Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The U.S. Farm Export Boom: How Will It Be Shaped by Global Infrastructure?

Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The U.S. Farm Export Boom: How Will It Be Shaped by Global Infrastructure?

Article excerpt

A recent surge in U.S. agricultural exports has triggered a wave of optimism about the industry's prospects in the world food market. At the root of the industry's recent export gains are rapidly growing populations and incomes across Asia and Latin America. Adding fuel to U.S. agriculture's newfound optimism is the recent emergence of China-the world's most populous nation and most rapidly growing economy-as a net importer of food.

The world food market may not live up to current expectations, however, without substantial investment in food processing and distribution infrastructure in developing countries. Much of the developing world has limited capacity to process and distribute food, whether imported or produced domestically. For example, in China and Mexico-two of U.S. agriculture's most promising markets-the existing transportation and distribution systems are inadequate to meet current food system needs. Such infrastructure limitations could become a crucial bottleneck for exports of some U.S. farm commodities. At the same time, however, exports of other kinds of products, including U.S. farm and food technology, could be strengthened by efforts to upgrade the infrastructure supporting the food systems in the developing world.

This article examines how an inadequate food system infrastructure in the developing world may affect U.S. agriculture's prospects in the world food market. The first section assesses the potential size of the world food market. The second section evaluates how limitations in food system infrastructure in developing countries could limit that potential, focusing on China and Mexico as illustrative case studies. The third section considers implications of infrastructure limitations for U.S. farm and food exports. The article concludes that inadequate infrastructure could tilt U.S. exports toward food technology and products and away from traditional bulk commodities.

WHERE IS THE WORLD FOOD MARKET GROWING?

U.S. agriculture is facing its best prospects in the world market since the 1970s. Economic growth continues in traditional developed markets, such as Europe, Japan, and Canada. What makes the period ahead especially promising is the potential for a number of small and large developing countries to increase food purchases substantially. Countries across Asia and Latin America are experiencing rapid growth in both their economies and their populations. Thus, not only is food need growing, but consumers increasingly have the incomes to improve their diets. Based on the forces at work, Asia and Latin America appear to hold particularly bright prospects for U.S. exporters of food and agricultural products.

Before looking ahead, it should be recognized that Asia and Latin America already have made a big impact on U.S. agricultural exports. Five of the top seven markets for the nation's agricultural exports in 1995-Japan, Mexico, Korea, Taiwan, and China-are in Asia and Latin America. While the industrial countries of the European Union are still a big market for U.S. farm products, the European share of U.S. agriculture's exports has declined, shrinking from a fourth a decade ago to about a seventh in 1995 (Chart 1). Meanwhile, Asia has quietly become U.S. agriculture's dominant customer. Together Japan, China, and a cluster of other high-growth nations around Asia's Pacific Rim now account for nearly 40 percent of the industry's foreign sales. China's imports of U.S. farm products have tripled in the last few years. Mexico is the fourth-largest market overall. Sales to Mexico lost some steam last year due to the downturn in the Mexican economy, but Mexico and Latin America remain promising markets of longterm potential.

Recent trends in population and income promise to make Asia and Latin America even more attractive markets for U.S. producers in the years ahead. Today, the world's population is about 6 billion. Only a fourth of the world's residents live in the high-income, developed nations, while three-fourths live in the developing countries of Asia, Latin America, and Africa. …

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