Op Ed: How to build on our ‘eye-popping' export opportunities
Op Ed: How to build on our ‘eye-popping' export opportunities
By Clayton Yeutter
© Copyright Agri-Pulse Communications, Inc.
(Editor's note: This is an edited version of remarks as prepared for delivery at the 50th anniversary of the U.S. Grains Council, a celebration held in Boston, Massachusetts July 20, 2010. Clayton Yeutter is Senior Advisor, International Trade, Hogan Lovells, Washington, D.C., former Secretary of Agriculture and former U.S. Trade Representative. His first job at USDA was in October 1970 as Administrator of what was then called the Consumer & Marketing Service (C&MS) - which encompassed what is now FSIS, AMS, all purchasing programs for school lunch and other food programs, and a few other things.)
I first came to USDA at the conclusion of your first decade. I remember well those early years, when it was a struggle to get offshore offices established in the right places and staff them with the right people. Financing for programs like this is always limited, but it was really limited in those days! Yet I was immensely impressed by the enthusiasm of what was then the U.S. Feed Grains Council team. They did a lot with a little and all of us in American agriculture have been the beneficiaries.
Before we get to substance I also want to heap praise on the Foreign Agriculture Service (FAS) and its support for this and other export market development programs. This is public/private sector cooperation at its zenith. I've never seen anything better in the entire U.S. government, and the ag market development track record supports that conclusion.
A recent study indicates that for every dollar of market development funds expended we've generated $35 in ag exports. That's not a shabby return, particularly when one considers that we've boosted farm incomes in the process while simultaneously reducing farm subsidies. Not a bad outcome - for farmers and for all taxpayers.
The focus of this presentation will be primarily long term. The world will produce a lot more grain 40 years from now than it does today. Whether it will produce enough to feed all the residents of this planet in 2050 is another question. We are already embracing biotechnology for 86% of our crop acreage and that can only grow. Within a few years that number will probably be well over 90%, as it should be. We are continuing to stack more “input traits” each year, and every one of those pays off in increased yields, lower production costs, or both.
Should other grain exporting nations not follow our lead in biotechnology, our global market share in grains will grow. (In corn it is now about 56%.) But to expect that joyous outcome to fall into our lap would be unrealistic. Other nations have competent farmers, farm leaders and Ministries of Agriculture, so they're not asleep. They now recognize the merits of biotechnology and are rapidly adopting it.
There are some holdouts, particularly the European Union with its irrational fear of genetically modified organisms (GMOs). With the EU being a major importer of many agricultural products, their anti biotech attitude has frightened some producing countries (especially developing countries) from using this technology (which they badly need in order to improve productivity) lest they be banned from the EU market. But hopefully even the EU will eventually come to its senses and realize that biotechnology is the savior, not the devil incarnate, where food is concerned.
Our major competitors are now embracing biotechnology in their farm operations, and they will continue to do so. In future years that competition will come from Brazil, Argentina, Ukraine, and Russia, along with traditional suppliers like Canada and Australia. These countries all know what is needed to be successful exporters, so your task is to stay ahead of them. That means doing everything you've been doing for 50 years, but a little better each year than the year before.
From a supply standpoint our greatest asset is the skill of American farmers. Our commercial (but still family) operators are all entrepreneurs and they're all multi-talented. They know how to run a complex business operation, and do what is necessary to make it succeed.
The Demand for Grain
Let's now turn to the demand side, which brings sparkle to the eyes of those of us who like to sell things! My personal judgment is that everyone is underestimating the global demand for grains between now and 2050. Unfortunately I'll not be around to collect any bets on that point, so I'd better offer some reasons for coming to that brash conclusion.
First, there'll be a lot more people to feed then than now. Most demographers seem to have settled on an estimate of nine billion people in 2050, a 50% increase over the six billion we have on this planet today. Hopefully, the world is becoming increasingly concerned about poverty, hunger, and malnutrition; it should be when about a billion people today go to bed hungry every night. Perhaps by 2050 the world will be totally serious about trying to provide a minimum diet to essentially all nine billion of its residents.
Second, and perhaps even more importantly, a huge percentage of the world's population will then have the financial wherewithal to improve its diets, and will do so. That bodes particularly well for grain exports, as well as for exports of beef, pork, poultry, and dairy products (all of which emanate from the consumption of feed grains). The numbers here are already impressive. USDA predicts exports this year of about two billion bushels of corn and well over 600 million bushels of sorghum, barley and oats in combination.
Of more significance, however, are the latest OECD-FAO outlook projections for the next decade. Those numbers give some indication of the momentum we'll have as we move toward that magic year of 2050. Looking ahead 10 years is a dangerous assignment, but if these folks are anywhere near correct the export potential is eye-popping.
Not surprisingly, developing countries are expected to provide the main source of growth for agricultural production, consumption and trade, albeit from a fairly low base. That is consistent with what is happening today; economic growth rates are now higher in the developing world than in developed countries. By 2019 non-OECD (mostly developing country) exports for coarse grains are expected to be up by 30%; wheat 50%; and oilseeds 59%. In the OECD (the so-called rich countries) itself coarse grain exports are expected to be up by just under 10%, which provides a challenge for (U.S. Grains Council CEO) Tom Dorr. But protein meal exports are expected to rise by 49%, vegetable oils by 38%, and even rice by 16%. All in all, those numbers are encouraging, particularly at a time when many people have lost confidence in the OECD economies.
But are the numbers credible? I believe so, for several reasons. Not only will there be more consumers in 2019 (on the way to 9 billion in 2050), but huge numbers of those consumers will be more affluent if we experience anything approaching a normal recovery from the recent economic recession. It would not be farfetched to assume that China and India might each put another 300 million people in that classification over the next 10 years, and Indonesia could well add close to another 100 million. That's equivalent to re-creating the U.S. twice over in the next decade, with every family having mid-sized incomes.
If that happens, and odds are that it will, someone must produce the food those folks will wish to consume, and I would respectively hypothesize that none of the three countries will accomplish that on their own. In other words, they'll be major importers, even though they might prefer otherwise.
But won't developing countries buy from fellow developing countries rather than from us? Perhaps, but they'll be as cost conscious as we are; so we just need to be competitive. Interestingly the OECD-FAO projections are that OECD countries (like us) will still dominate ag trade in 2019, with market share projections of almost 60% for coarse grains, 52% for wheat, 80% for pork; and a range of 65-80% for most dairy products. For coarse grains that should be a 60% share of a far larger global market than what exists today.
If all that occurs, it will demonstrate the resilience of the OECD countries, and especially the U.S., in the face of increased competition from countries like Brazil, Argentina and Ukraine. Some see these countries as burgeoning economic giants, but it looks like that could be a significant exaggeration.
Let's now put the demand side in perspective. What we see in the future are hundreds of millions of people (at a minimum) who will have the capacity to buy a lot more meat, poultry, and dairy products, and the desire to do so. That has to be good news for grain producers since the vast majority of animals and chickens from whence those high protein products come will be grain fed. Developing countries will be the source of much of this surge in demand, with Asia as the focal point. They'll produce more, consume more, and trade more than they do today - with each other and with developed countries like the U.S. And when the dust settles, half of the dramatic increase in demand for coarse grain imports will still be met by developed countries, and most of that will come from us. That means the folks sitting in this room will still have plenty to do a decade from now - and even four decades from now - and your tasks will still be financially rewarding and emotionally gratifying.
So what might upset the apple cart? There are still plenty of risks in this world, and many of them will probably still be around 40 years from now. So let's examine a few.
The most obvious is the state of the global economy, and that's one that none of us can predict with certainty. The world will recover from this recession, just as it has from every other downturn throughout human history. And hopefully we've learned enough from earlier downturns to be able to handle the challenges that lie ahead. At the moment lots of people think things are bad, and they're certainly not rosy. But the old adage “Whenever things are good, they're never as good as they seem; whenever things are bad, they're never as bad as they seem,” applies here. I happen to believe things are not as bad as they seem and that our recovery is now underway.
A second is that alleged “food security” concerns will persuade nations to take foolish policy actions. Some of that happened a year or so ago when commodity prices rose dramatically. Some nations applied export controls on their own ag products in order to hold down food prices. Other nations began to heavily subsidize their own farm production in order to reduce the demand for imports. Some simply saw this as an excuse to enact protectionist trade policies. All in all, most of it was foolishness. The world will be better off if it never repeats that scenario, but food security is an area where politics sometimes trumps economics, at least in the short run!
A third “wild card” is ethanol/biodiesel production. My own view is that grain producers in the U.S. and elsewhere can meet whatever demand the world creates for ethanol, biodiesel, feed grains, and even some food grains. That may require a somewhat higher price level than trendlines from the past half century would suggest. But we're not likely to have a “commodity bubble” comparable to the other bubbles that have been bursting in recent years. So policymakers should relax a bit as they discuss this issue, particularly where they are likely to lead their own citizens down a costly, unproductive path. In other words, let's not demonize the production of renewable fuels. I don't like buying fossil fuels from folks who don't like us very much!
Fourth, government regulators can do lots of damage when they get caught up in emotion rather than facts and sound science. Sometimes that damage is inadvertent; sometimes deliberate. In either case it is harmful, and once implemented difficult to reverse. We have seen far too much of this in the “food safety” area, and U.S. exporters have often been the ones to be unduly punished. Developed countries in particular have become inordinately risk averse, and that needs to change.
Fifth, things could go awry in fundamental trade policy, where we've had a gradual elimination of trade barriers in the post-World War II period. We've finally made some progress in agricultural trade liberalization the past couple of decades, and we need to sustain that momentum. The bicycle theory applies here: if you're not moving forward, you are either rolling backwards or falling off. That would not be a good outcome for American ag exporters.
Finally, as I noted earlier, we need to make sure we have a farm policy safety net that does its job for our producers, without diminishing our international competitiveness, and without violating our international commitments. That has sometimes proven to be a formidable task, but it is never an impossible one. We can do that if we will downplay our inclination to be parochial, and instead seek to enact policies that are in the long term best interest of all of American agriculture.
At least some of you will remember that I had the privilege of serving under President Reagan, who will undeniably go down in history as one of our greatest Presidents. He was always fond of saying, in essence, “America, your greatest days still lie ahead!” As a Reaganesque optimist I concur, though it won't happen automatically. We've got to keep working at it! This organization has a magnificent 50 year track record. Notwithstanding that achievement I believe your greatest days still lie ahead.
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