More than any previous economic cycle, the current slowing of US economic growth highlights the dawn of the Asian century. Most developed countries are transformed by economic and demographic shifts, which will themselves comprise major economic themes, but Asia itself will have the greatest impact on the development of the economic global village.

The old world economy has lost its US anchor and is now supported by emerging markets. There are significant global strains in the food and water industries, which highlight long-term investment attractions in food, agriculture and water.

Economic decoupling
The global economy has now decoupled from its historic US economic leadership. But the global economic boom is not dead – its engines have simply changed. If analysts and investors are prepared to embrace the new world order, 2008 could be a year of great opportunities.

The Asia Pacific region now accounts for almost 37 per cent of world GDP on a purchasing power parity basis, and China alone contributed 17 per cent of global growth in 2007. That is significantly more than the US economy. Emerging Asia contributed 40 per cent to global growth last year, and developing countries 52 per cent.

At the same time, commodity prices continue to rise, driven largely by food and energy
price inflation. Eighteen of 22 emerging markets now face inflation rates exceeding their stated targets. This will continue for three reasons.

First, more countries are reverting to politically motivated price-fixing mechanisms. This will not curb consumer demand or provide incentives for investment in production, exacerbating scarcity.

Second, with infrastructure growth accelerating, developing countries are seeking to
secure resources before their competitors.

Finally, agricultural production requires more and more power as countries seek
to satisfy a 50 per cent increase in the demand for food. Combined with water scarcity and desertification, prices will rise for agricultural goods and energy.

Imbalances in agriculture
Global agricultural production has peaked, while food demand is not going down any time soon. Rising food prices are causing riots anywhere from Cairo to Mexico.

In South Asia, approximately half of the land has been degraded so it no longer has the capacity for food production. China has seen an irreversible loss of nearly a third of its arable land. Over half the world’s population is currently facing a food crisis and a negative water balance, according to the Food and Agriculture Organization of the United Nations.

We are witnessing just the beginning of a massive pent-up demand for protein from emerging economies. Producing one kilogram of meat requires about 15 times more water than one kilogram of grain. As a consequence, once-mighty rivers now carry a fraction of their former volume and groundwater tables are falling.

Productivity can be raised through genetic engineering, sustainable irrigation, fertilisation and farming technology. The question is whether new technologies can boost the supplies fast enough to meet demands. I am confident that both commodity and equity investors in water, food and agriculture will continue to do very well in relative and absolute terms.