- Worldwide agriculture is a $3 trillion business and in the U.S., the agriculture sector is leading the recovery from our most recent economic recession.
“In the U.S. we entered into three major trade agreements last year and there is more to come. We can either play or we can watch these developing countries play, and it appears our government has made a commitment to play in the world trade market,” he added.
By 2020, the USDA estimates the agriculture export market will top one trillion dollars. Currently, agriculture exports stand at something close to $700 billion, up 150 percent since 2000.
The path of least resistance in liberalizing trade comes from bilateral agreements between two countries. The most difficult path is unilateral agreements that involve numerous countries.
As long as profit is high in the export business, Dwyer contends the growth in bilateral agreements will continue.
Never underestimate the ability of governments to think they are doing the right thing and end up making huge mistakes. For example, in 2008, governments started banning exports of food to be sure they had an adequate supply of food for their country.
“All that did was scare all the major importers of food around the world,” the USDA economist said.
Russia did this again in 2011 with wheat. It caused a price spike in wheat, but depressed prices Russian wheat farmers received for their crop.
What this policy decision did was to lower the profitability in the ag sector, which slows down the supply response.
“It would be nice to say that won’t happen again, but with stocks at such low levels, the conditions are right for export bans and subsequent price spikes,” Dwyer said.
Agriculture is one of the most energy intensive sectors of the U.S. economy. If the price of petroleum goes up, the price of production goes up for farmers.
Many of the same factors that drive agriculture profitability drive energy prices. China, for example, will buy more food, but they will also buy more cars, which need fuel.
“Yields and cost of production is directly tied to the type seed used. There is no better technology in the world than biotechnology.
“We are just scratching the surface on such technology as drought tolerant crops. The payoff will be huge, but the question is: Where is it headed.
“There is no question the demand for food is going to increase over the next decade, and well beyond.
The only two ways to meet growing demand is to increase yield or bring new land into production. Failing to keep supply and demand in harmony could really create high food prices and be a negative factor in world agriculture growth,” Dwyer said.