A Giant Awakens: China’s Global Economic Emergence and Implications for US Agriculture David Roland-Holst Department of Agricultural and Resource Economics UC Berkeley Wells-Fargo Agribusiness Seminar Las Vegas 12 October 2005
Contents I. Introduction II. Emergent China and Other Markets III. Go West, U.S. Farmers � Export Horizons � Investment Horizons Roland-Holst 2
Introduction • The landscape of international agricultural trade will change rapidly in the coming decade, and U.S. farmers have an opportunity to reap large gains from this. • The current round of World Trade Organization (WTO) negotiations is a watershed event for global agriculture. • For the first time in history, significant agricultural protection is on the bargaining table, including over $300 billion of direct and indirect farm support in OECD countries. Roland-Holst 3
Introduction As a whole, United States agriculture stands to gain from further trade liberalization for three reasons: 1. U.S. average protection levels for farm and food products are lower than those of our major trading partners (Europe, Japan, and Korea) 2. The way we support agriculture at home is less trade distorting. This will tilt competitive advantage in our favor. 3. Huge potential markets will emerge in East Asia. Roland-Holst 4
Agricultural Subsidies (percent of producer price) 0 10 20 30 40 50 60 70 Japan Europe United States New Zealand 1991-93 2001 Roland-Holst 5
Emergent China and Other Asian Markets Roland-Holst 6
China’s Robust Growth will Continue GDP in 1997 USD Billions 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2005 2010 2015 2020 China Japan Korea, Taiwan ASEAN Roland-Holst 7
China Will be Asia’s Largest Food Importer (Net Food Imports in 1997 USD Billions) 80 70 60 50 40 30 20 10 0 2005 2010 2015 2020 China Japan Korea, Taiwan ASEAN Emergence of China’s domestic market will overtake food capacity. Roland-Holst 8
Asian Growth and Food Import Dependence Three Examples Roland-Holst 9
Meat Domestic Demand and Net Imports per Capita (1997, China = 1) 80 70 60 50 40 30 20 10 0 Vnm Phl Id Chn Tha Mys Kor Jpn -10 -20 Demand Net Imports Roland-Holst 10
Cereals and Feed Domestic Demand and Net Imports per Capita (1997, China = 1.0) 120 100 80 60 40 20 0 Vnm Phl Id Chn Tha Mys Kor Jpn -20 Demand Net Imports Roland-Holst 11
Other Crops Domestic Demand and Net Imports per Capita (1997, China = 1.0) 35 30 25 20 15 10 5 0 Vnm Phl Id Chn Tha Mys Kor Jpn -5 -10 Demand Net Imports Roland-Holst 12
Export Horizons If significant OECD agricultural protection is ultimately removed, two major new opportunities exist for U.S. farm and food exports: 1. China – an emergent giant with scarce resources. 2. High income Asian countries – very high protection levels and significant purchasing power. Roland-Holst 13
Agricultural Trade with China • Our results indicate that China’s completion of WTO commitments will stimulate growth and change its trade orientation toward significant food import dependence. • The primary drivers of this process are rapid income growth and resource scarcity. Roland-Holst 14
Chinese Agricultural Trade (USD 1997 billions in 2010) 0 5 10 15 20 25 Fishery Forestry Beverage OthFood Wool&Silk Meat&Dairy OthCrops Plant Fiber Sugar Veg Oil and Seed Fruit&Veg OthCereal Rice Exports Imports Roland-Holst 15
U.S. Share in Chinese Food Imports (2010) 0% 20% 40% 60% 80% 100% Rice Oth Cereal Fruit&Veg Veg Oil Sugar Plant Fiber Oth Crops Meat&Dairy Wool&Silk OthFood Beverage Forestry Fishery USA ROW Roland-Holst 16
Japanese Farm and Food Imports • Given the scale of prior protection, imports will increase very sharply. • Rice, Meat & Diary, and Processed Food see most of the absolute growth, which far exceeds the value of new Chinese imports in the same categories. Roland-Holst 17
Japanese Agricultural Trade (USD 1997 billions in 2010) 0 5 10 15 20 25 Fishery Forestry Beverage OthFood Wool&Silk Meat&Dairy OthCrops Plant Fiber Sugar Veg Oil and Seed Fruit&Veg OthCereal Rice Exports Imports Roland-Holst 18
U.S. Share in Japanese Agriculture Imports (2010) 0% 20% 40% 60% 80% 100% Rice Oth Cereal Fruit&Veg Veg Oil Sugar Plant Fiber Oth Crops Meat&Dairy Wool&Silk OthFood Beverage Forestry Fishery USA ROW Roland-Holst 19
U.S. Share in Global Food Trade (2010) 0% 20% 40% 60% 80% 100% Rice Oth Cereal Fruit&Veg Veg Oil Sugar Plant Fiber Oth Crops Meat&Dairy Wool&Silk OthFood Beverage Forestry Fishery US Share of USA ROW Global GDP Roland-Holst 20
Investment Horizons – The Multinational Era MNC’s now dominate global value creation: • The top 500 MNCs control 50% of global trade and 20% of global GDP. • 1998 sales of MNCs were $11 Trillion, global exports only $7 Trillion. • Localization is the way to growth: Local sales by US affiliates exceed four times their exports to UK, Germany, Norway, Brazil, and Spain. • 80% of US-Japan trade is between affiliates. • 50% of China’s exports to US are from US affiliates. Roland-Holst 21
Investment Horizons Agriculture is a multinational under-achiever, generally a stay-at-home sector. California farmers should follow food retailers and establish their own operations in Asia. Double targeting: produce for export and for the domestic market. Financial services are an essential source of comparative advantage for U.S. agriculture, both in trade and FDI. US technological superiority in production, marketing, and finance can facilitate market entry and expansion. Roland-Holst 22
Investment Horizons Opportunities • New capacity and new markets. • Diversification toward superior growth. • Substantial technological leadership. • Advanced financial services support. Challenges • Land tenure and legal institutions. • Structuring local partnership. • Regulatory environment. Roland-Holst 23
Multinational Strategic Development MNC Markets Sources - Capacity Japan Intensive Crops Korea California China China Extensive Crops Southeast Asia Eastern Europe Former Soviet Union Roland-Holst 24
A New Agenda for Agricultural R&D • If they choose to globalize, U.S. farmers’ primary source of comparative advantage will be technology. • Historic barriers of scale and property rights are falling away (Brazil, China). • Just as it did in semi-conductors and biotechnology, the public-private R&D supply chain can give US ag/food firms decisive competitive advantages in the global marketplace. Roland-Holst 25
It is time for U.S. agriculture to take its rightful place among the knowledge- based industries of the 21 st century U.S. economy, leveraging technological leadership into a global presence along with semiconductors, biotechnology, and finance. Roland-Holst 26
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