February 17, 2011

 

Burgeoning global middle class signals fundamental change for US grain industry

 

 

Rising incomes and changes in dietary preferences of the growing middle class in developing countries are seen as important drivers of demand for US coarse grains, according to J.B. Penn, chief economist with Deere & Company.

 

As keynote speaker, Penn set an optimistic tone during the opening session of the US Grains Council's 2011 International Marketing Conference and Annual Membership Meeting in New Orleans.

 

Fast-growing world demand is keeping commodity prices high. Penn noted that 40% of the world's population now lives in countries with economies that are growing at 8% annually.

 

"This is good news for people with grain to sell," Penn said.

 

Penn contended that the world is undergoing a significant and sustainable shift in supply and demand. "We are in the middle of a broad structural shift. People want to eat more and better," he said.

 

Worldwide consumption is now outpacing agricultural production, causing food prices to increase to historic highs. He said rising food costs can be a catalyst for uprising and protests to emerge over long-simmering social unrest, as evidenced recently in Tunisia and Egypt.

 

Growth in agricultural productivity will come from yield increases on land already in production, not new cropland. "There isn't much more arable land, and bringing new land into production is too expensive and controversial," Penn said.

 

Penn said agriculture's challenge is to produce twice as much food in the next 40 years with the same resources as today. He mentioned the Global Harvest Initiative, www.globalharvestinitiative.org, a public-private initiative established in 2008 to help agriculture meet the challenge of world food demands while sustaining natural resources.

 

In 2007, the world reached the mark where 50% of the population lives in urban areas, and this increases the importance of "enlightened trade policies."

 

"The link between increased productivity and increased consumption is trade. Things like trade barriers, export restrictions and tariffs cause panic in world markets. A rules-based trading system is critical for our industry to meet world demand," Penn said.

 

While acknowledging that volatility is the new norm, Penn believes the fundamentals of supply and demand are strong and present a promising future for agriculture.