WASHINGTON, March 19, 2013 – American agriculture has made tremendous strides in the last few decades, but faces a number of challenges – both here and abroad – in order to stay competitive, according to leading economists who participated in “Farm to Fork Politics: An insider's look at the year ahead for food and agriculture.”
The panelists included J.B. Penn, chief economist at Deere & Company; B. Hudson Riehle, senior vice president, National Restaurant Association; and Keith Collins, former USDA chief economist. The panel, which kicked off National Ag Day celebrations on Capitol Hill, was organized and moderated by Sara Wyant, president of Agri-Pulse Communications.
Penn noted that there are several new market participants and new regions are rising as key players in global trade.
Brazil is now the number three exporter in the world in terms of sales, after the U.S. and European Union. The Black Sea region is becoming a big factor in the global grain market, he explained.
“More competitors are entering the market, especially the corn market,” noted Penn. “The U.S. share of the global grain market, which was over 40 percent in 1990, is under 25 percent today. Despite increased sales, the volume has gone down.”
“All of this is causing some new issues to emerge including regional competitiveness,” Penn added. “In North America we are seeing higher land prices and decaying infrastructure which is reducing our competitiveness.”
"There are more good projects than there is funding, and lawmakers have to look for projects that give the greatest dividend to the American people," Penn said.
But for this year, Penn took a more optimistic, albeit cautious note.
“On the demand side, 2013 is likely to be a better year for American Agriculture than 2012,” Penn noted. “But on the supply side, the outlook is very weather dependent at this point.”
“There is a wider range of possibilities and it all depends on the weather,” he said.
Riehle shared that the restaurant industry expects to do $660 billion in business in 2013, which represents a 3.8 percent increase over the prior year the fourth consecutive year of growth for the industry.
“The environment has improved as the general underlying economic conditions have improved,” Riehle noted. But the size and the scope of the restaurant industry only continues to get larger, he said.
“And if the restaurant industry was a country, it would rank 19 out of almost 170 countries,” he said. “It was become an economic juggernaut.”
“Twenty years ago we used to say that what happens in the general economy impacts the restaurant industry,” which is spread across 70 distinct segments, Riehle explained. But now “what happens in the restaurant industry actually impacts our nation’s macroeconomic conditions,” he added.
Riehle also noted that half of all food dollars are spent away from home in the U.S. today, compared to just 25 percent in 1955. “There are almost one million restaurant locations in America today,” and that growth advances one percent per year, he added.
Collins discussed the farm bill and how crop insurance will rise to be the most essential part of the farm safety net. The 2012 farm bill drafts from the Senate and House Agriculture Committees eliminated direct payments and reinforced crop insurance as the primary risk management tool for agriculture.
Although this will encourage greater scrutiny over the cost and structure of the crop insurance program, Congress has indicated that it also wants to maintain the program, he said.
“Agriculture is going to face spending constraints for years to come,” Collins said. “The farm sector knows that, and they’ve been prioritizing programs. They want to keep crop insurance and so far Congress has followed along.”
With the droughts of the past two years, as well as flooding in some parts of the country and hurricane damage along the East Coast, Collins noted that crop insurance “prevented lots of tremendous farm stress that would have occurred.”
However, he noted that “it doesn’t come without a cost,” adding that crop insurance paid out $15.9 billion in indemnities to date as a result of 2012 production losses. He noted that the high cost of premiums for the farmer as well as the negative rate of return for crop insurance companies this year needs to be noted along with the indemnity amount.
“The cost has gone up because insured liability has gone up,” he added. Collins summarized his outlook for risk management this year by stating, “I look to a smaller farm safety net in 2013, but one that cements crop insurance for the future,” Collins said.
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