Daniel A. Sumner

University of California Agricultural Issues Center and UC Davis, Agricultural and Resource Economics

Global Demand and California

Agriculture

University of California

Agriculture and Natural Resources

Davis, October 11, 2011

Natural logs of deflated prices for rice and corn

0.6

1.1

1.6

2.1

2.6

3.1

3.6

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Rice

Corn

Global markets for farm commodities have exhibited strong long-term trends and have several drivers

• Demand for farm commodities has been growing strongly for centuries because of populations and per capita income growth.

– Income growth has meant more food from animals and more demand for animal feed.

– Also more demand for fruits, tree nuts and vegetables

• Uses that substitute for nonfarm commodities (energy) expand demand and may place a (variable) floor under farm prices as that demand expands more than food demand.

• Strong future demand growth is a “good news” story. It means that incomes of the world’s poor will continue to expand at rapid rates!

Global markets for farm commodities have exhibited strong long-term trends and have several drivers

• Supply growth derives mainly from:

– New land for crop and livestock production,

– Additions to availability of irrigation water

(These are limited, but opportunities exist in some regions)

– More availability of inputs such as improved seed, fertilizer, pesticides and equipment

– Improvements in management on farms, as weaker managers leave and better farmers manage larger farms

– Improved handling and reduced losses off the farm

– New and newly adapted and adopted technology and practices

• All of these continue to contribute, but, as usual, concerns arise about how much more can be expected

50

100

150

200

250

300

Jan

Apr Ju

l

Oct Jan

Apr Ju

l

Oct Jan

Apr Ju

l

Oct Jan

Apr Ju

l

Oct Jan

Apr Ju

l

Oct Jan

Apr Ju

l

Jan. 1972- Aug. 1977

Jan. 2006 - Aug. 2011

Index of Real Monthly Price of Rice (Jul. 1972 and Jul. 2006=100)

Real Gross Domestic Product (GDP), with projections

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$10019

80

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

$ tr

illio

ns

World

Developed economies less USA

United States

Developing economies

World map weighted by GDP in 1960

World map weighted by estimated GDP in 2015

Hay and forage crops

19%

Fruits 16%

Tree nuts 11%

Vegetables and melons

12%

Nursery/ greenhouse

0.004%

Grains and cotton

38%

California 2009 cash receipts and acreage, by commodity grouping

By cash receipts By crop acreage

Dairy 13%

Other livestock

10%

Fruits 25%

Tree nuts 11%

Vegetables and melons

22%

Nursery/ greenhouse

10%

Grains and cotton

9%

California, U.S. and world production shares

by commodity

Commodity California share

of U.S. value

Share of U.S. in world

production

Share of California in

world production

Dairy products 19.4 15.3 3.0

Almonds 100.0 83.1 83.1

Proc. Tomatoes 72.3 NA NA

Walnuts 100.0 32.1 32.1

Grapes, all 88.0 5.8 5.1

Wine 89.0 8.8 7.8

Index of Real Prices and Acreage of California Almonds,

Winegrapes and Processed Tomatoes

30

50

70

90

110

130

150

170

190

210

230

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Almond price

Almond acreage

Winegrape price

Winegrape acreage

Processed tomato price

Processed tomato acreage

Real prices for rice, corn and all milk with USDA

projections through 2020

10

11

12

13

14

15

16

17

18

75

125

175

225

275

32519

95

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

$ per cwt for all m

ilk$

per m

etri

c to

n fo

r cor

n an

d ri

ce

Rice

Corn

Milk

Real Price of California Alfalfa:

Data, Fitted Values and Projections

90

110

130

150

170

190

210

23019

70

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

$ pe

r ton

PA= a+bPC+dPM+et+ft2 , R2=0.81

PA= a+bPC+dPM+et, R2= 0.80

Projection with linear trend

data points

Projection with quadratic trend

Wine Consumption History and Projections:

U.S. Market is now the World’s Largest

14

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1000

hec

tolit

ers

FranceItalyGermanyUKSpainArgentinaUSA

Projected

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