Transcript The Future of Agriculture: Powerful trends affecting the U.S. food and agricultural system.

The Future of Agriculture:
Powerful trends affecting the
U.S. food and agricultural
system
Trend #1: Real prices for
agricultural commodities will
continue to go down.
Trend #2: Technology
treadmill will continue to drive
real prices down.
Real vs. Nominal Prices
 Nominal price is a good’s money price
 Real price is measure of value, scarcity &
purchasing power
 From year-to-year, producers respond to
nominal prices
• But in the long run, real prices are more important!
Real & Nominal Prices of Wheat
1913-2002 (2002=100)
35.00
$/bushel
30.00
Real
25.00
20.00
Nominal
15.00
10.00
5.00
0.00
1913 1923 1933 1943 1953 1963 1973 1983 1993
Year
Why have real prices decreased?
 Supply has grown faster than demand
– Changes in inputs
– Increased productivity
• More & Better
 The effect of technology?
– More output
– Lower per unit production costs
 The Technological Treadmill
– Has changed the structure of U.S. agriculture
Real & Nominal Prices of Upland Cotton
1913-2002 (2002=100)
4.00
Real
3.50
Nominal
3.00
$/lb.
2.50
2.00
1.50
1.00
0.50
0.00
1913
1923
1933
1943
1953
1963
Year
1973
1983
1993
Real & Nominal Prices of Tomatoes
1950-2002 (2002=100)
$/cwt.
70.00
60.00
50.00
Real
Nominal
40.00
30.00
20.00
10.00
0.00
1950
1960
1970
1980
Year
1990
2000
Real & Nominal Prices of Hogs
1913-2002 (2002=100)
250.00
Real
Nominal
$/cwt.
200.00
150.00
100.00
50.00
0.00
1913
1923
1933
1943
1953
1963 1973
Year
1983
1993
Total Factor Productivity
Growth in U.S. Agricultural Productivity
1948-1999 (1948 = 100)
270
250
230
210
190
170
150
130
110
90
1948
1958
1968
1978
Year
1988
1998
Responses to Decreasing Real Prices
and the Technology Treadmill …
 Migration out of agriculture (1950s-1960s)
 Get bigger (increase scale)
– Buy or rent the neighbors’ farms
– Adopt new technologies (industrialization)
 Obtain off-farm employment
– off-farm income > farm income
 Get the government involved
 Improved marketing strategies
Trend #3: Food demand in
the U.S. will not grow
significantly in the future.
Trend #4: The farm share of
the retail food dollar will
decline.
As a result of being a wealthy nation…
 The population is affluent and well fed
– Actually over-fed
 U.S. market is saturated
– Slow population growth
– Aging population
 Food demand is income and price inelastic
 People buy more processed food, marketing
services, and restaurant meals
Farm Value Share of Retail Price
1954-2001
40
Percent
30
20
10
0
1954
1964
1974
1984
Year
Share of Income Spent On Food
1929-2001
Percent
30
25
20
15
10
5
0
1929
1939
1949
1959
1969
Year
1979
1989
1999
1994
Facts About U.S. Food Demand…
 Growing less than 1% per year
 Restaurant food = 50% of total expenditures
 A $70,000 annual income household spends
– About 9% of after tax income on food products
– less than 2% of income on raw ag commodity
 U.S. agriculture is facing the “Full Stomach
Dilemma”
– The natural evolution of an affluent society
Trend #5: The importance of
international trade to the U.S.
food and agricultural system
will increase.
Trend #6: U.S. consumers
will eat more imported food.
Trade & U.S. agriculture
 Exports are 20-30% of total U.S. farm income
 Only growth point for U.S. ag = exports
• To lower and middle-income countries
• Trade is a two-way street
 Not all commodities benefit from open markets
 Trade increases competition
 Trade is based on comparative advantage
• And U.S. doesn’t have it for some ag products
Trade and U.S. agriculture
Consumers benefit from access to
imported foods
Accelerates the Technological Treadmill
Further pressure on production costs &
real prices
Trade is a two-way street!
Trend #7: The structure of
U.S. agriculture will continue
to become more “dualistic”.
What is the dual-farm structure?
18% of farms produce 90% of output
– Farms with annual sales > $100,000
82% of farms produce 10% of output
50% of farms have sales < $10,000
75% of farms have sales <$50,000
– But have avg. household income of
$62,925
– And have farm income of $-3,786
What created the dual-farm structure?
 The Technology Treadmill
– Decreasing per unit returns led survivors to
increase their scale of operation
 Rural residence or lifestyle farms
– Need off-farm jobs to achieve livable income
What is the future structure of
U.S. agriculture?
 Numbers of small farms are growing
– Implications for rural communities
– Off-farm job availability
– Need for infrastructure & education
 Numbers of very large farms are growing
 The disappearing “middle”
Trend #8: Environmental and
other effects of agriculture will
become more important to
society.
With increasing affluence…
 Society’s desire to consume more food 
– Food quantity has low marginal value
 Desire for other goods & services 
– Includes “environmental amenities”
• Air & water quality, ag open space, conservation,
wildlife habitat
– Food quality characteristics have high marginal
value
• How, where, and who produced it
In this “post-productivist” era:
 Food availability is no longer a concern
– Both a benefit and a curse of affluence!
 People no longer believe in production at any cost
 A “production at any cost” farm sector will not prevail
 Public still has residual good feelings about agriculture
 Agriculture is viewed as providing benefits other than
food and fiber output
Trend #9: Agricultural
multifunctionality will be highly
valued in some regions of the
country.
Multifunctionality…
• Agriculture has
– Food function
– Non-food functions
• Non-food functions
– Agricultural open space
– Wildlife habitat, water development
– Economic diversity & jobs
– Cultural or social heritage
– Tourism
– Carbon sequestration
Farms vary in their food and
non-food functions…
 Differences in technology
 Differences in scale
 Environmental impacts
 Landscape amenities
 Relationship to the dual-farm structure?
How will multifunctionality be
dealt with ?
 U.S. trade policy position
• Subsidies & protectionism cannot be used to preserve
multifunctional agriculture
 Targeting subsidies hasn’t worked & won’t work
• Even though it’s politically popular
 Preservation of agriculture will be a local issue
• And a function of rural lifestyle decisions & off-farm job
availability
Trend #10: The farm sector
will continue to evolve and
adjust.
Possible adjustments …
 Migration out of agriculture ?
 Get bigger (increase scale) ?
• Buy or rent the neighbors’ farms
• Adopt new technologies
 Increased off-farm employment ?
• off-farm income > farm income
 Improved marketing strategies ?
• Affluent consumers want more than just “food”
 More government involvement ?
How, where & who produced it…
1. Family farm (structure of agriculture)
2. Reduced transportation
3. Artisan vs. industrial (heirlooms)
4. Linkages between producers & consumers
5. Organic, natural, sustainable
6. Genetically modified organisms
7. Agricultural field & food processing labor conditions
8. Animal welfare
9. Community Food Security
10. Locally produced (local economy)
11. Pathogen or contamination risks
In an affluent, post-industrial
society…
• Dual structure of production
• Dual structure of consumption
• Many consumers are disillusioned with
the current industrial food & ag system
• Opportunities for creative producers &
marketers
Contact Information
Rhonda Skaggs, Ph.D.
Professor, Agricultural Experiment Station
Dept. of Ag Economics & Ag Business
Box 30003 MSC 3169
New Mexico State University
Las Cruces, NM 88003
Tel: 505-646-1344 or 505-646-2401
Fax: 505-646-3808
Email: [email protected]