Ag Biotech & Rural Development
in a Globalizing World:
Policy Considerations
Robert L. Thompson
Gardner Professor of Agricultural Policy
University of Illinois
September 8, 2005
Rural Development
• Narrowing the income gap between rural
and urban residents
• “It’s (nonfarm) jobs, stupid!”
• Diversify economic base (both income
generation and tax revenue) of rural
communities to reduce dependency on
farming, a risky business.
• Rural America is regionally very diverse –
generalization impossible.
There Are Only Five Ways to
Increase Farm Family Income
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•
•
•
Increase productivity in present crops
Get access to more land (own or rent)
Change to higher value per hectare crops
Member(s) of the family get non-farm
income (e.g. cottage industries, non-farm
jobs; remittances)
• Leave agriculture all together (migrate to
city or get full-time non-farm job within
commuting distance)
Research Has Raised Ag Productivity
Faster than Demand Has Grown
• For 2+ centuries prophets of doom have argued
population growth would increase food demand
faster than ag production could grow.
• Public and private sector investments in
agricultural research have increased productivity
faster than demand growth.
• Where adaptive research investments have
been made, surplus, not scarcity, has prevailed
• The result: 150 year downward trend in real
price of grains
Adjustment to Change Has Been
the Norm in Rural America
• Historically rural America was farm dependent
• Rapid productivity growth in agriculture
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–
–
•
•
•
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Farm production grew with fewer total inputs
Redundant farm labor
Ag supply grew faster than domestic demand
Technology “treadmill”
Farm & agribusiness consolidation
Commodities vs. differentiated products
Outmigration and the rise of part-time farming
Declining fraction of rural community incomes
from agriculture
Size Distribution of U.S. “Farms,” 2003
Size in $
thousand
<10
Thousand % of all
farms
farms
1,227
58
% with
payment
20
Ave $/ pay
farm (000)
2
10-49
398
19
53
6
50-99
172
8
71
10
100-249
165
8
78
19
250-499
86
4
78
34
500-999
45
2
70
55
>1000
29
1
56
82
2,123
100
39
13
All
Source: ERS
Ag Biotechnology
Agricultural Biotechnology
• “Techniques of modern biology that
employ living organisms (or parts thereof)
to make or modify living products, improve
plants or animals, or develop
microorganisms for specific uses.”
Cornell University College of Agriculture and Life Sciences
• It may involve the use of genetic
engineering, as well as many other
techniques that have been commonly
used for generations
Biotechnology Opens New Frontiers
• Opportunity for new ag-based rural industries,
e.g. pharming; biofuels.
• Greater opportunity to increase productivity of
food system
– Improve nutritional content of grains, etc.
– Increase tolerance to drought, wetness, temperature,
salt, aluminum toxicity, …. (to increase yields and/or
planted area under adverse or variable conditions)
– Internalize resistance to diseases; viruses
– Reduce pesticide use, esp. insecticides
– Herbicide-resistant varieties
– Slow down product deterioration
Public vs. Private
Agricultural Research
• Historical public support of biological research
key to agricultural development (“public good”)
• Private sector did most of the mechanical,
pesticide & animal pharmaceutical research
(could patent resulting intellectual property)
• Private sector role in biological ag research only
took off after late 1970s (coincidentally with
development of biotech research tools) when
U.S. Congress & European parliaments cut
appropriations and encouraged private sector to
take on this role
Intellectual Property Protection
• Necessary for private sector to be able to
internalize return on investment in ag research
• If public sector doesn’t pay for the agricultural
research, farmers must pay for it (both
successes and failures) in the price of the inputs
they buy each year
• Need hybrids, “terminator,” or enforceable “no
reproduction for sale” contract (like music CDs)
• How to benefit low income countries?
Most Opposition to GMOs Based
on Political Agenda, not Science
• Oppose economic growth and anything that might
facilitate it, e.g. building dams.
– Environmental protection has been an effective vehicle for
retarding economic growth.
– Assert concern for the poor and excluded, but oppose growth
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•
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Oppose large scale in any business, including farming
Oppose private sector agricultural research
Oppose intellectual property protection in agriculture
Oppose globalization and free trade
Assert concern for consumer choice, but work to deny it
The Global Context:
Need to Double World Food
Production by 2050
Expect World Food Demand
to Double by 2050
• World population projected to increase 50%
between 2000 and 2050, from 6 to 9 billion
• 1.25 billion people live on less than US$1 per
day; of them, 840 million suffer under-nutrition.
Hunger is mainly caused by poverty.
• 3 billion (half the world’s population) live on less
than US$2 per day.
• Broad-based economic growth that reduces this
poverty could add another 50% to world demand
for food
The World’s Arable Land (left)
Is Distributed Very Differently
than Its Population (right)
OECD Countries
26%
Africa
11%
OECD Countries
14%
East Asia and the
Pacific
14%
South Asia
22%
South Asia
15%
Middle East and
North Africa
4%
Africa
11%
Europe and
Central Asia
20%
Latin America
and Caribbean
10%
Middle East and
North Africa
5%
Latin America
and Caribbean
9%
East Asia and the
Pacific
31%
Europe and
Central Asia
8%
The Land Constraint
• There is at most 12% more arable land
available that isn’t presently forested or
subject to erosion or desertification – and
degradation of many soils continues.
• Keen competition is coming for available
land among food and fiber production,
commercial forest production, and
conservation of forests.
Growing Demands on Forests
• The same forces of population and income
growth that increase demand for food also
increase demand for things made out of
wood, e.g. paper, furniture, building
materials; poles.
• In rich countries, growing demand for
environmental amenities and preservation
of (especially old-growth) forested areas.
Water A Growing Constraint
• Farmers use 70% of the fresh water used in the
world. They are both the largest users and the
largest wasters of water.
• Water is priced at zero to most farmers,
signaling that it is much more abundant than in
reality. Anything priced at zero will be wasted.
• With rapid urbanization, cities are likely to outbid
agriculture for available water.
• The world’s farmers need to double food
production using less water than today.
The Only Sustainable Way Ahead
• The area of land in world food production
could be doubled…
• But only by massive destruction of forests
and loss of wildlife habitat, biodiversity and
carbon sequestration capacity
• The only environmentally sustainable
alternative is to double productivity on the
fertile, non-erodible soils already in crop
production – unlikely without use of
biotech research tools.
Globalization and Trade
Why Trade?
• Increase standard of living by obtaining
goods that others can produce at lower
cost in exchange for things we can
produce relatively cheaper
– By lowering the cost of living, makes a
household’s purchasing power stretch further
– Increases a country’s GNP by employing its
land, labor & capital where they are most
productive
Globalization
• Increasing integration of economies (from the
most local level) around the world
–
–
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Trade
Technology/knowledge
People/labor
Financial capital
• Result of technological advances that reduce
cost and increase speed of international
transactions
• Creates unprecedented opportunities for
specialization and exchange of goods and
services (global sourcing & supply chains)
• Exposes previously isolated markets to
competition
Exports Are Key to U.S. Agricultural
Profitability
• American agriculture exports ¼ to 1/3 of its
production of many commodities.
• Without these exports, U.S. agriculture would
have to downsize significantly.
• Exports can grow by expanding the total size of
the market or by increasing market share.
• The only large potential growth market is in
presently low income countries
• The outcome of the WTO trade negotiations will
determine how much of this “potential” is
realized
Exports vs. Energy Supply?
• Many farmers and politicians are enamored with
potential for agriculture to supply energy
– e.g. ethanol and bio-diesel
• Ethanol and biodiesel are economically viable
only with:
– subsidies and mandated use in fuel blends
– protection from imports from lower-cost suppliers in
era of trade liberalization (cheaper to produce ethanol
from sugar cane and biodiesel from palm oil)
– continuous lobbying and campaign contributions to
sustain the above
• Petroleum industry controls access to gas
pumps & has deeper pockets than farm groups.
• With doubling of world food demand by 2050,
likely to question morality of burning food for fuel
U.S. Farmers’ Changing World View
• Losing confidence in their international
competitiveness (benefits of Uruguay Round
Agreement on Agriculture oversold)
• See world market as a zero-sum game (If you
increase your exports, I have to reduce mine.)
• Don’t recognize potential growth in LDC markets
• Reluctant to accept that being a large exporting
country constrains our freedom of action in
domestic policy making. You cannot have it both
ways.
Policy Considerations
Ag Commodity Policy
• Much ag commodity policy is rent-seeking by
farm organizations and commodity groups and
fails to achieve stated objectives
– Subsidies tied to output of specific commodities
stimulate larger production in less efficient locations
– Facilitate consolidation of farms, not creation on new
employment opportunities
– Subsidies justified on basis of low farm income but
distributed in proportion to sales are ultimately bid into
land prices, benefiting large farmers & land-owners
and undermining long term cost competitiveness of
U.S. agriculture.
• 2007 Farm Bill provides opportunity for change,
but…
Rural Development Policy
• Rural America is not likely to secure larger
allocation of Federal funds, but most is going in
form of farm program payments.
• How to sell the need for Federal investments to
facilitate rural development by investing in public
goods:
– Infrastructure
– Human capital
• Need to find ways to smooth the progress of
welfare-enhancing structural change while
reclaiming the productive potential of workers
and communities bearing the costs of job losses
and local economy contraction associated with
globalization.
Trade Policy
• Should we be creating new rural industries
whose future depends on restricting imports
while negotiating freer trade?
• Economic theory tells us that the gains of the
gainers from trade liberalization exceed the
losses of the losers
– It does not tell us there are no losers!
– The challenge is to define policy interventions to
compensate losers for their losses:
• to facilitate the adjustment
• to neutralize opposition of politically powerful opponents who
could stop liberalization dead
Environmental Policy
• Long term conservation reserve, which
pays farmers to take environmentally
sensitive land out of production for 10
years, has contributed to rural economic
decline in some places.
• Policies that subsidize farm production in
drought prone areas and under-price
water to agriculture lead to misallocation of
water to lower value uses.
Energy Policy
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•
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Appropriate mix of energy sources?
Energy pricing policy?
What role renewable energy sources?
How much import dependence?
– Petroleum
– Renewables, e.g. ethanol and biodiesel, if
foreign production lower cost
Science Policy
• What is the right level of oversight of
genetic engineering research?
• What is the right balance between public
and private investment in ag biotech
research?
– Intellectual property protection essential to
extent rely on private sector