Improving Agriculture’s Global Competitiveness and Profitability

Discussion Comments

Barry Goodwin

Issues and Questions:

• Global competitiveness versus U.S. profitability—are they compatible?– Production of some commodities may be more efficient

elsewhere (e.g., sugar, rice?)– Policy plays important role in determining

“profitability” of U.S. agriculture- around 50% of net income in recent years

• Biotechnology—– Consumer acceptance, labeling, trade disputes,

intellectual property rights, etc.– 11/3 AP Headline “Sales of cloned cattle multiply”

Policy Questions:

• Policy distortions are critical-- $190 billion U.S. Farm Bill

• A fundamental question:

– What would competitiveness and profitability look like in a different policy environment?

• Policy and “Profitability” — Whose profitability?

– Close to 50% U.S. farmland operated by tenant

– $1 payments raises rents by $0.80

– Land values capture policy benefits

• WTO Reforms—what is the outlook?

– JIE paper of Andy Rose concluded WTO had little effect

Emerging Market Players:

• China

– Much potential for growth as export market

– Accession to WTO should constrain government

• South America

– Major growth in exports, fundamentally changing world markets

• Expanding EU

– Poland, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Slovakia, Slovenia, Cyprus, and Malta

• FSU (except meat, exports down)

China

Source: ERS China Briefing Room

Example: S.A. SoybeansHypothetical Assesment of "export cost competiveness," 1998/99

ArgentinaU.S. Nth. Buenos Aires/

Cost Item Heartland Parana Mato Grosso Sth. Sante Fe(a.) (b.) (c.) (a/b) (a/c)

Production Cost Variable Costs 1.71 2.78 3.17 1.90 Fixed Costs (non-land) 1.49 1.03 0.58 0.79 Land 1.91 0.35 0.14 1.24 Total Production Cost 5.11 4.16 3.89 3.93 1.31 1.30

Internal transport & marketing 0.43 0.85 1.34 0.81Cost at Border 5.54 5.01 5.23 4.74 1.06 1.17

Freight costs to Rotterdam 0.38 0.57 0.57 0.49

Price at Rotterdam 5.92 5.58 5.80 5.23 1.02 1.13

Source: Schnepf, Dohlman, Bolling "Agriculture in Brazil and Argentina: Developments and Prospects for Major Field Crops" USDA, November 2001

minimums maximums

Brazil

$/bu

Comparison with U.S.

Questions to Ponder:

• What is the outlook for policy reform?• Who really profits from policy benefits?• What is the role for private versus public R&D

and education funding?• WTO, G21, U.S., and E.U.—where are we going?• Biotech acceptance and regulatory issues