International Agricultural Development and Trade AAEC 3204 Introduction George W. Norton Agricultural and Applied Economics Virginia Tech Copyright 2009

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

Poverty and malnutrition remain problems 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 countries and vice versa? How do poor countries affect rich countries and vice versa? How does poverty relate to food safety, the environment, public health, energy, and food prices? How does poverty relate to food safety, the environment, public health, energy, and food prices? These are a few of the issues addressed in this course

Why is it important to understand agriculture in other countries? Agriculture is the most important sector in many developing countries and it affects agriculture in more developed countries Agriculture is the most important sector in many developing countries and it affects agriculture in more developed countries

Weeding in Bangladesh

Extremes of poverty and wealth co- exist in many developing countries Photo taken in Dhaka, Bangladesh

Where do most of the world’s poor live?

Incomes (GNP) per capita (US$) (Source: World Bank, 2005)

Child mortality (per 1000 live births) Source: World Bank, 2005

Number of Undernourished People in Developing Countries by Region

Percent of Population Undernourished by Country

Are people hungry because the world does not produce enough food? No. In the aggregate there is a surplus of food if the World’s food supply were divided up equally No. In the aggregate there is a surplus of food if the World’s food supply were divided up equally

Index of per capita food production. (Source: FAOSTAT Data, 2005)

If enough food, why do people die from hunger related causes? Lack income to purchase food Lack income to purchase food Especially elderly, sick, orphaned Especially when food prices are high Incomes unevenly distributed Incomes unevenly distributed Disasters Disasters

How many people in the world live on less than $1.00 per day? One-fifth of the World’s population or more than a billion people One-fifth of the World’s population or more than a billion people Ethiopian Woman and Child

In what ways do we see global interdependence ? Trade, prices Trade, prices Capital movements Capital movements Labor movements Labor movements Technology Technology Environment Environment Energy Energy Political Political Information flows Information flows

What is Globalization? Expansion of economic, political, social, and cultural linkages among countries around the world Expansion of economic, political, social, and cultural linkages among countries around the world Tendency toward universal application of economic, institutional, legal, political, and cultural practices Tendency toward universal application of economic, institutional, legal, political, and cultural practices Spillovers from the behavior of individuals and societies to the rest of the world Spillovers from the behavior of individuals and societies to the rest of the world

Why do so many people oppose globalization? 1. I nvolves change, some good and some not 2. Winners and losers Can globalization be reversed? No

Flooding Chemical pollution Desertification Soil Erosion Why has environmental degradation become an increasing problem in developing countries?

Houses in Dhaka, Bangladesh

Food Prices What has happened to food prices in the world over the past year? three years? 15 years? 40 years? What has happened to food prices in the world over the past year? three years? 15 years? 40 years? Why might high (low) food prices be both good and bad? Why might high (low) food prices be both good and bad?

World food prices have increased significantly, especially since 2006 after a long period of stable or slowly 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 from 2006 to 2008? 1. High price of energy 2. Subsidized bio-fuel production 3. Poor weather in certain countries such as Australia 4. Economic growth in certain countries such as China and India 5. Certain countries have restricted exports 6. Lack of attention to agr. research and infrastructure investments over time 7. Continued population growth

What has happened over the past year? Food prices have retreated from their highs. Why? Food prices have retreated from their highs. Why? Global recessionGlobal recession Will they go back to lower levels of three years ago soon? Will they go back to lower levels of three years ago soon? Not for most commodities. Why?Not for most commodities. Why?

Population Issues Most of the world lives in developing countries and most population growth occurs there Most of the world lives in developing countries and most population growth occurs there Rapid growth Rapid growth Positive and negative benefits of population growth Positive and negative benefits of population growth Food-income-population- environment interacts Food-income-population- environment interacts

U.S. agriculture – Developing country linkages Effects of U.S. agriculture on developing countries? Effects of U.S. agriculture on developing countries? Helps keeps food prices down to the extent we export our surplusHelps keeps food prices down to the extent we export our surplus Effects of developing countries on U.S. agriculture? Importer of many productsImporter of many products Competitor for some productsCompetitor for some products

How might China affect the U.S. economy and U.S. agriculture? Examples: Examples: Buys U.S Treasury bonds which affects long- term U.S. interest ratesBuys U.S Treasury bonds which affects long- term U.S. interest rates Export competitor for some farm products and importer of othersExport competitor for some farm products and importer of others Its growing demand for fuel drives up pricesIts growing demand for fuel drives up prices Large labor supply and open economy keeps price of labor down relative to capitalLarge labor supply and open economy keeps price of labor down relative to capital

What is economic development? Improved standard of living for the entire population Improved standard of living for the entire population Income up, poverty down, reduced inequalityIncome up, poverty down, reduced inequality Increased opportunities for individual choice and self esteem Increased opportunities for individual choice and self esteem

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 stabilityImproves chances of global stability

If development is good…… Why is there also pain with development? Why is there also pain with development? Some industries shrink while others growSome industries shrink while others grow Urban areas grow creating new challengesUrban areas grow creating new challenges Cultural disruptionsCultural disruptions Environmental challenges can increase, at least in short runEnvironmental challenges can increase, at least in short run

Is average per capita income a good measure of development? Why or why not? Why or why not? Level of living and income highly correlated, but distributional element missingLevel of living and income highly correlated, but distributional element missing Fails to capture changes in natural resource stockFails to capture changes in natural resource stock Omits certain goods and servicesOmits certain goods and services Differences in cost of livingDifferences in cost of living

Per Capita Income by Country

Income distribution within countries In general, income is more unequally distributed in developing countries than in developed countries In general, income is more unequally distributed in developing countries than in developed countries Income distribution tends to become more unequal as development proceeds up to $8000 GDP/capita, and then more equal Income distribution tends to become more unequal as development proceeds up to $8000 GDP/capita, and then more equal Conclusion: distribution may affect ability of country to move from middle income to upper income country Conclusion: distribution may affect ability of country to move from middle income to upper income country

Why is the labor force in developing countries heavily in agriculture? People have to eat and if productivity low, must farm to feed themselves People have to eat and if productivity low, must farm to feed themselves Provides employment Provides employment

Why does economic development require expansion of the non- agricultural sector? Capacity of agriculture to continue to employ everyone is limited Capacity of agriculture to continue to employ everyone is limited People want to consume more than food and fiber as income grows People want to consume more than food and fiber as income grows

Why is agricultural development particularly important to LDC’s? Provide food Provide food Free up resources such as labor Free up resources such as labor Generate capital Generate capital Create market demand Create market demand Improve rural welfare Improve rural welfare

Trade issues Why countries trade and why trade might be helpful to developing and developed countries Why countries trade and why trade might be helpful to developing and developed countries Interrelationships among poverty, population, environment, and trade Interrelationships among poverty, population, environment, and trade How macroeconomic and trade policies are interrelated How macroeconomic and trade policies are interrelated

Trade issues continued How developed country policies help or hurt developing countries (and vice versa) How developed country policies help or hurt developing countries (and vice versa) Effects of global trade agreements on agriculture in developing and developed countries Effects of global trade agreements on agriculture in developing and developed countries Why capital movements have become as important as trade in goods and services Why capital movements have become as important as trade in goods and services

Summary Still a great deal of poverty and hunger Still a great deal of poverty and hunger Hunger-poverty-population- Hunger-poverty-population- environment interrelated environment interrelated Global economy with U.S. and developing country agriculture interlinked Global economy with U.S. and developing country agriculture interlinked Development involves broad-based increase in standard of living Development involves broad-based increase in standard of living Involves pain as non-ag sector grows relative to agriculture Involves pain as non-ag sector grows relative to agriculture Growth in non-ag sector usually depends on growth in agriculture Growth in non-ag sector usually depends on growth in agriculture International markets (trade and capital movements) play a role International markets (trade and capital movements) play a role