Projecting the next ten years in agriculture

Looking into the future is often as difficult as it is necessary, especially for a domain as diverse as agriculture. Difficult, because one seldom has enough information to make a highly accurate prediction. Yet necessary, because so many farmers, businesses, consumers, and taxpayers are affected by long-term agricultural trends, and having an informed baseline can serve as the basis for a better understanding of these trends.

Our friends at the United States Department of Agriculture (USDA) regularly take up the task of providing such a baseline. Earlier this month, the USDA published the 2013 edition of their projections in agriculture for the next ten years, i.e., through 2022. These reports are extensive, detailed, and global in their outlook. They are put together by the USDA’s Interagency Agricultural Projections Committee, and cover agricultural commodities, trade, and aggregate sector-specific indicators such as farm income and food prices.

Let’s take a look at a few of the highlights of this report.

1. Global production of most major crops is expected to increase in 2013 and beyond. This is partly due to “organic” (no pun intended) growth in consumption due to ongoing increases in population and well-being, and partly due to a response to high prices for many farm commodities that was driven by weather events such as the 2012 U.S. drought. However, these factors are countered by long-term trends such as limited land availability, water scarcity, and slowing population growth. Indicative projections for global trade in wheat, coarse grains  (i.e., corn, barley, sorghum, and others), and soybeans/soybean products are shown in the chart below.

GlobalTrade

2. The drivers for agricultural growth are changing. Rising per capita incomes in several countries are supplementing traditional population gains in terms of the demand for vegetable oils, meats, horticultural and dairy products, and grains. For example, world per capita use of vegetable oils is expected to rise 17%. Compare this with 8% for total coarse grains, 7% for meats, and a decline of almost 1% for wheat and rice.

3. China is remaking the global soybean landscape. World soybean trade is projected to rise 37% over the next ten years. A major factor in this growth is China’s domestic agriculture policies. The projections assume that the country will pursue corn production at the expense of soybean production (to some extent); still-rising domestic soybean demand will be met through increased imports. How important is this policy to the global soybean market? The chart below says it best. Shown in green, China’s soybean imports are projected to rise 52% over the next ten years, accounting for 90% of the projected growth in these imports.

ChinaSoyImports

4. Global meat consumption is being driven by emerging markets around the world. Over the next ten years, imports of beef, pork, and poultry are expected to increase by 30%, 16%, and 21%, respectively. Exports of lower-priced beef from India and Brazil to several low/middle income countries are expected to account for almost two-thirds of the projected increase in the global beef trade. Separately, Mexico continues to import pork and poultry at high rates, with projected growth rates of 32% and 50%, respectively. Finally, poultry imports by Africa and the Middle East grow more than the rest of the world combined over the ten-year projection period. The chart below shows trends in poultry; Sub-Saharan Africa is represented in blue, while North Africa and the Middle East are together represented in black.

PoultryImports

5. U.S. prices for corn, wheat, and soybeans will remain historically high. The drought of 2012 led to a significant run-up in prices, as seen in the chart below. While prices are expected to come down from those levels, several long-term factors such as global increases in population and per capita income, depreciation of the U.S. dollar, and increasing biofuel production, are expected to keep prices high.

USPrices

To summarize, these are all interesting findings that can serve as a starting point for further analysis and discussion. It is worth reiterating that these projections do not purport to predict the future; rather, they show trends in a “business-as-usual” world. For example, the U.S. farm-level price projections shown in the chart above do not account for the impact of increasingly frequent weather events – events that contributed to the actual price spikes seen in recent years.

The next ten years in global agriculture are going to be very interesting indeed.

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