Steven Zahniser U.S. Department of Agriculture Economic Research Service Agricultural Dialogue for Mesoamerica and the Dominican Republic Inter-American Development Bank Washington, DC, April 24, 2009 Mesoamerica, the Dominican Republic, and USDA’s Long-Term Agricultural Projections

USDA Agricultural Projections to 2018

What are the USDA Agricultural Projections? 10-year projection for the principal basic agricultural products o Supply, demand, international trade, and prices o Based in part on macroeconomic assumptions completed in October 2008 and on short-term projections published in November 2008 Release date: February 2009 Webpage:

Basic products include: Feed grains: Corn, barley, sorghum, oats, others Food grains: Rice, wheat Cotton Oilseeds: Soybeans, others Vegetable oils and protein meals: Soybean oil, soybean meal, others Meat: Beef, pork, poultry Fruit and vegetables Sugar

Varied Modeling Approaches Grains, cotton, oilseeds, vegetable oils, protein meals, meat: Country-commodity linked modeling system that encompasses about 40 country- and region- specific partial equilibrium models Fruit and vegetables: Simple linear projections, differentiated by product categories

Key Assumptions

Assumption: Economic Recovery in 2010 and 2011

Assumption: 2008 U.S. Farm Act continues throughout the period of the projections In reality, the 2008 U.S. Farm Act (Food, Conservation, and Energy Act of 2008) provides the legal structure for many U.S. agricultural programs only through 2012 crops The 2008 Farm Act modifies some support levels and creates a new revenue-based program of countercyclical support (ACRE)

Assumption: Real acquisition cost of imported crude oil to U.S. refiners grows from $49 to $65 per barrel February 2009 (nominal): $39 per barrel Nominal (blue) Real, 2000 prices (red)

Assumption: U.S. energy policy continues throughout the period of the projections Import tariff on ethanol o 54 cents per gallon, or about 14 cents per liter Tax credits for refiners and other merchants of gasoline that mix renewable fuels into their gasoline o For ethanol, the 2008 Farm Act reduced this credit from 51 to 45 cents per gallon, or about 12 cents per liter Duty-free quota for ethanol from the CAFTA- DR and CBI countries

Assumption: Slowed growth in U.S. use of corn to produce ethanol Use for ethanol U.S. corn production

U.S. Agricultural Imports from Mesoamerica-DR

U.S. agricultural imports from Mesoamerica-DR, FY 2008

U.S. agricultural imports from Mesoamerica-DR, FYs Total, Mesoamerica-DR (blue) Mexico (green) Rest of Mesoamerica-DR (red)

Composition of U.S. agricultural imports from Mesoamerica-DR, FYs

Projected increases in U.S. population and income (and in export supply from Mesoamerica-DR) provide basis for increased U.S. imports U.S. population Projected to grow from 304 to 331 million between 2008 and 2018 Compound annual growth rate (CAGR) of 0.9 percent U.S. real per capita income (2005 prices) Projected to grow from $43,512 to $50,480 over the same period CAGR of 1.5 percent

U.S. agricultural imports, FYs : Projected compound annual growth rate = 3.3% Total Share of Mesoamerica-DR: 18-20%

U.S. fresh vegetable imports, FYs : Projected compound annual growth rate = 4.1% Total Share of Mesoamerica-DR: 68-71%

U.S. fresh fruit imports, Projected compound annual growth rate = 3.7% Total Share of Mesoamerica-DR: 49-56%

U.S. Agricultural Exports to Mesoamerica-DR

U.S. agricultural exports to Mesoamerica-DR, FY 2008

Composition of U.S. agricultural exports to Mesoamerica-DR, FYs

Projected increases in Mesoamerica-DR’s population and income and in U.S. supply provide basis for increased imports by Mesoamerica-DR Population Projected to grow from 161 to 182 million between 2008 and 2018 CAGR of 1.7 percent Real per capita income (2005 prices) Projected to grow from $6,183 to $7,528 over the same period CAGR of 2.0 percent

U.S. agricultural exports, FYs : Projected CAGR = -0.2% (1.5% during ) Share of Mesoamerica-DR: 15-19% Total

Projected prices of corn and soybeans Soybeans Corn

Projected price of choice steers, Nebraska

Corn—Mexico, Central America, and the Caribbean: Feed use exceeds food use Total use (blue) Feed use (red) Food use (green)

Corn—Mexico, Central America, and the Caribbean: Projected production and imports grow at similar rates Production (black) Imports, incl. cracked corn (red) Imports (blue)

Soybeans—Mexico, Central America, and the Caribbean: Projected imports correspond to pork and poultry production Pork and poultry production Soybean consumption Soybean imports (dashed)

Beef—Mexico, Central America, and the Caribbean: Consumption grows faster than domestic production Consumption (red) Production (blue) Exports (solid); Imports (dashed)

Conclusions USDA Agricultural Projections to 2018 depict a scenario with the following characteristics: Economic recovery in 2010 and 2011 Agricultural trade between Mesoamerica-DR and the United States increases during the projection period Traditional areas of comparative advantage: Mesoamerica-DR: Fresh vegetables and fruit, coffee, beer United States: Grains, oilseeds, meat