Agricultural Baseline Projections: Baseline Presentation, 2002-2011

Summary of Projections
Macroeconomic Assumptions
U.S. Crops
U.S. Livestock
U.S. Agricultural Sector Measures
Global Agricultural Trade

Summary of Projections: February 2002 Baseline

The USDA Baseline consists of 10-year projections for agriculture, assuming continuation of current farm law as well as specific conditions for the economy, the weather, and the global situation. The baseline covers commodities, trade, and aggregate indicators such as farm income and food prices. In the initial years of the 2002-2011 baseline, slow U.S. and global economic growth and a strong dollar create a weak setting for the agricultural sector. Over the longer run, stronger economic growth provides a foundation for strengthening U.S. agricultural exports, resulting in rising market prices and net farm income.

With production growing faster than domestic demand, agricultural export markets are important for sustaining prices and revenues and, in turn, farm income. Export revenues account for 20 to 30 percent of U.S. farm cash receipts—a key factor in determining net farm income.

Agricultural trade depends on the economic prosperity of consumers throughout the world. Economic growth in developing countries will generate most of the increase in global food demand over the next decade.

China is a major player in international commodity markets because of its enormous size, influencing both supply and demand. The Chinese market for a number of key commodities will expand.

• China is among the world's leading producers of rice, wheat, soybeans, hogs, beef, poultry, and cotton. But imports are needed to satisfy growing demand from a population of 1.3 billion that is becoming increasingly urbanized.
• China's agricultural marketing and trade system is assumed in the baseline to continue its long-term trend of increased liberalization. Baseline assumptions, however, do not reflect China's membership in the World Trade Organization.
  

Competition in global agricultural markets will continue to be strong, with expanding production in a number of foreign countries. Increasing exports from South America, for example, reflect its continuing conversion of land to cropland, particularly in Brazil.

A continuing strong U.S. dollar in the baseline is a negative factor for U.S. agricultural competitiveness and constrains growth in exports.

• International financial crises in 1997-98 and other factors have caused large devaluations relative to the dollar in key markets.
• The dollar is assumed to stay strong as capital flows into the U.S. are attracted by relatively large financial returns.
• Bulk commodity and horticultural exports tend to be more sensitive to the strong dollar than are processed products.

The value of U.S. agricultural exports, which fell from a record of almost $60 billion in fiscal year 1996 to $49.2 billion in 1999, has risen in the past 2 years.

• Slow global economic growth in 2001 and 2002 and a strong U.S. dollar limit agricultural exports early in the baseline.
• Gains in U.S. exports are constrained by a strong U.S. dollar and by continued strong trade competition throughout the baseline period.
• Strengthening world economic growth in the longer run, particularly in developing countries, provides a foundation for increases in U.S. agricultural exports.

U.S. net farm income declines early in the baseline, largely due to a reduction in direct government payments from the high levels of recent years. This reflects the baseline's assumption of no further ad hoc government assistance.

• Strengthening market conditions lead to rising market prices, increases in farm income, and improvement in the financial condition of the U.S. agricultural sector.
• Net farm income in recent years was maintained near the average of the 1990s through large marketing loan benefits and additional Federal funds for emergency and disaster assistance.
• Marketing loan benefits continue to play an important role in the U.S. farm sector, particularly in the early years of the projections.
• Government payments become relatively less important over time as a greater share of gross cash income comes from the marketplace.

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Macroeconomic Assumptions: February 2002 Baseline

During the last decade, the U.S. and world economies became increasingly interdependent. The United States is the world's largest economy and U.S. financial markets dominate world financial markets. Changes in macroeconomic conditions have major impacts on agriculture through consumer incomes, exchange rates, trade, inflation, and interest rates.

U.S. GDP growth is forecast to be slow in the near term (1.4 percent in 2002) as the economy begins to recover from the recent economic slowdown. U.S. growth then returns to a longrun sustainable rate of 3.2 percent. A similar pattern is expected globally, with sustained economic growth projected in the longer term in a broad band of countries throughout the world.

• Sluggish U.S. and world growth and a strong dollar constrain growth in U.S. exports.
• Starting in 2003, improved global economic performance combined with continued population growth is expected to strengthen food demand.
• Developing countries play an important role in generating global food demand and are increasingly a destination for U.S. exports.

The strong U.S. dollar is a negative factor for U.S. agricultural competitiveness and constrains growth in exports. Longer-term global economic growth increases the demand for U.S. exports.

• International financial crises in 1997-98 and other factors have caused large devaluations relative to the dollar in key markets.
• The dollar is assumed to stay strong as capital flows into the U.S. are attracted by relatively large financial returns.
• Bulk commodity and horticultural exports tend to be more sensitive to the strong dollar than are processed products.

Oil prices decline in 2001-03 from the high levels of 2000. From 2004 forward, oil prices are projected to rise slightly more than the general inflation rate.

• New oil discoveries, along with new technologies for finding and extracting oil, are assumed to allow for substantial growth in demand without significant energy price inflation.

World economic growth is projected to average 2.7 percent annually between 2001 and 2005, before increasing to 3.3 percent through 2011.

• Increased global purchasing power and population growth are key to increasing U.S. exports.
• Consumption and imports of food and feed in developing countries are particularly responsive to income changes. As incomes rise in these countries, consumers generally diversify their diets, moving away from staple foods to include more meat, fruits and vegetables, and processed food. These consumption shifts result in higher import demand for high-value products.

Developed economies are projected to grow at rates comparable to the 1990s: averaging 2.6 percent in 2003 and beyond.

• Adoption of the euro enhances cross-border trade and investment within the European Union. Even without formal enlargement to include countries of Central and Eastern Europe, closer integration with these countries creates more trade and investment opportunities.
• Japan continues to face significant economic problems. Japan's share of world GDP is expected to decline to 9 percent by 2011, down from 13 percent in 1991.

Economic growth in developing countries is projected strong at 3.5 percent annually in 2002, increasing to 5.2 percent in the longer term. Growth in the transition economies (former Soviet Union, Central and Eastern Europe) is projected at 3.7 percent annually, a significant reversal from the previous decade's contraction.

• Strong growth is projected for Latin America with an important role for foreign capital inflows.
• Growth in East and Southeast Asia is projected to decline to 5.6 percent in the first 5 years of the projections from an average of over 7 percent in the 1990's, rising to 6.4 percent toward the end of the decade.
• China's economic growth has been consistently the strongest in Asia, and is expected to level off at 7.8 percent over the next decade.
• Poland, Hungary, and the Czech Republic show relatively strong growth, due largely to successful integration into the global economy.
• After a decade of setbacks, Russia and Ukraine begin to benefit from a shift to market economies, with annual GDP gains of 3.5 percent projected for the next decade.

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U.S. Crops: February 2002 Baseline

Slow global economic growth through 2002 and a strong U.S. dollar create a weak setting for field crop performance in the early years of the projections. More favorable economic growth in the long run supports increased consumption, trade, and prices, although competition from countries such as Brazil and Argentina strengthens. Acreage planted to major field crops rises to about 257 million acres by 2011, less than the recent high of 260.5 million acres in 1996.

Baseline assumptions for field crops reflect continuation of 1996 Farm Act provisions. Marketing loan benefits remain important over the next several years, with soybeans receiving benefits in the early years, and with rice and cotton receiving benefits for the entire period. Wheat and feed grain prices are projected to remain above their respective loan rates throughout the baseline.

Global economic recovery underlies longrun growth in exports, but gains in trade are constrained by a strong U.S. dollar and by competition for some key export markets.

• Exports of corn grow at faster rates than in the 1980s and 1990s, but remain below the 1979/80 record.
• After an initial decline, U.S. wheat exports rise steadily throughout the baseline, although competition holds the U.S. trade share below levels of the late 1990s.
• Exports of soybeans see larger gains in the initial years of the baseline as low market prices discourage foreign production somewhat. As prices rise, South American production increases strengthen, leading to smaller U.S. export gains.

U.S. rice and cotton exports decline through most of the baseline period.

• Rice exports fall as domestic use outstrips production growth, widening the price differential between U.S. and Asian rice.
• Exports of cotton climb to 10-10.5 million bales in the early years, but exports decrease over the remainder of the projections as foreign competition strengthens.

U.S. stocks-to-use ratios for corn, wheat, and soybeans decline throughout the baseline, with domestic use and exports rising faster than production.

The stocks-to-use ratio for cotton declines from recent high levels and becomes relatively stable toward the end of the projections. The rice stocks-to-use ratio gradually falls as domestic use strengthens.

Prices for corn, wheat, and soybeans mirror movements in stocks-to-use ratios.

• Prices bottom out in the near term as the farm sector recovers from the global market downturn in the late 1990s when large production coincided with weak demand.
• As export gains reduce stocks-to-use ratios, prices rise during the remainder of the baseline.

Key assumption: commodity loan rates are determined by formulas in the 1996 Farm Act, subject to maximums and minimums specified in the act.

• Wheat and feed grain prices are projected to remain above loan rates throughout the baseline as domestic use and exports grow faster than supplies.
• Soybean prices remain below the loan rate during the initial years of the baseline, while rice prices remain below the loan rate throughout the baseline.

Aggregate crop area generally increases, due mainly to rising corn, soybean, and wheat plantings. Producers respond to generally rising net returns as demand and prices strengthen.

• Area planted to the eight major U.S. program crops is expected to rise to about 257 million acres by 2011, somewhat less than the recent highs of over 260 million acres in 1996. Corn, wheat, and soybeans account for about 85 percent of this acreage.
• Marketing loan benefits influence the aggregate level of plantings as well as the cropping mix. These benefits have a direct impact in the baseline on returns and acreage decisions for soybeans, cotton, and rice, and an indirect impact on acreage for competing crops.

Domestic corn use is strong in the initial years and continues growing throughout the period.

• Feed and residual use drops in the initial years with fewer cattle on feed, then recovers as meat production increases.
• Major growth is expected for ethanol use as many States ban methyl tertiary butyl ether (MTBE).
• Gains in high-fructose corn syrup (HFCS) and most other food and industrial components are projected to be smaller than in the past decade. These are mature markets, with projected gains largely reflecting population growth.
• U.S. corn exports capture over half of the projected gain in global corn trade, but U.S. farmers face increased competition from Argentina and Eastern Europe.

Soybean exports are projected to reach record levels by 2003/04, as low world market prices slow foreign production somewhat and spur global imports. Domestic meal use increases, supported in part by rising pork and poultry production.

• Area planted to soybeans is expected to decline through the middle of the projection period and then rise to record levels by 2011.
• Marketing loan benefits continue to support soybean net returns and acreage through the middle of the projection period.

While the domestic market remains the dominant source of U.S. wheat use, exports are expected to grow at a faster rate than domestic use over the baseline period.

• As net returns rise, additional acreage is attracted, but projected acreage at 64 million in 2011 is well below the 75 million of 1996.
• World wheat trade is expected to grow at a 2.5-percent annual rate over the next 10 years, with the U.S. and EU gaining export share, while shares for Canada, Australia, and Argentina decline.

U.S. upland cotton mill use remains fairly steady for the first several years. Beginning in 2005/06, mill use is expected to decline 1 to 2 percent per year. Exports remain above domestic mill use as cotton is exported for processing in developing countries with lower labor costs.

• After 2004, import quotas that have protected the U.S. textile industry will be completely eliminated, per the Uruguay Round's Agreement on Textiles and Clothing. Without the quotas originally instituted under the Multi-Fiber Arrangement (MFA), apparel imports rise, reducing the apparel industry's demand for fabric and yarn produced in the United States, and the U.S. spinning industry contracts.
• Some increase in U.S. yarn and fabric exports is likely due to reciprocal trade liberalization elsewhere, but the impact of reduced U.S. apparel production will be more than offsetting.

Steady growth in domestic food use of rice is projected. U.S. exports decline slowly throughout most of the baseline, with domestic use outstripping production growth and with export price competition.

• Driving the expansion in domestic food use are: a growing share of U.S. population of Asian and Latin American descent, continuing emphasis on healthier life styles, and greater use of rice for processed and convenience foods.
• Continued expansion in domestic use keeps U.S. prices high relative to Asian competitors, reducing U.S. exports.

Baseline projections for sugar are very sensitive to sugar industry developments in Mexico. Sugar imports from Mexico rise sharply in the baseline, reflecting U.S. commitments toward freer trade under international agreements, particularly the North American Free Trade Agreement (NAFTA).

• Low-tier tariff sugar imports from Mexico (up to the lower of Mexico's annual "net surplus production" or 250,000 metric tons, raw value) may enter the United States duty free.
• Projected low-tier sugar imports from Mexico are between 100,000 and 200,000 tons through 2007.
• High-tier tariff sugar imports from Mexico under NAFTA have no quantitative restriction, but a tariff imposes economic constraints. As high-tier tariff rates decline, more high-tier tariff sugar imports from Mexico enter the United States.
• Sugar imports from Mexico rise further starting in fiscal year 2008, when transition to full duty-free access is complete.

Ending stocks of sugar in the United States build from 1.5 million tons in 2002 to 2.1 million tons in 2005, and then drop to 1.2 million tons in 2012.

• Declining relative prices for U.S. sugar compared to alternative crops imply a reduction in area planted and harvested, reducing stock accumulation.

The United States remains a net importer of horticultural products (fruit and nuts, vegetables, and greenhouse and nursery products). Exports continue to be crucial to the success of the U.S. horticultural sector, averaging about 22 percent of production value during the baseline period.

• Grapes, oranges, apples, fresh and processed potatoes, and processed tomatoes are among the leading horticultural export commodities.
• Major export markets for U.S. horticultural products include Canada, Japan, and Southeast Asian nations.
• Major U.S. horticultural imports include bananas, grapes, frozen concentrated orange juice, potatoes, and tomatoes from Mexico, Chile, Canada, and Brazil.

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U.S. Livestock: February 2002 Baseline

Net returns to livestock producers are relatively high in the short run, due to low grain and soybean meal prices. Feed price increases remain moderate in the baseline which, along with rising farm-level livestock prices, support producer returns and encourage growth in total meat production. U.S. poultry gains a larger proportion of total meat consumption. Meat exports benefit from a rebound in economic growth in the United States and abroad. Japan, Mexico, and Russia show large increases in meat imports over the projection period.

Initially, cattle inventories continue to be held down by the recent poor forage conditions. Cattle herds are expected to build from cyclical lows near 96 million head in 2003-2004. Pork production grows slowly, as the more coordinated/integrated industrial structure serves to dampen the amplitude of the U.S. hog cycle. Poultry production continues to rise, but at a slightly lower rate than historically due to the maturity of the sector.

• The trend toward larger and more commercialized livestock systems continues throughout the baseline period; efficiency gains allow production to expand while real prices generally decline.
  
• Vertical coordination increases in the beef sector as strong demand for higher quality beef continues, particularly for the export and hotel and restaurant markets.
  
• Transformation to a more vertically coordinated pork sector continues, with larger, more efficient producers gaining market share.
  
• Poultry producers have benefited from economies of scale associated with the industry's horizontal and vertical integration; projected gains in efficiency over the next decade are smaller than in the past 25 years.

Livestock prices increase moderately in response to a growing domestic market coupled with export gains. Projected price increases are slower than the general inflation rate.

U.S. consumers purchase more meat with a smaller proportion of disposable income, continuing a long-term trend. Over the next 10 years, meat purchases decline from about 2 percent to 1.3 percent of disposable income.

Per capita consumption of beef and pork declines slightly. Per capita consumption of relatively lower priced poultry increases throughout the baseline, allowing poultry to gain a larger share of total meat consumption and meat expenditures.

U.S. meat exports rise throughout the baseline period, reflecting improved global economic growth and rising demand for meats.

Beef

• The United States, which imports grass-fed beef from Australia and New Zealand, becomes a net beef exporter near the end of the projections as exports of high-quality fed beef exceed imports of lower quality processing beef.
  
• The United States remains the primary source of high-quality fed beef for export, largely to Pacific Rim nations.
  

Pork

• Pacific Rim nations and Mexico remain key markets for long-term growth of U.S. pork exports. Canada continues to be a strong competitor for pork trade in these markets.
  
• Longer term gains in U.S. pork exports will be determined by costs of production and environmental regulations relative to competitors. Such costs tend to be lower in countries with small but growing pork industries, such as Mexico.
  

Poultry

• U.S. broiler export growth is expected to slow from the rate of the 1990s. U.S. producers will face strong competition from other major broiler exporting countries, particularly Brazil.
• Major U.S. export markets include Asia, Russia, Eastern Europe, and Mexico. Growth in U.S. poultry exports to Russia is projected to slow from the pace in the last several decades, reflecting greater trade competition.

While U.S. meat exports grow in importance, the domestic market remains the dominant source of demand. The farm value of meat exports, about 12 percent of the total value of domestically produced meat in 2001, grows to 14 percent by the end of the projections.

Milk production continues to increase as output per cow offsets declining milk cow inventories.

• Strengthening milk-feed price ratios, improved management, and dairy productivity gains continue to push milk output per cow higher and real costs lower.
• Domestic dairy demand continues to grow slowly throughout the baseline period, slightly faster than the growth in population. Cheese and butter demand will benefit from greater consumption of prepared foods and increased away-from-home eating. Per capita consumption of fluid milk, however, is projected to shrink slowly.

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Aggregate Sector Indicators: February 2002 Baseline

In the initial years, slow economic growth and a strong dollar provide a weak setting for the farm sector. Longer run developments reflect strengthening economic growth. While export competition and a strong U.S. dollar are projected to continue, improving world economic growth, particularly in developing countries, provides a foundation for gains in U.S. agricultural exports. The results are rising market prices and farm income as well as improvement in the financial condition of the sector. Retail food prices are projected to continue a long-term trend of rising slower than the general rate of inflation.

Export revenues account for an increasing share of U.S. farm cash receipts. With the productivity of U.S. agriculture growing faster than domestic demand, farmers rely increasingly on export market growth.

U.S. agricultural export value is projected to grow an average of about 4 percent annually from about $53 billion in fiscal year 2001 to $77 billion in 2011. High-value product (HVP) exports continue to account for about two-thirds of total U.S. exports.

• Strengthening world economic growth, particularly in developing countries, provides a foundation for gains in U.S. exports, even though competition in global markets remains strong.
  
• Much of the growth in HVP exports is for animal feeds, dairy, and beef.
  
• Export growth for bulk products (grains, oilseeds, cotton, and tobacco) reflects expected price increases and some gain in bulk volume.
  
• U.S. agricultural exports rise more than imports, with the agricultural trade surplus rising to $24 billion in fiscal year 2011.

Net farm income prospects for the next decade are on a par with the 1990s, averaging near $47 billion. Beyond 2002, net farm income gradually moves upward for the rest of the baseline, reaching almost $57 billion in 2011.

• Net farm income is initially lower as gains in prices and cash receipts do not match the reduction in government payments, assuming no further emergency assistance.
  
• In the longer run, domestic demand and exports strengthen and prices rise, leading to gains in farm income and improvements in financial conditions of the sector.

Government payments initially fall, largely reflecting the baseline assumption of no additional emergency assistance payments to the sector. Loan deficiency payments also decline, reflecting the assumed use of formula loan rates coupled with somewhat higher projected commodity prices.

• Direct government payments are projected to fall from over $21 billion in 2001 to $10.7 billion in 2002.
  
• Government payments in the longer run mostly reflect production flexibility contract payments (about $4 billion annually) and Conservation Reserve Program payments (near $2 billion annually).
  
• The baseline assumes a continuation of the 1996 Farm Act, with formula loan rates. Enactment of new farm legislation in 2002 could substantially alter the level and mix of government payments.

Gross cash income declines in 2002, reflecting the assumed reduction in government payments, and then rises through the rest of the projections as crop and livestock receipts grow.

• The agriculture sector is expected to rely increasingly on the market for income.
• Government payments, which represented almost 10 percent of gross cash income in 2000, account for about 2.5 percent in the latter part of the projections.
  
• Total crop output expands throughout the baseline period and, combined with recovering prices, leads to growth in crop cash receipts.
  
• Livestock receipts are forecast at near-record levels in 2002, and will likely continue to grow throughout the baseline, albeit at a lower rate than crops.

Production expenses increase modestly, at slightly less than the general inflation rate. These expenses are divided into three categories in the chart: farm-origin (seed, feed, and feeder livestock), manufactured (fuel, electricity, fertilizer, and pesticides), and other (labor, interest, and other expenses).

• The largest percentage increase is for the other expenses category which rises more than the general inflation rate.
  
• Fuel and oil expenses in the near term are lower than the recent peak in 2000, but are expected to increase as oil prices rise modestly and planted acreage expands.
  
• Cash operating margins tighten early in the projections, but fall slightly over the next few years as commodity receipts increase at a faster rate than cash expenses.

Gains in farmland value slow markedly in the initial years, reflecting the projected near-term downturn in net farm income. Strengthening farm income leads to higher longrun land values.

• In the past, the value of farmland has been slow to respond to decreases in farm income.
  
• Pressures from non-agricultural sources, such as housing and recreational uses, also affect farmland values.
  

Farm debt moves up less rapidly than asset values, rising an average of about 1.6 percent compared with 2.3 percent annually through 2011.

• With reduced farm income over the next few years, debt management will be crucial to farm financial conditions of the agricultural sector, as farm asset values rise only moderately in the near term. Lenders will factor farmers' reduced cash flows available for debt repayment into more restrained lending decisions, and farmers will be less willing to undertake credit-financed expansion.
  
• In the longer run, increasing farm incomes and relatively low interest rates assist in asset accumulation and debt management. Asset values strengthen more rapidly later in the baseline in response to improving farm income prospects.

Increasing farm income and rising farm equity lead to improved financial conditions in the agricultural sector. Debt-to-asset ratios decline to about 15 percent by 2011, compared with over 20 percent in the mid-1980s.

Retail food prices continue a long-term trend of increasing less than the general inflation rate.

• Among foods purchased for consumption at home, price increases are generally strongest for more highly processed foods such as cereals and bakery products. For these foods, prices are related more to processing and marketing costs than to farm-level prices and, therefore, rise at a rate closer to general inflation.

Expenditures for meals prepared away from home account for a growing share of food spending, reaching nearly 50 percent of total food expenditures by 2011.

• Increases in away-from-home food spending, which contains a large service component, are held down by competition in the fast-food and food-service industry.

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Agricultural Trade: February 2002 Baseline

The economies of developing countries provide a foundation for growth in global trade. Strong income growth, reinforced by urbanization, is expected to generate demand for greater variety and improved quality of foods. This will be felt most by livestock products and feeds, as well as processed products. Developing countries' import demand is reinforced by population growth rates which remain nearly double the rates of developed countries.

Strong trade competition is expected in international commodity markets, particularly from traditional exporters (such as Argentina, Australia, and Canada), but also from newly emerging players (including Brazil, Hungary, Romania, Ukraine, and Kazakhstan).

Trade projections in the baseline assume no accession to the World Trade Organization by China or Taiwan. Also, effects of the recent currency devaluation in Argentina are not included.

Definition of country groups

World imports of wheat (including flour) expand by nearly 27 million tons (25 percent) from 2001 to 2011. Growth in wheat imports is concentrated in North Africa, the Middle East, and Asia, where income growth is strong.

• Virtually no growth in global wheat trade occurred in the 1990s, reflecting lower demand from transition economies of the former Soviet Union (FSU) and Central and Eastern Europe (CEE). This phenomenon has now largely played out, and growth in demand from middle-income and developing economies leads to gains in global trade.
  
• Brazil is the world's largest wheat importer through 2011 due to rapid urbanization and income growth combined with only limited growth in domestic wheat production.
  
• China experiences the most rapid growth.
  
• Other key markets include Russia, Pakistan, Philippines, and Indonesia.

Definition of country groups

The top five wheat exporting nations (Argentina, Australia, Canada, the European Union, and the United States) account for 80-85 percent of world trade through 2011.

• While the United States is the world's top wheat exporter through 2011, the EU benefits from plentiful supplies and a favorable exchange rate to gain market share.
  
• Several countries of the former Soviet Union, notably Ukraine and Kazakhstan, emerge as steady suppliers of wheat to international markets. Russia remains a net importer of 2-3 million tons per year.

The reforms of Agenda 2000 lower internal grain prices early in the projections. With a relatively weak euro assumed, the European Union (EU) exports wheat without subsidy through 2011.

• Fueling EU exports through 2011 are an assumed decline in the crop area set-aside rate, limited cropping alternatives to wheat, abundant wheat stocks, and a favorable exchange rate.
  
• The EU share of world wheat trade increases from 14.5 percent in 2002 to 21 percent by 2011.
  
• As wheat stocks decline due to increased domestic feeding and accelerating exports, pressure to maintain EU land set-aside requirements diminishes. Strong producer pressure is expected to result in lower set-aside requirements midway through the period. As a result, the EU is able to produce and export more grain.

U.S. share of global wheat trade remains in a range of 24 to 26 percent, below levels of the late 1990s. Growth in wheat exports among traditional U.S. export competitors comes mainly from the EU, as Argentina, Australia, and Canada face limited expansion potential.

• In Canada, increased demand for barley and oilseeds is expected to keep wheat area from expanding.
  
• In Australia, rising wool prices and limited areas with sufficient rainfall lead to wheat area contraction and prevent significant expansion in wheat exports.
  
• Argentina is expected to shift area among wheat, corn, and oilseeds, depending on relative world prices, but total area is limited. Productivity gains for corn and soybeans imply higher net returns, and a gradual decline in wheat area. As a result, wheat production and exports grow only marginally.

Definition of country groups

World coarse grain trade expands by nearly 25 million tons (24 percent) from 2001 to 2011. Key growth markets include China, North Africa, the Middle East, and Mexico.

• Gains in per capita meat consumption, particularly in developing countries where populations and incomes grow steadily, are an important driver of projected trade gains.
  
• Steady longrun growth in the livestock sectors of developing countries in Asia, Latin America, North Africa, and the Middle East is expected to overtake feed imports lost due to restructuring in FSU and CEE countries.
  
• About two-thirds of global coarse grain supplies are used as animal feed, while industrial uses (starch production, ethanol, and malting) are relatively small but growing.
  
• Corn accounts for an annual average of 72 percent of all coarse grain trade through the projection period, followed by barley (17 percent) and sorghum (7 percent).

Definition of country groups

North Africa and the Middle East (NAME), already a major destination for feedstuffs, continues expanding import demand for grain and protein meals through 2011. The widening imbalance between feed production and feed requirements (especially those providing high energy and crude protein) translates into increasing dependency on imports of coarse grains and oilseeds.

• Rising populations (increasing 1.6 percent annually through 2011), and real Gross Domestic Product growth (increasing 4-5 percent annually in most countries) are expected to sustain strong demand growth for animal products—the real catalyst behind growing feed demand.
  
• Many NAME countries maintain restrictive meat import policies to bolster domestic production. Moslem countries prefer home-grown livestock to ensure the animals are Halal (lawful) and Zabihah (slaughtered according to Islamic rites).
  
• While strong demand has bolstered NAME's livestock output between 1990 and 2001, most NAME countries have limited arable land and inadequate water resources, constraining their capacity to produce feed grains and oilseeds.
  
• In the mid-1990s, corn overtook barley as the principal coarse grain imported by NAME countries, due mainly to rising poultry production. But the NAME region is expected to remain the world's largest barley-importing block.

China becomes a net corn importer near the middle of the projections period, reflecting increased domestic livestock production and demand for feed. Nonetheless, China is expected to be a net corn exporter in the near term to reduce a large buildup of stocks.

• The Grain Bag policy of the mid- to late-1990s, promoting self-sufficiency, is responsible for the buildup of corn stocks.
  
• Government policy favors domestic meat production over imports.
  
• Expansion in domestic meat production and increased use of commercial feeds are expected to result in rising domestic corn consumption to feed growing livestock populations.

Definition of country groups

The U.S. dominates world trade in coarse grains with about a 55-percent market share. The U.S. accounts for more than two-thirds of global corn trade.

• Initially, Canada (barley), the EU (barley), and Argentina (corn) provide the strongest competition. In the longer run, the Central European and former Soviet Union regions are expected to expand coarse grain exports.
  
• Strong growth in corn exports from Argentina reflects expanding production over the next 10 years, due more to higher yields rather than to area expansion.

EU barley is exported without subsidies throughout the projections, largely because of the euro's relative weakness against the U.S. dollar.

• Since World Trade Organization (WTO) export-subsidy limits apply to the coarse grains aggregate, more subsidies may be used for EU rye and oats exports.

Definition of country groups

World trade in oilseeds is projected to grow faster during 2002-2011 than during the 1980s, but much slower than the 4.6-percent rate of the 1990s. The EU, traditionally the world's major soybean and soymeal importer, is projected to reduce imports.

• Abundant EU grain stocks and lower internal grain prices (due to Agenda 2000 reforms) combine to reduce costs of feeding grains relative to protein meals, trimming EU soybean meal consumption.
  
• Economic growth in South and Southeast Asia should reinvigorate protein meal consumption in the next few years.

China's share of global soybean imports is projected to grow nearly 8 percent per year to over 30 million tons in 2011.

• Strong demand for protein meal by livestock feeders and for vegetable oil by a growing urban population supports increased imports of soymeal and soyoil.
  
• China's non-WTO tariff structure favors imports of soybeans over soymeal and soyoil, reflecting a policy change made in 1999.
  
• Even with rapid growth in soybean imports and domestic crushing, increased imports of soybean meal are needed to meet the strong growth in China's demand for protein meals.

Definition of country groups

Combined global exports of soybeans and meal (on a soybean-equivalent basis) are projected to grow from 109.7 million tons in 2001 to 145.3 million tons in 2011.

• Strong production gains by Argentina and Brazil propel their combined export volume from 56 million tons (about 52 percent of world trade) in 2001 to nearly 86 million tons (59-percent share) in 2011.
  
• U.S. soybean exports grow throughout the period, rising from about 35 million tons in 2002/03 to over 40 million tons by 2011. However, the U.S. share of world soybean exports drops from 32 percent in 2001 to 28 percent in 2011 due to strong competition from Argentina and Brazil.

South American soybean and soybean meal competition grows stronger, continuing a long-term trend and reducing U.S. trade share.

• Increases in Argentina's soybean production reflect gains in both yields and area.
  
• Although soybean yield gains in Brazil are also significant, increases in Brazilian production are mainly a result of expanding area. Transportation developments remain key to the pace of area expansion in Brazil and to the competitiveness of growing production from the country's vast interior regions.
  
• Brazil exports significant amounts of soybeans and soybean meal, with its share of global trade growing from 28 to 35 percent. Midway through the period, Brazil surpasses the U.S. as the world's leading exporter of soybeans and soymeal.
  
• Argentina exports more soybean meal than Brazil and more soybean meal than soybeans, reflecting the country's substantial crush capacity and its small domestic market.

Definition of country groups

World cotton trade patterns continue to shift in anticipation of the December 31, 2004 phaseout of the Multi-Fiber Arrangement (MFA), which places quota restrictions on textile and apparel trade. A major outcome of the WTO's Uruguay Round was the Agreement on Textiles and Clothing (ATC), which calls for dismantling of these restrictions.

• The MFA phaseout is expected to speed the shift of cotton processing to countries where resource endowments and technology allow for the most efficient—i.e., lowest cost—production.
  
• In the case of apparel, labor is the decisive input factor. Raw cotton consumption is expected to increase in developing countries where labor costs are lowest.

Definition of country groups

Traditional producers with a comparative advantage in cotton production (land and climate) are expected to benefit from post-MFA phaseout trade patterns.

• The United States remains the world's leading cotton exporter throughout the baseline period.
  
• Australia, Brazil, FSU, and Sub-Saharan African countries are major competitors through the projection period.

Definition of country groups

Global rice trade is projected to grow nearly 3 percent annually from 2002 through 2011, and by 2011 is expected to be over 32 percent above the record 26.6 million set in 1997/98.

• Rice trade as a share of total use, at only about 6-7 percent, remains very small relative to other cereals.
  
• International rice trade consists predominantly of long grain (indica) varieties, which account for the bulk of trade growth over the next decade. Indica rice is imported by a broad spectrum of countries, with Indonesia, Iran, Iraq, and the Philippines among the top markets.
  
• Most imports of medium grain (japonica) are by middle and higher income countries, primarily Japan, South Korea, Turkey, and Jordan.

Definition of country groups

Asian producing countries dominate trade in rice. Thailand and Vietnam, the two leading exporters of long grain rice, continue to account for over half of all rice exports.

• The U.S. is a net exporter of high-quality indica and japonica rice. Increases in exports are limited by fractional growth in U.S. production, continued expansion in domestic use, and higher U.S. prices relative to Asian competitors.
  
• China is projected to slowly expand exports over the next decade and will remain the third-largest exporter after 2002. China's large exports of short grain japonica and low-quality, long grain indica rice easily exceed its growing imports of high-quality long grain indica rice.
  
• India's internal price supports typically make it noncompetitive in the global market, while Pakistan has little ability to expand production substantially. As a result, export growth by India and Pakistan will be much slower than for the top three exporters.

Definition of country groups

Rising meat demand leads to gains in global trade, particularly in poultry, whose trade is expected to increase about 3 percent per year.

• Higher income countries of East Asia, such as Japan and South Korea, increase meat imports as land availability and environmental issues constrain their livestock sectors.
  
• Meat consumption growth in China is met largely by expanding domestic production, but imports, particularly poultry, are also projected to grow.
  
• Russia remains a large market for poultry imports as rising consumer demand continues to outpace growth in domestic production.
  
• Strong economic growth in Mexico, along with trade liberalization under the North American Free Trade Agreement, generate increases in its beef, pork, and poultry imports.

Definition of country groups

The U.S. is expected to realize the largest growth in meat exports among the major exporters.

• Worldwide poultry production is expected to undergo further consolidation in both production and processing. Much of the consolidation has occurred in developed countries, but many developing countries are still shifting from small, localized production to larger operations.
  
• The U.S. is expected to supply an increased share of world beef exports, gaining from limited supply increases in Canada, New Zealand, and Australia.
  
• Brazil and Argentina have strong beef production potential, but their exports are limited by the presence of foot-and-mouth disease.
  
• Brazil, China, Mexico, and Canada see strong pork production growth, but strong domestic demand limits supplies for export.

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