FAPRI Projects World Food Supply Will Outpace Demand in Near Term

Bruce Babcock, FAPRI-CARD, (515) 294-6785; babcock@iastate.edu
Jay Fabiosa, FAPRI-CARD, (515) 294-6183; jfabiosa@iastate.edu
Sandy Clarke, CARD communications, (515) 294-6257; sclarke@iastate.edu

March 6, 2003

WASHINGTON – Recent strength in crop prices will not be sustained for long, according to a report of the Food and Agricultural Policy Research Institute (FAPRI) presented to Congress today. Two years of drought in many grain-growing regions and planted-acreage reductions attributable to low crop prices in the late 1990s are the cause of the recent run-up in prices. However, a return to normal weather and an acreage response by producers to the price rebound will keep a cap on prices over the next 10 years.

FAPRI, a policy research group headquartered at Iowa State University and the University of Missouri-Columbia, prepares a ten-year baseline projection each year for the U.S. agricultural sector and international commodity markets, for use by policymakers and other analysts. The baseline assumes normal weather patterns and a continuation of current farm policies.

This year's projections are good news for food consumers, as agricultural productivity will allow food supplies to more than meet demand, thus keeping a lid on prices. "We project that research-led productivity growth will allow the world's crop and livestock producers to keep pace with increased food demand over the next 10 years," says Bruce Babcock, director of the Center for Agricultural and Rural Development and head of FAPRI at Iowa State University. "The downside of this productivity growth is that U.S. crop farmers will not be able to rely on strong prices to generate profits. Instead they will continue to rely on government subsidies to maintain asset values and strong cash flows."

FAPRI projects strong meat consumption growth in many meat-importing regions of the world. This translates into expanded markets for U.S. producers. "Our projections indicate that the U.S. share of world meat trade will increase from today's 21 percent to more than 25 percent in 10 years," says Jay Fabiosa, FAPRI's technical director at Iowa State. "This is particularly good news for U.S. pork and poultry producers and processors, who are among the world's most efficient at delivering low-cost, high-quality meat products."

U.S. producers of cotton and the major food and feed grains, however, are largely insulated from changes in world market conditions because of the new U.S. farm legislation. Thus, their share of world trade is expected to decline from the current 43 percent to 39 percent in 10 years. Says Babcock, "Producers of so-called program crops got what they wanted with the 2002 farm bill–tremendous protection against downside price risk as well as stable fixed payments." As a result, what happens on world markets is of relatively minor importance to producers of these crops, he says. "Only if there is a major supply shortfall will U.S. producers begin to look to market prices to influence their production decisions."

Background information will be available at the Iowa State University (www.fapri.iastate.edu) and University of Missouri (www.fapri.missouri.edu) FAPRI websites after 1 p.m. EST, March 6.