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