3.6 The developed countries: prospective developments in brief

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General considerations

The demographic and overall economic growth prospects of the developed countries, as well as those for aggregate food and agriculture, were presented in Sections 3.2 to 3.4 of this chapter. Possible developments for some commodities were also presented in connection with the discussion of the prospects for the major export commodities of the developing countries. What remains to be reviewed here are the prospects in developed countries for their other major commodity sectors. Cereals and livestock products account for 75 percent of their gross agricultural production, in value terms. Prospective developments in these two sectors are reviewed briefly in the rest of this section.

It is noted that some of the forces that shaped the historical evolution of food and agriculture in most developed countries are likely to persist, e.g. slow growth in domestic consumption and trends towards higher productivity. But there are also major changes under way, or in prospect, which are likely to change the policy environment and affect the individual country groups in very different ways.

These changes have to do with the prospect that in the future there will be much less scope for trade-distorting policies or other interventions to determine the production, consumption and trade outcomes in food and agriculture. Such outcomes will be determined increasingly by market forces or, at least, by less trade-distorting policies. The first impetus in this direction comes from the systemic reforms under way in the ex-CPEs of Europe; and the second from the policy reforms in major Western countries, particularly in Europe. Additional impetus and consolidation of these reforms is provided by the conclusion of the Uruguay Round of Multilateral Trade Negotiations. It is noted, however, that the reforms currently under way, if fully implemented, would tend to generate results for the major temperate zone commodities in the direction and magnitude similar to those that would be generated from the application of the provisions of the agricultural part of the Final Act of the Uruguay Round. These questions are discussed further in Chapter 8, where it is noted that the findings of analytical work attempting to predict the impact of the reforms are subject to many uncertainties.

The cereals sector in the developed countries

The possible developments to year 2010 are summarized in Table 3.17 and interfaced with those for the developing countries. Details by individual cereals are shown in the annex to this chapter. As regards the growth of total use of cereals in the developed countries, the main factors that may play a major role include: (a) the prospect that following the policy reforms in Western Europe cereals will become more competitive with the largely imported cereal substitutes in the feed sector and the region's demand may grow again after the declines experienced in the 1980s; and (b) the possibility that total domestic use of cereals in the ex-CPEs of Europe will be in the future somewhat lower than in the pre-reform period mainly because of developments in the countries of the ex-USSR. For example, the average per caput consumption (all uses) of cereals in this sub-group is projected to be 690 kg compared with 790 kg in 1988/90 (in clean weight). These developments would be the result of slightly lower per caput food consumption of cereals and livestock products, little growth in livestock production, reductions in post-harvest losses, smaller quantities of cereals used as seed and less cereals feed used per unit of livestock output (for discussion, see Brooks, 1993; Johnson, D. G., 1993). In parallel, total use of cereals in North America should continue to grow at about 1 percent p.a. The possibility exists for growth to be somewhat faster if ethanol production in the USA were to exceed the 1.2 billion gallons (5.5 billion litres) expected to be produced mainly from maize in compliance with the requirements of the Clean Air Act of 1990 (House et al., 1993).

Table 3.17 Total cereals, possible developed country outcomes in a world context (million tonnes, with rice milled)

*Numbers in parentheses are revised data following the change in reporting cereals production in the former USSR from bunker weight (including foreign material and excess moisture) to clean weight (see Shend, 1993). The projections shown in parentheses have been roughly adjusted to reflect this change.
^†Data and projections for all developing countries, i.e. including those not in the 93 countries covered individually in this study.
^‡Net imports of all developing countries after deducting 30 million tonnes of net exports from the exporting developing from the net imports of the importing developing countries (see text).
^§The latest production data for the two-year average 1991/92 are shown here to underline the recovery of North American production after the abnormally low level of 1988 due to drought.

Following these considerations, total demand for cereals in the developed countries is projected at 854 million tonnes, a growth rate of 0.5 percent p.a. for 1988/90-2010 (projection adjusted for the shift of the ex-USSR data from bunker to clean weight - numbers in parentheses in Table 3.17). In parallel, the developed countries must generate a net export surplus of 162 million tonnes for the developing countries, up from the 90 million tonnes in 1988/90. Their required production in the year 2010 is, therefore, 1016 million tonnes. Their latest three-year average annual production for 1990/ 92 was 873 million tonnes. The implied growth rate for 1990/92-2010 is 0.8 percent p.a. A recent World Bank study comes to similar conclusions. It projects cereals production in the developed countries as a whole to grow at 0.7 percent p.a. between 1990 and 2010 (Mitchell and Ingco, 1993, Tables A3, A10 therein). A growth rate of 0.8 percent p.a. is well below the average growth rate of the preceding 20 years (1.4 percent p.a.), nearly equal to that of the 1980s and well above the negative growth rate registered after the production peak of the mid-1980s.

These possible developments in cereals production in the developed countries may contribute to put in proper perspective the role of environmental constraints in relation to the need for this group of countries to generate collectively growing export surpluses to meet the import requirements of the developing countries. This is asking the question whether such constraints may represent a serious obstacle to achieving a 0.8 percent p.a. growth rate in their cereals production at non-increasing real prices. The analyses conducted for this study, which concentrated predominantly on the developing countries and, in any case, did not attempt to predict future prices, do not permit giving any straightforward answer to this question. But some insights may be gained from the findings of other studies. The above-mentioned World Bank study, which projects to year 2010 world cereals production and consumption levels similar to those of this study, concludes that world market prices would continue to decline as per long-term trend (Mitchell and Ingco, 1993; see Brown and Goldin, 1992, for discussion of food price projections). This finding does not by itself shed light on the issue at hand, i.e. the role of environmental constraints and in particular what prices would be if environmental costs in the developed countries were internalized. But it does indicate that sufficient slack exists in their cereals sector to permit them to increase production at the above indicated growth rate at non-increasing prices.

More to the point, some studies on the USA, by far the world's largest cereals exporter, have explored the impact on future production of what is conceived to be the most important agricultural resource degradation factor, soil erosion. Crosson (1992) cites a number of studies which conclude that "over the next 100 years erosion in the country as a whole would reduce crop yields roughly 3 percent below what they would be in the absence of erosion". He concludes that "by comparison with yield gains expected from advances in technology, the 3 percent erosion-induced loss is trivial" (see also Crosson, 1991).

Returning to the generation of the export surplus for the developing countries, it is noted that it will probably be forthcoming from a combination of more production from the major exporting developed countries and reduction in net imports of the importing ones. That is, not all the increment in the net imports of the developing countries (some 70 million tonnes) will appear as additional demand to be supplied by the main developed exporting regions, i.e. North America, Western Europe and Oceania. This is because more than one-half of this increment will likely be compensated by the disappearance of the ex-CPEs as a major net importer and indeed its emergence as a net exporter of 5 million tonnes, the assumption retained here (see Table 3.17). Other studies consider that this region may emerge by the year 2010 as a much larger net exporter (Mitchell and Ingco, 1993; Johnson, D. G., 1993). Assuming the ex-CPEs region were to shift by year 2010 to a net export surplus of 5 million tonnes (all of it from the countries of East Europe), the net increment of foreign demand faced by the above-mentioned three main exporting developed regions may only be some 32 million tonnes.

This prospect indicates that for these exporting countries, the export markets are unlikely to play the dynamic role of the past, particularly of the 1970s, when export growth fuelled a good part of their production growth. In parallel, policy reforms under way and as foreseen in the commitments for the implementation of the provisions of the Uruguay Round, will make it more difficult for the exporting countries to capture market shares by means of subsidized exports. The net exports of Western Europe are unlikely to be in the future above the average level reached in the last late 1980s. lt would then appear that the bulk of the increment in the combined net exports of the three major net exporting developed regions would accrue to North America and Australia.

Livestock sector prospects in the developed counties

There are two major factors that may influence outcomes in this sector. In the ex-CPEs of Europe, the reported per caput consumption of meat had reached levels which were not much below those encountered in other developed countries with much higher incomes. With the price reforms and falls in purchasing power, the per caput consumption is going through a process of decline which may not bottom out for some time. For the longer term, the somewhat optimistic assumption used here is that per caput consumption may just revert to near the reported pre-reform levels of about 70 kg, but with more poultry meat and less beef (Table 3.18). It is an optimistic assumption because even by 2010 the per caput incomes of the region are likely to be well below those of other countries with meat consumption at that level.

For the other developed countries as a whole, the only likely significant change is that further growth in the per caput consumption of meat will come from the poultry sector, while per caput consumption of pork could stabilize after the rapid expansion of the past, which took place mainly in Western Europe. In parallel, per caput consumption of beef would probably remain constant on the whole, with the main shifts comprising expanded consumption in Japan and a reduction in Oceania.

For the milk and dairy sector the most likely outcome is that per caput consumption levels would not change much (all dairy products, in fresh whole milk equivalent). In parallel, there is some scope for further growth of net exports to the developing countries (see Table 3.9) with most of these additional exports supplied (in a net sense) by Eastern Europe and Oceania.

3.7 Possible developments in the agricultural trade balance of the developing countries

Historical developments in the aggregate agricultural trade values of the developing countries are shown in Table 3.19. The quantity indices of total imports and exports indicate that between 1961/63 and 1988/90 imports in real terms increased by 284 percent and exports by only 146 percent. The net export balance in real terms was in 1988/90 less than one-third of its level 20 years earlier. There was a reversal of these trends in the 1980s because of the abrupt slowdown in the growth of the agricultural imports in the crisis decade of the 1980s.

The projected developments in import requirements and export availabilities of the major crop and livestock products indicate that it may not be long before the developing countries as a whole turn from net agricultural exporters to net importers. This would happen if values of exports and imports of the individual commodities were to change pari passu with the changes in volumes discussed in the preceding sections. There is nothing in the price trends that would suggest that the average price of the commodities for which they are net exporters would rise faster, or fall less, than that of the commodities for which they are and will remain net importers. As noted earlier, even the projected rises in real prices of beverages are unlikely to bring their price index back to the level of 1989. In parallel, real prices of dairy products and perhaps those of cereals, the main agricultural commodities imported by the developing countries, may not fall and could well rise in the context of policy reforms towards more trade liberalization.

Quantitative and qualitative elements pointing towards the likely turnaround of the developing countries from net agricultural exporters to net importers, are given in Table 3.20. The upper part of the table shows all the commodities with positive net balances in 1988/90, totalling $32 billion. The lower part does so for the commodities with negative net balances, summing up to $27 billion. The likely developments for the future indicate that the negative balances will grow much faster than the positive ones. These likely outcomes point firmly in the direction of the net agricultural trade balance of the developing countries (crop and livestock products) turning from positive to negative.

Table 3.18 Summary livestock sector data and projections, developed countries

Table 3.19 Values of agricultural trade,* all developing countries, 1961/63 to 1988/90

* All crop and livestock products, including both primary and most processed products, but not manufactures based on agricultural raw materials, e.g. textiles or leather goods.

As noted in the earlier discussion, some of the increases in net imports of the developing countries, particularly of raw materials, are likely to be more than compensated by growth in the positive net balance of trade in manufactures based on these products. And part of the increased net imports of cereals and livestock products reflect developments in those developing countries which could finance them with export earnings from other sectors. However, these prospective developments are likely to be a heavy burden for those countries which must continue to finance growing food imports from export earnings which are unlikely to be forthcoming at the required rate from other export sectors.

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