1. Elise Golan Economic Research Service June 17, 2003 Consumer Driven Agriculture: New Demands and New Supply Chains Consumer Driven Agriculture: New Demands and New Supply Chains Secretary’s Advisory Committee on Agricultural Biotechnology

2. American agriculture is big… …yet surprisingly agile America’s 2.3 million farms spread over 941.2 million acres The farm sector contributes about $86 billion to the US economy Agriculture and its related industries provide employment for about 24 million people American agriculture produces 43% of the world’s soybeans, 43% of the world’s corn, 24% of the world’s beef and veal, and 20% of the world’s dairy

3. Consumers are in the driver’s seat

4. Farmers are innovating to meet demand... Yesterday Today

5. as are processors...

6. and manufactures and retailers Number of items carried by U.S. supermarkets Convenience, quality, service, and choice are on the rise

7. Farmers and ranchers Where is consumer-driven agriculture headed? Where the consumer’s food dollar went… 32¢29¢39¢ Labor Packaging, transportation, advertising, rent, energy, repairs, etc. In 2001 In 1970 32¢29¢39¢ 19¢38¢43¢

8. Competition for the new food dollar More cost-saving technologies on the farm Consolidation for economies of scale and scope Precision agriculture for quality and safety Three trends:

9. Cost-saving technologies on the farm Total factor productivity Total farm inputs 0 50 100 150 200 250 300 194919591969197919891999 Index, 1949=100 Growth in farm inputs and productivity

10. Biotech is playing a part in boosting productivity... Impact of 1 st generation biotechnology on net farm returns (ERS, 2002): Cost-saving technologies on the farm Bt corn Herbicide- tolerant soybeans Herbicide- tolerant corn Bt cotton

11. …and boosting farm income Cost-saving technologies on the farm 0 10,000 20,000 30,000 40,000 50,000 60,000 Farm incomeOff-farm income Household income, 2000 ($) Use of herbicide- tolerant soybeans: Adopters Non-adopters

12. Any potential issues in drive to reduce on-farm costs? Externalities? Cost-saving technologies on the farm

13. Seed company acquisitions by life science firms Consolidation for economies of scale and scope Aventis 18 AstraZeneca 7 Novartis 6 Dupont 5 Dow Chemical 10 Monsanto 22

14. Consolidation for economies of scale and scope In the farm sector… In 1900, 17 percent of U.S. farms produced 50 percent of farm sales.. compared with only 2 percent of farms in 1997

15. In food processing… Consolidation for economies of scale and scope Share of sales

16. Consolidation for economies of scale and scope In food wholesaling… Share of sales

17. Consolidation for economies of scale and scope In food retailing… Share of sales

18. Consolidation for economies of scale and scope Consolidation tends to reduce production costs and lower the cost of food Percent of disposable income spent on food

19. Consolidation for economies of scale and scope Any potential issues for concentration? Concentration can negatively affect market efficiency Concentration raises concerns about market equity or fairness

20. Precision agriculture for quality and safety Explosion of credence attributes

21. Precision agriculture for quality and safety Driving growth in third-party certifiers

22. Precision agriculture for quality and safety Driving even more vertical integration and contracting

23. Precision agriculture for quality and safety Asymmetric information may result in fraud and unfair competition Asymmetric information may result in incomplete or faulty market differentiation Any potential issues as markets become more differentiated?

24. US agriculture displaying remarkable agility Fundamental changes are occurring in the way the food industry does business…we are witnessing the transition from a food supply chain to a food demand chain http://www.ers.usda.gov egolan@ers.usda.gov