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BEYOND THE NUMBERS
WHY WORLD TRADE WILL RISE
It is common these days to hear people forecast a positive long-term outlook for U.S. agriculture. Reasons for their optimism include the projected increase in world population and the benefits of rising incomes. However, recent developments suggest that growth in world trade will more likely be fueled by developments on the production side than on the demand side.

According to projections from the United Nations, the world population will increase by 1.46 billion during the next 20 years. This sounds like a lot, but the increase from now until 2020 actually will be smaller than the growth between 1980 and 2000. The world population growth rate is slowing, especially in rapidly developing countries where per-capita income and per-capita consumption are rising. At least 70 percent of the population growth during the next 20 years will be in poor countries in Africa and south Asia, where incomes are low and economic growth is weak at best.

The most likely source of increase in world trade will come from slowing yield growth. During the 1980s, world grain yields increased at a compound annual rate of 2.1 percent per year, compared with just 1.1 percent per year in the 1990s. The slowdown in yield growth is even more pronounced in poor developing countries. During the 1990s, population growth in poor countries averaged 2.1 percent per year, while yield growth was only 1 percent. If this trend continues, it will lead to a significant widening in the food deficit in these countries during the decade ahead. (See the "Beyond the Numbers" column on page 41 of the January 2001 issue for graphs showing how the food gap is widening.)

Some would argue that the source of the increase in world trade doesn’t matter. However, if the increase in trade is fueled by booming demand related to strong economic growth, it implies that consumers and importing countries are on strong financial footing and can afford to buy the food they need. If the source is just the rising deficit between production and consumption in poor countries, there is real concern that these consumers might not be able to buy the food they need. The result would be a significant increase in world hunger and increasing dependence on food aid. The bottom line is that world grain trade will probably rise in the future, but the size of the increase is still in doubt. AM

For more information about world agriculture and agriculture-related issues, contact Rich Pottorff, chief economist, Doane Agricultural Services Co., St. Louis, at 314/372-3517 or e-mail pottorff@doane.com.


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