International Agricultural International Agricultural Development and TradeDevelopment and Trade

AAEC 3204AAEC 3204

Introduction Introduction

George W. NortonAgricultural and Applied

EconomicsVirginia Tech

Copyright 2009

Objectives TodayObjectives Today

Discuss basic dimensions of the Discuss basic dimensions of the world food situation world food situation • Availability & pricesAvailability & prices• MalnutritionMalnutrition• Effect of povertyEffect of poverty• PopulationPopulation• EnvironmentEnvironment• GlobalizationGlobalization

Poverty and malnutrition remain Poverty and malnutrition remain problems in much of the worldproblems in much of the world

Why? How severe are they? Where?Why? How severe are they? Where? Does globalization help or hurt?Does globalization help or hurt? What role does agriculture play? What role does agriculture play? How do poor countries affect rich How do poor countries affect rich

countries and vice versa?countries and vice versa? How does poverty relate to food safety, How does poverty relate to food safety,

the environment, public health, energy, the environment, public health, energy, and food prices? and food prices?

These are a few of the issues These are a few of the issues addressed in this courseaddressed in this course

Why is it important to Why is it important to understand agriculture in understand agriculture in

other countries?other countries? Agriculture is the most Agriculture is the most

important sector in many important sector in many developing countries and developing countries and it affects agriculture in it affects agriculture in more developed more developed countries countries

Weeding in Bangladesh

Extremes of poverty and wealth co-exist in many developingcountries

Photo taken inDhaka, Bangladesh

Where do most of the world’s Where do most of the world’s poor live? poor live?

Incomes (GNP) per capita (US$)Incomes (GNP) per capita (US$)

(Source: World Bank, 2005)

Child mortality (per 1000 live births)Child mortality (per 1000 live births)

Source: World Bank, 2005

Number of Undernourished People in Developing Countries by Region

Percent of Population Percent of Population Undernourished by CountryUndernourished by Country

Are people hungry because the world Are people hungry because the world does not produce enough food?does not produce enough food?

No. In the No. In the aggregate there aggregate there is a surplus of is a surplus of food if the food if the World’s food World’s food supply were supply were divided up divided up equally equally

Index of per capita food Index of per capita food production.production.

(Source: (Source: FAOSTAT Data, 2005FAOSTAT Data, 2005))

0

20

40

60

80

100

120

140

160

180

200

Year

Ind

ex

Africa

Latin America

Near East

Asia

If enough food, why do people If enough food, why do people die from hunger related causes?die from hunger related causes?

Lack income to Lack income to purchase food purchase food • Especially elderly, Especially elderly,

sick, orphaned sick, orphaned • Especially when food Especially when food

prices are highprices are high Incomes unevenly Incomes unevenly

distributeddistributed DisastersDisasters

How many people in the world How many people in the world live on less than $1.00 per day?live on less than $1.00 per day?

One-fifth of the One-fifth of the World’s World’s population or population or more than a more than a billion peoplebillion people

Ethiopian Woman and Child

In what ways do we see In what ways do we see global interdependenceglobal interdependence?? Trade, pricesTrade, prices Capital movementsCapital movements Labor movementsLabor movements TechnologyTechnology EnvironmentEnvironment EnergyEnergy PoliticalPolitical Information flowsInformation flows

What is Globalization?What is Globalization?

Expansion of economic, political, social, Expansion of economic, political, social, and cultural linkages among countries and cultural linkages among countries around the worldaround the world

Tendency toward universal application Tendency toward universal application of economic, institutional, legal, of economic, institutional, legal, political, and cultural practicespolitical, and cultural practices

Spillovers from the behavior of Spillovers from the behavior of individuals and societies to the rest of individuals and societies to the rest of the worldthe world

Why do so many people oppose Why do so many people oppose globalization?globalization?1.1. IInvolves change, some good and some notnvolves change, some good and some not2. Winners and losers2. Winners and losers

Can globalization be reversed?Can globalization be reversed?NoNo

Flooding

Chemical pollution

Desertification

Soil Erosion

Why has environmental degradation become an increasing problem in developing countries?

Houses in Dhaka, Bangladesh

Food PricesFood Prices

What has happened to food prices in What has happened to food prices in the world over the past year? three the world over the past year? three years? 15 years? 40 years? years? 15 years? 40 years?

Why might high (low) food prices be Why might high (low) food prices be both good and bad?both good and bad?

World food prices have increased World food prices have increased significantly, especially since 2006 significantly, especially since 2006 after a long period ofafter a long period ofstable or slowly stable or slowly declining prices declining prices

High food prices can be good for farmers

High food prices are a serious problem for low income consumers

Why did food prices rise sharply Why did food prices rise sharply from 2006 to 2008? from 2006 to 2008?

1.1. High price of energyHigh price of energy

2.2. Subsidized bio-fuel productionSubsidized bio-fuel production

3.3. Poor weather in certain countries such as Poor weather in certain countries such as AustraliaAustralia

4.4. Economic growth in certain countries such Economic growth in certain countries such as China and Indiaas China and India

5.5. Certain countries have restricted exports Certain countries have restricted exports

6.6. Lack of attention to agr. research and Lack of attention to agr. research and infrastructure investments over time infrastructure investments over time

7.7. Continued population growthContinued population growth

What has happened over What has happened over the past year?the past year?

Food prices have retreated from their Food prices have retreated from their highs. Why? highs. Why? • Global recessionGlobal recession

Will they go back to lower levels of Will they go back to lower levels of three years ago soon?three years ago soon?• Not for most commodities. Why?Not for most commodities. Why?

Population IssuesPopulation Issues

Most of the world lives in developing Most of the world lives in developing countries and most population countries and most population growth occurs theregrowth occurs there

Rapid growthRapid growth Positive and negative benefits of Positive and negative benefits of

population growthpopulation growth Food-income-population-environment Food-income-population-environment

interacts interacts

U.S. agriculture – Developing U.S. agriculture – Developing country linkagescountry linkages

Effects of U.S. agriculture on developing Effects of U.S. agriculture on developing countries?countries?• Helps keeps food prices down to the extent we Helps keeps food prices down to the extent we

export our surplusexport our surplus

Effects of developing countries on U.S. Effects of developing countries on U.S. agriculture?agriculture?• Importer ofImporter of many productsmany products• Competitor for some productsCompetitor for some products

How might China affect the How might China affect the U.S. economy and U.S. U.S. economy and U.S.

agriculture?agriculture?

Examples:Examples:• Buys U.S Treasury bonds which affects long-Buys U.S Treasury bonds which affects long-

term U.S. interest ratesterm U.S. interest rates• Export competitor for some farm products and Export competitor for some farm products and

importer of othersimporter of others• Its growing demand for fuel drives up pricesIts growing demand for fuel drives up prices• Large labor supply and open economy keeps Large labor supply and open economy keeps

price of labor downprice of labor down relative to capitalrelative to capital

What is economic What is economic development?development?

Improved standard of Improved standard of living for the entire living for the entire populationpopulation• Income up, poverty Income up, poverty

down, reduced down, reduced inequalityinequality

Increased Increased opportunities for opportunities for individual choice individual choice and self esteemand self esteem

If development is good……If development is good……

Why is it good?Why is it good?•Poverty and hunger downPoverty and hunger down•Population growth rate downPopulation growth rate down• Increased choiceIncreased choice• Improves chances of global Improves chances of global

stabilitystability

If development is good……If development is good……

Why is there also pain with Why is there also pain with development?development?• Some industries shrink while others Some industries shrink while others

growgrow• Urban areas grow creating new Urban areas grow creating new

challengeschallenges• Cultural disruptions Cultural disruptions • Environmental challenges can increase, Environmental challenges can increase,

at least in short run at least in short run

Is average per capita income Is average per capita income a good measure of a good measure of

development?development? Why or why not?Why or why not?

• Level of living and income highly Level of living and income highly correlated, but distributional element correlated, but distributional element missingmissing

• Fails to capture changes in natural Fails to capture changes in natural resource stockresource stock

• Omits certain goods and servicesOmits certain goods and services• Differences in cost of livingDifferences in cost of living

Per Capita Income by CountryPer Capita Income by Country

Income distribution within countriesIncome distribution within countries

In general, income is more unequally In general, income is more unequally distributed in developing countries than in distributed in developing countries than in developed countries developed countries

Income distribution tends to become more Income distribution tends to become more unequal as development proceeds up to unequal as development proceeds up to $8000 GDP/capita, and then more equal $8000 GDP/capita, and then more equal

Conclusion: distribution may affect ability Conclusion: distribution may affect ability of country to move from middle income to of country to move from middle income to upper income country upper income country

Why is the labor force in Why is the labor force in developing countries heavily in developing countries heavily in

agriculture?agriculture? People have to People have to

eat and if eat and if productivity low, productivity low, must farm to must farm to feed themselves feed themselves

Provides Provides employmentemployment

Why does economic development Why does economic development require expansion of the non-require expansion of the non-

agricultural sector?agricultural sector?

Capacity of Capacity of agriculture to agriculture to continue to employ continue to employ everyone is limitedeveryone is limited

People want to People want to consume more than consume more than food and fiber as food and fiber as income growsincome grows

Why is agricultural Why is agricultural development particularly development particularly

important to LDC’simportant to LDC’s??

Provide foodProvide food Free up resources such as laborFree up resources such as labor Generate capitalGenerate capital Create market demandCreate market demand Improve rural welfareImprove rural welfare

Trade issuesTrade issues

Why countries trade and why trade Why countries trade and why trade might be helpful to developing and might be helpful to developing and developed countriesdeveloped countries

Interrelationships among poverty, Interrelationships among poverty, population, environment, and tradepopulation, environment, and trade

How macroeconomic and trade How macroeconomic and trade policies are interrelated policies are interrelated

Trade issues continuedTrade issues continued

How developed country policies help How developed country policies help or hurt developing countries (and or hurt developing countries (and vice versa)vice versa)

Effects of global trade agreements Effects of global trade agreements on agriculture in developing and on agriculture in developing and developed countriesdeveloped countries

Why capital movements have Why capital movements have become as important as trade in become as important as trade in goods and services goods and services

SummarySummary

Still a great deal of poverty and hungerStill a great deal of poverty and hunger Hunger-poverty-population-Hunger-poverty-population- environment interrelatedenvironment interrelated Global economy with U.S. and developing country Global economy with U.S. and developing country

agriculture interlinkedagriculture interlinked Development involves broad-based increase in Development involves broad-based increase in

standard of livingstandard of living Involves pain as non-ag sector grows relative to Involves pain as non-ag sector grows relative to

agricultureagriculture Growth in non-ag sector usually depends on growth Growth in non-ag sector usually depends on growth

in agriculturein agriculture International markets (trade and capital International markets (trade and capital

movements) play a rolemovements) play a role