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A Giant Awakens: Chinas Global Economic Emergence and its Implications for US Agriculture David Roland-Holst Department of Agricultural and Resource Economics College of Natural Resources UC Berkeley I nternational Trade and Global

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A Giant Awakens: China’s Global Economic Emergence and its Implications for US Agriculture

David Roland-Holst

Department of Agricultural and Resource Economics College of Natural Resources UC Berkeley

I nternational Trade and Global Competition UC President's Advisory Commission on Agriculture and Natural Resources 7 April 2005

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Contents

I. Introduction II. Emergent China and Other Markets

  • III. Go West, California Farmers
  • Export Horizons
  • Investment Horizons
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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.

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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.

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Agricultural Subsidies

(percent of producer price)

10 20 30 40 50 60 70 New Zealand United States Europe Japan

1991-93 2001

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Emergent China and Other Asian Markets

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China’s Robust Growth will Continue

GDP in 1997 USD Billions

1,000 2,000 3,000 4,000 5,000 6,000 7,000

2005 2010 2015 2020

China Japan Korea, Taiwan ASEAN

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China Will be Asia’s Largest Food Importer

(Net Food Imports in 1997 USD Billions)

10 20 30 40 50 60 70 80

2005 2010 2015 2020

China Japan Korea, Taiwan ASEAN

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Asian Growth and Food Import Dependence

Three Examples

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Meat

Domestic Demand and Net Imports per Capita

(1997, China = 1)

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10 20 30 40 50 60 70 80 Vnm Phl Id Chn Tha Mys Kor Jpn Demand Net Imports

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Cereals and Feed

Domestic Demand and Net Imports per Capita

(1997, China = 1.0)

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20 40 60 80 100 120 Vnm Phl Id Chn Tha Mys Kor Jpn Demand Net Imports

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Other Crops

Domestic Demand and Net Imports per Capita

(1997, China = 1.0)

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5 10 15 20 25 30 35 Vnm Phl Id Chn Tha Mys Kor Jpn Demand Net Imports

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Export Horizons

If significant OECD agricultural protection is ultimately removed, two major new

  • pportunities 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.

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Agricultural Trade with China

  • Our results indicate that China’s

completion of WTO commitments will stimulate growth and change its trade

  • rientation toward significant food

import dependence.

  • The primary drivers of this process are

sustained income growth and resource scarcity.

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Chinese Agricultural Trade

(USD 1997 billions in 2010)

5 10 15 20 25

Rice OthCereal Fruit&Veg Veg Oil and Seed Sugar Plant Fiber OthCrops Meat&Dairy Wool&Silk OthFood Beverage Forestry Fishery

Exports Imports

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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

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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.

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Japanese Agricultural Trade

(USD 1997 billions in 2010)

5 10 15 20 25

Rice OthCereal Fruit&Veg Veg Oil and Seed Sugar Plant Fiber OthCrops Meat&Dairy Wool&Silk OthFood Beverage Forestry Fishery

Exports Imports

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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

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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

USA ROW

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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.

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Investment Horizons

Agriculture is a multinational under- achiever, generally a stay at home sector. California farmers should follow food retailers and establish their own

  • perations in Asia.

Double targeting – produce for export and for the domestic market. Particularly in higher value added crops, livestock, and processed food, US capital and technology can facilitate market entry and expansion.

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Investment Horizons

Opportunities

  • New capacity and new markets.
  • Diversification toward superior

growth.

  • Substantial technological leadership.

Challenges

  • Land tenure and legal institutions.
  • Sourcing financial capital.
  • Regulatory environment.
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A New Agenda for Agricultural R&D

  • If they choose to globalize, California

farmers’ primary source of comparative advantage will be technology.

  • 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.

  • To make this work, the historical alliance

between universities and agriculture must be re-affirmed and expanded.

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Let me close with a simply question: How has California agriculture achieved gains in productivity, quality, and diversity beyond the imagining of our grandparents, even our parents? The answer is education, and its inseparable companion, innovation.

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It is time for agriculture to take its rightful place among the knowledge based leaders of the California economy, leveraging its technological leadership into a global presence along with semiconductors and biotechnology. If you accept this challenge, UC will support you with a continuous stream

  • f ideas and talent, as it always has.