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Food Demand and Food Demand and Population Growth: Can Population Growth: Can

Agriculture Keep Up?Agriculture Keep Up?

Daryll E. RayUniversity of Tennessee

Agricultural Policy Analysis Center

Daryl F. Kraft LectureUniversity of Manitoba, Winnipeg

February 23, 2010

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IntroductionIntroduction• 2050: World population and their food

requirements• Will/can agriculture meet the challenge?• Agricultural policy changes: help or

hindrance?• Grain reserves: Are they necessary?• The unique nature of food and ag. • World hunger: How should it be

addressed?

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2050 According to FAO2050 According to FAO• World population to increase to near 10

billion (70 percent increase from 1995)

– Nearly all the growth will be in developing countries

• Sub-Saharan Africa the fastest (108 percent, 910 million)

• South East Asia the slowest (11 percent, 228 million)

• Per capita incomes will grow

• Need for a doubling of cereal and meat production

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Will There Be Enough Production Will There Be Enough Production in the Future?in the Future?

• In a word: Yes. But it depends on how you define “enough”

• Effective demand will be covered—total food requirements will not…

• In fact, I think excess capacity will be a worldwide problem in the future

• Increased acreage• Increased yields and livestock efficiencies

• Analysts focus on demand but…

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It’s Easy to Underestimate It’s Easy to Underestimate Supply GrowthSupply Growth

• In the case of the US:– Investment in yield enhancing technology

(300 bu./ac corn on best land in a few years?—national average a decade or two later??)

– Gradual conversion to cellulosic feedstocks for ethanol production

– Conversion of Conservation Reserve Program Acreage to livestock or crop use

– Improve livestock hay and pasture land

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It’s Easy to UnderestimateIt’s Easy to UnderestimateSupply GrowthSupply Growth

• Yields—a renaissance in the making?

– Development and adoption of crops that:

• are more drought/heat/saline/disease resistant

• survive floods for 2 weeks not 3 days (rice)

• better utilize the sunlight for photosynthesis

• fix nitrogen as if non-legumes were legumes

• better utilize fertilizer, other nutrients and water

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It’s Easy to UnderestimateIt’s Easy to UnderestimateSupply GrowthSupply Growth

• Yields—a renaissance in the making?

– Globalization of agribusiness: Near universal access to the new technologies world-wide • Narrowing of technology and yield differentials

between the developed and at least some developing countries

– Helpful help to increase productivity of small-holder farmers in Africa especially

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It’s Easy to Under EstimateIt’s Easy to Under EstimateSupply GrowthSupply Growth

• International supply growth—acreage – Long-run land potentially available for major

crops• Savannah land in Brazil (250 mil. ac. -- USDA says 350)

• Savannah land in Venezuela, Guyana, and Peru (200 mil. ac.)

• Land in former Soviet Union (100 mil. ac.)

• Arid land in China’s west (100 mil. ac. GMO wheat??)

• Savannah land in Sub-Saharan Africa (300 mil. ac. -- 10 percent of 3.1 bil. ac. of Savannah land)

• Added acreage due to new yield technologies that:– further shorten the length of required growing seasons– improve drought tolerance– lesson soil fertility requirements

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So Will Agriculture Be Able to So Will Agriculture Be Able to Keep Up?”Keep Up?”

• My answer is yes…– Unless global warming causes massive output

changes or other bad stuff happens– But remember we are talking only about “effective”

or market/commercial demand so far• I say yes because supply growth has always

caught and then surpassed demand growth (and it typically does not take long)

• Recent Malthusian scares were grounded in short-term events and policy missteps– Not the inability to marshal expanded productive

capacity

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U.S. Farm PolicyU.S. Farm Policy• Historically there have been two major

components of farm/commodity policy

– Policy of Plenty: Ongoing public support to expand agricultural productive capacity through research, extension, and other means

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U.S. Ag Policy Did Not Start in 1932U.S. Ag Policy Did Not Start in 1932

• Historic policy of plenty

– Land distribution mechanisms – 1620 onward

– Canals, railroads, farm-to-market roads

– Land Grant Colleges – 1862, 1890, 1994

– Experiment Stations – 1887

– Cooperative Extension Service – 1914

– Federal Farm Credit Act – 1916

– Plus legal and other institutional arrangements

• This policy of plenty often resulted in production outstripping demand

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Farm PolicyFarm Policy• Historically there have been two major

components of farm/commodity policy

– Policy of Plenty: Ongoing public support to expand agricultural productive capacity through research, extension, and other means

– Policy to Manage Plenty: Mechanisms to manage productive capacity and to compensate farmers for consumers’ accrued benefits of productivity gains

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We have dropped the We have dropped the “Managing Plenty” Part“Managing Plenty” Part

• In the past farm policies for grains included– Floor Prices– Supply management tools– Price stabilization and reserves

• Over the years, especially since 1985 & 1996– All three were eliminated– Replaced with payment programs:

• Coupled to price and production (Deficiency Payments) and Decoupled (Direct Payments)

• Partially funded insurance schemes• In 2008 added another revenue based insurance scheme

(ACRE)

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Current U.S. Policy Can CauseCurrent U.S. Policy Can CauseEconomic CrisisEconomic Crisis

When supply outruns demand:– U.S. Commodity prices plummet

– U.S. grain farmers become wards of the state

– U.S. livestock producers, other grain users and farm input suppliers are subsidized

– Low grain prices are triggered internationally

– Many countries, especially developing countries, are unable to neutralize impacts of low prices

– U.S. accused of dumping

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Current U.S. Policy Can CauseCurrent U.S. Policy Can CauseEconomic CrisisEconomic Crisis

When demand outstrips supply:– Short-Run

• Prices explode• Livestock producers go bankrupt• Food prices increase at alarming rates• Countries hoard rather than export• Additional millions become

undernourished/starve in developing countries– Long-Run

• High prices bring big resources into ag production worldwide

• Prices crash again

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The Need for Food ReservesThe Need for Food Reserves

• Supply-Driven Disruptions– Scope

• Local – Affecting a limited area• Regional – • Global – Affecting one or more major producers

– Causes• Crop-related weather - Sporadic• Natural Disaster - Occasional• Political Instability – Chronic

– Result• Severe price bubble

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The Need for Food ReservesThe Need for Food Reserves

• Demand-Driven Disruptions– Unanticipated surge in demand– Usually only three or so per century

• Can occur in conjunction with supply disruptions– Examples

• 1972-1973– Russia’s entry into world grain markets

• 2007-2008– Ethanol demand– Wheat crop failures in Australia and Eastern Europe

– Result• Severe price bubble

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Possible Functions of ReservesPossible Functions of Reserves

• Local supply source of storable commodities for local disasters– Local supply stabilization

• Regional supplies for continental needs– Regionally sourced food aid

• Stabilize world supply– Back-up supply for more widespread

problems

• Stabilize world price

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Our Recent ExperienceOur Recent Experience

• Demand surge (ethanol)– Coupled with wheat shortfall in Australia and

Eastern Europe and other cereal shortfalls– Prices of storable agricultural commodities

tripled• Moderately increased food prices in global North• Added 250 million to the 800 million already facing

chronic hunger– Results

• Food riots in over 25 countries• Protection of national food supplies via tariffs, taxes

and embargoes

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This Wasn’t Supposed to HappenThis Wasn’t Supposed to Happen

• Commercials argued they would provide reserves– Government “interference” not needed

• Not to worry– Freer trade ensures availability from one country or

another• Neither assertion true

– Commercials have no incentive to hold stocks– Supply disruptions can affect more than one supplier

(country) in a given year• Countries view food as a national security

issue

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Historical OverviewHistorical Overview

• Egypt– 1750 BC– Biblical story of Joseph and Pharaoh– 7 fat years followed by 7 lean years

• China– Beginning in 54 BC– Had its ups and downs over period of 2,000

years– “Constant Normal Granary”– China currently holds large stocks for domestic

needs

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Historical OverviewHistorical Overview

• United States– 1929-1996 AD– Federal Farm Board – stock holding in attempt to

stabilize price– Commodity Credit Corporation/Farmer Owned Reserve

• Stabilize price• Ever Normal Granary• Manage supply

– Problems• Inconsistent management or mismanagement by those

who did not believe in rationale for reserves and price stabilization

• Dumping of excess on world market

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Policy for All SeasonsPolicy for All Seasons• Assume the unexpected will happen

– Random policy and weather events do occur—Plan for them

• Establishment of Grain/Oilseed/Food Reserves– Moderate impacts of random policy and

weather events by providing stable supply until production recovers

– Operated/overseen by a multinational commission

– Stores strategically purchased reserves

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Policy for All SeasonsPolicy for All Seasons

• Keep productive capacity well ahead of demand– Public investment in yield enhancing

technologies and practices

• Provide means to hold arable land in rotating fallow during periods of overproduction– This land could then quickly be returned

to production in the case of a crisis

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What is the deal with Ag?What is the deal with Ag?• Why does Ag get into seemingly

endless price and income problems?

• Econ 101 says markets correct on their own

• In times of low prices or increased inventories: – Consumers buy more– Producers produce less– Viola! Self-correction.

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U.S. Ag SectorU.S. Ag Sector

• Agriculture is different from other

economic sectors.

On the demand side:

– Even with a major drop in food prices:

• People don’t eat more meals a day

• They may change mix of foods and

purchase more services with the food

• Aggregate intake remains relatively stable

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U.S. Ag SectorU.S. Ag Sector

• Agriculture is different from other economic sectors.On the supply side:– With low crop prices—

• 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 land may change• Essential resource—land—remains in

production in short- to medium-run

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Self-Correction is Often Called ForSelf-Correction is Often Called For

• Over time, increasing amounts of land come into production (Just a matter of where)

• Technology advances increase yields/productivity– Much of this technology was paid for by taxpayers

• Series of years of ideal growing conditions• The result: output expands faster than population

and incomes expand domestic and export demand• But the Econ 101 self-correction does not readily

occur due to the nature of food and agriculture• Because…(all together now) low prices do not cause

– Much more total food to be eaten, nor– Much less more total agricultural output to be supplied

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Given All That, Where Does Addressing Given All That, Where Does Addressing World Hunger Come In?World Hunger Come In?

• Let’s be clear– Merely increasing productive capacity (and

therefore commercial output) will not cure hunger• If it did, no one would be hungry when the price

of corn is $1.75 per bushel ($70/mmt)– What is good for multinationals (increased production

using advanced technologies) and what maximizes trade• is what we hear the most about now days but…• those mindsets seldom provide food security

solutions (and should not drive the conversation on hunger)

– The basic problem (one, or the other, or both)

• Inability to produce sufficient food on their own• Too little money to buy food

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In My View…In My View…

• It is critically important to help developing nations improve their agriculture– Requires focusing on their economic and

cultural situation and not on imposing “our” agenda onto them

• Back to basics– Increase farmer access to inputs, knowledge

and credit– Provide dependable and reasonably stable

prices for their output– Encourage production and storage of staples

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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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