# Presentation: 903455

## Assessing the Future of Agriculturefrom a Global Perspective

## FAPRI

**Established in 1984 by a grant from the U.S. Congress with the following objectives.**
- To prepare baseline projections for the U.S. agricultural sector and international commodity markets
- To examine the major commodity markets and analyze alternative policies and external factors for implications on production, utilization, farm and retail prices, farm income, trade, and government costs
- To aid development of effective risk management tools for crop and livestock producers, and to analyze how government policy affects risk management strategies

**Notes:**
Check economic “crystal ball” to examine short-run and long-run market prospects.

## FAPRI Consortium

## FAPRI Baseline Process

## Model Interaction

**Policy**
**Parameters**

## Basic Livestock Sector Model

**International**
**Prices**

**Beginning**
**Inventory**

**Breeding**
**Stock**

**Births**

**Domestic Supply**

**Market-Clearing**
**Price**

**Slaughter**

**Net Exports**

**Exports**

**Imports**

**Ending**
**Inventory**

## Basic Dairy Sector Model

## Presentation Outline

- Conditioning assumptions
- Macroeconomic
- Policy
- Others
- Commodity specific outlook outcomes
- Meat
- Dairy
- Feed grain and Oilseed complex
- Food grain
- Summary and implications on future of global agriculture

**Notes:**
Check economic “crystal ball” to examine short-run and long-run market prospects.

## Real GDP Growth Rates

**Real GDP Growth Rates**

**Notes:**
Solid economic growth in most regions of the world, with rates peaking in 2004 and sustained for the rest of the decade.
China growing 6.4% to 9.3% and India 5.3% to 5.7%
The U.S. emerging at 4.4% in 2004 and ending at 3.5% in 2014.

## Average Growth in Exchange Rate

**Notes:**
General depreciation of the U.S. $ in 2004 will generally continue.
Depreciation of all Latin American countries, 2.7% to 5.5% in Argentina and 4.0% to 5.9% in Brazil.
Depreciation in the Middle East and Africa.
Strengthening of currencies in Indonesia, Malaysia, Taiwan, South Korea, and Thailand.

SOLID ECONOMIC GROWTH AND APPRECIATING CURRENCIES BOOST GROWTH OF DEMAND OF VALUE ADDED AGRICULTURAL PRODUCTS SUCH AS MEATS AND DIARY. 

## Slide 11

**Notes:**
Population growth rate is decreasing at an increasing rate (food demand implications).
Fast urbanization – changing diets (westernization, especially in Asia). 

## Slide 12

**Notes:**
High average (standard) bound rates. Lower actual rates.
Include caveats in the actual such as impact of RTAs.

## Slide 13

**Notes:**
Substantial portion of traded volume is subsidized. It is the subsidy limit that is used not actual subsidized exports (no complete data available).

## Slide 14

**Notes:**
Driven by rising incomes at the 3.48% to 6.46% range in regional growth rates, per capita meat consumption increases by  6.11 kg over the baseline, reaching a level of 56.21 kg per person per year by 2014. 
Poultry consumption overtakes beef consumption in 2001 and grows the fastest among the three meats.

## Global Policy Overview and Other Assumptions

- 2002 U.S. Farm Security and Rural Investment Act
- 1995 Uruguay Round Agreement on Agriculture (URAA)
- North America Free Trade Agreement (NAFTA)
- 2004 EU enlargement and associated EU CAP reforms
- SPS cases (BSE in North America and HPAI in Asia)

## Slide 16

**Notes:**
114 countries in the study
Low income 15% of U.S. income
Middle income 15 to 45%
High income > 45%

## Slide 17

**Notes:**
Growth in consumption
Economic growth 6.4% to 9.3%
Duty reduction in all meats
China traditionally has been a net exporter of beef, with declining exports but small imports. With severe constraint of improved grazing area and poor animal genetics, production grows by only 4.3%, falling behind the 4.8% growth in demand. As a result, China becomes a net importer of beef, at 452 tmt, in 2014. 
China is a potentially large market, but market penetration is projected to be modest because a large portion of China’s pork supply still is produced cheaply by backyard producers. The share of commercial farms is increasing over time. They mostly supply the coastal cities and export to Hong Kong. The cost structure of these farms is comparable to producers in the West. With the reduction of duties from 20% to 12% and with the opening of distribution businesses to foreign firms, the slight differential in the growth of consumption at 2.3% and production at 2.2% is met by more imports, which are expected to peak at 142 tmt in 2012. China’s export potential is constrained by SPS issues. 
With the AI outbreak, China’s broiler imports and exports dropped by 51.4% and 35.6%, respectively. In the next decade, as growth in production of 3.7% falls short of the 4.2% increase in consumption, China’s net imports reach 416 tmt in 2014. Because of SPS concerns, the EU and Japan require strict inspection of Chinese broiler exports. 

## Slide 18

**Notes:**
Growth in consumption
Economic growth 6.4% to 9.3%
Duty reduction in all meats
China traditionally has been a net exporter of beef, with declining exports but small imports. With severe constraint of improved grazing area and poor animal genetics, production grows by only 4.3%, falling behind the 4.8% growth in demand. As a result, China becomes a net importer of beef, at 452 tmt, in 2014. 
China is a potentially large market, but market penetration is projected to be modest because a large portion of China’s pork supply still is produced cheaply by backyard producers. The share of commercial farms is increasing over time. They mostly supply the coastal cities and export to Hong Kong. The cost structure of these farms is comparable to producers in the West. With the reduction of duties from 20% to 12% and with the opening of distribution businesses to foreign firms, the slight differential in the growth of consumption at 2.3% and production at 2.2% is met by more imports, which are expected to peak at 142 tmt in 2012. China’s export potential is constrained by SPS issues. 
With the AI outbreak, China’s broiler imports and exports dropped by 51.4% and 35.6%, respectively. In the next decade, as growth in production of 3.7% falls short of the 4.2% increase in consumption, China’s net imports reach 416 tmt in 2014. Because of SPS concerns, the EU and Japan require strict inspection of Chinese broiler exports. 

## Slide 19

**Notes:**
Driven by rising incomes at the 3.48% to 6.46% range in regional growth rates, per capita meat consumption increases by  6.11 kg over the baseline, reaching a level of 56.21 kg per person per year by 2014. 
Poultry consumption overtakes beef consumption in 2001 and grows the fastest among the three meats.

## Slide 20

**Notes:**
Driven by rising incomes at the 3.48% to 6.46% range in regional growth rates, per capita meat consumption increases by  6.11 kg over the baseline, reaching a level of 56.21 kg per person per year by 2014. 
Poultry consumption overtakes beef consumption in 2001 and grows the fastest among the three meats.

**Notes:**
 The BSE case in Canada drove the U.S. beef price to record highs, at $84.69/cwt in 2003 (26.33% increase). Pork and broiler prices were also 12.97% and 11.51% higher. But a confirmed BSE case in the U.S. depressed the price by 10.90% in 2004. In the same year, the pork price dropped by 3.25%; it cycles the rest of the decade, peaking in 2006 at $42.40/cwt and in 2011 at $45.34/cwt, which is 6.94% higher. Strong demand helps maintain the broiler price in the $60/cwt range. 

## Slide 22

**Notes:**
Production
Rising meat demand fuels a 20.7% growth in total meat production over the next decade (a 41.48 mmt increase); production reaches 241.83 mmt in 2014. 
Trade
Income and population growth and various production constraints enable consumption to rise faster than production in many countries, prompting these countries to satisfy their excess demand with low-cost imports. Total meat trade increases by 36.6% (5.05 mmt) in the next decade; trade reaches 18.8 mmt in 2014. 

## Slide 23

**Notes:**
Meat market was impacted by BSE cases in North America and HPAI in many Asian countries. Compared to the 6.4% annual growth in trade in the last three years, growth in 2004 was weak only at 1.5% due to the SPS shocks. This was primarily driven by the 0.6% drop in beef trade.
The short-term outlook of the meat market is dominated by the recovery from the SPS shocks.
Japan BSE example
A weak economy and a crisis in consumer confidence because of BSE reduced Japan’s imports of beef in 2002 by 29%. 
Recovery in 2003 was only moderate, with the triggered safeguard and high world prices. 
Net imports declined again in 2004 by 25.4% with closure of its border to U.S. beef exports after the confirmed U.S. BSE case. 
However, a continuing 0.4% annual decline in production and a 2.2% annual growth in consumption fuel a net import expansion of 4.0%; the volume reaches 1.1 mmt in 2014.
The outlook assumes a three year recovery period. Japan concluded an agreement for resumption of trade with the U.S. in 2004. Many countries including Taiwan and South Korea are expected to follow.
Of the major exporters, only exporters from South America and Oceana are free from BSE. They have proactively instituted an animal identification program to allow traceability of meat products from the farm to the table to win back the confidence of consumers on the safety of beef products. 

## Slide 24

**Notes:**
HPAI was common in Hong Kong in the last three years. But outbreaks in many Asian countries including Japan, China, and Taiwan, and in North America, and European countries have magnified its impact on the market.
In particular, Thailand’s export was cut in half (51.6%), while China’s export dropped by 35.6% and its import declined by 51.4%. Since Thailand and China together supply more than half, 33.5% and 24.4%, respectively, of Japan’s broiler imports, the highly pathogenic AI also dropped Japan’s imports by 28.1%. Also, with more than 20 countries imposing a ban on U.S. broiler exports after cases in the East and Texas were confirmed, U.S. exports declined by 6.4%.
In the long run, with the long viability of the virus, the possibility of wild avian species including migrating birds acting as hosts, and limited checks on cross-border contamination, the control and eradication of highly pathogenic AI will be a challenge that cannot be effectively answered within national borders only. A more comprehensive, multi-country approach is needed and is being tried in Asia. 
In the short run, with possible inactivation of the virus at temperatures of 56oC for 3 hours and 60oC for 30 minutes, both importers and exporters have shifted some of their trade to cooked poultry meats to overcome trade bans.

## Slide 25

**Notes:**
Growth in consumption
Economic growth 6.4% to 9.3%
Duty reduction in all meats
China traditionally has been a net exporter of beef, with declining exports but small imports. With severe constraint of improved grazing area and poor animal genetics, production grows by only 4.3%, falling behind the 4.8% growth in demand. As a result, China becomes a net importer of beef, at 452 tmt, in 2014. 
China is a potentially large market, but market penetration is projected to be modest because a large portion of China’s pork supply still is produced cheaply by backyard producers. The share of commercial farms is increasing over time. They mostly supply the coastal cities and export to Hong Kong. The cost structure of these farms is comparable to producers in the West. With the reduction of duties from 20% to 12% and with the opening of distribution businesses to foreign firms, the slight differential in the growth of consumption at 2.3% and production at 2.2% is met by more imports, which are expected to peak at 142 tmt in 2012. China’s export potential is constrained by SPS issues. 
With the AI outbreak, China’s broiler imports and exports dropped by 51.4% and 35.6%, respectively. In the next decade, as growth in production of 3.7% falls short of the 4.2% increase in consumption, China’s net imports reach 416 tmt in 2014. Because of SPS concerns, the EU and Japan require strict inspection of Chinese broiler exports. 

## U.S. Meat Net Exports

**U.S. Meat Net Exports**

**Notes:**
BSE in the U.S. closed many Asian markets including Japan, Taiwan, and South Korea.
HPAI in poultry slowed down trade in 2004. Previous to that it was the poultry quota and implementation problems in Russia.
Pork trade gained with SPS issues in beef and poultry. 

## Beef

- Pork

- Broiler

**Notes:**
Low-cost producers in the Americas who have managed SPS challenges capture a growing share of international meat trade throughout the baseline. 
Beef exports from the U.S. and Canada were compromised in the short run because of food safety issues.  
The devaluation of its currency by 3.9% coupled with strategic investment in infrastructure in the grain-rich Center-West regions improves Brazil’s competitive edge relative to other meat exporting countries, allowing it to garner around 9 percentage points more of market share in each of the meat.

## Slide 28

**Notes:**
Expanding demand and tighter supply in the market result to strong prices of dairy products in the baseline.

## Slide 29

**Notes:**
Expanding demand, especially in Asia and tightening supply from traditional exporters in Europe create an upward pressure on prices to increase.
Dairy consumption grows by 2% annually in Asia.
Growth in demand in the Philippines, Indonesia, Malaysia, and South Korea directly translates to an increase in imports because of the lack of productive potential for dairy products in these countries.
Growth in demand in China and India may result to an increase in the import of feed grains as these countries encourage domestic production.

## Slide 30

**Notes:**
EU CAP reform reduces the intervention price of butter and NFD causing production and trade of these products to decline, leading to a tighter world market.

## Slide 31

**Notes:**
Binding dairy quota on the 10 New Member States reduces milk production and surplus of diary products for exports.

## U.S. Dairy Product Net Exports

**U.S. Dairy Product Net Exports**

**Notes:**
Strong demand of NFD allow the U.S. to expand export. 

## Slide 33

**Notes:**
Sustained growth in meat production increases derived demand for coarse grain and oil meal products.

## Slide 34

## Slide 35

**Notes:**
Corn imports driven by growth in meat and dairy sector.
China reverses to become a net importer of corn at 7 mmt.

## Slide 36

**Notes:**
In the next decade, of the main competitors of the U.S. in the corn market only Argentina show significant increase in their production. 
Expansion in EU NMS as they receive higher grain prices.

## Slide 37

**Notes:**
The U.S.captures the largest and increasing share of the coarse grain market. 

## U.S. Coarse Grain Net Exports

**U.S. Coarse Grain Net Exports**

**Notes:**
U.S. maintains export level in most products with the exception of corn exports which is growing significantly. 

## Slide 39

**Notes:**
Solid economic growth contributes to significant growth in vegetable oil consumption, especially palm oil consumption in industrial uses.

## Slide 40

**Notes:**
U.S., Brazil, and Argentina are major supplier of soybean, with growth mostly coming from Brazil.

**Notes:**
Under pressure of record supplies this year, world prices drop in 2004/2005.
South America’s productive potential in the oilseed complex gives a moderate price outlook in the next decade.

## Slide 42

**Notes:**
With preferential policy favoring the domestic crushing industry, China’s imports of soybeans expand and mirrors the growth of Brazil’s exports. 

## Slide 43

**Notes:**
With removal of textile quota, China’s imports of cotton expands and mirrors the growth of Brazil’s exports. 

## Corn

- Soybean

**Notes:**
The U.S. gains more market share in corn.
Brazil and Argentina gain market share in soybean.

## Slide 45

**Notes:**
More than 83% of wheat use is for food consumption.
Per capita wheat consumption drops from 78.97 kg to 77.03 over the next decade.
Growth in total consumption is driven by population growth.

## Slide 46

**Notes:**
Per capita rice consumption drops from 64.2 to 63 kgs over the next decade.
Increase in demand in regions with limited productive potential raising imports and prices in a very thin world rice market.

## Slide 47

**Notes:**
Most of the increase in population (consumption) occurred in countries with limited productive potential in wheat production (Asia, Middle East, and Africa), hence, translating their higher demand into higher imports.

## Slide 48

**Notes:**
After recovery in area planted to wheat in major producing countries, area is stable to slightly declining.  Expansion in production is mostly driven by yield increases.

## Slide 49

**Notes:**
Recovery in area then slightly declining towards the end. Yield growth is dominant source of increase in production.

**Notes:**
Tight exportable supplies across Asia have resulted in sharply higher Thai export prices in 2004.
Unfavorable weather condition in 2003/2004 in Europe and CIS sustained the high price from the previous year.
More area in 2004/2005 caused corn prices to drop.

## Slide 51

**Notes:**
Value of world crop trade increased by 33.1 billion U.S. dollars in the next decade.
The share of the U.S. drops by 7.1 percentage points, from 36.3% to 29.1%. 

## Slide 52

**Notes:**
With its beef and broiler exports compromised because of the SPS challenges, the U.S. share of the world meat trade dropped to record low levels in 2004 at 8.1%.
Recovery in beef exports and strong growth in pork and poultry exports allow the U.S. to regain market share to levels exceeding the high market share in the early 2000s, at 18.2%.

## Slide 53

**Notes:**
Real farm income for 2005-2009 higher than 1980s and 2002, but smaller than 1996.

## Summary: Future of Global Agriculture

- Modest market strength in the next decade.
- World market integration and stiffer competition from South America.
- SPS issues may continue.
- Potential of Doha Round Reforms?
- New product and structure issues may emerge
- “Trading-up”
- Biotechnology
- Information technology
- Structure diversity and general applicability of policies

## Slide 55

## Slide 56

**Notes:**
Driven by rising incomes at the 3.48% to 6.46% range in regional growth rates, per capita meat consumption increases by  6.11 kg over the baseline, reaching a level of 56.21 kg per person per year by 2014. 
Poultry consumption overtakes beef consumption in 2001 and grows the fastest among the three meats.

## Slide 57

**Notes:**
Driven by rising incomes at the 3.48% to 6.46% range in regional growth rates, per capita meat consumption increases by  6.11 kg over the baseline, reaching a level of 56.21 kg per person per year by 2014. 
Poultry consumption overtakes beef consumption in 2001 and grows the fastest among the three meats.