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AAPPCCAA
Current vs. Long-Term Current vs. Long-Term Challenges for Agriculture Challenges for Agriculture
Daryll E. RayUniversity of Tennessee
Agricultural Policy Analysis Center
Kansas Farmers Union Annual ConventionHutchinson, Kansas
January 9, 2009
AAPPCCAA
Crises Not New for AgCrises Not New for Ag• They come round quite often
– This one came from left field– Dangerous to generalize but…
• Grain farmers went into this crisis in better shape than if it had happened a decade ago
• 2009 will be a greater challenge– Cash rents– Seed and other input prices– Availability of credit, especially for hedging and such
– Then there is the effect on demand…
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Effect on Grain DemandEffect on Grain Demand• Don’t blame it all on “the Crisis”
– Reduced ethanol demand for grain, yes and no
• Reduced consumption of motor fuel – Travel less because of the economy– Also reacting to high oil prices in most of 2008 driven
upward by speculation
– Reduced feed demand, yes and no• Less meat consumption due economy• Reduced supply because 2008 grain prices
– Reduced export demand, mostly no
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Change Some Things?Change Some Things?• Regulations and their enforcement
– Food Safety– Imported items– Index funds and derivative markets
• Concentration Issues– Size of agribusinesses– Balance interests of agribusiness and
farmers/ranchers
• Stabilization of markets as a priority
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This Crisis Has Come and Will GoThis Crisis Has Come and Will Go
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Can We Expect Trade To …Can We Expect Trade To …
• Be a permanent source of ever increasing US agricultural prosperity
• Correct the long-term price and income problems in agriculture
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What Were We Thinking …What Were We Thinking …Why would we expect trade to deliver us to the Promised Land?•1970s Syndrome
– Earl Butz said …– The outsized export share of the 1970s has been
viewed as US property from then on– When exports slowed in the 1980s …
• Been on a quest to recapture the Golden Age of Agriculture (1970s)
• Lowered Loan Rates (Heh, that’s the ticket!)• Moved from supply management to writing checks
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What Were We Thinking …What Were We Thinking …Why would we expect trade to solve US price and income problems?•Because we are confused!•We implicitly think the US would be just fine …
– If only “such and such” were removed or different• Complete access to all international markets• Exchange rates were different• Inflation were reduced• Subsidies were eliminated• Etc., etc.
– After these “such and ‘suches’,” the importers would import more and our export competitors would export less
• And all would be fine in world that is agriculture• Ag prices and incomes would be stable and “high”
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So What’s Not ConsideredSo What’s Not Considered? ? • FOOD IS DIFFERENT
– Food is a national security issue—just like military security is to the US. So …
• Countries want to domestically produce as much of their food as possible
• Political considerations– Need to feed the population– Need to provide a living for millions in agriculture– Need an orderly exit of workers out of agriculture
• Suppose there had been total access to all international markets this past year
– Vietnam, Thailand and scores of other countries…
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Food is Different …Food is Different …It is a daily biological requirement: A moral imperative•As a result the aggregate demand for food is relatively stable
– People will pay almost anything (or as much as they can) when food supplies are limited and prices are high
– When prices are low they will not pay any more than necessary
– When prices are low people may change their mix of foods and add services, but aggregate demand increases very little—people do not eat four meals a day in response to lower prices
•Food demand changes little in response to changes in price
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Food is Different …Food is Different …It is the result of biological processes•These are more constrained than the manufacturing processes of other products
– Limited annual production periods• Frost-free days in temperate zones• Timing of rainfall in monsoonal zones
– Constrained by natural forces• Temperature• Weather
– As a result, the precise production controls available to other sectors are not available to most crop production
•Crop production changes little in response to changes in price within a crop season
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Food is Different …Food is Different …•Contrary to other industries, when prices are “low”—even across production seasons…
– Farmers continue to plant all their acres– Farmers don’t and “can’t afford to” reduce their
application of fertilizer and other major yield-determining inputs
– Who farms the land may change– Essential resource—land—remains in production
in the short- to medium-run
•Crop production changes little in response to changes in price from one year to another
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Chronic Problems PersistsChronic Problems Persists• Except for short periods, production
outstrips demand– This is a good thing– Butz had it right except for one word
• Excess capacity in the future will be a worldwide problem
– Increased acreage– Increased yields
• When prices decline, self-correction does not work
– Quantities demanded and supplied change little
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Wheat ExportsWheat Exports
Wheat Exports: US
Source: USDA PS&D
Bil
lio
n B
us
hel
s
US Exports
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Wheat ExportsWheat Exports
Wheat Exports: US, Foreign and US as a percent of World
Source: USDA PS&D
Foreign Exports
Bil
lio
n B
us
hel
s
US Exports
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Wheat ExportsWheat Exports
Wheat Exports: US, Foreign and US as a percent of World
Source: USDA PS&D
Bil
lio
n B
us
hel
s
US Exports
US Exports as % of World Exports
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Wheat ExportsWheat Exports
Wheat Exports: US, Foreign and US as a percent of World
Source: USDA PS&D
0
0.5
1
1.5
2
2.5
3
3.5
4
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
0%
10%
20%
30%
40%
50%
60%
70%
80%
Foreign Exports
Bil
lio
n B
us
hel
s
US Exports
US Exports as % of World Exports
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Wheat ExportsWheat Exports
Wheat Exports: US, Foreign and US as a percent of World
Source: USDA PS&D
0
0.5
1
1.5
2
2.5
3
3.5
4
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
0%
10%
20%
30%
40%
50%
60%
70%
80%
Foreign Exports
Bil
lio
n B
us
hel
s
US Exports
US Exports as % of World Exports
Low price policy did not help
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Wheat ExportsWheat Exports
Wheat Exports: US, Foreign and US as a percent of World
Source: USDA PS&D
0
0.5
1
1.5
2
2.5
3
3.5
4
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
0%
10%
20%
30%
40%
50%
60%
70%
80%
Foreign Exports
Bil
lio
n B
us
hel
s
US Exports
US Exports as % of World Exports
Lower price policy helped even less
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China Grain TradeChina Grain Trade
Grains: Net Exports
Source: USDA PS&D
-20
-15
-10
-5
0
5
10
15
20
1990 1992 1994 1996 1998 2000 2002 2004 2006
Mil
lio
n M
etri
c T
on
s
Net Exports
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Chinese Soybean ImportsChinese Soybean Imports
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1990 1992 1994 1996 1998 2000 2002 2004 2006
Th
ou
san
d T
on
nes
ChinaTotal Imports
Imports from US
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Soybean Complex ExportsSoybean Complex Exports
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1990 1992 1994 1996 1998 2000 2002 2004 2006
Th
ou
san
d T
on
nes
US. Total Exports
US Total Exports less China
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Soybean Complex TradeSoybean Complex Trade
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1990 1992 1994 1996 1998 2000 2002 2004 2006
Th
ou
san
d T
on
nes Total World Exports
Arg. & Br. Exports
US Exports
China Imports
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Soybean Area and Chinese ImportsSoybean Area and Chinese Imports
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1990 1992 1994 1996 1998 2000 2002 2004 2006
Th
ou
san
d H
ecta
res
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Th
ou
san
d T
on
nes
US Harvested Area
Brazil and Argentina Harvested Area
China Imports
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Expecting Trade To …Expecting Trade To …• Deliver US agriculture to the promised land
of unending prosperity with no government intervention is too much to ask– WTO or no WTO, US agriculture exports will be
limited by• The nature of agricultural importers’ demands• The nature of US’s agricultural export competitors’
supply
– Therefore we should expect continuing periods of low prices when agriculture cannot self-correct on its own
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WTO …WTO …• Does not account for the unique nature of food and
agriculture• Needs to understand the difference between DVD
players and staple foods• Needs to be reformulated or be replaced with an
organization that recognizes the need for– Food Reserves to address the inevitable shocks to the
availability and price of food– Promoting increases in worldwide productive capacity,
especially each country’s domestic production– Addressing
• Agriculture’s inability to gauge the use of productive capacity to match demand by creating methods to overcome
– Agriculture’s inability to self-correct
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Finally …Finally …(Other) statements that lead farmers and
others to erroneous conclusions:• 95% of the world’s population is outside the
US …• Increases in per capita income and growth or
the middle class in China and India …• The value of US agricultural exports has
increased substantially …• The value of the dollar has decreased this
export season ….
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Agricultural Policy Analysis Center The University of Tennessee 310 Morgan Hall 2621 Morgan Circle Knoxville, TN 37996-4519
www.agpolicy.org
Thank YouThank You
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