Developments in International Agricultural Markets: Temporary or Permanent

Martin Haworth Director of Policy The NFU champion British farming, and provide professional representation and services to its farmer and grower members National Farmers’ Union of England and Wales

The last 25 years Oversupply in developed countries Falling real producer prices Food price deflation International trade tension Concerns about subsidy, import protection & export competition The NFU champion British farming, and provide professional representation and services to its farmer and grower members

A dramatic change today Rapid rise in world commodity prices Concerns about food price inflation (China, Russia) Economic importance of agriculture re-emerges Food security an issue The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Reasons for the Commodity Price explosion Demand: World population increases Growing affluence (China, India) Bio-energy Supply: Poor weather conditions Land Water scarcity The NFU champion British farming, and provide professional representation and services to its farmer and grower members

World price increases Wheat Maize + 63 Barley + 95 Soybeans + 56 Butter + 78 Skimmed milk Cheese + 71 Poultry + 11 Beef - 1 Pork - 7 Sugar - 2 The NFU champion British farming, and provide professional representation and services to its farmer and grower members

World population growth World population: The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Economic growth : India and China Growth +10% per annum since 2001 Forecast to slow down, but not reverse The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Consequences of growth Increase in demand for protein & milk - Example of China for milk "I have a dream to provide every Chinese, especially children, sufficient milk each day." – Chinese Premier Wen Jiabao Chinese milk consumption per capita per day increased from 27 kcalories in 2002 to 43 kcalories in 2005 (equivalent to just under 50ml) Consumption is increasing at an annualised growth rate of between 15% -20% The government wants daily milk consumption to rise to 500ml per person per day. (The US consumes 785ml of milk equivalent per capita per day) The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Biofuel Drivers for biofuel: Energy Security (USA, Germany) Green House Gases The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Ambitious targets USA: 5.4 to 35 billion gallons by 2017 = 320 million tonnes of maize (2007 harvest 332) European Union: 20% renewable energy by % transport fuel The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Will these targets be met? There is a backlash (concerns about food, biodiversity, carbon impact etc. But, the issues of energy security and climate change are permanent Much depends on the price of oil And 2 nd generation technology (cellulosic) The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Weather issues Is the weather cyclical or structural?  La Nina means cold and dry conditions in the Midwest in early 2008  Good rains in Southern Africa in early 2008  The growing conditions for winter wheat will be poor  The Southern African maize harvest will be good The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Weather issues Global warming  The temperate regions will move towards the poles  Grain production in Canada, Russia and Argentina will increase but will fall in Australia  In general, crops will require more water  The pace of desertification will increase

Water issues Protein demand increases water demand:  Fresh Beef 1Kg = 15t of water  Fresh Lamb 1kg = 10t of water  Fresh Poultry 1Kg = 6t of water  Cereals 1 Kg = 1.5t of water  Citrus 1Kg = 1t of water  Palm Oil 1Kg = 2t of water  Pulses, roots and tubers 1Kg = 1t of water The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Water is running out The High Plains (Ogallala) Aquifer supplies irrigation water to 12.7m acres of the US Midwest. Water is being extracted at 100x the replenishment rate. Sustainable depletion rate is 3maf per year – actual draw down is 18maf. SourceUCDavis Experts believe that in 17 years the Murray River will be too salty to drink. The Murray is one of Australia’s country's foremost river systems, responsible, along with the Darling River, for irrigating 40 percent of the country's crops. The growing of European-style crops is one of the main reasons for the degradation of the fresh water, experts say. The large amounts of irrigation that run into the ground dissolve the salt below into runoff. Source CSM The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Water is running out - cont…  The Colorado and Rio Grande are dry for much of their length.  The Rio Grande goes dry 200 miles before its mouth.  The Indus has lost 90% of its flow over the past 60 years.  The Amu Darya and Syr Darya both fail to reach the Aral Sea, formerly the fourth largest body of fresh water on Earth. The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Water is running out – cont…  Iran, a country of 70 million people, is over-pumping its aquifers by an average of 5 billion tons of water per year, the water equivalent of one third of its annual grain harvest.  In India’s North Gujarat state, the water table is falling by 6m per year. In Tamil Nadu, a state with more than 62 million people in southern India, wells are going dry almost everywhere and falling water tables have dried up 95% of the wells owned by small farmers, reducing the irrigated area in the state by half over the last decade. The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Water and Land are running out Almost all the potential 0.7Gha potentially available for rain fed agriculture is currently in use as pasture. If global meat consumption rises to the current Western average of 80kg per person then an additional 2.5GHa of arable land would be required for fodder crops. Assuming an increase in feed lot production leaves the net available arable land available for crop production at 0.44 GHa. Half of this land lies in Angola, the Democratic Republic of Congo, Sudan, Argentina, Bolivia, Brazil and Columbia The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Are these things permanent or temporary? The NFU champion British farming, and provide professional representation and services to its farmer and grower members In my view, permanent, but predictions can be wrong.

Consequences and conclusions North West Europe relatively favoured Do we have to revisit agricultural policies? Is the balance between economy and environment correct? The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Consequences and conclusions – cont… Will consumer attitudes change (animal welfare, organic etc) Will carbon footprint/ labelling be an issue? Consequences for developing countries? The NFU champion British farming, and provide professional representation and services to its farmer and grower members

Developments in International Agricultural Markets: Temporary or Permanent