You've all seen the headlines about how South America and other emerging regions of the world are going to eat our export markets for lunch. But as ESPN football analyst Lee Corso often says, “Let's wait just a minute, my friend, before we jump to any conclusions.”
Exciting opportunities are arising in agriculture. But they're not without competitive challenges. That competition will separate the leaders and the followers, and the winners and losers, in the game of profit.
First, let's examine world competitiveness from a supply and demand perspective.
On the demand side, the challenge will be a bimodal, world marketplace. Eighty percent of the world population has 20% of the world Gross Domestic Product (GDP), with many living on less than $1/day. Expect them to more readily accept bio-altered foods in an attempt to meet basic consumption needs.
On the other hand, developed countries (20% of population with 80% of income) will demand and expect convenience, specific-attribute foods and ag products. It will be a buyer's market.
On the supply side, there is a harsh, cold reality. Technology is in the hands of better managers in most developed ag countries. Thus, as a worldwide industry, we are producing more than can be consumed. The implications for exports and their effect on profitability will be particularly important on the grain side.
In the next decade there will be an emergence of global block economies: North America, South America, Europe, South Pacific, Africa and Asia. They will be pitted against each other in a globalized rating and ranking game analogous to the Bowl Championship Series in college football.
Let's examine the criteria that will be used in the rating game. While there are numerous, complex factors, the starting five and most important appear to be resources (land, water and labor), infrastructure (roads, agribusiness and technology), political and public support of the industry, financial stability (from local and national levels) and market accessibility and adoptability.
Technology, government policy, consumer preferences, environment, weather and the general economy all will be catalysts that drive those criteria in the early 21st century.
So, let's hop on a 747, buckle in, and cruise the world to see how the U.S. and its North American counterparts stack up in the worldwide scouting report for the next decade.
First stop is the South Pacific — Australia and New Zealand.
Australia currently is reaching its productive capacity. However, it will be a strong niche player: a low-cost supplier of wheat and grass-fed beef as well as horticultural, vineyard and fruit products.
The limiting factor: water or moisture and severe weather variations, since this continent is the second driest in the world. Australia has a strong ag infrastructure and is selectively adopting technology.
The human resources of this region are entrepreneurial and free-market thinkers. Politically, there is support for industry. However, currency and economic cycles sometimes challenge the ag industry.
Across the ditch in New Zealand we find a low-cost dairy and soybean producer. The ace in the hole for the Southern Pacific area is access to Asian markets, which represent a large portion of the world population with monies to purchase products.
Now let's fuel up and head for Africa.
As a supplier to world production, Africa has a large amount of land, although low in quality, as well as plenty of water. While labor is in abundance, it's generally insufficiently trained for 21st century competitiveness.
When discussing risk management with African producers, two new elements enter the equation: murder and AIDS.
While traveling in that country last summer, I noticed an AK 47 machine gun on the tractor at a farm I was visiting. The farmer said his neighbor recently had a shootout with land squatters. That brought the political risk into perspective.
Sadly, AIDS is increasing in Africa so dramatically that average life expectancy is actually decreasing.
Africa has moved toward a market economy strategy without subsidies, so European subsidies are devastating to its producers' profit picture. Financial instability throughout this developing economic region hinders growth. At best, Africa can expect to be a niche player in a world context in the next decade.
Eastern Europe & Russia.
Next stop is Eastern Europe and Russia.
Russia and Eastern Europe hold third-world-country economic status with a nuclear strike force. Over the past decade, much aid money and training was misdirected into the hands of self-serving individuals and institutions, thus hindering this region's economic power.
There is an abundance of land and water. The lack of infrastructure — roads, agribusinesses and technology — plus skilled human resources, puts a negative in the region's scouting report. Political and financial instability has set it behind, at least for a generation, from becoming the breadbasket of Europe.
If there is a wild card in our journey, it's China. It has the world's largest population, with one in every seven people of the world living there. It has become self-sufficient in grains and very competitive in fruit production.
China's 1.2 billion people are hope for optimism for the world's ag suppliers, though the Chinese still remain an uncertainty in world markets.
Disharmony in marketing cultures between Asians and Americans is a limitation.
China, Japan and India traditionally think in terms of long-term relationships and trust. They have a long history of opposing a North American culture that thinks in nanoseconds and a quick sale.
This could become a very competitive niche market with access to world markets. The limiting constraint could be water — and to some extent, land and capital — in a structured political system.
Most everyone complains about Europe's subsidies and finicky consumers. In the long-term context, European policy of farm subsidies and bio-altered foods will continue.
Europe has had a history of food shortages created by war, and believes in a diversified food production system with small operators. The public generally supports a pristine landscape.
If the region continues this support through export enhancements and subsidies for agriculture, Europe could be sized up in a niche/dominant classification, with land being the limiting factor.
Let's go back across the equator to one region we have been waiting to examine: South and Central America. The bottom line: This region has potential to be an ag exporting powerhouse.
Argentina and Brazil have fertile land, strong productive farms, labor and emerging infrastructure, including transportation and agribusiness, to make it a world leader. Concerns for tropical soil erosion and disease in crops and livestock in areas of the region may raise eyebrows. Market accessibility, particularly because of the historic ties to Europe, gives them a competitive edge.
The jury is still out concerning political and financial stability throughout the region. A recent review of my son's elementary economics textbook showed triple-digit inflation in these countries as recently as the last decade. Wide variations in currencies can quickly place this region in a favorable or unfavorable global market position.
Government instability and ownership laws place pressure on an ag industry that is capital-intensive and demands stability in political structure.
If South America can demonstrate political and financial stability, more investment — both capital and human — will flow into this region. That will allow it to become a dominant player in the global world ag marketplace.
Our last stop on our 25,000-mile journey is back to the U.S., Canada and Mexico. The region is expected to maintain its leadership position in world ag exports.
Its land is rich with diverse weather patterns; a strong, well-trained workforce; and a large component of Hispanic laborers. Producers have access to cutting-edge research and the ability to adopt technology that enhances competitiveness not only in total supply, but in specific food attributes and possible medical uses.
A big concern for this global block is competition for water and land for residential, recreational and development uses. There is a strong infrastructure with creative management for product development and marketing techniques. This, coupled with financial stability at local and national levels, positions the region (especially the U.S. and Canada) quite well.
Limitations include political and public support for the industry. This will likely be contested more vigorously in the next farm bill at the national level, but also at local levels. Controversy ranging from the environment to property rights issues to food safety will challenge growth.
This scouting trip was designed to get you to think outside the local coffee shops and borders. Hopefully, it allows you to see your industry and country from a macro level. Next, we'll zoom in and focus on the micro level.
Dave Kohl, our Trends Editor, is an ag economist at Virginia Tech. He currently is on sabbatical and working with the Royal Bank of Canada.