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North American And The World Grain Market

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  • Johnson, D. Gale

Abstract

The increase in world grain production in the past half-century was unparalleled in the history of the world. In that same period, the absolute increase in the world's population exceeded that of all previous history--it more than doubled. The supply of grain more than kept up with the rapid growth of demand--the per capita supply of calories in developing countries increased by 27 percent between the early 1960s and the early 1990s while the real price of grain in international markets declined by at least a third. The expansion of grain production since 1960 has been largely achieved through higher yields--the substitution of other inputs for land. Consequently the roles of land and the diminishing returns to land have been significantly attenuated by the results of research and the availability of nonfarm sources of inputs, such as chemical fertilizer. In developing countries, improving the productivity of labor may be more critical in determining the welfare of rural people than any limitation imposed by land. Over the next quarter century, improving the productivity of the world's land by 75 percent will probably meet the increase in demand for grain, but farm labor productivity will need to treble if there is to be rapid economic growth in developing countries. The large differences in the rate of growth of grain production over the past several decades among developing countries have not been due primarily to differences in natural resources, but have resulted from differences in the structure of policies affecting agriculture and grain production. Where governmental policies have been supportive, grain production has not only kept up with demand growth but has exceeded it; where governmental policies have exploited agriculture through low prices for farm products and limited commitment to research, per capita grain production has grown slowly, if at all. Policies count--and count a great deal. The evidence supports the conclusion that national policies, including research support, have had a much greater influence on grain production than has the amount of available land. The world grain market will be significantly influenced by developments in Central and Eastern Europe. In the 1980s, the region was a major importer of grain; it is currently at most a small net importer. The change in net trade in grain has resulted primarily from the decline in the production of meat and milk. Under the socialist system, these products were heavily subsidized; most of these subsidies have been eliminated, and output has fallen. The growth in world demand for grain will be significantly slower in the next two or three decades than it was in the past three, primarily due to a slowdown in population growth. To some extent the slower growth of population will be offset by increased demand for grain as feed. How much the demand will grow will depend on the increase in demand for livestock products and the rate of improvement in the productivity of feed. Data from China indicate that there has been a major improvement in feeding efficiency in pork production, which has held in check the increase in feed required for a large increase in meat production. In the past, the price policies in North America and the European community have contributed to the achievement of a relatively high degree of price stability, with some notable exceptions, such as 1972 and 1973. The stability was due to the large stocks that were acquired as a result of price support operations. Policy changes that have occurred since 1985 have resulted in a substantial reduction in the level of publicly held stocks. Private stocks cannot function to provide the same degree of price stability that existed when governmental stocks were large. Private stocks are held in anticipation of making money; and since holding stocks is expensive, it can be anticipated that price variability will be greater in the future than it has been in the past. We need to better understand the reasons for the comparative advantage of grain production in North America. Part is clearly due to the efficient organization of farm production units, to intelligent and well-educated farmers, and to bountiful supplies of land suitable for grain production. These elements are important, but it needs to be recognized that North America is endowed with the worlds best infrastructure supporting grain production.

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Bibliographic Info

Paper provided by Montana State University, Department of Agricultural Economics and Economics in its series Trade Research Center Special Reports with number 29177.

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Date of creation: 1997
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Handle: RePEc:ags:motcsr:29177

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Related research

Keywords: world grain; comparative advantage; diminishing returns; price variability; International Relations/Trade; F1;

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References

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  1. Tyers, Rod, 1994. "Economic reform in Europe and the former Soviet Union: implications for international food markets," Research reports 99, International Food Policy Research Institute (IFPRI).
  2. Johnson, D Gale, 1997. "Agriculture and the Wealth of Nations," American Economic Review, American Economic Association, vol. 87(2), pages 1-12, May.
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Cited by:
  1. Smith, Vincent H. & Goodwin, Barry K., 1999. "Chile'S Wheat Trade Environment: The Economics Of Price Bands, Import Tariffs And Policy Transparency," Trade Research Center Research Discussion Papers 29251, Montana State University, Department of Agricultural Economics and Economics.

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