Opportunities and Challenges Facingthe Food and Agricultural Sector

Jikun HuangCenter for Chinese Agricultural Policy

Chinese Academy of Sciences

Major Changes in Food and Agricultural Economy

Demand:• Food, feed and fibre:

Driven by conventional forces (income and population) in developing countries

• Biofuels: Driven by new forces

Supply:• Shifting land/water/labor

away from agriculture during economic transformation in developing countries

• Technological changes(botech)

• Climate changes• …

Trade patterns will experience substantial changes due to trade liberalization and biofuel development: meat and feed

World meat production (million tons), 1961-2005

0

50

100

150

200

250

300

1961 1966 1971 1976 1981 1986 1991 1996 2001

Increased 4 times

Source: FAO

About two third of increase in meat output has been come from Asia since early 1990s

0

50

100

150

200

250

300

1992 1994 1996 1998 2000 2002 2004

Rest of world Asia

Per capita meat and total living expenditure in ChinaPer capita meat and total living expenditure in China

Source: CCAP and SOW-VU, 2002.

Urban

Rural

Real GDP growth and projected trend in China, 1080-2030

0

1000

2000

3000

4000

5000

6000

7000

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Real GDP(1980=100)

A similar growth trend has also experienced in South Asia (e.g. India) and Southeast Asia(e.g., Vietnam, Indonesia and Thailand)

Shares of Asian maize production in the world (%)

Asia15%

RoW85%

Asia28%

RoW72%

1961 2006

Source: FAO

Emerging trend in world production of biofuels

Source: IEA analysis based on F.O.Lichts – IEA World Energy Outlook 2006

Bioethanol production

0

4

8

12

16

20

2000 2001 2002 2003 2004 2005

Mill

ion

ton

oil e

quiv

alen

Brazil United states European Union China Inida Other

Biodiesel production

0.0

0.5

1.0

1.5

2.0

2.5

2000 2001 2002 2003 2004 2005

Mill

ion

ton

oil e

quiv

alen

Germany France Italy Rest of Europe United states Other

Why are governments interested in biofuels?

• Major arguments:- Energy security: to

improve national and global energy security- Environment protection:

to lower air pollution and greenhouse gas emission- Agricultural and rural

development: to support farming by expanding the agricultural output markets

Energy security

Environmentprotection

Agriculture

While the order of importance of the arguments used by governments to promote biofuels differs among countries, there are many developed and developing countries that are decisively moving into biofuels……..

Projected Total Biofuel (bioethanol and biodiesel) Production in the Next 30 Years.

Source: Msangi, et al., 2007

However…….

• We believe that while arguments may be valid, much of the shift into biofuelsis being done without carefully understanding of its social, economic and environmental implications, especially in the case of developing countries.

Energy security

Environmentprotection

Driving forces for biofueldevelopment

Energy security

Environmentprotection

Agriculture

Policy and welfare implications

Agriculture

“Our opinion”

Despite substantial growth of biofuel in the future, it would not significantly improve global/national energy security

Share of biofuel in road transport fuel demand

00.5

11.5

22.5

33.5

4

2004 2030

Source: Claude Mandil, 2007. A Global Oil Outlook: Demand and Supply

%

Real crude oil prices(US$/barrel in real 2005 price)

0

10

20

30

40

50

60

70

80

90

100

1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005

Real cereal price index (All prices = 100 in 1960)

0

50

100

150

200

250

300

1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005

Wheat Maize Rice

Real cereal price index(All prices = 100 in 1960)

0

50

100

150

200

250

300

1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005

Wheat Maize Rice

Businessas usual

Real cereal price index (All prices = 100 in 1960)

0

50

100

150

200

250

300

1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005

Wheat Maize Rice

Biofuel era ?

Businessas usual

Our argument: if emergence of biofuels caused a large, sustained rise in food prices [unprecedented in last 100+ years], it could have HUGE effect on many parts of the population …

Thinking about the emergence of biofuels triggers many questions:

Will the prices of feedstocks (e.g., maize, sugarcane, etc) continue to increase forever?How will it affect other parts of the economy? (e.g. those that produce horticulture; livestock…) How will it affect poor farmers? Poor urban residents? How will it affect people in poor countries that import grains? How will it affect land and water uses as well as environment?How will it will affect global and regional trade?How will it affect R&D spending and investment in agriculture?…

Impacts on average farm income of producing 10 million kiloliters of bio-ethanol based on maize in China in 2020

Through price and cross-price effects, farmer income will rise in ALL regions (with more gains in maize production zone).

As the maize farmers are relatively poor, there is gain in income distribution

Impacts on regional maize production of producing 10 million kiloliters of bio-ethanol in China in 2020

While it will provide a great opportunity for farmers…, it will also has significant implications for land and water uses in Northeast, North China Plain and Southwest China

Technological changes:

(e.g., Biotechnologies)

Impacts of Bt cotton in China (By empirical study, per hectare)

• Increase yield: 9.6% 930 yuan• Reduce pesticide use: 60% 923 yuan• Reduce labor input: 7% 574 yuan• Increase seed cost: 570 yuan• Increase net income: 1857 yuan

(US$ 225)

Note: per capita income of sample farmers was 2160 yuan in 2001

Sources: Huang et al., Science, 29 Jan 2002: 674-677

Huang et al., 2005, Science

• Pesticide: - 80%• Yield : + 4~8%• Labor : - 5.5%• Net income: US$ 82~100 /ha

Impacts of GM rice in China (Based on pre-production trail of GM rice in farm fields)

Overall Impacts in China (million US$) in 2010

1097

5249

0

1000

2000

3000

4000

5000

6000

Millio

n US

$

Bt cotton Bt cotton + GM rice

Huang et al., 2004, JDE

Emerging challenge to food and agricultural production in the coming decades

Climate changes

Marginal temperature effect

Average farm

Irrigated farm

Rainfed farm

Source: Wang et al., 2007

Trade patterns will experience substantial changes due to trade liberalization and

biofuel development

• There will be large uncertainty on global trade of:– maize and other biofuel feedstocks– meat, and – many other food and agricultural products

Concluding remarks: Opportunities and Challenges Facing Agricultural Sector

• Opportunities:- Rising food and agricultural prices due to

increasing demand for food, feed and biofuels- Technological changes (biotech, IT, etc)- Increase investment in R&D and others-…

• Challenges: - Trade off among food, feed, and fuel- Intensification, sustainability, and uncertainty

of agricultural production- Substantial changes in global agricultural

trade (meat, feed and feedstocks)