Article of the Day

In Chinese culture, fish symbolize abundance and prosperity. A growing middle class now earns the equivalent of about $25,000 in U.S. dollars annually, giving buyers disposable income to spend on such high-end food as salmon.

Salmon prospects bright among China’s growing middle class – Alaska Dispatch News

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With a population of more than 600 million people, an emerging middle class that is driving strong consumption, and a robust and resilient economy, Southeast Asia presents a compelling growth opportunity for Starbucks.

~ Howard Schultz 

Driver of Agriculture Megatrends – Economics

The second driver of agriculture megatrends I’ll address is economics.  How do changes in production, consumption and wealth creation impact the future shape of agriculture?

The first example of an economic driver of agriculture megatrends is per capita income.

In the previous post, I described how demographics impact food consumption and spending and some implication for the future.  An example of economics intersecting with demographics is per capita income.  Food demand may not have positive signals from demographics in China, for example, but it does have positive signals from economics if per capita income is growing.  In China, tens of thousands of consumers are entering the middle class every week.  As this happen, people are working for wages ands shifting food consumption from grow-your-own or carbohydrate-centric to purchased food and higher protein food choices.

Countries_by_GDP_(PPP)_Per_Capita_in_2015

Source: International Monetary Fund

Many economists describe the beginning of these middle class habits that impact food consumption patterns as somewhere between $5,000 and $10,000 annual income.  Globally, according to one estimate, 384,000 people per day join the middle class.  The number of global middle class participants at the end of 2016 numbered 3.2 billion.  This implies that the point of one-half of global population will likely be reached sometime around 2020. (Kharas 2017)

Food categories for upgrade by the new middle class especially impact proteins; meat, dairy, eggs, and alternative proteins such as fish.  These food products are more intensive to produce, so middle class growth in regions without developed agricultural supply chains will have significant impact.

What role will trade play in meeting the needs of the emerging global middle class?  Corn and soybeans are two significant inputs for protein production, for example, and carryover stocks figures imply that the United States currently has excess production capacity in both.  In 2016 the U.S. produced its first 15 billion bushel crop.  With continued yield increases and higher acreage it isn’t at all inconceivable to envision the first 20 billion bushel crop in the U.S.  But where will it be used?  Its use will need to be either through straight exports of corn, or through exports of products that were produced in the U.S. using corn as an input.

The second example of an economic driver of agriculture megatrends is energy.  The U.S. agriculture industry used nearly 800 trillion British thermal units (Btu) of energy in 2012, or about as much primary energy as the entire state of Utah (U.S. Energy Information Administration).  Energy is a major input for agriculture in many ways.

US Energy Production as a Share of Energy Consumption

What has changed in the last decade is the United States’ role in global energy production.  The shale revolution in particular has put the U.S. on track to be a net exporter of energy as opposed to a net importer.

Why does this matter to agriculture?  It matters because it means the price of energy relative to the rest of the world goes down.  The United States has many sources of comparative advantage in agricultural production, and you can now add energy to that list.

Of particular interest in next-generation agricultural production is the price of electricity.  Whether electric motors, indoor agriculture, or other electric powered agricultural technologies, electricity only becomes a more important input in tomorrow’s production agriculture and the U.S. advantage in this area is growing.

 

 

References:

Kharas, Homi. The Unprecedented Expansion of the Global Middle Class. February 2017. Brookings Institution Working Paper 100.