Written by Tom Dorr
Now that the election and the threat of falling off the fiscal cliff have subsided, maybe we can shift our focus to trade. If we assume continued growth of the global middle class, and I do, then food and agriculture trade opportunities are grand. But accessing these opportunities will require aggressively engaging in trade and policy. Here is why:
- 95% of the world’s population lives outside the U.S.
- Significant logistic and technology changes have taken place throughout the past seven to 10 years, which completely restructures the costs of exporting and importing value-added, high-quality foodstuffs.
- From 1990—after the fall of the Iron Curtain—through 2009, more than 1 billion people moved into the global middle class ($20,000 purchasing power parity per household). By 2020, another 1 billion people will have made a similar transition.
- By 2020, nearly 290 million people in China will have moved into the affluent social class (minimum household income of $38,000).
Time for real debate. For all the potential, there is very little serious debate about these growing economies and how we can spur our own economy through trade with them. The present administration has paid much lip service to doubling U.S. exports of all goods by 2015. Doing so will require developing transparent, defensible and consistent trade policies—which require significant political support and a depth of commitment and understanding regarding the value of trade. In recent years, agriculture has not conveyed this kind of commitment or shown any appreciation for the long-term value, benefit and necessity of trade to our industry.
The significant price gains in the past five years for oilseeds and grains were driven by the emergence of a robust middle class largely in East Asia and South Asia. Although early trade policy and market development were essential, I don’t think it is dismissive of these efforts to suggest that the more recent gains were as much a result of rapidly increasing demand driven by unprecedented growth in the global middle class. The volumes required and the price scope of this new demand for energy and improved diets were largely unpredicted.
The meat, poultry and dairy industries are benefiting from this new demand. They are working to expand their international market presence. Yet much of their response to increased prices for protein meal and grain has been to focus inwardly. They and many of their customers lashed out at price increases for feed materials, which were driven by energy demand. Their business models weren’t and in many cases are still not designed to accommodate emerging global middle-class expectations.
The Barack Obama administration was slow to complete the passage of the Panamanian, South Korean and Colombian free trade agreements (FTAs). The White House did not get serious about their passage until after the 2010 elections. Even agriculture was slow at best, and reluctant at worst, to push aggressively for their passage. Again, this relates to the perception of how the FTAs would impact U.S. job growth, as opposed to looking at what is clearly a growing economic pie.
Now the discussion has begun in regard to the Trans-Pacific Partnership and a U.S.–European Union FTA. Ag policy leaders are already staking out what should or should not be accommodated for ag to support the proposed FTAs. As opposed to developing strategies for new opportunities, we tend to fight last year’s battles. That is not a sound strategy.
Look ahead. We need to stay focused on the big picture. By "we," I mean all of us: the ag community as well as political and policy leaders.
Since the passage of the agriculture agreement that was part of the Uruguay Round of the General Agreement on Tariffs and Trade and the first-ever international agricultural trade agreement, our commitment to policy discussions has been worndown by a multitude of failed discussions and agreements, topped off by a host of new non-tariff trade barriers and sanitary and phytosanitary issues.
If we are going to share in the exciting new global food and agricultural trade opportunities, we must step back, regroup, rethink and reposition ourselves with respect to the importance and value of food and agricultural trade.
This is just the beginning. While I was at the U.S. Grains Council, we initiated, in conjunction with our Tokyo Foreign Agricultural Service colleagues Geoff Wiggin and Jeff Nawn, a research study entitled Food 2040 to illuminate the opportunities and challenges confronting agriculture, particularly in East and South Asia, in the next 30 years. I’ve gleaned two basic insights from the study:
- We must begin by redefining the meaning of food security. The most effective and inexpensive means of obtaining food security is through free trade. We know that, but we have to find ways to enable that.
- We must develop trade policies around new market definitions. This will challenge U.S. leadership in several areas. Our technologies are often built around 20th-century legacy systems. New markets and newly emerging middle-class economies will build on their own expansive needs. It is not assured that the new opportunities that arise can be shoehorned into our outdated production, processing, marketing and distribution systems.
Our food industry was built on and led by domestic consumer demand, in the context of a relatively sparse population and an abundance of natural resources. This resulted in the development of a commodity grain and oilseed sector, which allowed for the buildout of an efficient commodity animal protein sector—which, in turn, drove the development of an ever-evolving processing, branding, marketing, distribution and food safety system.
Unique challenges. The newly emerging middle-class markets don’t have the luxury of sparse populations, adequate resources and the time to replicate the evolution of our 150-year-old agriculture and food system miracle.
More significantly, their economies have been led by industrial production for export, which generates economic growth and income to be used for the consumption of higher quality foods and energy and other goods and services. They have built these economies on a more aggressive urbanization model than the U.S. Yet they have created substantial wealth and purchasing power.
They cannot replicate our system. But they have the resources to buy what they need. They will build a system to accommodate their demands for nutrition, taste, food safety, distribution, dietary requirements and convenience—on their own terms, within their own regulatory systems, to which we will have to respond if we wish to serve these markets.
The opportunity is enormous. So is the competition. The question now is, are we willing to commit policy, economic support, time and leadership resources to the development of this new world trade order?
Thomas Dorr is the president of Thomas C. Dorr & Associates, a firm specializing in the development of food and agricultural trade. His 30 years in rural financial and economic development provide him with a unique perspective on domestic and international strategic opportunities. He recently spoke at the Farm Journal Forum in Washington, D.C.
To learn more about the growing demand in China and the opportunity it offers for U.S. agriculture, visit www.FarmJournalForum.com/trade