THE ECONOMIC ENVIRONMENT TAKES SHAPE FOR OPPORTUNITY
Rich Pottorff, Doane Chief Economist
All of the ingredients are in place for a boom in exports of agricultural products to Asian countries. It is a pivotal time for both world and U.S. agriculture. The potential for increasing exports to countries in Asia could well be the trigger for both growth in world trade and a recovery in U.S. agriculture.
1. GROWTH IN POOR COUNTRIES
More than half of the world’s population lives in Asia and nearly a half billion people will be added between 2000 and 2010, according to projections made by the United Nations. Much of the population growth will be in the poor countries of Asia. The population growth rate in countries in the Middle East averages near 2 percent per year, compared to 0.65 percent in China and nearly 0 percent in Japan. For the most part, diets for people in the poor countries, such as Iran, Bangladesh, Pakistan, India, and Cambodia, consists primarily of grains. There are few signs the diets of these people are changing, which suggests that food demand will increase at roughly the same pace as population growth.
2. FOOD DEMAND ACCELERATED
In several countries in East Asia, population growth has slowed dramatically, but the increase in food demand has accelerated. Strong economic and income growth has fueled an important change in diets as people become more affluent. While China’s population was rising at about 1 percent per year in the 1990s, pork consumption increased at an annual pace of about 6 percent per year and beef and poultry consumption gained more than 20 percent per year. Growth in meat consumption has a multiplier effect on crops since it takes more than a pound of grain to produce a pound of meat.
3. LIMITED CROP LAND
In the countries and regions where income growth is substantial and diets are improving, limited additional crop land is available. Over the last decade, land area planted to major crops (i.e. coarse grains, wheat, rice, cotton and soybeans) in China declined by about 3 percent, with essentially no change in land area in the rapidly developing countries in East Asia. As populations rise and become more urban, the amount of high quality land available to agriculture declines, as does the amount of water available for irrigation. For these countries, the surge in demand must be met either by higher domestic yields or significantly more dependence on imports.
4. CHINA'S ENTRY INTO WTO
China’s entry into the World Trade Organization, which could happen sometime in 2001, will provide exporting countries significantly greater access to a huge and growing market. Economic growth in China was the fastest in the world for much of the 1990s and that may continue to be true in the current decade. Tariffs will be reduced, export subsides eliminated, and tariff rate quotas established for bulk commodities. Some dramatic changes will be needed in China’s agriculture sector to convert them from a major exporter of corn and rice to a major importer. Internal crop prices will have to be lowered substantially which will force some small farmers off of the land and into the already overcrowded cities.
5. POPULATION DIVERSITY
The diversity of population and income growth in Asia will probably translate into relatively strong demand for both bulk commodities and value added products, especially meats. Over the last quarter century, crop production productivity has outpaced the growth in population, allowing us to feed more people and increase per capita consumption. There are clear signs that the pace of yield gains is slowing. Causes of the slowdown include exhaustion of the benefits of the green revolution, slower growth in irrigation, general land degradation, less response to additional fertilizer use, and some limitations on plant potential. Productivity gains in the 1990s were below the population growth rate and the divergence could be even more pronounced in the current decade. AM
Rich Pottorff is chief economist with Doane Agricultural Services Co., St. Louis.