Agriculture Today: A Worldwide Perspective

1. Agriculture Today: A Worldwide Perspective Robert L. Thompson Gardner Endowed Chair in Agricultural Policy University of Illinois at Urbana-Champaign September 25, 2008

2. Outline • Globalization of agriculture • Projected growth in global demand for food, feed and biofuels feedstocks. • Land and water constraints on future growth in world ag production • The need for larger investments in research to increase ag productivity • Region-by-region review of ag production & consumption prospects.

3. Globalization of Agriculture • Fraction of world ag production that moves through trade is growing rapidly. • Fraction that flows in value-added form is increasing faster than bulk commodities • American agriculture exports the production of one out of three acres of cropland. These exports generate 1/4 of farm sales revenue.

4. World Ag Markets Important to U.S. (2002-05) Source: Congressional Research Service

5. Projected Population Growth (U.N. medium projections, in millions) • Region 20072050 • World 6,671 9,191* + 38% • High Income 1,223 1,245 + 2% • Low Income 5,448 7,946 + 46% • Africa 965 1,998 +107% • Asia 4,030 5,266 + 31% • Latin America 572 769 + 34% • North America 339 445 + 31% • Europe 731 664 - 9% ______________ *The UN Population Office’s low and high projections of the world population in 2050 are 7.8 billion and 11.9 billion, respectively.

6. 1. China 1,318 2. India 1,132 3. United States 302 4. Indonesia 232 5. Brazil 189 6. Pakistan 169 7. Bangladesh 149 8. Nigeria 144 1. India 1,747 2. China 1,437 3. United States 420 4. Indonesia 297 5. Pakistan 295 6. Nigeria 282 7. Brazil 260 8. Bangladesh 231 8 Largest Countries (millions)2007 2050 Source: Population Reference Bureau.

7. Proportion of Population Living in Urban Areas (percent)

8. Dynamics of Global Food Demand • 1.1 billion people live on less that $1/day; 854 million of them suffer under-nutrition or hunger. • 2.7 billion people live on less than $2/day; by $2 per day, most hunger (calorie) problems solved. • Between $2 and $10 per day people eat more meat, dairy products, fruits, vegetables & edible oils, causing rapid growth in raw ag commodity demand • After $10 per day, people buy more processing, services, packaging, variety, and luxury forms, but not more raw ag commodities

9. Huge Growth in Food Consumption Expected from Economic Growth Source: World Bank. World Development Indicators database

10. Projected World Food Demand • World food demand could double by 2050 • 50% increase from world population growth – all in developing countries • 50% increase from broad-based economic growth in low income countries • The World Bank estimates that the number of people in developing countries living in households with incomes above $16,000 per year will rise from 352 million in 2000 to 2.1 billion by 2030. • How many presently low income consumers are lifted out of poverty will be the most important determinant of the future global demand for food.

11. Biofuels Influencing Ag Outlook • Production of ethanol in the U.S. and biodiesel in Europe comprise the biggest shock to world agriculture since 1970s. • Creating large demand for corn and edible oils, which is increasing competition for good farm land in the U.S. and around the world. • A key question: How soon will we have technology for producing ethanol economically from cellulosic feedstocks? And can they be grown on inferior soils?

12. Growth of U.S. Ethanol Industry • 2000: 1.7 billion gallons of ethanol produced; used 6% of U.S. corn production. • 2007: 5.8 billion gallons produced; used 20% of corn harvest (now larger than exports). • Now 134 ethanol plants are operating with total capacity of 7.2 billion gallons; 77 more are under construction or expanding. • This will bring capacity to 13.4 billion gal. by 2008-09 • Energy Bill of 2007 mandated 36 billion gal. of biofuels by 2022, of which 15 billion from corn. Source: Renewable Fuels Association

13. World Agricultural Supply & Demand Trends since the 1970s • Continuing population growth in developing countries (now growing by 78 million per year) • Unprecedented rate of poverty reduction in low income countries giving millions of people the purchasing power to upgrade the quality of their diets to include meat, dairy and poultry products, fruits and vegetables and edible oils. • Underinvestment in agricultural and rural development in low income countries by their governments, foreign aid programs and international banks. • Declining investment in agricultural research in low income countries

14. Agriculture Has Been Off the Global Development Agenda • Low world commodity prices, in part due to OECD ag production & export subsidies, including easy access to food aid. • Crowded out by hot new donor issues, e.g. environment and HIV/AIDS. • Lack of political clout of rural relative to urban areas in low income countries • Ag development projects seen as riskier • Transnational NGO activism against modern agriculture

15. Larger Fraction of Ag Production to Move Through Trade Distribution of Arable Land Distribution of World Population • With population growth, urbanization and broad-based economic development, many low-income countries’ food consumption will outstrip their production capacity, and they will become larger net importers.

16. The Land Constraint • There is at most 12% more arable land available that isn’t presently forested or subject to erosion or desertification. • 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 at least double productivity on the fertile, non-erodible soils already in crop production.

17. Growing Demands on Forests, Too • The same forces of population and income growth that increase demand for food also increase demand for things made out of wood, e.g. paper, furniture, building materials; poles. • In rich countries, growing demand for environmental amenities and preservation of (especially old-growth) forested areas. • At the same time biofuels production is claiming more and more land.

19. Constraints on World Ag Production 40% too dry 6% too rough terrain 21% too cold 2% unsuitable soils 21% too wet

21. Grain Yields Around the World

22. Fertilizer Use

23. Water A Growing Constraint • Farmers use 70% of the fresh water used in the world. They are both the largest users and the largest wasters of water. • Water is priced at zero to most farmers, signaling that it is much more abundant than in reality. Anything priced at zero will be wasted. • With rapid urbanization, cities are likely to outbid agriculture for available water. • The world’s farmers need to double food production using less water than today. Biofuels will add further to this challenge.

24. Long-Run Prospects • 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 to double world food production by 2050 using less water and little more land than today & also produce feedstocks for biofuels production. • Future world market price trend will depend on whether research can increase land and water productivity faster than world demand grows.

25. European Union • Shrinking population • Tough environmental and animal welfare regulations significantly raise costs • Rejection of ag biotech setting back its competitiveness • Policy reforms underway are real (even sugar) • Agreed to eliminate all ag export subsidies in WTO trade negotiations. This will force further reforms of domestic ag policy. • Aggressive use of SPS barriers to ag imports

26. Eastern Europe & Former USSR • Severely declining populations • Excellent soils in Ukraine and other parts of former Soviet Union mean great ag production potential • Weak applied research • Inadequate property rights (esp. farm land), contact sanctity, & rule of law • Slow development of necessary ag input and product markets

27. East and South Asia • Huge population with large numbers of people at very low income levels mean huge future food demand growth. • The projected growth in Asia’s population between now and 2050 equals the present population of China (1.3 billion)! • Has much larger percent of world’s population than arable land, so food demand likely to outrun supply potential

28. China • The 800-pound gorilla in all ag, energy and mineral commodity markets today • Rapid economic growth has generated rapid growth in meat consumption, but one-third of population still earns less than $2/day. • Average farm size less than 1 acre leads to extensive rural poverty • To reduce rural poverty (and associated political stresses), government abandoned grain self-sufficiency objective; letting farmers grow labor-intensive higher value per acre crops; e.g. fruits, vegetables; animal agriculture. Exporting them. • Has largest number of pigs in world.

29. India • Projected to have 250 million more people than China by 2050. • Economy is starting to move; already 250 million middle-class consumers, but also 500 million living on less than $1/day! • Huge dairy product consumption; has more dairy cows than any other country • Huge poultry product consumption • Most people who don’t eat meat don’t by reason of poverty, not religion.

30. New Zealand & Australia • After New Zealand went cold turkey on ag subsidies, agriculture never more profitable nor more entrepreneurial • Reform also in Australia, but more gradual with buyouts • Both have been extremely successful in penetrating Asian markets • But neither is very big, so will never be marginal ag exporter • Recurring droughts seem to be becoming a pattern in Australia, cutting its wheat production capacity.

31. Middle East & North Africa • Can never be self-sufficient in food due to water scarcity • Israeli R&D “provides” state of the art technology in horticultural crops and efficient water use for entire Med. Basin • Can only afford to use water on highest value crops • What future role of Mediterranean countries in world fruit and vegetable trade?

32. South America • One of only 2 regions with more land that can be brought into production • Brazilian agricultural export miracle • Soybeans & frozen concentrated orange juice • Now pork and broilers gaining fast • Key role of Brazil’s own ag research (EMBRAPA) in expanding crop land area • Argentine government not supportive of agriculture: export taxes & embargoes

33. Sub-Saharan Africa • Many countries are “basket cases” with declining per capita food production (requires food aid) • Severely degraded soils with little fertilization • Underinvestment in rural roads and education • But bad African governance the main reason for its agriculture’s general underperformance. • With research & right policies, this region could be the next “Brazil” of world grain/oilseed trade • There are a few success stories of global supply chains, e.g. vegetables & cut flowers to Europe • China is everywhere locking up access to energy, minerals and agricultural products (India, too).

34. Conclusions • Demand for food to double in first half of 21st century (growing population & income), to which must be added growing demand for biofuels feedstocks • There’s little additional arable land that can be brought into crop production, and farmers will have to make do with less water.

35. Conclusions • Need to double world average productivity of the fertile, non-erodible soils already in crop production. • This will require much larger investments in ag research, especially in developing countries where most must come from public sector, philanthropy or foreign aid, and trend has been downward. • There’s a bright future for U.S. and world agriculture.