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10 Things to Know About Ag Trade
David Oppedahl won’t comment on politics, but he can tell farmers how to take an impartial and practical view of ag trade. Oppedahl, a senior business economist with the Federal Reserve Bank of Chicago, grew up in rural South Dakota and now works with five Midwestern states close to his office: Iowa, Illinois, Indiana, Wisconsin, and Michigan.
This is one of his mottoes about trade: “We all need to try new things. That is especially true for export markets.”
Oppedahl shares the following 10 basic things to keep in mind about trade.
1. This is a great time to export food products.
Very few countries in the world are having a recession. Many parts of the world, especially China, India, and Africa, are growing quickly as they try to catch up to the developing world. “It’s an exciting time if you look at the numbers of people who are moving up into the middle class around the world,” says Oppedahl. “It’s a rosy picture from a world perspective.”
2. U.S. currency trends have helped with trade.
When the U.S. dollar is strong, it pushes our trade down by making our products more expensive relative to other currencies, says Oppedahl. There has been a reduction in the last year or two in the dollar’s value, so that has helped to improve our position – and it gives us a little extra boost.
“We had a soft patch in exports a couple of years ago when the value of the dollar was rising,” he says. “Now, it’s growing. We are filling empty containers with soybeans. A few years ago, we were importing a lot of goods from China, but there was nothing to backfill. Now, there is a facility close to Chicago that fills up those containers and sends them back to China with soybeans. That is a major change.”
3. All things traded are not the same.
It’s not bulk commodities driving export growth, says Oppedahl. It’s high-value commodities.
Bulk products like corn and wheat, when adjusted for inflation, peaked in value in the 1970s. Trade disputes and a boycott by the Soviet Union led to a big drop-off in prices at the farm sector in the 1980s.
“Since that very challenging time for agriculture, the high-value products have picked up over the decades and have been driving U.S. trade growth in real terms,” he says.
Each country we export to is very different, says Oppedahl. Beef is not likely to be a high export to India, but chicken and pork do well. “You have to provide what the consumers in each country want.”
4. China is the big target, but keep your eye on India.
The top 10 trading partners for the U.S. have shifted over the past 10 years. “Canada used to be our largest trading partner, but China caught up pretty rapidly,” says Oppedahl. Japan was the top in 1990, and now it is fourth.
“Japan’s economy has not grown for decades, and the country is aging beyond the point in the life cycle where people tend to eat the most.”
Mexico, Indonesia, Vietnam, Columbia, Thailand, Russia, and India have grown.
“India is one of the big markets of the future that people should be looking at. It will soon have the largest population in the world,” he says. “People there are moving to the middle class as its economy grows at a relatively fast clip.”
This year, the U.S. is exporting soybeans to Argentina. “Argentina is having struggles in production and isn’t able to crush as many. The country depends on its crush more than just soybeans,” he explains.
5. We have an advantage in transportation, but Brazil is improving.
“Our infrastructure is a key component of our advantage here in the Midwest,” says Oppedahl. “We can get soybeans from Iowa to China at a lower transportation cost than soybeans from Brazil. As Brazil improves its infrastructure with new rail lines and barge systems, it can lower some of these costs. Brazil is making big investments in transportation infrastructure.”
6. There is great potential for meat exports.
Meat and dairy are high-value exports. Pork, in particular, has seen a dramatic increase in the number of pounds being shipped overseas, says Oppedahl. U.S. chicken exports have grown dramatically in the past decade. However, when you take into account the value, beef is No. 1.
The European Union has upped its dairy production, so that is a tougher market for the U.S. going forward, he explains. “Our dairy exporters are going to have to be much more diligent when seeking those markets,” he says.
7. Population trends affect export trends.
Food demand and incomes around the world are increasing. The middle class is growing in many countries, including China, which means more demand for meat and processed foods, says Oppedahl.
“People are escaping poverty, but it’s not always easy for countries to have enough food,” he says. “There is still a lot of postharvest loss since the transportation situation is pretty challenging in a lot of countries. Road infrastructure is poor, so that makes it difficult to get products to market in a quick enough time frame.”
The big shift in world population, he explains, will eventually be to Africa.
“Emerging economies are growing at four times the rate of the developing world,” he says.
8. Urbanization is rapidly increasing and is a key driver for food.
When we move to the city, we need more consumer products and fewer bulk products, says Oppedahl.
“As you grow your income, you consume more meat. As you become more urbanized, you have a higher amount of processed food in your diet,” he says.
9. We have a land and water advantage.
Many developing countries lack arable land that is available without destruction or deforestation, explains Oppedahl. Agriculture uses 70% of the fresh water in the world, so only countries that have water and land available will be able to meet the global demands for food. This means a larger fraction of the world’s food will be traded. China and India want to increase their food production, but they have water stress. Clean water is a big issue for China. The U.S. and South America tend to have fewer water-stress problems.
10. We can feed the world.
Corn has dropped off in trade since 2012, says Oppedahl, but soybeans and meat have continued to be key growth components for U.S. ag trade.
“There is a lot of growth potential for ag exports. As people around the world move up the income ladder, we can help to feed them.”
Managing through this farm economy downturn “can feel very challenging,” he says. “Hopefully, ag exports will help.”
So what is the future of agricultural trade and how are we going to attract that next generation of buyers? We need to have consumer-driven agriculture that meets their needs, says Oppedahl.
“We need to produce products that they want to buy. That takes innovations in marketing and technology.”