Fargo, North Dakota
May, 2006
Center for
Agricultural Policy and Trade Studies
Department of Agribusiness and Applied Economics
North Dakota State
University
Fargo, North Dakota 58105-5636
Agribusiness &
Applied Economics Report No. 582
Forces Reshaping World Agriculture
by Jeremy W. Mattson and Won W. Koo
ABSTRACT
This paper examines many of the
forces reshaping world agriculture. Among these forces are
increased trade liberalization, agricultural research and
development, and new movements in developing countries.
Worldwide agricultural production is likely to become more
competitive as a result of increased trade liberalization
through the World Trade Organization and regional and bilateral
free trade agreements. Countries can become more competitive
through agricultural research and development. As a result of
research and development, total
agricultural production has increased significantly across the
world over the last several decades. Agricultural research has
also led to the development of many new, non-food uses for
agricultural products. New movements in developing countries
include the substantial increases in agricultural production in
Brazil and Argentina, and increases in consumption in China and
other countries.
HIGHLIGHTS
A number of factors are likely to
reshape the future of world agriculture. Trade liberalization,
farm policy, agricultural research, changes in consumer demand,
new uses for agricultural products, new developments in
developing countries, and production increases in Brazil and
Argentina are factors that have major impacts on world
agriculture.
Increased trade liberalization,
through the World Trade Organization (WTO) negotiations and
numerous bilateral and regional free trade agreements, will
likely make worldwide agricultural production more competitive.
As a result, product specialization within countries will
increase based on resource endowments. Free trade agreements
affect trade through trade creation, trade diversion, and income
effects. If a WTO agreement is reached, U.S. producers could
benefit from increased market access, the elimination of the
EU’s export subsidies, and greater
harmonization between the United States and the EU in
trade-distorting domestic support. However, the agreement would
also have a significant effect on U.S. agricultural policy. With
the current U.S. farm bill set to expire in 2007, a new farm
bill will be constructed that could contain fewer subsidy
payments due to WTO rules and federal budget constraints.
To improve competitiveness,
countries can increase productivity by investing in agricultural
research and development. Agricultural research has led to
higher yielding crop varieties, better livestock breeding
practices, more effective fertilizers and pesticides, and better
farm management practices. As a result of these advancements,
agricultural productivity has increased in a number of countries
around the world. The emergence of biotechnology could
especially have a significant impact on productivity worldwide.
Total agricultural production
has been increasing significantly across the world over the last
several decades, and production has been increasing the greatest
in percentage terms in developing countries. Total factor
productivity for U.S. agriculture has continually been
increasing, although the growth rate has slowed in recent years.
While technological advances appear to initially benefit
producers by leading to higher yields, lower costs, and
increased productivity, consumers ultimately benefit from lower
real food prices. This can be demonstrated by the decline in
real commodity prices over time.
Research has also led to the
development of many non-food uses for agricultural products,
increasing the demand for and value of agricultural commodities.
The wide variety of industrial products that can be produced
from agricultural commodities includes biofuels such as ethanol
and biodiesel, and numerous bio-based products. The greatest
increase in the use of corn recently has been for ethanol. New
ethanol and biodiesel plants are continually being built. This
trend, which is likely to continue for the near future, has been
largely driven by government policy to promote
domestically-produced renewable energy. The cellulose from
biomass can
also be used to produce ethanol. Switchgrass, in particular, has
significant potential as an ethanol feedstock, and other
potential feedstocks include corn stover, wheat straw, and
fastgrowing trees.
Brazil and Argentina have become
increasingly competitive in the world market as production in
these two countries has increased dramatically in recent years.
The largest increases have been for soybeans. Brazil still has
the potential for much greater increases due to available land
that could be brought into production, creating increased
competition for the United States in the world market. There are
some factors limiting expansion in Brazil, however, including
the transportation system. The devaluation of the currencies in
Brazil and Argentina have had a positive effect on exports from
those countries.
As China, India, and other
developing countries continue to grow, their demand for food
will increase, and rising incomes in these countries could
result in shifts in demand. This could result in significant
changes in world trade flows. Data on food consumption over the
last few decades show that there have been changes in demand for
different agricultural products in developed and developing
countries.
In developed countries, per capita
consumption of vegetable oils has increased considerably in
recent years. As incomes continue to grow in those countries,
consumer demand may increase for high quality and specialty
products, which could have an effect on production systems.
Consumption of animal products is now growing the fastest in
developing countries, and vegetable oil consumption is also
increasing significantly in those countries. If per capita
income in developing countries continues to grow, per capita
consumption of animal products and vegetable oils are likely to
continue increasing, while per capita consumption of rice and
wheat may have peaked. Increased demand for meat in developing
countries could also have a significant influence on the demand
for animal feeds such as corn and soybean meal.
Full document:
http://www.ag.ndsu.nodak.edu/capts/documents/AGReport582P.pdf
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