Long-term Projections of International Agricultural Trade, ECOWAS Agriculture to 2025 and Model Jim Hansen, Syd Cochrane, Getachew Nigatu Agricultural Economist USDA, Economic Research Service June 27, 28, 29 2016

Presentation Outline Description of USDA 10 Year Commodity Projections Macroeconomics, population, and energy ECOWAS Model US commodities and International trade ECOWAS agricultural projections Conclusion

USDA’s Agricultural Projections 10-year projection of major commodities - Supply, demand, trade, and prices. - Based on November 2015 market conditions. Released Feb 2016 Assumptions: - Continuation of current U.S. law - Continuation of existing international trade agreements - Population growth slows, strongest in developing countries - Macroeconomic growth – strongest in emerging markets Composite of Model Results and Analysts Judgment - Modeling system: dynamic partial equilibrium trade - 40 countries/regions, - 24 commodity markets Equilibrates: (Supply = Demand) & (Imports = Exports) Solves for prices and trade, clear world and country markets

Demand Structure: Per Capita GDP growth - Population growth - GDP growth Own and Substitute Prices Rural and Urban for some countries Diet Diversification in developing countries  GDP/Capita Growth  Urbanization  Income distribution equality  Food away from home The degree and rate of change of DIET DIVERSIFICATION increases with:  GDP/Capita Growth  Urbanization  Income distribution equality  DIET DIVERSIFICATION means * LESS consumption of: Roots and Tubers Low-quality grain varieties (switching to high-quality varieties may lower yields) * MORE consumption of: Fruits & Vegetables Vegetable Oils & processed ceral products Meat & dairy products => greater demand for FEED GRAINS

Changes in Food Consumption: Greater consumption of: - Fruits & Vegetables - Vegetable Oils - Processed Cereal Products - Meats & Dairy Products Feed Demand Increases  Import demand for Feed grains Less consumption of: - Staple grains - rice in Asia, corn in Indonesia and Mexico - Low-quality grain varieties and switching to high-quality (high-quality varieties may lower yields) - Roots & tubers The degree and rate of change of DIET DIVERSIFICATION increases with:  GDP/Capita Growth  Urbanization  Income distribution equality  DIET DIVERSIFICATION means * LESS consumption of: Roots and Tubers Low-quality grain varieties (switching to high-quality varieties may lower yields) * MORE consumption of: Fruits & Vegetables Vegetable Oils & processed ceral products Meat & dairy products => greater demand for FEED GRAINS

ERS ECOWAS Model

Commodities in ERS ECOWAS Model Livestock: (3 sectors) Beef, Pork, and Poultry Crops: (9 sectors) Wheat, Rice Corn, Sorghum, Other-Coarse-Gr (mostly millet) Other seeds (mostly peanuts), meal and oil Cotton, sugar, cocoa Blank sections no data – barley, soybeans meal oil,

Elasticity Partial Equilibrium model Model in Excel Spread sheet - 3 main sheets Commodity models (Forecast) Parameters, Base-Scenario (table) Data Requirement for Model Macroeconomic variables Agriculture data (aggregate) – USDA Production, supply and Disappearance and FAO Prices and Policies

Modeling the Agriculture Economy: Production & consumption Crops: area, yield, consumption, stocks and trade Livestock: animals inventory, production, consumption, trade, stocks Model as a System Accounting (0 = PROD+BSTK+IM-TCON-EX-ESTK) Number of different identities must hold Stock issue, government, farm household

Modeling Production: Production Gross return = lagged prices x expected yield Yield = f(gross return, technology time trend) Area = f(gross return, alternative crops GR, tech) Production = Yield x Area Total Supply = Production + Imports + Beg Stocks

Modeling Consumption: Per capita cons = f(own price, sub prices, income) Food cons = per capita cons x population Total cons = food cons + feed cons + waste + industry use Total Disappearance = Total cons + exports + end stocks

Modeling Stocks & Trade: Ending and beginning stocks Beginning stocks = lagged(Ending stocks) Ending stocks = f(production or consumption, trend) Exports = f(consumer price, export price, trend) Imports = f(producer price, export price, trend) Imports and exports are also identities for some commodities Imports = Cons + endstocks – production – exports-begstocks

Closing the Model: Domestic prices solved in the model for some commodities Total Disappearance = Total cons + exports + end stocks Total Supply = Production + Imports + Beg Stocks Prices solved in the model until supply = demand 0 = Total Supply - Total Disappearance

ECOWAS Commodity Projections

ECOWAS Area Harvested (million ha) Million hectares Other coarse grain Sorghum Corn Oth-oil seed Rice

ECOWAS Area Harvested (million ha) Million hectares Rice Oth-oil seed Corn Sorghum Other coarse grain (Millet)

ECOWAS Yields: (mt/ha) Metric tons per hectares Corn Rice Are the recent yield data correct?

ECOWAS Yields: (mt/ha) Metric tons per hectares Other oil seed Sorghum Other coarse grain

ECOWAS Corn Production, and Consumption (million mt) Million metric tons Total Consumption Production Food Feed

Imports and Exports (1,000 mt) ECOWAS Corn Imports and Exports (1,000 mt) Thousand metric tons Imports Exports

ECOWAS Sorghum Production, Food, and Feed Consumption (million mt) Million metric tons Production Food Feed

Imports and Exports (1,000 mt) ECOWAS Sorghum Imports and Exports (1,000 mt) Thousand metric tons Exports Imports

ECOWAS Other Coarse Grain (Millet) Production and Consumption (million mt) Million metric tons

ECOWAS Wheat Imports, Consumption, Exports and Production (million mt) Million metric tons Imports Consumption Exports

ECOWAS Rice Total Consumption, Production and Imports (million mt) Million metric tons Total Consumption Production Imports

ECOWAS Other Oilseeds (Peanuts) Production, Exports, and Consumption (million mt) Million metric tons Total Consumption Production Crush Food Feed, seed & waste

ECOWAS Other Oilseeds (Peanuts) : Crush, Food, and Feed, seed & waste (million mt) Million metric tons Total Consumption Crush Food Feed, seed & waste

Consumption

Per Capita Consumption (kg/capita) ECOWAS Food Per Capita Consumption (kg/capita) Kilograms/person per year Rice Corn Wheat

Per Capita Consumption (kg/capita) ECOWAS Food Per Capita Consumption (kg/capita) Kilograms/person per year Other Coarse Grain Millet Sorghum

Per Capita Consumption (kg/capita) ECOWAS Food Per Capita Consumption (kg/capita) Kilograms/person per year Other Oilseeds Peanut Oil Peanuts

Pork, Poultry, and Beef Production and Feed Demand

Production, Consumption and Imports (million mt) ECOWAS Beef Production, Consumption and Imports (million mt) Million metric tons Consumption Production Imports

Production, Consumption and Imports (million mt) ECOWAS Pork Production, Consumption and Imports (million mt) Million metric tons Consumption Production Imports

Production, Consumption and Imports (million mt) ECOWAS Poultry Production, Consumption and Imports (million mt) Million metric tons Consumption Production Imports

ECOWAS Meat Production: Beef, Poultry and Pork (million mt) Million metric tons Beef Poultry Pork

Feed Demand

Corn, Peanut-Meal, Peanuts, and Sorghum (million mt) ECOWAS Feed Demand: Corn, Peanut-Meal, Peanuts, and Sorghum (million mt) Million metric tons Corn Increase 1980-2003 flat 2003-2016 + 2.4 mmt, Projection little growth Corn Other-Meal Peanut Other-Oilseeds Peanut Sorghum

Production, Exports, and Consumption (million mt) ECOWAS Cotton Production, Exports, and Consumption (million mt) Million metric tons Production Exports Total Consumption

Total world grain & oilseeds1 Production, yield, area harvested, population & per cap production Index: 1970 = 100 Production Growth rates: Exponential Trend (%/year) 1970-1990 1990- 2009 2010- 2019 Production 2.4 % 1.54 1.27 Yields 1.9 1.21 0.70 Area 0.50 0.33 0.57 Yield Area Harvested 1/Oilseeds = soybeans + rapeseed + sunflowers. Source: Compiled from USDA’s PS&D Database & Baseline Projections

Total world grain & oilseeds1 Production, yield, area harvested, population & per cap production Index: 1970 = 100 Growth rates: Exponential Trend 1970 - 90 1990 - 09 2010 - 19 Production 2.4 1.54 1.27 Yields 1.9 1.21 0.70 Population 1.7 1.30 1.06 Area 0.50 0.33 0.57 Capita/Pro 0.61 0.28 0.20 Production Yield (green) Population (red) Area Harvested Per Capita/Production 1/Oilseeds = soybeans + rapeseed + sunflowers. Source: Compiled from USDA’s PS&D Database & Baseline Projections

Conclusions and Summary: Strong global trade growth in most agriculture commodities, without significant increases in real world commodity prices. Strong income growth in developing countries and urbanization lead to increased import demand for grains, High Value Products Trade to remain very competitive Expanding production potential in Brazil & Argentina, FSU, EU Indonesia expands palm oil production. Uncertainties, Ethanol and trade, Bio-energy policies, BSE, Avian influenza, food safety, China and Brazil, natural resource constraints – water, changing demographics and effect on food demand

USDA-ERS Long-Term Projections Thank you USDA-ERS Long-Term Projections briefing room http://www.ers.usda.gov/briefing/baseline