of other commodities such as distillers dried grains. Currently, this highprotein animal feed is the fastest growing U.S. agricultural export. Role of Trade and Trade Liberalization. Global agricultural trade has grown sharply over the past decade to an estimated $700 billion in 2011. This figure is up by 150 percent since 2000 and should exceed $1 trillion by 2020. Further, almost every country’s agricultural trade grew rapidly over the past five years, due largely to the Free Trade Agreements (FTAs) that are proliferating around the world, boosting trade among their signatories. Unfortunately, the U.S. does not participate in most FTAs because Congress has been slow to approve them. As global trade will continue to increase at a rapid rate through increased trade liberalization and utilization of FTAs, the U.S. will continue to fall behind other countries. Policy Errors. A policy error occurs when a government makes a decision, but does not take into consideration the law of unintended consequences. An example of such an error is an export ban. In the short run, these bans increase domestic availability and lower domestic food inflation in the country that imposes them. However, it also depresses domestic prices and profits and affects domestic production. Therefore, export bans erode food security.
Mr. Dwyer warned that this positive outlook could change with the return of a global recession. He pointed out that there is growing concern regarding the situation in Europe and the travails of the euro. Economic difficulties in Europe would affect the global economy because the EU is one of the major export markets for many developing countries. If a new recession occurs, its driving causes will be either a financial crisis in Europe or a recession in China. Although China is growing at approximately 10 percent a year, it’s real estate market seems vulnerable. With growing property values, the country is building numerous apartments. However, one-third of them are empty. Once the property bubble bursts, China could quickly fall into economic trouble. In the case of a global recession, the growth of the middle class in emerging markets — the major driver of food
Question & Answer Session Q. According to your analysis, food prices that are not sufficiently high have an impact on biofuels policy. Would that be material in terms of commodity prices in the long term? The USDA does not believe that biofuels advance food prices. Too many factors that impact food prices occur simultaneously to conclude that biofuels are responsible for price increases. For instance, between 2007 and 2009, corn decreased from $8 to $3 per bushel in the U.S., although producers used more corn for biofuels during that time than before. The corn yields are going up on a regular basis, and the biofuels revolution is facilitating investment in higher yielding hybrids. Also, the increase in acreage that goes into U.S. corn production is only three percent of the world arable land base. This is not enough to have a profound impact on food prices. Q. Currently, agricultural subsidies comprise half of the EU budget. Do you see any changes taking place in the amounts of subsidies that the EU offers to its agricultural sector? During the past 10 to 15 years, the EU has dramatically reduced the amount of subsidies to its agricultural sector. It would probably take a breakthrough in the Doha negotiations or budget difficulties for the EU to reduce subsidies further. Q. How can the price of corn stay high given that countries like Russia, Ukraine, and China are producing growing amounts of corn? High prices attract more investment, and thus increase production. The Ukraine will become the world’s third-largest exporter of corn this year. However, growing corn production is necessary worldwide in order to keep pace with the growing demand for corn coming from Asia. Otherwise, food prices will rise.
Spring 2012
Energy Prices. USDA officials believe that energy prices will remain at the current level unless there is a global recession. This is important given that agriculture is an energy-intensive industry and rising energy prices increase the cost of food production. Also, as the prices of inputs such as diesel fuel and fertilizer grow, they reduce farmers’ profits and output and thus increase agricultural commodity and food prices in the long run.
Additional Crop Land. Almost all of the increases in production of the last few years have come through yield gains, not land additions. While global production of grains has grown 27 percent in 20 years, the amount of land used to grow grains worldwide has dropped by 1 percent. The USDA officials view South America as the single best place for new land expansion. The Former Soviet Union also presents great potential for new acreage because of the existence of old state farms that can be brought back online. Also, Africa has approximately 201 million hectares that can be cultivated. However, high marketing costs, poor infrastructure and long distances from markets constitute great constraints to land cultivation there.
demand — would slow down; the value of the U.S. dollar would increase; global trade including agricultural trade would drop; and prices of all dollar-denominated commodities and, subsequently, farm income would decrease.
Russia Business Watch
Given that stock reserves are at low levels around the world, a short crop in a major producing country could encourage it to impose an export ban. However, it is important that countries such as Russia remember that these bans can undermine their foreign investment inflows. This is because export bans undermine a country’s transparency and predictability of government policy and encourage investors to seek other investment opportunities.
Development of Biotechnology. The role of biotechnology will grow because biotechnology produces higher yields and reduces input. In fact, planted biotech acreage in both developed and developing countries is currently at 10 percent of total crop acreage and is growing faster than non-biotech acreage. However, this technology continues to face resistance worldwide. The European Union, for instance, is not convinced that biotechnology offers the right solution. This attitude, in turn, has impacted other countries’ use of it due to fear of losing their markets in Europe. The U.S., however, believes that biotechnology is not the problem, but rather a part of the solution.
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Q. Do you foresee the additional corn production driving down the price of corn? No. The demand is growing as fast as the supply. This is why the USDA
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