Despite a prolonged slump in the price of many agricultural commodities globally, long-range economic prospects in the agricultural sector often have been viewed as positive. Optimism about agriculture’s long-term future is based on expectations of steady growth in global populations and incomes.
On July 16 and 17, leading academic and industry experts discussed the links between current conditions in agricultural markets and longer-term prospects during the Kansas City Fed’s 10th Annual Agricultural Symposium, titled “Exploring Agriculture’s Path to the Long Term.”
Agricultural production in recent years has increased significantly, even as commodity prices have remained suppressed. Costs have remained elevated, and profit opportunities have remained limited or fleeting. Across the world, agricultural producers and businesses have sought to adapt to the prolonged downturn in agricultural prices, while at the same time position themselves for longer-term opportunities that might warrant further investment.
Nathan Kauffman, Kansas City Fed vice president and Omaha Branch executive, organized the annual symposium. In his opening comments, he spoke of the importance of global input and understanding.
“As we try to understand agricultural markets within our seven-state region,” Kauffman explained, “we do so with the backdrop of recognizing that agriculture is very much a global marketplace.”
The agricultural sector has remained in a prolonged slump as prices and profits have continued to limit the potential for growth. Financial stress has continued to build for many U.S. agricultural producers, and while conditions may not mirror those of the 1980s, the effect on younger producers may be similar.
In the near term, uncertainties connected to trade, U.S. production and African swine fever (ASF) are likely to be significant drivers of agricultural commodity prices and profits.
Transitioning to the future
Speakers noted that the transition to a more economically profitable long-term future for U.S. agricultural producers will require a more business-oriented approach. At the same time, the transition for emerging agricultural production regions such as South America and sub-Saharan Africa will be dependent on the development of infrastructure, research and development connected to production and an overarching supportive policy framework that includes the establishment of key trading partnerships.
In addition to the broad identification of an overarching business strategy such as reduced costs, other factors are also reshaping how producers operate their farm business. The increasing usage of digital technologies, along with changing demographics of producers, is redefining what it means to be a farmer.
Broad increases in demand for agricultural products and productivity gains made possible by technological advancements represent long-term opportunities in the agricultural sector. However, there also are significant elements of uncertainty that are likely to affect global agricultural prospects. Symposium speakers recognized that, over the next 30 years, uncertainties surrounding climate change, water availability, consumer demand and global trade will have a critical effect on the sector.
For much of this century, long-term prospects in agricultural markets have been resoundingly positive. A significant portion of this optimism stemmed from the extraordinary growth of developing economies, such as China, in addition to the emergence of biofuel policy that stimulated demand for agricultural products. Participants at the 2019 symposium generally recognized that there still are reasons to be optimistic about the long-term potential in agriculture due to growth in global populations and income, but also acknowledged that the sector faces a number of headwinds that will challenge its future path.
In the past, the agricultural sector has proved to be both resilient and innovative. As the sector transitions from a prolonged low-price environment of recent years, it will need to be so once again alongside numerous uncertainties and potential structural changes to ensure a clear path toward long-term growth.
International representatives visit Tenth District
In advance of the Agricultural Symposium, the Kansas City Fed convened central bank representatives from around the world for a discussion on developments in agriculture within their respective regions. In attendance were representatives from Argentina, Canada, Colombia, India, Mexico, Mozambique and Zimbabwe, as well as officials from the Federal Reserve Banks of Atlanta, Chicago, Dallas, Minneapolis, Philadelphia and the Board of Governors. The group also toured Juniper Hill Farms near Lawrence, Kansas.
See additional information about the 2019 Agricultural Symposium, including a complete summary and videos of all sessions.