More Trade Key to Agricultural Growth

September 28, 2001

The best chance for U.S. agriculture to grow in the future is to increase the volume of total world trade, and give the United States an opportunity to maintain its market share, according to a new study released Wednesday by the National Grain and Feed Foundation.

The foundation is the education and research arm of the National Grain and Feed Association (NGFA), the U.S.-based nonprofit trade association of about 1,000 grain, feed, processing and grain-related firms comprising 5,000 facilities that handle more than two-thirds of all U.S. grains and oilseeds. The study was authored by William J. Hudson of The ProExporter Network®, a research and market analysis firm headquartered in Olathe, Kan.

According to the study, up to one-third of the total usage of U.S. feed grains and half of the total usage of U.S. wheat and soybeans already is being exported as either raw commodities or value-added products. The study quantifies, in particular, the dramatic increase in U.S. grains and oilseeds now being exported as meat products. U.S. beef, pork and poultry exports tripled during the 1990s, and the U.S. share of world meat trade more than doubled during the same period.

The study concludes that the volume of world agricultural trade would "accelerate rapidly" if domestic agricultural subsidies and trade-distorting tariffs were reduced worldwide, "which realistically can only be achieved through multilateral trade negotiations. The United States has both an inherent need to export and a natural advantage to do so," the study says.

NGFA President Kendell W. Keith said the study demonstrates how imperative it is for U.S. agriculture's future growth that Congress approve trade-promotion (fast-track) authority for the president to engage in further multilateral trade negotiations. "This study takes a fresh look at trade, and demonstrates the large increase in the quantity of U.S. grains and oilseeds now being exported in the form of value-added products, particularly meat," Keith said. "It also quantifies how expanding U.S. export growth in emerging markets in Asia, North Africa, Latin and South America have essentially replaced demand for many commodities that previously came from the former Soviet Union, Eastern Europe and the European Union.

"This study provides a balanced and factual underpinning for the coming debate in Congress on trade legislation," Keith continued. "It does not promise immediate results from trade - in fact, it specifically notes that trade is episodic and impossible to forecast from year-to-year. But its unmistakable conclusion is that the volume of trade is trending steadily upward, and that trade represents the biggest need and the strongest natural advantage that U.S. agriculture has."

The study found that total trade of feed grains, wheat, rice, oilseeds, meal, oil and meat (in its grain and meal equivalent) already is growing 1.5 to 2 percent per year. But that rate of growth is being restrained by domestic agricultural subsidies worldwide that total about $350 billion a year, the study said. However, the study said that during the last 10 years this level of world subsidization has not grown substantially and actually has declined in the aggregate when considered as a share of world gross domestic product (GDP). "So, under the pressure of multilateral trade negotiations and across-the-board tariff reductions on all goods involved in trade, progress can be made and the volume of world grain, food and meat trade can be expected to increase," the study said.

In this regard, the study noted that successful outcomes of world trade negotiations for non-agricultural goods have fostered a dramatic increase in world trade volumes since 1960. World trade of all goods as a share of world GDP increased from 10 percent in 1960 to 25 percent by 2000.

The study also pointed out that trade will be important to the future of the ethanol industry and energy independence in the United States. Each 1 billion gallons of ethanol from corn produces 2.5 million metric tons of distillers grains as a byproduct, which must be sold in competition with other protein meals in domestic and world markets. "Engaging in multilateral trade negotiations and reducing tariffs and subsidies is just as critical for the future of renewable energy markets as it is for the traditional food, feed and fiber markets, which long have been agriculture's mainstay," the study said.

The study revealed several trends in world trade:

World Meat Trade: World meat trade volume grew at an annual rate of 5 percent during the 1990s - from roughly 8 million metric tons to 13.5 million metric tons by 2000. Each 5-million-metric- ton increase in meat exports is equivalent to about 18 million metric tons (700 million bushels) of grains. The study noted that poultry exports to China and the former Soviet Union, and all meat exports to Japan represent more than 50 percent of world trade in meats.

The study cited three factors that have contributed to U.S. meat export growth: 1) The increased willingness of nations to depend on world trade for meat; 2) continued strong economic growth, with about 30 to 35 percent of the population now able to afford meat in their daily diets (compared to 25 percent in 1950); and 3) a greater share of world meat trade being captured by the United States.

Meanwhile, the share of world meat trade represented by beef, pork and poultry has been shifting. The market share of world meat trade represented by beef increased strongly during the late 1980s, primarily as a result of the U.S.-Japan bilateral trade agreement that liberalized beef trade between the two countries. Poultry trade increased strongly in the mid-1990s as a result of increased imports by the former Soviet Union and China. Meanwhile, pork's share of world meat trade has declined slightly in recent years because of large volumes of domestic consumption in China.

World Grain Trade: The study found that for the past 20 years, the share of world wheat and feed grain use represented by trade has been "relatively flat," and that rice only recently has begun to increase. However, the study noted these three commodities are the most heavily subsidized of all world crops, which has inhibited trade growth. Meanwhile, the trade share of total use of oilseeds has increased in the past decade, largely because of the increasing world demand for meat and the fact that oilseeds are less heavily subsidized than other grains.

For the three major grain and oilseed commodities, the study found the following:

-- World Corn Imports: The study found that the precipitous decline in corn imports by such markets as the former Soviet Union, Eastern Europe and the European Union have almost been replaced by increased imports by Japan, Korea and Taiwan, which now exceed 30 million metric tons annually. If current trends continue in these and other growth import markets, total whole corn exports will increase again soon, after being flat for about 20 years. The EU remains an important market for corn gluten feed and meal imports, amounting to between 6 million and 7 million metric tons annually.

-- World Wheat Imports: The study quantified the growing importance of such markets as Mexico, North Africa, the Middle East and South America to world wheat imports. Meanwhile, imports by the former Soviet Union, and Western and Eastern Europe have flattened and declined.

-- Oilseed Imports: The study quantified the continuing importance of the European Union, in particular, to total world oilseed imports, amounting to about 24 million metric tons in 2000. But new Pacific markets - particularly the recent surge of buying by China - have begun to equal Europe's import totals. "This sudden change by China is remarkable, but is typical of the 'surprises' that occur frequently in world grain trade and that hinge on national policies," the study said. Meanwhile, the level of oilseed imports by relatively new importing regions, such as Mexico, Central and South America, the Middle East and Africa, while still small, are growing.

A 12-page executive summary of the study is available on the NGFA web site's home page at www.ngfa.org. Those wishing to obtain the study - which is presented on a compact disk for viewing on a personal computer, with narration by the author, rather than in printed form -- should contact the NGFA at (202) 289-0873.