Opportunities in Disguise?

March 7, 2014 07:20 PM

I don’t think the challenges and opportunities have ever been as significant and exciting in agriculture as they are today. The fact that global trends influence U.S. farmers’ bottom lines is mind-boggling. FJ 026 F14149

From late 2008 to summer 2013, corn went from a $2.90 low to a high of $8.40—a 289% gain. But we lost more than 75% of that gain with the recent low of $4.17. Soybeans have gone from a $7.75 low in 2009 to a high of $18 in the second half of 2012. Cattle bottomed out at $79 in 2009 and recently reached $145 per cwt. As a result, we’ve had record net farm incomes for the past few years. 

Why the trip down price memory lane? These trends repeated themselves for poultry, cotton, wheat and high-value produce crops. The usual reasons given for the strong growth in prices range from the high demand for energy to droughts and livestock diseases. Ethanol probably is the most popular rational for the price increases. In my view, that isn’t fair or necessarily true. I suggest that the strong prices stem from the emergence of a growing global economic middle class. 

Eye-openers. There are three areas that significantly impact how we will position ourselves to capitalize on the emerging global trends affecting production agriculture and food.

Let’s start with data accumulation. Who owns and can be trusted to use the data generated by you and your supplier? How private and secure is this data, or should it be? This issue must be resolved before the value to producers gets garbled. Defined institutional policies and systems of trust have to be developed quickly.

The use of technology and information management systems has turned the economics of production agriculture upside down, so what’s the real issue? Why is there such turmoil with regard to how we gather, use and deal with producer- and vendor-generated data? 

It is because at the farm level, too many of us still view the world through the "commodity lens." We lost the political and public relations war on ethanol; instead of treating it like the value-added product it is, we treated ethanol policies and our reaction to them and their critics as though we were protecting traditional ag commo­dity policies. 

We are dealing with the same issue when it comes to Country of Origin Labeling. We resist labeling because our price givers­­—the harvesters and processors—treat the issue as a cost imposed on a commodity. 

If we continue to assume it is a commodity, it is a cost. If we begin to appreciate the significance of downstream, value-added oppor­tunities, it is a value. The only way to do this economically is to track and trace; this requires the use of technology, the generation of farm-based data and the development of trustworthy systems to manage it all.

Remember, every major new technological advancement has required a platform—a standardization so the new technology might flourish. For example, the hydraulic quick coupler and three-point hitch are standardized platforms that created immeasurable opportunity for entrepreneurs and innovators, as well as farmers.

Getting beyond the discussion of who owns the data and whether someone is going to abuse it is critical. Think about it: Between all your activity with social media, Internet-based technology and government reports, is there really much out there that someone can’t find out, if they really want to? The longer we treat the issue of data privacy as some com­ponent of the Ark of the Covenant, the greater the possibility of doing ourselves a disservice.

Beyond the borders.
Secondly, we must aggressively pursue opportunities in China, as well as the emerging global middle class throughout southern and eastern Asia, Mexico, Latin America and Africa. Here is why: 95% of the world’s population lives outside the U.S. About 80% of the global GDP is generated outside the U.S. Our domes­tic food market is saturated.

Significant logistic and technology changes have taken place in the past seven to 10 years … and will continue in the next 10, resulting in a complete restructuring of the costs of exporting and importing value-added, high-quality foodstuffs. 

After the fall of the Iron Curtain, from 1990 through 2009, more than 1 billion people moved into the global middle class. By 2020, another 1 billion will have made a similar transition.

These new markets—opportunities driven by billions of new middle-class aspirants—will buy according to their ethnic, cultural, food safety and other social and dietary expectations. They possess the money to do so and desire a standard of living like ours.

This means that U.S. farmers and our developed food systems are not likely to shoehorn these new market opportunities into the existing U.S.-based commodity system. If we are to capture the real value of these new markets, we must rethink our market strategies. Who are our customers? What are their needs, demands and most importantly, preferences? 

These countries have built economies around industrial production and the generation of foreign earnings. China has grown its economy for nearly four decades at rates in excess of 8%. We can’t afford not to pursue these markets because they have the money to buy what they want.

Policy in perspective
. We just passed a new farm bill, which is, figuratively, the 15th iteration of the original Agriculture Adjustment Act. That is too bad. The new safety nets embedded in the well-endowed crop insurance program contain substantial risk of generating false market signals to pro­ducers by encouraging maximum production, regardless of real-world demand. This is no different than the 1980 farm bill. It was a disaster, an unmitigated disaster. 

For all the talk about markets and value-added products, we continue to focus on commodity policies. There has been little serious debate by farmers and politicians about how these growing international economies and markets can spur our own agricultural economy through trade with them.FJ 028 F14149

The price gains in the past five years for oilseeds and grains were driven by the emergence of a robust middle class, largely in southern and eastern Asia. Yet we allowed ourselves to get caught up in a policy debate driven by the assumption that ethanol was subsidized, as opposed to a response to a market demand for energy. 

All of us collectively did little to research, debate or point out that an expanding global middle-class was responsible for increased demands for energy and high-quality protein. We assumed it, but few worked aggressively to better understand and explain to the public the underlying drivers that lifted agricultural real estate values from slightly more than $1 trillion in 2001 to more than $3 trillion today. 

We’ve painted a bull’s-eye on our backs; we refuse to debate among ourselves, to seek new policies, to lawyer up or in the final analysis, recognize the diminishing pool of public and legitimate political support. We simply revert to political relationships of old and hunker down.

Are we ready?
What must we do to capture the new opportunities and truly lead? Since the passage of the Agriculture Agreement, which was part of the Uruguay Round of the GATT, and the first-ever interna­tional agricultural trade agreement, our commitment to trade policy discussions has been worn down by a multitude of failed discussions and agree­ments, topped off by a host of non-tariff trade barriers, as well as 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. We cannot continue to treat food and agricultural policy as though we are still attempting to resolve commodity production issues in a world driven by a singular consumptive super power, the U.S. Our market view, infrastructure demands and policy considerations must be significantly revisited if we are to capture the opportunities presented by the new 2 billion to 4 billion aspiring middle-class entrants.


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