GLOBE-Net, November 23, 2011 - A complete rethink of resource management will be needed to keep pace with demand, as up to three billion new consumers join the world's middle classes over the next 20 years says a new report from McKinsey & Company.

A new McKinsey report, Resource Revolution: Meeting the world's energy, materials, food, and water needs shows that the challenge can be met through a combination of expanding the supply of resources and a step change in the way they are extracted, converted, and used.

Such resource productivity improvements, using existing technology, could satisfy nearly 30 percent of demand in 2030.

But meeting the resource supply and productivity challenges will be far from easy.

There are many barriers, including the fact that the capital needed each year to generate a resource revolution will rise from roughly $2 trillion today to more than $3 trillion, with additional capital required to pursue the climate change and universal-energy-access agendas.

The benefits could be as high as $3.7 trillion a year, however, if carbon had a price of $30 per metric ton and if governments removed substantial resource subsidies and taxes.

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.

Research by the McKinsey Global Institute and McKinsey's Sustainability and Resource Productivity Practice shows that the resource challenge can be met through a combination of expanding their supply and a step change in the way they are extracted, converted, and used.

Resource productivity improvements that use existing technology would satisfy nearly 30 percent of demand in 2030. Fifteen areas, from more energy-efficient buildings to improved irrigation, could deliver 75 percent of the potential for higher resource productivity.

Policy makers should consider action on three fronts. They should consider unwinding subsidies that keep prices artificially low and encourage inefficiency; ensure that enough capital is available and that they correct market failures associated with property rights and incentives, for instance; and bolster society's resilience by creating safety nets to help very poor people deal with change and educating consumers and businesses to heed the reality of future resource constraints.

This new era presents opportunities and risks for business. Resource-related trends will shape the competitive dynamics of a range of sectors in the two decades ahead. Resource-intensive sectors are exposed to much higher risk of either increased resource prices and/or of restrictions on their licence to operate.

These risks will be particularly acute in the fastest-growing markets where constraints on access to resources and accelerating environmental degradation are most acute.

Resource-supplying companies may appear to be positioned for an era of windfall profits. However, they face an increasingly complex set of portfolio investment challenges, especially given a rapidly changing technology and regulatory landscape.

In general, businesses will need to rethink how resources might shape profitability across their operations, produce new growth opportunities, and pose new challenges for risk management.

The full report and executive summary are available on the McKinsey & Company Web site, along with an interactive presentation exploring five of the main global opportunities to increase resource productivity.