In Search of Emerging Markets for Agricultural Trade

Gopinath Munisamy and John Dyck

Economic Research Service

U.S. Department of Agriculture

The views expressed are those of the authors and should not be attributed to the Economic Research Service or USDA

Overview• How do we define emerging markets for agricultural trade?

• GDP, population, proximity and shipping routes, growth and change, preferences and dietary change

• BRIIC countries and other potential emerging markets

• Gravity factors, growth and change

• What role for policies in global agricultural trade growth?

• Bilateral and multilateral trade policy reform, other factors affecting trade costs

• Recent U.S. experience in agricultural trade

• Searching for emerging markets?

• Takeaways for Japan and other major economies

What do we mean by emerging markets?

• Large populations or economies that currently are under-represented in agricultural trade

• Regions with fast economic growth and social change, where demand for imported foods and fibers may be strong

• Consumer types, such as the urban middle class, that span the globe and have similar desires and needs for food

• Commodity segments that are becoming increasingly popular

• And more…

Where would we expect large agricultural imports?

• Large economies

• Large populations

• Relatively fast and low-cost access

The biggest GDPs

The biggest GDPs, next 15

The biggest populations, top 10

The biggest populations, next 15

Consider proximity

Consider major sea routes, offering frequent, fast, low-cost transport

North Pacific

links

• U.S.

• Canada

• Mexicoto

• Japan

• Korea

• China

• Taiwan

• Hong Kong

North Atlantic

links

• U.S.

• Canada

• Mexico

to

• Europe

Major Shipping Routes

• Size and ease of access characterize the countries with the largest agricultural trade

• Gravity models in economics use these factors to characterize trade flows

Countries among the top 10 either in terms of population or output, with global rank as agricultural importer and exporter [M, X]:

• OECD members– EU [1, 2]

– USA [3, 1]

– Japan [4, 35]

– Canada [6, 5]

– Australia [20, 7]

– Korea [8, 32]

• Non-OECD– China [2, 4]

– Brazil [23, 3]

– Russia [5, 16]

– India [10, 6]

– Indonesia [12, 9]

– Pakistan [31, 43]

– Nigeria [33, 49]

– Bangladesh [29, 54]

BRIIC

Watch for futureimport growth

Source of trade rankings: Economic Research Service, USDA, using WITS database of the World Bank.

BRIIC

• Large GDPs: China, Brazil, Russia, India• Large populations: China, India, Indonesia, Brazil,

Russia

• Among 10 Largest agricultural exporters: Brazil, China, India, Indonesia

• Among 10 largest agricultural importers: China, Russia, India

• On major sea routes: China

ERS publications on BRIIC• China’s Growing Demand for Agricultural Imports. Economic Information Bulletin 136, Feb. 2015. Fred

Gale, James Hansen, and Michael Jewison.

– http://www.ers.usda.gov/publications/eib-economic-information-bulletin/eib136.aspx

• China in the Next Decade: Rising Meat Demand and Growing Imports of Feed. Amber

Waves, April 2014. James Hansen and Fred Gale.

– http://www.ers.usda.gov/amber-waves/2014-april/china-in-the-next-decade-rising-meat-demand-and-growing-imports-of-feed.aspx

• U.S. Exports Surge as China Supports Agricultural Prices. Amber Waves, Oct. 2013. Fred Gale.

– http://www.ers.usda.gov/amber-waves/2013-october/us-exports-surge-as-china-supports-agricultural-prices.aspx

• The Expansion of Modern Grocery Retailing and Trade in Developing Countries. Economic

Research Report 122, July 2011. Sharad Tandon, Maurice Landes, and Andrea Woolverton.

– http://www.ers.usda.gov/publications/err-economic-research-report/err122.aspx

• Indonesia’s Modern Food Retail Sector: Interaction With Changing Food Consumption and Trade Patterns. Economic Information Bulletin 97, June 2012. John Dyck, Andrea Woolverton, and Fahwani Yuliati

Rangkuti.

– http://www.ers.usda.gov/publications/eib-economic-information-bulletin/eib97.aspx

• Russia’s Growing Agricultural Imports: Causes and Outlook. Outlook Report WRS-0904, May 2009.

William Liefert, Olga Liefert, and Mathew Shane.

– http://www.ers.usda.gov/publications/wrs-international-agriculture-and-trade-outlook/wrs-09-04.aspx

• Food Policy and Productivity Key to India Outlook. Amber Waves, July 2015. Maurice Landes and Kim Hjort.

– http://www.ers.usda.gov/amber-waves/2015-july/food-policy-and-productivity-key-to-india-outlook.aspx

• Specialty Crop Access to U.S. Markets: A Case Study of Indian Mangoes. Economic Research

Report 142, Nov. 2012. Peyton Ferrier, Everett Peterson, and Maurice Landes.

– http://www.ers.usda.gov/publications/err-economic-research-report/err142.aspx

Beyond the BRIIC: large emerging markets, among the top 25 in GDP or population

• Rank as global importer (M) and exporter (X) of agricultural goods[M, X]:

– Mexico-- GDP 11th, Pop 12th [7, 13]

– Turkey-- GDP 13th, Pop 18th [15, 14]

– Thailand—GDP 24th, Pop 20th [24, 10]

– South Africa—GDP 25th, Pop 22nd [32, 19]

– Colombia—GDP 22nd, Pop 25th [34, 22]

ERS publications on demand beyond the BRIIC

• Middle East and North Africa Region: An Important Driver of World Agricultural Trade. Outlook Report AES-88, July 2015. Getachew Nigatu and Mesbah Motamed.

– http://www.ers.usda.gov/publications/aes-outlook-for-us-agricultural-trade/aes-88.aspx

• U.S.-Cuba Agricultural Trade: Past, Present and Possible Future. Outlook Report

AES-87, June 2015. Steven Zahniser, Bryce Cooke, Jerry Cessna, Nathan Childs, David Harvey, Mildred Haley, Michael McConnell, and Carlos Arnade.– http://www.ers.usda.gov/publications/aes-outlook-for-us-agricultural-trade/aes-87.aspx

• NAFTA at 20: North America’s Free-Trade Area and Its Impact on Agriculture. Outlook Report WRS-15-01, Feb. 2015. Steven Zahniser, Sahar Angadjivand, Thomas Hertz, Lindesy Kuberka, and Alexandra Santos.– http://www.ers.usda.gov/publications/wrs-international-agriculture-and-trade-outlook/wrs-15-01.aspx

• Using Household and Intrahousehold Data To Assess Food Insecurity: Evidence from Bangladesh. Economic Research Report 190, Aug. 2015. Anna D’Souza and Sharad

Tandon.– http://www.ers.usda.gov/publications/err-economic-research-report/err190.aspx

• Growth and change in size, proximity, and access are important to emerging trade--changes in trade flows or prospects– Economic growth, income distribution, growth of

the middle class– Institutional development– Population growth

• Demand for food• Distribution: urban population growth (retail

proximity)– Infrastructure growth: Transportation, Cold chain

Growth and change factors affect demand:

– Desire for convenience

• Products

• Places for purchase

– Desire for variety

• Taste for protein, fats, sweets, salty products

• Meats

• Dairy products

• Fruits

• Snacks

Recent growth in agricultural trade

• Last 5 years (2010-2014)

– Global growth in value of agricultural imports about 35%

• Partly price change, not real growth

• Many measurement problems

• Regard as approximation

World average growth in agricultural imports: 35%, 2010-2014

Markets with above-average import growth, ranked by market size:

• 1-10 largest markets

– U.S. 37%

– China 64%

– Korea 38%

– Hong Kong 47%

– India 54%

– Vietnam 111%

– Indonesia 46%

– Saudi Arabia 46%

– Turkey 46%

– United Arab Emirates 38%

• 11-20 largest markets

– Iran 53%

– Thailand 43%

– Algeria 74%

– Venezuela 80%

– Norway 37%

– Bangladesh 46%

– Chile 49%

– Nigeria 51%

– Colombia 44%

– Morocco 39%

Source of trade data: Economic Research Service, USDA, using Global Trade Atlas.

What kinds of markets grew quickly?

• OECD--Only 3 of the 20 countries (U.S., Chile, Korea)

• Among the 3, growth only moderately above global average

• BRIIC--China, India, Indonesia show strong growth

• 14 other developing economies– 6 in Middle East/North Africa

– 3 in South America

– 2 in Southeast Asia

– 1 each in Sub-Saharan Africa, South Asia, East Asia• East Asia: Hong Kong imports tied to China

Another way trade emerges: reducing barriers

Barriers to trade come in many forms.

Some barriers have benefits that may outweigh trade distortions

E.g., protecting human, animal, plant health.

Some barriers are actually barriers to business activity and competition in general, and also apply to trade.

Many barriers are logistical.Physical infrastructure Regulatory efficiency

Bali agreement on Trade Facilitation

• Barriers that are easy to identify:– Tariffs

– Quotas

– Import and export licensing

– Special import or export taxes

– Bans

• International agreements often focus on the most visible barriers.

Trade agreements

• Multilateral– GATT and WTO

• Regional– EU– NAFTA– ASEAN

• Bilateral– U.S. Free Trade Agreements– Japan’s Economic Partnership Agreements– Many others

Bilateral trade agreements have proliferated

U.S. FTAs

NAFTA (1994) Israel (1996)

Chile (2004) Morocco 2004)

Singapore (2004) CAFTA-DR (2005)

Australia (2005) Bahrain (2006)

Peru (2009) Oman (2009)

Jordan (2010) Colombia (2012)

Korea (2012) Panama (2012)

Japan’s EPAs

• ASEAN (group and individual, 2006-2009)

• Chile (2007)

• Switzerland (2009)

• India (2011)

• Peru (2012)

• Mexico (2012)

• Australia (2014)

ERS has studied trade agreements• Agriculture in the Trans-Pacific Partnership. Economic Research Report 176, Oct. 2014. Mary Burfisher, John

Dyck, Birgit Meade, Lorraine Mitchell, John Wainio, Steven Zahniser, Shawn Arita, and Jayson Beckman.

– http://www.ers.usda.gov/publications/err-economic-research-report/err176.aspx

• Japan’s Agri-Food Sector and the Trans-Pacific Partnership. Economic Information Bulleting 129,

Oct. 2014. John Dyck and Shawn Arita.

– http://www.ers.usda.gov/publications/eib-economic-information-bulletin/eib-129.aspx

• Vietnam’s Agri-Food Sector and the Trans-Pacific Partnership. Economic Information Bulletin

130, Oct. 2014. Shawn Arita and John Dyck.

– http://www.ers.usda.gov/publications/eib-economic-information-bulletin/eib-130.aspx

• Selected Trade Agreements and Implications for U.S. Agriculture. Economic Research

Report 115, April 2011. John Wainio, Mark Gehlhar, and John Dyck.

– http://www.ers.usda.gov/publications/err-economic-research-report/err115.aspx

• NAFTA at 20: North America’s Free-Trade Area and Its Impact on Agriculture. Outlook Report WRS-15-01, Feb. 2015. Steven Zahniser, Sahar Angadjivand, Thomas Hertz, Lindsay Kuberka, and Alexandra Santos.

– http://www.ers.usda.gov/publications/wrs-international-agriculture-and-trade-outlook/wrs-15-01.aspx

20 years of experience: agricultural trade grew for all 3 NAFTA countries

Trade in consumer goods is just one part of international exchange

– Trade in inputs

– Trade in services

– Technology exchange

– Foreign investment

Emerging markets: the product dimension

• Global consumption changes, 2000-2011 (FAOSTAT)

– Total calories per person: +142 kcal• from vegetable oils: + 34

• from meats: + 27

• from dairy: + 22

• from fruits: + 17

• from cereals: - 21

• Rising vegetable oil use has propelled trade growth– China soybean imports

– China and India palm and soy oil imports Faster growth than for other commodities

Differences in demand and supply factors lead to intra-industry trade

• Demand factors– Differing tastes and preferences

• Meat cuts

• Supply factors– Varietal differences– Seasonal differences– Weather differences

Just comparing costs of production is not sufficient to predict trade direction.

Intra-industry trade: the U.S. example

0

1

2

3

4

5

6

7

Exp

ort

s

Imp

ort

s

Exp

ort

s

Imp

ort

s

Exp

ort

s

Imp

ort

s

Exp

ort

s

Imp

ort

s

Exp

ort

s

Imp

ort

s

Exp

ort

s

Imp

ort

s

Beef Pork Dairy products Grapes Wine Coffee andproducts

Billion US$; average value, 2010-14

Source: Economic Research Service, USDA, using FATUS data from Foreign Agricultural Service, USDA.

Looking at U.S. agricultural exports

• Search for emerging markets…

Gravity factors explain the top 9 markets for the U.S. (high gravity indication is in red)

GDP rank

Pop.rank

Nearby North Pacific

North Atlantic

Global importer rank

1. China 3 1 X 2

2. Canada 8 32 X 6

3. Mexico 11 12 X 7

4. Japan 4 11 X 4

5. EU 1 3 X 1

6. Korea 10 24 X 8

7. Hong Kong 28 87 X 9

8. Taiwan 18 49 X 22

9. Indonesia 12 5 12

10. Philippines 30 13 27

U.S. export markets, rank 11-20(high gravity indication is in red)

GDP rank

Pop.rank

Nearby North Pacific

North Atlantic

Global importer rank

11. Turkey 13 18 15

12. Vietnam 42 15 11

13. Egypt 29 16 16

14. Colombia 22 25 X 34

15. Thailand 24 20 24

16. Venezuela 32 39 X 26

17. Australia 9 48 20

18. Brazil 5 6 23

19. Russia 6 10 5

20. Saudi Arabia 14 37 14

U.S. exports to developing countries have grown as a share of total

0

10

20

30

40

50

60

70

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PercentBillion US$

U.S. agricultural exports, total and by destination

Total

Developed

Developing

China & HK

China, the largest market, shows growth of consumer-oriented products, but soybean share remains 50%

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Billion US$

Source: Economic Research Service, USDA, using data from Foreign Agricultural Service, USDA, GATS database.

U.S. agricultural exports to China and Hong Kong

Soybeans

Other bulk and intermediate

Consumer-oriented

Recent ERS publications on China’s agricultural imports

• U.S. Agricultural Trading Relationship With China Grows. Amber Waves, May 2015. Fred Gale

– http://www.ers.usda.gov/amber-waves/2015-may/us-agricultural-trading-relationship-with-china-grows.aspx

• China’s Growing Demand for Agricultural Imports. Economic Information Bulletin, Feb. 2015. Fred Gale, James Hansen, and Michael Jewison.

– http://www.ers.usda.gov/publications/eib-economic-information-bulletin/eib136.aspx

• China in the Next Decade: Rising Meat Demand and Growing Imports of Feed. Amber Waves, April 2014. James Hansen and Fred Gale.

– http://www.ers.usda.gov/amber-waves/2014-april/china-in-the-next-decade-rising-meat-demand-and-growing-imports-of-feed.aspx

• U.S. Exports Surge as China Supports Agricultural Prices. Amber Waves, Oct. 2013. Fred Gale.

– http://www.ers.usda.gov/amber-waves/2013-october/us-exports-surge-as-china-supports-agricultural-prices.aspx

U.S. trade data formerly showed a long-term shift to value-added exports, which appears to have ceased

about 2000.

0%

10%

20%

30%

40%

50%

60%

70%

80%

19

67

19

70

19

73

19

76

19

79

19

82

19

85

19

88

19

91

19

94

19

97

20

00

20

03

20

06

20

09

20

12

Source: Economic Research Service, USDA, using data from Foreign Agricultural Service, USDA, GATS database, accessed 10-1-15.

U.S. agricultural exports: composition

Bulk

Intermediate

Consumer-oriented

U.S. soybean exports have grown, especially to China

0

5

10

15

20

25

30

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Billion US$

Source: Economic Research Service, USDA, using FATUS database of the Foreign Agricultural Service, USDA.

U.S. soybean exports

Other

EU

China

Ethanol byproduct, DDGS, is a growing part of feed exports

0

2

4

6

8

10

12

14

16

18

Billion US$

Source: Economic Research Service, USDA, using FATUS database of the Foreign Agricultural Service, USDA.

U.S. corn and DDGS exports

Corn DDGS

China’s Market for Distillers Dried Grains and the Key Influences on Its Longer Run Potential. Outlook report FDS-12G-01,

Aug. 2012. Michael Jewison and Fred Gale. http://www.ers.usda.gov/publications/fds-feed-

outlook/fds12g-01.aspx

U.S. meat exports grow despite disease outbreaks and trade barriers

0

5

10

15

20

25

Billion US$

Source: Economic Research Service, USDA, using FATUS database of the Foreign Agricultural Service, USDA.

U.S. exports of poultry meat, red meat, and products

BSE bans begin

HPAI

PEDv

U.S. meat exports to developing countries are growing fast

0

5

10

15

20

25

Billion US$

Source: Economic Research Service, USDA, using FATUS database of the Foreign Agricultural Service, USDA.

U.S. exports of red meats, poultry meats, and preparations

Developed Developing

Barriers to U.S. meat exports remain

China won’t import U.S. beef, citing BSE Hong Kong imports twice as much U.S. meat as China

0

200

400

600

800

1,000

1,200

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Million US$

Source: Economic Research Service, USDA, using FATUS data from Foreign Agricultural Service, USDA, GATS database.

U.S. meat and offal exports to China

Offals

PoultrymeatPork

Beef

0

500

1,000

1,500

2,000

2,500

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Million US$

Source: Economic Research Service, USDA, using FATUS data from Foreign Agricultural Service, USDA, GATS database.

U.S. meat and offal exports to Hong Kong

Offals

PoultrymeatPork

Beef

U.S. dairy product exports grow, especially to Mexico, China, and Southeast Asia

0

1

2

3

4

5

6

7

8

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Billion US$

Source: Economic Research Service, USDA, using FATUS database of the Foreign Agricultural Service, USDA.

U.S. dairy product exports

Other

Canada

China

SE Asia

Mexico

U.S. nut, vegetable, and fruit exports: all are growing

• Sent to many foreign markets

– Except fresh vegetables--primarily to Canada

• Rely on U.S.

– Land

– Climate

– Water

– Labor

– Shipping and cold chain

– Inspection services

U.S. horticulture-based exports doubled in value, 2006-2014

0

5

10

15

20

25

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Billion US$

Source: Economic Research Service, USDA, using FATUS database of the Foreign Agricultural Service, USDA.

U.S. horticulture-based exports

Fruits & prep.

Veg. & prep.

Nuts & prep.

U.S. horticultural exports rising faster to developing-country markets

0

5

10

15

20

25

Billion US$

Source: Economic Research Service, USDA, using FATUS database of the Foreign Agricultural Service, USDA.

U.S. horticulture-based exports

Developed Developing

Takeaways from U.S. Experience

• Gravity factors along with trade policy reform in importing countries substantially explain U.S. agricultural trade

• Exports have been adapting to strong growth in emerging markets: increased exports of high-value (horticultural) and processed products (meat, dairy)

• Despite temporary slow downs, these medium-and long-terms trends are likely to continue

• Future opportunities: focus not only on countries, but also on products/inputs, services and investments

Extras

Largest 10 countries by population

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Billion people, 2014

Source: Economic Research Service, USDA, International Macroeconomic Data Set.

Largest 10 countries by nominal GDP, average 2012-14

0

2

4

6

8

10

12

14

16

18

20

EU28 U.S. China Japan Brazil Russia India Canada Australia

Trillion U.S. $

Source: Economic Research Service, International Macroeconomic Data Set.