productivity, lowered food prices even as the world’s population doubled from 1959 to 1998.

What really matters for raw materials is not the size of the population, but its wealth.

What made the 2000s so different was that more of the world’s population saw their economic income increase rapidly. A world of $ 7 billion can only benefit from moderate commodity prices if about half of its population remains poor and nearly one-fifth suffers from chronic hunger. Otherwise, the increase in population will prove that Mr Ehrlich was, after all, right.


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