Resource revolution: Meeting the world’s energy, materials, food, and water needs

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McKinsey Global Institute

Richard Dobbs, Jeremy Oppenheim, Fraser Thompson, Marcel Brinkman, Marc Zornes

A complete rethink of resource management—a resource revolution—will be needed to keep pace with soaring demand for energy, water, food, and basic materials as up to three billion new consumers enter the middle class over the next 20 years. Without action both to expand the supply of natural resources and to achieve a step change in the way we extract and use resources—resource productivity—the global economy could enter an era of higher and volatile resource prices.

The English thinker Malthus argued in his famous Essay on the principle of population in 1798 that there was no longer sufficient land in the world to feed a rapidly growing world population, threatening poverty and famine. But an agro-industrial revolution soon transformed the economies of Europe and North America, and his fears proved unfounded.

In more recent years, the conventional wisdom has taken hold that market forces would always come to the rescue. Until ten years ago, this hope was largely fulfilled. During most of the 20th century, resource prices, whether they be food, water, energy or steel, declined despite strong growth in the world’s population and even stronger growth in GDP. This price fall was due to a combination of new low-cost sources of supply and technological innovation.

But in just the past ten years, demand from emerging markets, particularly in Asia, has erased all the prices declines of the previous 100. A number of factors are conspiring to create a risk that we might be entering a new era of high and volatile prices over the next two decades. Up to three billion people could join the middle class, boosting demand at a time when obtaining new resources could become more difficult and costly. The stress on the resource system is likely to be compounded by increasing links between resources that mean that price shocks in one can swiftly transmit to others. In addition,  environmental deterioration, driven by higher consumption, is making the supply of resources—particularly food—more vulnerable.