The Future of Agriculture: Powerful trends affecting the U.S. food and agricultural system

Trend #1: Real prices for agricultural commodities will continue to go down. Trend #2: Technology treadmill will continue to drive real prices down.

Real vs. Nominal Prices Nominal price is a good’s money price Real price is measure of value, scarcity & purchasing power From year-to-year, producers respond to nominal prices But in the long run, real prices are more important!

Why have real prices decreased? Supply has grown faster than demand –Changes in inputs –Increased productivity More & Better The effect of technology? –More output –Lower per unit production costs The Technological Treadmill –Has changed the structure of U.S. agriculture

Responses to Decreasing Real Prices and the Technology Treadmill … Migration out of agriculture (1950s-1960s) Get bigger (increase scale) –Buy or rent the neighbors’ farms –Adopt new technologies (industrialization) Obtain off-farm employment –off-farm income > farm income Get the government involved Improved marketing strategies

Trend #3: Food demand in the U.S. will not grow significantly in the future. Trend #4: The farm share of the retail food dollar will decline.

As a result of being a wealthy nation… The population is affluent and well fed –Actually over-fed U.S. market is saturated –Slow population growth –Aging population Food demand is income and price inelastic People buy more processed food, marketing services, and restaurant meals

Facts About U.S. Food Demand… Growing less than 1% per year Restaurant food = 50% of total expenditures A $70,000 annual income household spends –About 9% of after tax income on food products – less than 2% of income on raw ag commodity U.S. agriculture is facing the “Full Stomach Dilemma” –The natural evolution of an affluent society

Trend #5: The importance of international trade to the U.S. food and agricultural system will increase. Trend #6: U.S. consumers will eat more imported food.

Trade & U.S. agriculture Exports are 20-30% of total U.S. farm income Only growth point for U.S. ag = exports To lower and middle-income countries Trade is a two-way street Not all commodities benefit from open markets Trade increases competition Trade is based on comparative advantage And U.S. doesn’t have it for some ag products

Trade and U.S. agriculture Consumers benefit from access to imported foods Accelerates the Technological Treadmill Further pressure on production costs & real prices Trade is a two-way street!

Trend #7: The structure of U.S. agriculture will continue to become more “dualistic”.

What is the dual-farm structure? 18% of farms produce 90% of output –Farms with annual sales > $100,000 82% of farms produce 10% of output 50% of farms have sales < $10,000 75% of farms have sales <$50,000 –But have avg. household income of $62,925 –And have farm income of $-3,786

What created the dual-farm structure? The Technology Treadmill –Decreasing per unit returns led survivors to increase their scale of operation Rural residence or lifestyle farms –Need off-farm jobs to achieve livable income

What is the future structure of U.S. agriculture? Numbers of small farms are growing –Implications for rural communities –Off-farm job availability –Need for infrastructure & education Numbers of very large farms are growing The disappearing “middle”

Trend #8: Environmental and other effects of agriculture will become more important to society.

With increasing affluence… Society’s desire to consume more food  –Food quantity has low marginal value Desire for other goods & services  –Includes “environmental amenities” Air & water quality, ag open space, conservation, wildlife habitat –Food quality characteristics have high marginal value How, where, and who produced it

In this “post-productivist” era: Food availability is no longer a concern –Both a benefit and a curse of affluence! People no longer believe in production at any cost A “production at any cost” farm sector will not prevail Public still has residual good feelings about agriculture Agriculture is viewed as providing benefits other than food and fiber output

Trend #9: Agricultural multifunctionality will be highly valued in some regions of the country.

Multifunctionality… Agriculture has –Food function –Non-food functions Non-food functions –Agricultural open space –Wildlife habitat, water development –Economic diversity & jobs –Cultural or social heritage –Tourism –Carbon sequestration

Farms vary in their food and non-food functions… Differences in technology Differences in scale Environmental impacts Landscape amenities Relationship to the dual-farm structure?

How will multifunctionality be dealt with ? U.S. trade policy position Subsidies & protectionism cannot be used to preserve multifunctional agriculture Targeting subsidies hasn’t worked & won’t work Even though it’s politically popular Preservation of agriculture will be a local issue And a function of rural lifestyle decisions & off-farm job availability

Trend #10: The farm sector will continue to evolve and adjust.

Possible adjustments … Migration out of agriculture ? Get bigger (increase scale) ? Buy or rent the neighbors’ farms Adopt new technologies Increased off-farm employment ? off-farm income > farm income Improved marketing strategies ? Affluent consumers want more than just “food” More government involvement ?

How, where & who produced it… 1.Family farm (structure of agriculture) 2.Reduced transportation 3.Artisan vs. industrial (heirlooms) 4.Linkages between producers & consumers 5.Organic, natural, sustainable 6.Genetically modified organisms 7.Agricultural field & food processing labor conditions 8.Animal welfare 9.Community Food Security 10.Locally produced (local economy) 11.Pathogen or contamination risks

In an affluent, post-industrial society… Dual structure of production Dual structure of consumption Many consumers are disillusioned with the current industrial food & ag system Opportunities for creative producers & marketers

Contact Information Rhonda Skaggs, Ph.D. Professor, Agricultural Experiment Station Dept. of Ag Economics & Ag Business Box MSC 3169 New Mexico State University Las Cruces, NM Tel: or Fax: