ISU's Chad Hart: Ag export growth ahead! But buyers will be picky

Personal income growth in China and India will fuel new export demand for American farm commodities in the next few years, projects Iowa State University economist Chad Hart. The catch: Overseas food buyers will want you to produce what they want. They won't just buy whatever you raise.

Dr. Chad Hart

February 8, 2018  By Jerry Carlson — I'm a veteran of more than 30 years of Pro Farmer seminars, but one of the most perceptive outlook summaries I've seen is the one Dr. Chad Hart has shown at more than 33 Iowa farmer meetings so far this year.

You can download his Powerpoint slides by visiting this link. Choose among the most recent presentation shown in the center column of the page which opens at that link. Hart updates his data regularly. His main message:

— Half of American farmers' soybeans, wheat, sorghum and rice crops are sold directly overseas.

— 15% of our corn crop is exported directly, and another major share is exported indirectly because 10% to 20% of our meat production is exported. 

Here's the catch which Hart did not emphasize: Competition to produce what rising millions of middle-class overseas consumers want is also intensifying. For example, Brazil is capturing a widening market share of China's needs for soybean meal and oil. Brazil has a national association for branding and certifying non-GMO soybeans, which global buyers are increasingly demanding. Its acronym is ABRANGE. 

When we talk to U.S. livestock feed compounders who offer non-GMO rations, they frequently tell us that they export much of the mixed non-GMO feed they blend. That's one of many market signals. Another signal is the European Union consumer's realization that imported GMO soybeans and corn are typically laced with glyphosate residues. Their reasoning: We restrict GMO crops here... why should we import beans and corn from the Americas?   

The two charts below anchor Hart's basic demand-growth message. First is one showing the share of U.S. agricultural products exported.

 

Second is the big fundamental force in overseas demand: Across Asia, millions of households are earning their way from poverty to "middle class" incomes. Hart's middle-class benchmark is the equivalent of $20,000 income per year. In China, an estimated 200 million households in 2016 earned incomes greater than $20,000. By 2026, another 151 million will achieve that level of buying power. India's household income growth will match China's. Bottom line is that as we move from 2018 to 2026, those two nations alone will generate about 300 million new "middle class" households. This is more than twice the number of households in the United States. 

Other nations will also increase their middle-class buying power. Part of this rising demand will accrue each year, so you won't have to wait for 2026 for the cash to kick in. You may question whether China will protest the proposed new U.S. tariffs on steel, or whether NAFTa negotiations will fail. But demographic megatrends are the safest bet, and Hart nails the big one — how rising economic freedom has energized global economic growth.

More subtle than total export tonnage is the prospect of what qualities overseas consumers will want in the food and feed they buy. Not only are Asian consumers growing more capable of upgrading their diets, they're much more savvy about the health and quality of what they choose. In China, where virtually all of these new middle-class consumers tap moment-to-moment information on their cell phones, polls have shown clear preferences for non-GMO and toxin-free foods. Insistence on genetic engineering within China originates only from the top echelons of the Chinese government. Their egos propel them to be first in transgenic science, just as they're racing to become first in digital technology and military power.  However, the average health-conscious Chinese mother will shop on Alibaba or elsewhere for the organic or non-GMO foods she wants. 

That's the "back story" we see now from our network of China watchers who informally organized at a Food Safety Conference in Beijing in 2014. An update on that conference at this link refers to related coverage.

It's fascinating to re-read an article I wrote almost 40 years ago: "Seven ways you'll profit from China." That was based on a farm-group trip I led to China in 1979. Seems like five years ago.

I recommend: Plan your production management now to produce what these emerging markets are starting to demand, and will want in the coming few years. Those years will arrive faster than you expect.