Drought conditions in the United States and an increasing demand for ethanol are driving a reduction in American food exports which may leave developing countries without assistance in facing global food shortages.
Since the drought began in 2011, farmers across the U.S. have sustained major damage to grain crops and ranchers continue to reduce livestock herds. Ethanol also competes for a growing share of the corn that is harvested, however, and more acres are planted with corn each year to the disadvantage of other crops and to take advantage of elevated prices.
American consumers may have to pay higher prices for food, but what about developing countries? Harold L. Norton, speaking at a meeting of the Sunbelt World Trade Association on September 18, describes the factors that may lead to a decrease in American food exports and compromise our investment in international food assistance.
"Our faculty have a breadth of expertise in arid and semi-arid agriculture – expertise which makes us a resource to the agricultural community in the U.S. in managing farms and ranches under drought conditions," says Shane Burgess, vice provost and dean of the College of Agriculture and Life Sciences. "Our longstanding relationships with the agricultural community in arid and semi-arid regions abroad will also allow us to assist our colleagues in developing countries in meeting the challenges of global food shortages."
The College of Agriculture and Life Sciences is proud to feature Harold Norton's speech, given September 18, 2012 in Tucson, Arizona.
About the presenter:
Harold L. Norton is a consultant on international marketing, trade and development. He spent 31 years working with the USDA's Foreign Agricultural Service in Europe, Asia and Africa. During this period, he was appointed to key positions in US trade negotiations and in development for food assistance programs and later held diplomatic posts at the American Embassies in the Netherlands, Kenya and Poland. Harold Norton also served 10 years with the United Nations' Food and Agriculture Organization as the regional representative and the emergency coordinator for East and Central Africa. He has chaired three international conferences on environmental issues and led a team working with the federal government in Tanzania to develop a national agricultural policy.
Speech to the Sunbelt World Trade Association, September 18, 2012:
The Effects of Drought on the Agriculture Industry of the United States
Harold L. Norton, consultant, international marketing, trade and development
Good morning to all.
I extend a hearty welcome to all the guests, and ladies and gentlemen of the Sunbelt World Trade Association.
My name is Harold Norton.
I hope this finds you bright eyed and bushy tailed, so you can meet the challenges of this early morning program. In turn, the American farmers would have had the back 40 acres plowed by the time we had breakfast this morning. Now that I have gotten your attention, it is time to give you an overview of the agriculture and livestock situation of this great country.
The key word today is drought. The worst drought since the 1930's is causing havoc with one of the major commercial sectors of this country, the agriculture industry. You and I are dependent on agriculture to feed our families and provide key elements needed to support many of the major industries of this nation.
The agriculture and livestock situation in the United States is faced with the worst drought since the 1930's. Despite tropical storm Isaac's arrival in the Southern and middle sections of the United States in late August, the drought damage to the major grain crops, such as corn, wheat, rye, barley and oats has been disastrous. The latest United States Department of Agriculture (USDA) crop forecast estimates the corn crop will be down 15 % to a projected 10.5 million bushels. The corn and other crop projections are expected to be reduced further by USDA's October forecast.
Similar reductions are forecasted for other spring planted crops, such as soybeans, dry land cotton, wheat, grain sorghums (milo), pulses and other crops. The livestock situation is worse. The drought has forced most ranchers to substantially reduce their herds and, in many cases, sell all their cattle, sheep, goats and horses. Rivers, wells and ponds have dried up and the grass is gone. This is particularly true for Arizona and northern Mexico, where the rain and snow melts have been less than normal for the last 9 to ten years. Only irrigated crops were maintained this year, but availability of subterranean water has been reduced by the drought, as most of the major dams on the Colorado River are substantially down. In the case of the Hoover Dam, there is a major concern that projected water levels may force the dam to reduce the generation of electricity, as the water level may drop below the intake valves and, in turn, reduce the water available for irrigation.
One of the important factors influencing corn production in recent years is the manufacturing of government-subsidized ethanol. When compared with a few years ago when corn was receiving just $2.00 a bushel compared with today's price of $8.00 a bushel, a major portion of the corn crop was used for livestock feeding and consumer products. Today, ethanol takes 40 percent of the corn crop.
In summary, all food prices in the grocery store will increase markedly during the last months of 2012 and well into 2013. Further, I would encourage you to see Ken Burns' special TV film on the impact of the 1930's drought on farmers, consumers and the economy.
Most people are not aware that farmers made a major shift in crop plantings over the past several years. Let me explain. The introduction of government subsidized production of ethanol, produced mainly from corn, has pushed crop prices to higher levels and, now, with the drought, to record levels. This brought about a shift of corn production to new areas, as farmers replaced the acreage planted to wheat, soybeans and other grains. Prices for these crops have also reached record levels, as covered in the latest offerings on Chicago commodity market. In turn, this has and is being passed on to the consumer. This means that the price you pay at the grocery store will rise to new levels this year and next, particularly for non-beef meats (pork, poultry, lamb and veal), eggs and dairy products, etc. All of these products are produced from mixed feeds, consisting principally from corn, other feed grains and oilcakes and meals. Because of the drought, ranchers are selling their cattle and other grazing livestock. An interesting note relates to the record number of beef cattle crossing the border from Mexico to U.S packing houses. A similar situation is happening along the U.S.-Canadian border.
Although crop production is down, because of the drought, prices received by farmers have reached recorded levels. This means farmers will surely plant more acres in the Fall of 2012 and Spring of 2013. The first of these harvests will take place (for winter wheat) in the May/June/July period of 2013, followed by corn, soybeans, spring wheat and other crops harvested in the Fall of 2013. Right now the winter crop plantings (September/October) are in doubt, because of the current drought problems.
In turn, farmers are now faced with the record prices for mixed feeds, which will force many to get out of business or substantially raise prices for their products. In turn, consumers are faced with a rise in prices for all the above food products.
One of the key factors in this drought related agriculture economy is the heavy influence of ethanol in the availability of corn crop for feed, food, exports and other industrial uses. Corn processors make more than 150 products from a kernel of corn, ie sugar, corn oil, fillers for your pills, etc. Ethanol is subsidized by the U.S. Government, in order to reduce the amount of oil imported by ten percent each year. When the program was first started, only a small portion of the corn crop at $2.00 a bushel was being used to produce ethanol. Today, ethanol takes more than 40 percent of the corn crop estimated at 10 million bushels (being harvested this Fall of 2012) at a price of $8.00 a bushel. Now, add the drought to this equation, and you have record prices for all the above crops and equally higher prices to consumers in the coming months. Corn and soybean meal are key ingredients in feeds for all livestock production. With the profit margin in jeopardy, it raises the question of whether the farmer goes out of business or substantially raises the price for farmer's products. Are the consumers willing to pay higher prices or will they cut back on their consumption of these food products?
The next big question centers on what action will farmers take in the new planting season
(2013). If corn prices remain at record levels, which I would expect, then I would project another large shift in acreage away from wheat, soybeans and other crops, in order to plant a record corn acreage in 2013. Let me illustrate this point. Last year, I was driving through northern New Mexico, Texas, Oklahoma and Kansas, where farmers normally grow wheat, because of the low moisture levels, but instead were growing irrigated corn. However, there is the likelihood that the U.S. will import record quantities of corn in 2013 from competitor countries like Argentina and Brazil and wheat from Canada, Australia, Argentina, and possibly from other countries. On the livestock side, I see increased imports of meat from Brazil, Argentina, Australia and New Zealand. Although imports will help to fill some of the gap, I believe higher prices will hold in 2012/2013 for both producers and consumers.
In past years, the U.S. was a major exporter of wheat, corn and soybeans around the world in competition with countries like, Argentina, Brazil, Australia, Canada, and the European Union. I believe exports will be reduced substantially in 2013, in order to maintain the minimum national stock reserve and U.S. domestic requirements. This means the United States will be forced to substantially reduce food assistance programs to help feed those people around the world faced with disasters and famines, i.e. the earthquake in Haiti and the tidal wave in the Indian Ocean. There was a similar crisis that occurred in the late 1970's and early 1980's. I know I was in charge of all food assistance at that time. US exports of agriculture products are a major contributor on the plus side of our balance of payments, as countries like China, Japan, Korea and other Asian and European countries continue to import large quantities of agricultural products to meet their growing population needs.
American agriculture is always resilient and able to recover from disasters like drought. The problem is how long will the drought persist and how far reaching will the drought impact related industries. If the drought ends in 2012/early 2013, the prospects are good that the farmers will plant a record acreage in corn and other food crops. Here is an opportunity for the Mexican livestock sector to benefit from the need for replacement cattle in the USA over the next several years.
Once the effects of the drought are over, there is no question in my mind that the U.S. farmer will be able to meet domestic and international demands for agriculture products. One of the keys to this success is research and the development of new and improved crop yields. For example, wheat yields in the late 1940's were 17/18 bushels per acre and by the 2000's it reached 60 or more bushels per acre. For corn, yields have increased due to hybridization from 20 bushels per acre to 120 bushels per acre. Similar yields were reached for other non-irrigated crops. Thus, I expect USA crop production to increase, but will it be enough to meet all demands on the domestic and international market. In the case of corn, the total use of the crop was divided in recent years to 25 to 30 percent for export, 30 to 35 percent for feed and food uses and 40 percent for ethanol. Thus, will the future demand for ethanol increase corn production, while reducing the acreage planted to other grain and feed crops?
In conclusion, I can say that the Malthusian theory would not apply to the USA, but could seriously apply to developing countries, particularly those currently affected by droughts. These countries cannot afford to pay record prices for imported grains and other foods commodities. This supports the Lester Brown's theory of global food shortages, especially in developing countries.
Let's wrap up my presentation by highlighting developments. Agriculture and livestock production will be down in 2012 and 2013. Farmers will receive record prices from the smaller crops. There will not be shortages, but consumer prices for food and agriculture products will be higher. However, if the drought continues into 2013, then I would expect a return to the adverse times of 1930's. The recent monsoon rains will provide a temporary relief from the drought, but because of the long term drought of the last 9 years, Arizona will need many more years of good rain to overcome the effects of the long term drought. That is one of the reasons Arizona depends so heavily on irrigation for its crop production. Finally, the U.S. Congress has not passed the farm bill, which would help farmers to receive assistance and support needed for their recovery under the drought emergency program.
Let me conclude by providing you with a farm expression that adds hope for a change.
"The sun will rise tomorrow for a brighter day to make things grow".