The U.S. economy is heading inexorably toward its next growth cycle, with agricultural exports ripe to help drive expansion, economists, shippers and government officials say.
“Agriculture is the fastest-growing segment of the next business cycle,” Walter Kemmsies, chief economist for transportation engineering company Moffatt & Nichol, told the annual conference of the Agricultural Transportation Coalition in San Francisco this month.
Cotton is a good indicator of how agricultural exports will lead the growth. Exports shot up last year even though prices surpassed historic highs dating to the Civil War. In the marketing season ending July 31, exports will total 15 million bales. Over the past four years, exports averaged 13 million bales, said David Camp, vice president of sales and operations at the Staple Cotton Cooperative Association.
Camp said he expects cotton exports to remain strong this year even though high prices have encouraged growers in other producing countries to increase cotton acreage. The key markets for U.S. cotton will be in emerging nations. Those countries want quality cotton, and U.S. cotton is known for its quality, he said.
U.S. agricultural products, especially in the food sector, are known for their quality. China, for example, is the world’s largest producer of agricultural products by volume, but U.S. exports to China are growing steadily because the booming middle class demands safe, high-quality food products, said Chanda Beckman, director of the U.S. Department of Agriculture’s trade office in Chengdu. “The U.S. has an exceptional reputation in China for food safety,” she said.
Demographic trends bode well for exports of high-quality food products to China. The population is shifting from rural areas to cities, and the booming urban middle class dines out frequently and enjoys protein products, which are U.S. export staples.
China’s 16 largest cities account for 54 percent of agricultural imports from the U.S., but the growing secondary markets will offer significant potential for U.S. products as the transportation infrastructure in those areas develops, Beckman said.
U.S. agricultural exports to China are growing despite that country’s policy of self-sufficiency in most agricultural products. If China begins to consume more of its domestic production, this also could be good for U.S. exports, Beckman said, because the subsequent drop in Chinese exports will create more demand in other markets for U.S. food products.
If U.S. exports to China are to reach their full potential, China must mature as a country, Kemmsies said. For example, consumer spending in China accounts for only 38 percent of gross domestic product compared with 60 to 70 percent in the U.S., he said.
A mature China also would allow its currency, the yuan, to reach its true international value. “China has a manipulated, pegged currency that the government must let appreciate,” Kemmsies said.
The dollar is weak compared to most other currencies, however, helping spur exports, but the 10-year slide of the dollar is bottoming out and the currency will begin to increase in value as the economy strengthens, Kemmsies warned.
Developing an efficient transportation network and providing sufficient vessel capacity and equipment availability are also important factors in the expansion of agricultural exports. In fact, structural problems and opportunities will define the next decade, Kemmsies said.
Growers in the rural Midwest and Great Plains states experience a perpetual shortage of equipment because empties are generated by import distribution centers in urban areas. Moving empty containers to agricultural storage facilities is too costly, said Paul Hammes, vice president and general manager for agricultural product at Union Pacific Railroad, so UP plans to move grain products in covered hopper cars to locations where containers are plentiful.
UP this summer will open a grain transloading facility in Yermo, Calif., about 100 miles northeast of Los Angeles. The facility will start with distillers’ dry grain, a byproduct of ethanol production used in animal feed, although it also will be capable of handling other grain products.
Because Los Angeles-Long Beach is a perpetual container surplus area, Hammes said he anticipates other transloading facilities will be developed in Southern California.
Contact Bill Mongelluzzo at email@example.com.