Is Agriculture Leading the Way Out of the Recession?

ANALYSIS - Against what appears to be all the economic trends, the global agriculture sector seems to be showing a strength and even punching above its weight during the current global financial problems, writes, Chris Harris.
calendar icon 4 June 2012
clock icon 4 minute read

According to a new report from the USDA, The 2008-09 Recession and Recovery, US agriculture was better positioned than most US industries entering the recession, was less affected by the recession than most other US industries, and is well positioned to continue to do well in the years ahead.

And it is not only in the US that agriculture appears to be doing better than other industries.

In the UK, a recent report from the National Farmers Union showed that agriculture contributed £85 billion to the UK economy last year, while helping to keep some 3.5 million people in work.

The NFU report, Farming Delivers, says that because of its role as the driving force behind so much economic activity, farming offers huge potential to the economy as a whole.

The agricultural sector around the world is finding itself in a strong position largely because of international trade. With developing nations growing in strength, populations growing and wealth in these countries growing, there is an ever-growing demand for food.

In this respect, countries in the developed world that have been hit by the recession will be able to use food and agriculture as a major means of escaping from the straightened times.

The outlook report from the Food and Agriculture Organisation of the UN and the OECD said: "A stronger than expected agriculture commodity supply response last year, particularly in developed countries and much lower oil prices has resulted in significantly lower commodity prices from 2007-8 highs".

It continues: "Despite the significant impact of the global financial crisis and economic downturn on all sectors of the economy, agriculture is expected to be relatively better off, as a result of the recent period of relatively high incomes and a relatively income-inelastic demand for food."

The report focuses on the resilience of agriculture to economic recession and says that as the recovery begins, a reduction in agricultural prices and a fall in production and consumption are unlikely.

This resilience of the agricultural sector is reflected in the USDA report that shows that the growing importance of developing countries as markets for US agricultural exports, strong balance sheets in US agriculture going into and coming out of the recession, healthy financial institutions supporting agriculture, and prospects for a continued low real trade-weighted dollar exchange rate are supporting relatively strong growth in the farm sector.

US agricultural exports, especially those to developing countries, benefited from stronger world growth, the report says.

Approximately 22 per cent of US agricultural production is exported, accounting for almost 10 per cent of total US merchandise exports.

These economic and financial factors, along with underlying gains in agricultural research and productivity and in expanding and improving access to markets for farm products, suggest a strong outlook for US agriculture as US and global economies continue their recovery, the USDA says.

The USDA said that the latest recession has been longer and deeper than anything the US has seen since the 1930s.

While both developed and developing countries showed declines in 2008 and 2009, developed countries went into a severe recession whereas the developing countries only had a growth slowdown.

Real world trade fell by 11 per cent in 2009, and developed country exports declined nearly 13 per cent.

Those countries reliant on exporting expensive durable consumer and business goods, such as Western Europe and Japan, were hit especially hard.

US agricultural exports, while not affected as greatly as non-agricultural exports, were not immune to the impact of global recession. Real US agricultural exports fell by two per cent in 2009 after increasing by 5.3 per cent in 2008.

Exports of high value products, such as fresh beef and dairy, fell six and 39 per cent, respectively.

However, in 2011, US agricultural exports exceeded $136 billion. The growth in post-recession exports was about twice the historical average between 1998 and 2007, the decade preceding the recession and developing countries' share of US agricultural exports rose to more than 60 per cent in 2011.

The world economic recovery was underway in 2011 and is likely to continue in 2012 and beyond, with developing countries, including those in Asia, Latin America, and Africa, leading the way, while developed countries will recover at a much slower pace.

The crisis in the Eurozone continues and is likely to continue for some time, further dampening growth prospects in developed countries.

However, the global agricultural sector is leading the way and if it can continue to find and build on new export markets it will help to strengthen the economies that have been hit hardest.

However, financial institutions will also have to lend their support to the growing global trade in agricultural products and agriculture could be the key to unlocking much of the finance that has been held back from the markets.

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