Trends in Agricultural Trade and Drivers of Demand: Implications for Midwestern Agriculture

Trends in Agricultural Trade and Drivers of Demand: Implications for Midwestern Agriculture Kathy Baylis University of Illinois

a.k.a. things you probably already knew in schmancy chart form

The Setting: Demand

Population

Income

As incomes rise‌

Ratio of % calories by source in low to high income countries

Combined with increasing population and incomes‌

% Expenditure on Processed food in Sub-Saharan Africa 100 90 80 70 60 50 40 30 20 10 0

Rural

< 2$ per day Low-processed food

> $20 per day

Urban

High-processed food

< $2 per day Total processed food

> $20 per day

Setting: Supply

Yield growth

Increasing farm investment

Also in developing countries

Agricultural Trade

Large increase in agricultural trade

Even before this year, some tariffs are still high

Source CBO 2016

US Agricultural Trade

US Agricultural Exports: 20% of U.S. ag production; 50% of soybeans, wheat and rice; 75% of cotton.

China + Canada + Mexico = 46% of U.S. ag exports Japan, EU and South Korea 4th and 5th and 6th

Trade is crucial for US Ag production

â&#x20AC;¦ and consumption

Annual US Agricultural Export Growth, 1995-2003 China North America Central America Southeast Asia South America Sub-Saharan Africa Caribbean Middle East East Asia South Asia North Africa Former Soviet Union European Union World

â&#x20AC;Śso what does this mean for Midwestern agriculture?

16,000

$8.0000

14,000

$7.0000

12,000

$6.0000

10,000

$5.0000

8,000

$4.0000

6,000

$3.0000

4,000

$2.0000

2,000

$1.0000

0 75 19

13% exported

77 19

79 19

81 19

83 19

85 19

87 19

89 19

91 19

93 19

95 19

Food-Alcohol-Industrial Exports

97 19

99 19

01 20

Seed Production

03 20

Feed Prices

05 20

07 20

09 20

11 20

13 20

15 20

$0.0000

$/Bushel

Million bushels

AN OVERVIEW OF CORN

Implicit Corn exports ~ 26%

Snapshot: Other Ag Exports

OVERVIEW OF SOYBEANS Usage of Soybeans (USDA-ERS) 2,000 1,800 1,600

Million Bushels

1,400 1,200 1,000 800 600 400 200 0 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Seed-Feed & Residual

Export

Crush

Two (short) case studies

NAFTA

Feed exports driven by growth in Mexican livestock production

Annual Average Agricultural Export Value ($B) before and after NAFTA 60

1991-1993

2010-2012

50 40 30 20 10 0

NAFTA Partners China and Hong Kong

ROW US

NAFTA Partners China and Hong Kong Mexico

Canada

ROW

Retaliatory tariffs matterâ&#x20AC;Ś What might happen if NAFTA was suspended?

In March 2009, Mexico imposed tariffs on US imports after the US suspended NAFTA trucking provisions.

They could impose tariffs equal to the harm caused to Mexico by change in trucking access. Notably, many agricultural products were targeted, and the increase in tariffs saw a substantial drop in US exports to Mexico. The US re-introduced the trucking provisions in 2011 and the tariffs were removed.

Value of US Exports to Mexico Affected by Retaliatory Tariffs Comparison period Total Not subject to retaliatory tariffs Subject to retaliatory tariffs

15,314 13,415 1,899

Tariff period 15,264 13,727 1,535

% change -0.3 2.3 -19.1

Subject to tariffs: meat, cheese, other processed dairy, horticulture, nuts, processed foods, wine

Current Trade War with China

Current tariff wars

Soybeans Estimated price impact of Chinese tariff rates on soybeans 4-5% 44% 42%

Soybean price spread between Brazil and the United States

Sorghum Prices China announces 178.6% import duty on US sorghum

So…?

• Population growth, increased incomes and urbanization is increasing demand for horticulture, animal products, feed grains, • and demand for processed foods and food safety.

• US agricultural exports are growing in response, • but competition is tight, • and our trading partners are not standing still.

baylis@Illinois.edu Farmdocdaily