Power in Agriculture

February 10, 2012 02:01 AM
Power in Agriculture

U.S. remains key, but others are poised to challenge

The U.S. remains the major world power in agriculture, followed closely by the European Union (EU). These two key players face increasing competition on the global front, however.

"European countries, including the UK, appear to be relatively poorly endowed with the critical natural resources used in agriculture, such as land, water, potassium, phosphate, oil and natural gas," warn economists in a global report for the Oxford Farming Conference this past month.
Further, the report notes, the availability of water and energy is likely to become worse because
of climate change.

Emerging countries such as Brazil, China and Russia are positioned well relative to water and energy resources moving forward but might be limited by arable land supply. That has prompted these countries to undertake efforts to secure land in other areas such as Africa.

Regarding trade, the report reveals that the top 20 exporting and importing countries account for 78% of global exports and 70% of global imports. The value of U.S. agricultural exports is projected to reach a new record, exceeding $126 billion in 2011, largely reflecting high commodity prices. With declining prices projected for major crops for the next several years, export values will fall through fiscal 2013. A depreciation of the U.S. dollar is an important factor underlying projected gains in U.S. exports.

The report notes that trade patterns reflect proximity and historic relationships but that new trade patterns are emerging. The report identifies key multilateral and regional/bilateral trade agreements, and calls attention to "the rising importance of a number of the BRICS countries [Brazil, Russia, India, China and South Africa]."

More Transnational Players. Besides assessing countries’ trade positions, the report delves into what it labels transnational corporations (TNCs), which account for a major portion of global ag
commodity trade. Here are the statistics compiled in the report:

  • Four companies account for 75% to 90% of the global grain trade
  • 10 companies are responsible for more than 40% of the global retail market
  • Seven companies control virtually all fertilizer supply
  • Five companies share 68% of the world’s agrochemical market
  • Three companies control 50% of the proprietary seeds market

"The emergence of these corporate players in the food sector has created a major orientation in the focus of power even further away from farmers," the report states.

Despite this prominence, the report says, countries can still temper the situation. "In some cases, civil society organizations and farmer groups have had a significant impact in countervailing or balancing corporate influences," the report notes. "Corporate power is not limit-less and nation states can control agriculture. A major challenge for some countries is to balance corporate power with consumer and farmer power domestically whilst maintaining global power."

Financial Crisis. The eurozone crisis, which started in 2010 and involves large fiscal debt accumulation in Greece, Ireland, Spain, Portugal and Italy, became unsustainable this past year. The dramatic increase in the cost of credit to those countries precipitated the crisis, says Jim Nolen, business professor at the University of Texas. "A big recession or depression in Europe would have global consequences."

The creation of a European Financial Stability Facility to support eurozone countries put a short-term halt to the threat of default. The long-term outcome will depend on whether the programs to address the imbalances in trade and government finances are effective.

One potential outcome of the crisis would be a sustained long-term depreciation of the euro against the dollar and other currencies, according to a study by USDA’s World Agricultural Outlook Board. Eurozone products would be more competitive in world markets, but investments to strengthen global growth and demand that would have gone to the eurozone would go to other countries instead, thus benefiting U.S. ag exports. Even with near-term appreciation relative to the euro, the U.S. dollar depreciates overall and remains relatively low compared with export market currencies. This facilitates continued strength in U.S. ag exports.

"Here is a positive for you in agriculture: We could go from the U.S. starting as an ag economy, through the Industrial Revolution to a service-based economy, and now back to an ag economy," Nolen says. "The U.S. can become the food source for the world."

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