Who Will Produce the World’s Food (and Pork) in the Next Decade?
February 4, 2004
Presented at the Hyologisk 25th Anniversary Conference Braedstrup, Denmark
Alex Avery
February 4, 2004
A dozen years ago, I retired from the U.S. State Department-and began a mission to convince First World farmers they had more to gain from free farm trade than they did from continued heavy government subsidies.
The Bullish Demand Forecast for Farm Products and Pork
My key point was that the world was rapidly increasing its demand for better diets, driven not only by population growth but even more by rising incomes. I predicted that world farm demand would nearly triple by 2050. I expected the demand for high-quality foods-meat, milk, eggs, fruits, and vegetables-to increase even more than three-fold.
I also pointed out that virtually all of the demand growth would be occurring outside the First World countries with heavy the farm subsidies, in the densely populated countries of the Third World.
Twelve years ago, I predicted that Asia, with its rapid economic growth, would be the key market for export farmers. However, I warned that without liberalized farm trade, First World farmers would see relatively little farm import growth in the Asian Tiger countries.
Was I right?
The Fading Specter of World Overpopulation
Back in the 1970s, I can understand why people were afraid of population growth. Agricultural research had just created the Green Revolution, which was tripling crop yields on good land over most of the world, except Africa. Famine was becoming outmoded. In addition, DDT and other synthetic chemicals and vaccines were radically cutting death rates. Paul Ehrlich, author of The Population Bomb, wrote eloquently of human population rising above 20 billion.
Since then, we have learned that while poor farmers mostly have large families, affluent, urban people have small families. The world is moving rapidly toward urban affluence, and its birth rates are plummeting. Europe is now down to a fertility rate of about 1.7 births per woman, with Germany, Italy and Spain at 1.2. Italy is now offering a $1200 subsidy for 2nd Italian children, to ensure the country is not totally abandoned to Albanian and North African immigrants.
In the Third World, birth rates have fallen 80 percent of the way to stability, from about 6.2 births per woman in 1960 to about 3.1 births today with birth rates continuing to decline rapidly. Stability is 2.1. The UN Population Division has just lowered its peak projection for human numbers-again-to between 8 and 9 billion people. That still means a substantial increase in people, but not enough of a population increase to ensure prosperity for European farmers.
That leaves income gains in countries not yet well fed as the farmers’ best friend, and such gains are continuing.
China, with its massive population of 1.3 billion people, had been increasing its GNP by roughly 8 to 9 percent per year, with virtually no population growth. That meant very rapid increases in consumer incomes. (The Chinese economy grew about 8 percent in 2003.) The “precious three” most-sought-after household consumer items in China progressed from a bicycle, a digital wristwatch, and a transistor radio in the 1970s to a telephone, a TV, and a refrigerator in the 1980s-and today, China’s “precious three” are a cell phone, a computer, and a car. (Yes, they will have cars, lots of them.) China has about 20 percent of the world’s population and about 7 percent of its arable land.
India has been expanding its GDP by nearly 6 percent annually since Rajiv Gandhi became prime minister in 1990 while its rate of population growth has declined from 3.2 percent to 2.9 percent. (India’s economy grew nearly as fast as China’s in 2003, at about 7 percent.) That means India’s per capita incomes are also rising rapidly. India has 17 percent of the world’s population and about 2.4 percent of its arable land.
Indonesia, with 225 million people, has not recently achieved the 7 percent annual GDP growth it registered from 1990 to 1997. However, the economy has lately been expanding by 3 to 3.5 percent annually, and household consumption has been rising by 6 percent per year. Indonesia has 3 percent of the world population and only 0.2 percent of the world’s arable land.
To date, my long-term demand growth forecast has been largely on target. Chinese pork consumption increased nearly 70 percent in the decade of the 1990s, and is currently expanding by more than one million tons per year. Unfortunately for the EU, China is supplying virtually all of that pork domestically, fostered by import barriers, high consumer prices and investments in its own animals and facilities. Chinese pork imports this year will about match the EU’s pork imports at a pittance of 70,000 tons. China has become a member of the World Trade Organization, but the WTO farm trade rules are so inadequate that it is hard to see much expansion in Chinese pork imports in the foreseeable future.
India’s milk consumption increased by 14 million tons in the decade to 2001, and its poultry consumption rose by 80 percent. (Even India’s pork consumption has risen 43 percent in the last decade, though from a small base.) Again, the expansion in demand has been met through domestic price supports protected by import barriers, and much consumer demand has been constrained by high prices. India is a member of the WTO, but the WTO rules do not favor trade expansion. Moreover, India has always pleaded balance-of-payments problems to excuse its policy of not importing farm products. (India imports significant amounts of pulses and palm oil, but virtually no other farm products.)
Indonesian poultry consumption increased from 512,000 tons to 864,000 tons during the 1991 to 2001 period, despite the ravages of the “Asian Collapse” of 1997. However, Indonesia is a Moslem country and eats virtually no pork. (It does produce some pork on its northern islands to supply Singapore.)
Total world demand for farm products has been increasing, as we knew it would. World grain consumption has been increasing by about 18 million tons per year, world oilseed demand by about 7 million tons per year, and world meat demand by more than 5.5 million tons per year. As in the past, most of the demand has been met domestically, behind trade barriers.
The strongest growth in pork imports has been in Mexico, where the U.S and Canada now get duty-free access through the North American Free Trade Agreement. Mexico’s pork imports have risen by 155,000 tons per year in the past five years, to a projected 345,000 tons in 2004.
The strongest growth among pork exporting nations in the past five years has been in Brazil, where low land costs and the construction of new pork processing facilities have enabled Brazil to reach more export markets with processed products. (Transport costs from the interior for fresh pork are still prohibitive.)
The Forecast for Farm Subsidies
The stifling of world farm trade by subsidies is a well-known story, and farm trade was stifled anew during 2003 by the collapse of the WTO farm trade talks in Cancun, Mexico.
First World countries with good farmland have a strong history of favoring their own farmers with import barriers, price supports, quotas and phony “health” requirements. Western Europe and the U.S. both have ugly histories of subsidizing their farmers in these ways.
On the other side of the equation, Third World countries still have lots of farmers who resent farm imports as an intrusion on “their” markets. To prevent unrest among their large numbers of small farmers, such important would-be importers as China and India have state policies of importing farm products only when that could not be avoided. This means their consumers are taxed at the grocery stores for import exclusion. Food prices are often much higher in countries that refuse to import farm products and their industrial labor costs are thus raised artificially.
Unfortunately, farm subsidies have only one guaranteed result: they raise farm land prices in the subsidizing country. Essentially, that means the subsidizing countries are raising their farmers’ costs, and gradually pricing them out of their markets.
Cropland prices in the U.S. Corn Belt today average about $6,000 per hectare, up nearly 10 percent since the 2002 farm bill was passed, but still far below typical cropland prices in Western Europe.
I recently saw a cost comparison for soybeans grown in the Corn Belt versus those grown in the Matto Grosso region of Brazil. The imputed land cost for Iowa soybeans was $140 per acre, while the land cost for Brazil was $23. (That implies an Iowa land value of $1,000 per hectare.) The Iowa farmers’ non-land costs were lower, especially transportation. But the high land costs put Iowa farmers at a disadvantage in export markets.
That’s why the U.S. in 1996 passed a different sort of farm bill that was supposed to phase its commodity subsidies down and then out. The farmers’ “golden parachute” payments were essentially to buy down U.S. land values.
In 2002, political events overtook the new farm policy. During 2001, the U.S. election split the country 50-50 between Democrats and Republicans. The House and Senate were divided almost 50-50 as well. Control of the whole U.S. government seemed to turn on a few farmer votes in the Midwest. To make matters worse, the federal budget seemed to be in surplus at the time, so there was no political constraint against buying the farmers’ votes. A lavish new farm bill was passed by the Congress, and President Bush did not dare to oppose it.
Unfortunately for farmers, the 2002 election also proved that American voters were ready to hear about reforming our massive Social Security system, which has some $25 trillion in unfunded obligations. It’s basically a pyramid scheme, and we will soon have less than three workers to support each of the 77 million “baby-boom” retirees-an impossible burden for our younger generation. Reforming Social Security and our old-age medical care programs to put them on a sustainable basis would require an 81 percent increase in our individual income taxes. We’d like to keep putting off the reform, but Social Security receipts will fall below payments about 2011, and the huge baby boom generation is starting to retire. A few years ago, any politician who mentioned Social Security reform lost. In the last election, those who talked of pension reform won - by big margins.
The reform of entitlements for the elderly and the costs of the “war on terror” pretty much ensure that when the U.S. farm bill comes up for renewal, probably in 2007, there will be cut-throat competition for federal dollars. The farmers will probably be in a much weakened position-to the point that some of our farm groups have actually proposed give-backs on the current program to help stave off cuts in the next farm bill. I predict that American farmers will lose a lot of their farm subsidy dollars in the years ahead.
You know the farm subsidy situation in Western Europe better than I. The EU is taking in 10 new countries, including Poland (4.2 million farmers and 14 million hectares of land); Hungary (490,000 farmers and 4.8 million hectares of land); Bulgaria (270,000 farmers and 5 million hectares of land, much of it disadvantaged); and Romania (1.5 million farmers and 10 million hectares of land, much of it fine quality in the Danube Valley.)
The two-tier farm subsidy structure now envisioned for the expanded EU is likely to last less than a year after the new member countries reach voting status. The new member countries will not be content with lower subsidies for their farmers. Germany, the traditional source of most EU farm payments, is now cash-strapped and unwilling to expand its farm subsidy obligations. The French feel they have an inherited right to their current subsidy levels. Something will have to give.
Meanwhile, the farmers in Poland, Hungary and Romania will soon catch up to their colleagues in the current EU 15, in both technology and yields. Poland and Romania, in particular, will be capable of major production increases, including pork production. There is nowhere in Europe to sell their additional output.
Nor does Western Europe’s capacity to finance farm subsidies look very promising. EU economic growth is currently less than 2 percent per year, and Germany has lately been achieving about half of that. Europe has not been creating many additional off-farm non-government jobs in recent decades, and there is no indication of a new flow of off-farm income that could be “painlessly” shared with EU farmers.
My prediction is that EU expansion will at least dilute the subsidy payments of current EU farmers. It may even trigger a more fundamental Common Agricultural Reform keyed not to commercial production but to direct income payments that will favor small farmers.
All of this was apparently well-known to the participants at the Cancun meeting of the World Trade Organization last fall. The U.S. offered what it regarded as radical surgery on its farm subsidies-cutting them by nearly half as part of a deal for Third World countries to permit more farm imports. The EU was less forthcoming, but its proposal went beyond what it had earlier said it could do, especially in reducing export subsidies.
Both the U.S. and the EU thought they might have to give more as the WTO negotiations went forward, but hoped the concessions would not have to be too politically costly back home.
They reckoned wrong. India, speaking for a group of 25 developing countries, announced that the U.S. and EU must begin the negotiations by promising to eliminate all of their farm subsidies-without any promise of improved market access in the Third World. In other words, the Third World said the First World must drop all farm protectionism, while the Third World countries would be allowed to continue theirs.
It was breathtakingly naive.
Unfortunately, when the First World rejected the demand, the Third World packed up and went home. It refused to negotiate at all. A farm trade negotiation that had been scheduled since 1994 was terminated overnight with not a word of agreement on anything, or even a discussion. WTO and First World officials are trying to restart the Doha Round, but there is not yet any agreement to do so.
With the WTO round dead, First World companies will not be able to gain any additional Third World access in such area as services and government procurement. No doubt they find this disappointing. But, the average tariff on nonfarm manufactured goods has already been cut from about 40 percent in 1946 to 4 percent today. Much of the world’s nonfarm trade is already liberalized.
First World farmers are in much worse shape. The U.S. Special Trade Representative says the current average tariff on farm products is 65 percent. I don’t know how he can tell, since so much of the potential farm trade is barred completely by governmental non-import policies like those of China and India. Whatever the real farm tariff average, it is dauntingly high. The odds of bringing it down are hauntingly low.
After the new U.S. farm bill was passed in 2002, I hoped that American farmers would have the best of both worlds: They would have high government subsidies until a WTO liberalization allowed them to phase into a freer global farm market where increased exports would take up the slack when Washington could no longer afford the lavish subsidies.
Now, I see crash landings for both American and European farmers.
First World farmers waited one trade round too long to offer up reform. We thought the Third World would try to negotiate half a loaf. Instead, the Third World took us at our word, and decided they’d rather buy political peace at home by subsidizing their own farmers.
There will not be much farm trade growth in the next decade as a result.
Who Will Be the Winners in the Export Markets of the Next Decade?
The winners in the export markets of the next decade will be few, and they will not win very much. Mostly, they will be the farmers who do not currently get very much subsidy, and thus have been forced to keep their production costs low. The biggest of these winners are likely to be the South American giants, Argentina and Brazil. Of these, the biggest is likely to be Brazil.
The other winners in farming for the next decade will be the farmers in China, India, and other Third World countries where economic growth is raising incomes for formerly poor consumers. Their governments are likely to continue to resist farm imports, both within and beyond the rules of the World Trade Organization. (China recently refused to accept biotech soybeans from the U.S. while continuing to grow biotech cotton and corn, and developing Chinese biotech soybean varieties.)
Brazil will almost certainly be the first claimant of any farm demand that is not domestically supplied. For some years now, the Brazilians have been expanding their production from the interior, essentially converting acid-soil scrubland into cropland through the addition of lime to the soils, planting acid-tolerant crop varieties bred in Brazil, and using no-till farming systems to prevent soil erosion on the rolling, volcanic soils.
Until recently, I believed that the Brazilian land available for cropland expansion was fairly limited-about 60 million hectares of acid savannah on its central-western frontier, far from markets and without railroads. Recently, however, the U.S. Foreign Agricultural Service re-examined Brazilian potential. They note that America’s pasturelands cannot be converted to cropland; they are too arid or too steep. But Brazil’s pastureland has no such limitations. FAS believes that 70 to 90 million hectares of Brazilian pasture could be converted to cropland in the future, if international commodity prices are high enough to finance even paved roads, let alone railroads, into the interior. That would represent a very significant increase in the world’s cropping resources.
Turkey, too, is capable of major increases in crop production, partly through the development of its new irrigated projects in the Upper Euphrates Valley, but also by extending conservation tillage across its large tracts of semi-arid rainfed land. Conservation tillage radically reduces soil erosion, and retains much more of the rainfall in the root zone of the soils.
Biotechnology: Wave of the Future?
Europe is still blocking the advent of genetically modified crops and most biotech foods (though not the cheeses and wine made with biotech enzymes). Most of the world is taking quite a different approach, welcoming the improved productivity of genetically modified organisms.
I continue to believe that “golden rice” will be a major long-term benefit for the children and women of poor rice-eating countries, and I commend the EU for developing it.
I am impressed that Bt corn test plots in the Philippines outyielded farmers corn fields by 80 percent, and that biotech has given us our first victories over plant viruses (in bananas, papayas and sweet potatoes).
I note that, far from unleashing new allergens on the consuming public, biotech researchers have learned how to take natural allergens out of some of nature’s most allergenic foods: peanuts and soybeans.
I think I am most impressed-to date-by the new blight-proof potatoes bred in both the U.S. and Europe. The blight-resistance gene had been discovered in a wild potato some 50 years ago, but it had defied efforts to cross-breed it into modern potatoes that taste good and yield well. Now, biotech will prevent a recurrence of the Irish Potato Famine in modern Asia.
The biggest factor in spreading the acceptance of biotech crops around the world, however, has been Bt cotton. It’s not a food crop, and no amount of fearmongering has served to frighten farmers or consumers about the cotton it produces. Instead, farmers and governments have been enormously impressed by the ability of biotech cotton to resist the voracious pests that had always made cotton the most intensively pesticide-sprayed crop in agriculture.
China, India, and South Africa now feel heavily dependent on biotech cotton to preserve not only their cotton farmers’ livelihoods but also the millions of industrial jobs that depend on their cotton production.
Famine has been another winning issue for biotech. The activist efforts to bar American food aid corn from the famine stricken regions of southern Africa last winter seem to have backfired. When the president of Zambia said he would not distribute U.S. food aid corn to starving people who’d already been reduced to boiling poisonous roots, the world shuddered. The reality that no harm has been linked to biotech crops was extended to many more people. The inhumanity of the eco-activists was exposed in a new way.
This year, Brazil has decided to permit the planting of biotech soybeans. According to that country’s major soybean growers, this is likely to stimulate another expansion of soy production there, because it will sharply reduce growers’ costs.
In the future, if Europe wants to continue importing non-biotech soybeans, it may actually have to pay a premium to get them. Will Europe do this? If so, that will put EU hog producers at a further disadvantage in world competition.
Will the WTO uphold the EU constraints of biotech development and trade? That will be highly interesting as well.
In almost any case, it seems likely that the rest of the world will proceed with genetically modified crops, and eventually even biotech animal developments.
The Organic Path?
Many non-farmers have praised organic farming as the appropriate path for Europe’s agriculture. We can understand why they believe it. Non-farmers see modern agriculture as employing too few farmers and producing too much food. They think organic farming will solve both problems at once.
The reality is that few people want to be organic farmers, doing the hand weeding, the composting, being too often at the mercy of insects and crop diseases, and needing far more land (or imported manure) to get the same food production.
In America, organic has been increasingly taken over by agribusiness. A large proportion of our organically grown vegetables are now produced by four California farms. Horizon Dairy, the international conglomerate, provides 70 percent of America’s organic milk. Such major corporations as General Foods and ADM now have organic divisions.
Meanwhile, the organic premiums have often weakened in the face of increased production and a limited number of consumers willing to pay them. A significant percentage of the organic milk produced in Europe is sold as non-organic for lack of demand.
From a public policy standpoint, moreover, the major problem with organic farming becomes more pressing the more it expands: the large and global shortage of organic nitrogen. Buried in the 1999 report of the Bichel Committee, Denmark’s high-level technical assessment of organic strategies, is the reality that a true organic mandate would cut Denmark’s human food production by 47 percent. Its pork and poultry industries would be slashed 70 percent for lack of feed. Much of the countryside would have to be planted to green-chop forage, to be hauled to feedlot cattle, so their manure could be slathered over the countryside. All of this to replace the natural N from the air (which is 78 percent N) captured today by the Haber-Bosch industrial process invented in 1908.
If Europe went all-organic, it would probably not be able to export any farm products at all, even with the best efforts of newly energized farmers in Poland and Romania.
Dr. Vaclav Smil, author of Enriching the Earth, a fine book on thje history of nitrogen in agriculture, says the world would need the manure from another 7 to 8 billion cattle to replace the 80 million tons of N we currently take from the air industrially. America would need the manure from another 900 million to one billion cattle, at three to 30 acres of forage per beast. The U.S. has only 2.1 billion acres in its lower 48 states, so we’d have room for our cities and manure production, but no room for food, forests or national parks.
Dr. Norman Borlaug, the 1970 Nobel Peace Prize laureate, says that organic farming could support only four billion people on the planet, even if we convert all the forests to fields.
The Environmental Movement
A great deal of the urgency behind the environmental movement has come from the fear of overpopulation. In the 1970s, the Green Revolution had just showed how to triple the yields on much of the world’s cropland-eliminating the famine constraint on human numbers. Then DDT came along, eliminating millions of deaths from typhus and malaria. Can we blame people for fearing that human population would soar to 20 or 50 billion?
Unfortunately, the fear of being overrun by third world babies also meant a fear that high-yield modern farming would foster overpopulation. This hasn’t been the case; the population growth overwhelmingly resulted because of a reduction in death rates. It is highly unlikely that the world would have quietly accepted massive famines if the Green Revolution had not occurred. But the environmental movement remains implacably opposed to virtually every aspect of modern food production, including pesticides, antibiotics for livestock, fertilizers, feed additives, and on down a long list.
In the U.S., the state of North Carolina has had a moratorium on confinement hog expansion for seven years, supposedly because confinement hogs were reducing the water quality in the state’s streams. Recently, under threat of legal action, our Center got the State water quality data for the “hog rivers” that drain America’s most intensive hog producing region. Thanks to “zero-discharge” hog management, an expansion from 2 million hogs to 9 billion has occurred with no reduction at all in the state’s stream water quality. The Black River, the major hog river, is still rated an outstanding resource with fine water quality. But the hog moratorium remains in place, because the urban voters of North Carolina do not like the idea of hogs in their state, even if they’re beyond the horizon and beyond smelling distance.
By the end of the next decade, Europeans will probably be far less sensitive to the population issue, and may be more flexible on environmental questions as well. But not yet.
European farmers can also expect that their eco-regulation will continue to become more and more invasive, and their costs in meeting these eco-restrictions will continue to rise.
Animal Rights Constraints
Animal rights constraints will continue to plague livestock producers in both Europe and America. People who eat meat but have not grown up on farms will never be fully comfortable in confronting the reality of livestock slaughter. As they treat their own pets more and more like children, they will be less and less comfortable with having your livestock not treated almost as well.
I note that in Germany, it is no longer legal to kill an ant colony if it invades your home. Instead, you must call a government ant warden who will come, trap the colony, and move it to some other location. The U.S. state of Florida recently amended its constitution to forbid farrowing crates for sows.
Never mind that the policies of People for the Ethical Treatment of Animals are a fraud. They would result in no domestic animals living at all, and would even deny people and their kids the right to have pets. The public will never allow its pets to be taken away, of course, just as they will never allow themselves to be driven to vegan diets. However, the more strident activists have no compunctions about imposing more and more and more regulations on how you raise your livestock, and the urban public will applaud.
Pig farmers in China and Brazil do not face these constraints. Their customers and neighbors are not yet nearly as sensitive as those in Europe and America.
The Next Decade for European Farmers
I cannot be optimistic about the next decade for commercial farmers in either the United States. or Europe. Their governments are faced with farm subsidy programs they will not be able to support. They remain sealed off from the world’s increasing food demand by trade barriers which will not be overcome during the decade. Their competitors have lower-cost land, and unused land on which to expand, and are beginning to use biotech seeds to further lower their costs. The farm cost structures in both the U.S. and Europe seem out of line with reality, and there is no visible way to rescue them.
I wish I could be more optimistic than this.
In the past, I believed that farm trade liberalization offered a new lease on commercial viability for the farmers in both the U.S. and Europe. It still might, but not during the upcoming decade.
It will take years to craft any meaningful change in the world’s farm trade barriers. The first problem is that the U.S. and EU have not yet “hit the wall” of unsupportable farm subsidy costs. The second problem is that China and India have not yet hit that wall. In the long run, all of these countries will want farm trade reform, especially under cover of an international mandate, but not yet. Even when they do, it will take more years to craft and phase in an agreement.
The “collapse at Cancun” was a disaster for First World farmers.
The answer to the question: Who will take the yellow jersey in global pig production is now simple-China. Second place will go to Brazil. Europe and the U.S. will suffer.
I wish you all good fortune, but I do not expect you will get it until the world has liberalized farm trade.
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