The New Geopolitics of Agriculture: Why It Matters to U.S. Farmers

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The New Geopolitics of Agriculture Why It
Matters to U.S. Farmers

• Robert L. Thompson
• Professor Emeritus, University of Illinois at
  Urbana-Champaign
• and
• Senior Fellow, Chicago Council on Global Affairs
• December 7, 2015

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Exports Are Essential to Size and Profitability
of U.S. Agriculture

• 2014 was 5th consecutive year of agricultural
  exports over 100 billion.
• American agriculture exports ¼ to 1/3 of its
  production of many products.
• Without these exports, U.S. agriculture would be
  much smaller and less profitable, and farm asset
  prices correspondingly lower.

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Growing Importance of Exports to U.S. Ag
Source USDA/ERS. Outlook for U.S. Agricultural
Trade, 29 August 2013.
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Globalization of Agriculture

• Fraction of world agricultural production that
  moves through trade is growing rapidly.
• Fraction that flows in value-added form is
  increasing faster than bulk commodities.
• Global supply chains mean that more trade is
  occurring within firms.

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Strategic Importance of Food

• From an individual countrys perspective,
  something is strategic if it is essential for the
  country to sustain its economic, political or
  military power.
• Every country has to ensure that it has a
  reliable, safe and nutritious, reasonably priced
  supply of food from a combination of domestic
  production and imports.
• It is neither economically efficient nor
  environmentally sustainable for countries to be
  self sufficient in all foods.

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Food Prices, Social Unrest Political Instability
Source New England Complex Systems Institute M.
Lagi, K.Z. Bertrand Y. Bar-Yam. The Food
Crises and Political Instability in North Africa
and the Middle East, arXiv1108.2455
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Food Prices Social Unrest

• In 2008 unanticipated rapid increase in grain
  prices, when added to ongoing grievances, e.g.
  unemployment, poverty, mistreatment by government
  agencies, helped trigger social unrest in 40
  countries.
• Extremely low income and hungry people with
  nothing to lose may be easily mobilized by
  radical movements.

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Global Demand for Food
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Projected Population Growth to 2030(millions)
Region 2015 2030 Change Percent
World 7,336 8,505 1,169 16
High Income 1,254 1,295 41 3
Developing 5,144 5,910 766 15
Least developed 938 1,300 362 30
Of the 1.2 billion additional mouths to be fed
in the next 15 years, only 3.5 of them will be
in the high income countries. The potential
growth markets of the future are in the lower
income countries. -Of the projected 41 million
increase in the population of high income
countries, 38 million will be in the United
States. The populations of most of the other high
income countries are declining. When the aging
of their populations is also considered, these
are shrinking markets of the past.
Source Population Reference Bureau. 2015 World
Population Data Sheet.
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Projected Population Growth to 2050(millions)
Region 2015 2050 Change Percent
World 7,336 9,804 2,468 34
High Income 1,254 1,310 56 4
Low Income 6,082 8,495 2,413 40
East S.E. Asia 2,237 2,411 174 8
South Central Asia 1,903 2,526 623 33
Sub-Saharan Africa 949 2,081 1,132 119
Latin America/Carib 630 776 146 23
N. Africa W. Asia 479 779 300 63
Source Population Reference Bureau. 2015 World
Population Data Sheet.
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10 Largest Countries (millions)2015
2050

• 1. China 1,372
• 2. India 1,314
• 3. United States 321
• 4. Indonesia 256
• 5. Brazil 205
• 6. Pakistan 199
• 7. Nigeria 182
• 8. Bangladesh 160
• 9. Russia 144
• 10. Japan 127

• 1. India 1,660
• 2. China 1,366
• 3. United States 398
• 4. Nigeria 397
• 5. Indonesia 366
• 6. Pakistan 344
• 7. Brazil 226
• 8. Bangladesh 202
• 9. Congo D.R. 194
• 10. Ethiopia 165

Source Population Reference Bureau. 2015 World
Population Data Sheet.
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Urbanization Changes Diets
The U.N. projects that 60 of world population
will live in cities by 2030 70 by 2050.
Sourcehttp//web.worldbank.org/WBSITE/EXTERNAL/NE
WS/0,,contentMDK3A20149913menuPK3A34457pagePK
3A64003015piPK3A64003012theSitePK3A4607,00.htm
l
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Dynamics of Food Demand Growth

• Very low income people spend as much as 70-80 of
  their meager incomes on food. As their incomes
  start to rise, they spend most of the first
  increments of income on food.
• As low income peoples incomes rise, a smaller
  and smaller share of each increment in income
  gets spent on food.
• As they spend more and more of their incomes on
  non-food items, this accelerates growth in the
  non-ag part of the economy.
• .

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Dynamics of Food Demand Growth

• As their incomes rise from about 2 to 10 per
  day, people can afford to eat more meat, dairy
  products, eggs, edible oils, fruits vegetables,
  causing rapid growth in raw agricultural
  commodity demand.

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Meat Consumption Dynamics
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Dynamics of Food Demand Growth

• As their incomes rise from about 2 to 10 per
  day, people can afford to eat more meat, dairy
  products, eggs, edible oils, fruits vegetables,
  causing rapid growth in raw agricultural
  commodity demand.
• After peoples incomes reach about 10/ day, the
  small part of each increment that gets spent on
  food is spent on conveni-ence, packaging,
  processing, variety, and luxury forms, not more
  raw commodities.

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Importance of Broad-based Economic Growth to Food
Demand

• National average GDP growth tells us very little
  about future growth in demand for various foods.
• It really matters who in society benefits from a
  countrys economic growth.
• If only the already rich get richer, little
  growth in demand for food results.
• If a countrys economic growth lifts large
  numbers of people out of poverty, large growth in
  demand for food results.

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Economic Growth Translates Need into Market
Demand

• Broad-based economic growth which lifts the
  maximum number of people out of poverty in low
  income countries is necessary to alleviate
  hunger, but it also unleashes rapid growth in
  demand for agricultural commodities, often
  out-stripping their own production capacity.
• Economic growth in low income countries creates
  export market opportunities.
• As occurred, e.g. in Japan, Korea China.

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Projected World Food Demand

• World food demand is projected to grow about
  two-thirds between now and 2050
• 33 increase from world population growth from
  7.3 to 9.8 billion almost all in developing
  countries
• 33 increase from broad-based economic growth and
  urbanization in low income countries
• How many presently low income consumers, who
  spend the largest fraction of their incomes on
  food, escape from poverty is the most important
  uncertainty concerning future global demand for
  food.
• With the growing use of agricultural commodities
  as raw materials in the of the bio-based economy,
  including biofuels, world demand for grain and
  oilseeds could double by 2050.

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The worlds arable land is not distributed
around in the world in the same proportions as is
population.
Distribution of Arable Land
Distribution of World Population
East and South Asia have more than twice as much
of the worlds population than of the arable
land, and virtually all of their arable land is
already in production. The Middle East North
Africa have land, but not water. Source World
Bank. World Development Indicators 2013 database
and Population Reference Bureau. 2013 Population
Datasheet.
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The worlds arable land is not distributed
around in the world in the same proportions as
is population.
Distribution of Arable Land
Distribution of World Population
East and South Asia have more than twice as much
of the worlds population than of the arable
land, and virtually all of their arable land is
already in production. The Middle East North
Africa have land, but not water.
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Growing Agricultural Trade

• With population growth, urbanization and
  broad-based economic development, growth in many
  low-income countries food consumption is
  outstripping their production capacity.
• No matter how much they invest in developing
  their agriculture, many will become larger net
  importerson either commercial or concessional
  terms.
• A larger fraction of world agricultural
  production is expected to move through world
  trade.
• How much will be constrained by barriers to
  international agricultural trade.

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Global Supply Potential
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The Land Constraint

• There is at most 12 more arable land available
  worldwide that isnt presently forested or
  subject to erosion or desertification, and loss
  and degradation of many soils continues.
• The area of land in farm production could be
  doubled
• But only by massive destruction of forests and
  loss of wildlife habitat, biodiversity and carbon
  sequestration capacity
• The only environmentally sustainable alternative
  is to double productivity on the fertile,
  non-erodible soils already in crop production.

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Water--A Growing Constraint

• Farmers account for 70 of the worlds fresh
  water use.
• With the rapid urbanization underway, cities will
  outbid agriculture for available fresh water.
• The worlds farmers, who are being called on to
  double food production, will have to do it using
  less fresh water than they are using today.
• i.e., they will have to more than double the
  crop per drop, the average productivity of the
  water they use.
• This will require investments in water saving
  technologies e.g. increased drought tolerance and
  water use efficiency of crops.
• Virtual water will drive more agric trade.

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Sustainability Will Require IncreasedGlobal Food
System Productivity

• Make presently unusable soils productive
• Increase genetic potential (of individual crops
  and/or farming system) (ditto for farm animals)
• Achieve as much of that potential as possible by
• Improving nutrition of that crop
• Increasing water availability and control
• Reducing competition from weeds for water,
  nutrients and sunlight
• Reducing losses from disease and insects
• Reduce post-harvest losses

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Large Crop Yield Gap Suggests Productivity Growth
Possible
Source FAO. State of Food an Agriculture 2012,
p. 106
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Climate Constraints Changing

• Warming greater over land than over water and
  greatest at higher latitudes.
• Changing spatial distribution of precipitation
• Increased frequency of extreme climatic events

Source International Institute for Applied
Systems Analysis, Laxenburg, Austria.
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Adaptations Will be Required Due to Global
Climate Change

• As all agro-ecosystems shift with climate change,
  need larger investments (public and private) in
  adaptive plant and animal breeding just to
  sustain present productivity levels.
• e.g. introduce more drought or heat tolerance.
• Change the mix of what crops are produced in a
  some geographic locations.
• Rely more on international trade.

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Geopolitical Risks to Agriculture
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Geopolitical Risks to Agriculture

• Wars and conflicts that displace people and make
  agricultural production impossible.
• Diplomatic feuds among countries that lead to
  embargoesof either exports or imports.
• N.B. Embargoes more often hurt the country that
  imposes the embargo than the country they were
  intended to hurt.

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Geopolitical Risks to Agriculture

• Failure to pursue economic development strategies
  that maximize the number of low income people
  lifted out of their poverty.
• Population growth in low income countries creates
  need income growth translates need into
  commercial demand.
• Failure to get agriculture back onto the global
  development agenda.
• Rejection of modern agricultural technology, e.g.
  GMOs.

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Geopolitical Risks to Agriculture

• Macroeconomic instability resulting in swings in
  national income and/or exchange rates.
• Beggar-thy-neighbor trade policies in times of
  high food prices.
• Failure to continue reducing barriers to
  international agricultural trade.
• Conversely, increases in agricultural
  protectionism.

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World Market Prospects

• Most high income countries food demand is
  shrinking
• Declining populations
• Aging populations (Older people eat less.)
• High income consumers dont eat more when their
  incomes rise further.
• The only potential growth markets are in
  developing countries where population and income
  are growing.

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Larger Fraction of World Food Production to Move
Through Trade

• The worlds arable land and fresh water are not
  distributed around in the world in the same
  proportions as is population.
• No way for Asia or Middle East to be
  self-sufficient in food
• With population growth, urbanization and
  broad-based economic development, many LDCs food
  consumption to outstrip their production capacity
  and they will become larger net importers.
• Continued liberalization of agricultural trade
  will be essential to achieve the potential growth
  in U.S. agricultural exports.

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The Long-Run Challenge

• Since Malthus, prophets of doom have argued
  population growth will increase food demand
  faster than agricultural production can grow.
• Public and private sector investments in
  agricultural research have increased productivity
  faster than demand growth, with resulting 150-
  year downward trend in real price of grains.
• Need big increase in world food production by
  2050 using less water and little more land than
  today and also produce feedstocks for the
  bioeconomy.

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Long-Run Price Prospects

• Whether world market prices trend upwards,
  downwards or sideways in the 21st century will
  depend on whether agricultural research increases
  productivity faster, slower or at the same speed
  as world demand for food grows.
• Never forget that these are still commodity
  markets. Regardless of the long-term trend,
  there will be years of high prices, and there
  will be years of low price.
• With increased frequency of extreme climatic
  events we should expect greater variance around
  that trend.

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Thank You.Dr.Robert.L.Thompson_at_gmail.com