It is always interesting to develop our 10-year international forecast. The analysis tends to bring to light some of the changes taking place around the world and lays out at least some of the implications of these changes over the coming decade. It is also interesting to dig into the archives to see what the big issues were a decade ago and how the world has changed since then. This week we review some of the issues that were important when we produced the forecast in 2004.
In last week’s AgInsight we revisited the rising grain deficit in major importing countries and regions that was analyzed in the 2004 report. Using the same approach – we projected the deficits out through 2022 and found as always that the assumptions about China are critical to the future of world grain trade. But the finding is not new. In 2004 we wrote “If data from USDA’s Foreign Agriculture Service is at all accurate, China’s future will be substantially different from the recent past. Beginning in 1999-00 China’s grain production has come nowhere close to meeting domestic demand. The data clearly indicates that China will need to be a major grain importer in the near future and with continued growth in demand could cause a huge change in world markets”. While my archives don’t allow me to go back to the mid-1990s those old enough to remember know that similar statements were being made even back then.
So, what have we learned over the last 20 years about China? The answer is that the results can turn out to be a lot different than the most recent data implies. China’s production capacity has surprised us all. Even a decade ago people in the U.S. and China were saying that China was losing good cropland to industrial development. Our forecast back then had China’s coarse grain area leveling off near the 2003 level. That did not happen and yields also increased significantly more than forecast. China’s wheat and rice area had been declining through the 1990s and into the early 2000s – but rice area increased and wheat area held basically steady during this most recent decade.
A decade ago we were worried about China’s dwindling water supplies. We wrote “Urbanization is taking water from agriculture for city use. Water pollution is a big problem for China reducing the amount of water suitable for irrigation. … it seems likely that the water problems will become more problematic in the years ahead and the amount of water available for agriculture may decline.” You can find almost exactly the same statements from people around the world earlier this year and in almost every previous year of the last decade. Concerns about water problems persist, but crop acreage and yields continue to increase at a strong pace.
Not too much has changed in the discussion about India over the last decade either. In the 2004 report we wrote “People talk about the emergence of an affluent middle class of about 250 million people with improving diets driving food demand up. But the data for India shows no increase in per capita grain consumption. A decade ago per capita consumption in India totaled about 400 pounds. In 2004-05 it is estimated at just over 375 pounds”. For comparison, the data for 2012/13 shows India’s per capita consumption at 376 pounds. This may change with India’s new program to make grain available to the country’s 800 million poor people, but there are few signs that the economic progress in the country has had a big impact on grain consumption.
A decade ago the countries of the former Soviet Union were beginning to show signs that the region would be an important player in world grain markets. The 2004 report stated “The region (the FSU) drove world markets years ago by buying huge amounts of grain from exporters such as the U.S. Now they are emerging as major exporters, especially for wheat”. “The region could also be a net exporter of coarse grains over the forecast period as well”. Grain area had declined by 16 million hectares from 1994 to 2004 but the forecast called for that trend to reverse. The forecast called for the FSU to export 20 million tonnes of wheat in 2013/14 and 6 million tonnes of coarse grains. Actual exports are expected to be well above those levels.
In 2004 the AIDS pandemic was a serious problem for Africa. AIDS was expected to slow population growth, reduce the working age population and keep per capita food consumption from rising. Africa was a huge grain importer even a decade ago, buying 20 million tonnes of wheat, about 10 million tonnes of coarse grains and 6 million tonnes of rice. With the population increasing at about 2 percent per year and forecast to reach 1.08 billion by 2014 it was clear that meeting the food needs of Africa would be challenging.
Grain area in Africa had increased by about 6 million to 7 million hectares from 1994 to 2004 and a similar increase was forecast for the 2004 to 2013 period. But there has been a lot of investment in agriculture in Africa over the last decade and the actual increase in grain area is put at 12 million hectares. With the gains in production, and more imports, per capita grain consumption in Africa has increased by about 6 percent over the past decade. Grain imports increased by 13 million tonnes over the decade, an increase of more than 25 percent. This was slightly more than the increase forecast in 2004.
Included in the 2004 report was a section about the outlook for Brazil. The report said “Poor Infrastructure has long been a factor limiting production expansion but that bottleneck is gradually being improved.
Many people in and out of Brazil expect that country to surpass the U.S. as the world’s largest soybean producer by 2010”. Asian rust was just becoming a major problem in Brazil in the early 2000s and the disease did slow the growth in soybean yields in Brazil for awhile. The potential for Brazil to be a significant corn exporter was just emerging in 2004. The report indicated “Under the baseline forecast corn exports continue near current levels but the risk is for production and exports to be higher than projected.” Today the infrastructure is still a bottleneck for the country, but Brazil’s exports of the major crops have increased from about 15 million tonnes to near 60 million tonnes last season. Brazil’s soybean production for 2013/14 is forecast to be higher than the U.S. output and Brazil has become a major player in the world corn market.
As we have noted before we have a tendency to underestimate the increase in world yields. One theory is that as we increase crop area, we plant and harvest land that is less suited to crop production – leading to slower growth in yields. There is little (if any) evidence that this theory is true. Over the last decade, world grain area has increased by more than 35 million hectares (close to 90 million acres) and world grain yields increased by about 13 percent. In the 1990s world grain area declined by 30 million hectares and world grain yields increased by 9 percent. We are forecasting a 10 percent increase in world grain yields from now through 2022, but the risks are that the yields will actually increase by an even larger amount.
The Doane International reports only go back to 1996. Here are a few quotes from the report that is now 17 years old. “Despite the prolonged period of stagnation in world trade, we expect market conditions to change and trade of all crops in our forecast are expected to rise. The strongest growth will occur in coarse grains to fuel rising meat demand.”“The widespread feeling is that China will be the most important region for the future of agricultural trade growth. Per Capita meat consumption has nearly doubled since 1990, an increase in demand totaling 23.5 million tonnes. China’s coarse grain consumption rose by more than 30 million tonnes between 1990 and 1995.” “A significant change in the attitude of the government would be required for India to become a major grain importer. There is little evidence that India has either the foreign exchange or the inclination to buy large amounts of grain in world markets. Until we have evidence that changes are actually occurring, we believe India will continue to be basically self-sufficient in grains in most years.” “The real impact that the rising demand has on trade will be largely a function of gains in productivity. The current tight supply situation has been caused as much by poor production as by strong demand. A recovery in world yield growth could dampen prospects for trade.”
So, the more things change, the more they stay the same. A lot of the issues that were important in 2004 are still important in 2013. We thought developments in China, Brazil and the FSU would be big drivers for agriculture in the coming decade and those are still the key issues for the future. If the past is any guide there will be a lot of interesting developments between now and 2022/23 and the magnitude of these changes may be significantly different than currently expected.