Agricultural Baseline Projections: Baseline Presentation, 2005-2014

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

Summary of Projections: February 2005 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. The projections were prepared in October through December 2004.

Steady domestic and international economic growth and gains in population strengthen demand for food and agricultural products in 2005-14, providing a favorable demand setting for the U.S. agricultural sector. The United States will remain competitive in global agricultural markets although trade competition will continue to be strong. Gains in global consumption, world trade, U.S. agricultural exports, and domestic demand for agricultural products result in rising farm commodity prices and cash receipts, which help to improve the financial condition of the U.S. agricultural sector.

Key Assumptions Underlying the Baseline Projections Include the Following:

Economic Growth

• World economic growth is projected to strengthen from the slow growth of 2001-03, averaging over 3 percent through 2014. The baseline assumes that growth in the U.S. gross domestic product (GDP) slows from the high recovery rate in 2004, and moves toward a sustainable longrun rate near 3 percent. Strong economic growth in developing countries of more than 5 percent annually is projected for 2006-14.

Population

• Growth in global population is assumed to slow in the baseline, from an annual rate of 1.7 percent in the 1980s to an average of about 1.1 percent over the projection period. Nonetheless, world population increases by more than 700 million people between 2004 and 2014. Although slowing, population growth rates in developing countries remain above those in the rest of the world. As a consequence, the share of world population accounted for by developing countries increases from 80 percent in 2004 to 82 percent by 2014.

The Value of the U.S. Dollar

• A continuing depreciation of the U.S. dollar is assumed through 2006. However, the dollar is projected to appreciate again starting in 2007. A strengthening U.S. dollar in the baseline assumes that capital moves into the United States to take advantage of well functioning financial markets and high expected long-term productivity growth.

Oil Prices

• From 2006 to 2009, real oil prices are projected to fall as supply and demand adjust to recent high prices and move the market to a more sustainable long-term balance. In subsequent years, crude oil prices are projected to rise slightly faster than the general inflation rate, as new oil discoveries as well as new technologies for extracting and refining oil allow for substantial demand growth with moderate energy price increases.

U.S. Agricultural Policy

• The Farm Security and Rural Investment Act of 2002 (2002 Farm Act) is assumed to continue through the projections period.

• Area enrolled in the Conservation Reserve Program (CRP) is assumed to rise to 39.2 million acres from about 35 million acres currently.

• Tobacco projections reflect legislation enacted in October 2004 that ends the Federal tobacco marketing quota and price support loan program after the 2004 crop year and provides for buyout payments to tobacco quota holders and tobacco quota producers.

Asian Soybean Rust

• The baseline does not include potential effects of Asian soybean rust in the United States. The finding of U.S. cases of soybean rust occurred after the baseline commodity projections were completed (see box, Asian Soybean Rust Could Permanently Alter the U.S. Agricultural Sector).

Beef Trade

• The baseline assumes a gradual rebuilding of U.S. beef exports to Japan, reflecting the October 2004 U.S.-Japan beef trade framework agreement that will permit the resumption of beef trade between the two countries (see box, Baseline Trade Assumptions for Cattle and Beef). A gradual recovery in U.S. beef exports to South Korea is also assumed.

• The resumption of imports from Canada of slaughter cattle under 30 months of age and feeder cattle is assumed to begin in 2006. The baseline projections were prepared before the minimal risk rule was published, which is expected to allow that trade to begin, effective March 7, 2005.

International Policy

• Baseline trade projections assume that all countries fully comply with all existing bilateral and multilateral agreements affecting agriculture and agricultural trade. The baseline incorporates effects of trade agreements and domestic policy reforms in place in November 2004, but does not incorporate any effects of agreements not formally ratified by that date.

• Domestic agricultural and trade policies in individual foreign countries are assumed to continue to evolve along their current path, based on the consensus judgment of USDA's regional and commodity analysts. In particular, economic and trade reform underway in many developing countries is assumed to continue.

Key Results in the Baseline Projections Include the Following:

• Improved global economic performance and growth in population strengthen demand for food and agricultural products in the baseline, providing the foundation for gains in agricultural trade, U.S. exports, farm commodity prices, and cash receipts. Economic growth in developing countries is important for this result, because consumption and imports of food and feed are particularly responsive to income growth in those countries, with movement away from staple foods and increased diversification of diets.

• The United States will remain competitive in most global agricultural markets, although trade competition will continue to be strong. Expanding production in a number of countries, such as Brazil, Argentina, Canada, Ukraine, and Kazakhstan, provides competition to U.S. exports for some agricultural commodities. Additionally, a strengthening U.S. dollar assumed in the baseline starting in 2007 is a constraining factor for U.S. agricultural competitiveness and export growth in the longer run. Nonetheless, increases in exports contribute to gains in cash receipts to U.S. farmers and improvement in the financial condition of the U.S. agricultural sector.

• Overall meat exports benefit from stronger foreign economic growth in the baseline. Although U.S. beef exports to Japan and South Korea are projected to gradually rebuild, overall beef exports do not return to the levels attained prior to the U.S. case of bovine spongiform encephalopathy (BSE) in 2003.

• Canada continues to be a strong competitor with the United States in pork exports to Pacific Rim nations and Mexico. Canada is also the major supplier of live hog imports to the United States.

• Increased production of pork and poultry allow Brazil to become very competitive in world meat trade, enabling Brazil's pork and poultry exports to sustain strong growth.
  

• Domestic demand increases for meat, feeds, horticultural products, corn used in ethanol production, and food use of rice.

• Market prices and cash receipts rise, which helps to improve the economic and financial condition of the U.S. agricultural sector. Government payments become relatively less important over time as a greater share of gross cash income comes from the marketplace due to growing domestic and export demands. Increasing gross cash income assists in asset accumulation and debt management, raising farm equity and reducing the debt to-asset ratio in the sector. Net farm income projections for the next decade average over $60 billion, compared to $47.7 billion in the 1990s.

• Consumer food prices are projected to rise less than the general inflation rate.

• Steady global economic growth and stronger global trade lead to gains for U.S. agricultural export volumes and higher commodity prices. Thus, the value of U.S. agricultural exports is projected to grow from $56 billion in fiscal year 2005 to $78.6 billion in 2014. High-value product (HVP) exports continue to account for almost two-thirds of total U.S. exports. Much of the growth in HVP exports is for animal products and horticultural products. Most of the growth in the value of bulk commodity exports reflects expected price increases and gains in volume for grains.

• Increases in U.S. consumer income and demand for a large variety of foods underlie growth in U.S. agricultural imports, which rise from $56 billion in fiscal year 2005 to more than $76 billion by 2014. Strong growth in horticultural product imports is assumed to continue in the projections, contributing much of the overall increase in agricultural imports. Processed foods are expected to account for a growing share of U.S. agricultural imports.

• China is projected to be a net importer of corn in the baseline starting in 2007/08, reflecting declining stocks of grain and increasing incomes which raise consumer demand for meat and derived demand for feed for a growing livestock sector.

• Brazil's rapidly increasing area planted to soybeans enables it to gain a larger share of world soybean and soybean meal exports, despite increasing domestic feed use. Its share of world exports of soybeans plus the soybean equivalent of soybean meal exports rises from about 35 percent in recent years to 45 percent by 2014.

• Kazakhstan and Ukraine are projected to have a growing importance in world wheat trade, reflecting low costs of production and continued investments in their agricultural sectors. Their share of world wheat exports is projected to increase from 4-6 percent in recent years to about 11 percent by the end of the period. However, high year-to-year volatility in these countries' production and trade can be expected.

• Removal of textile and apparel import quotas, resulting from the completion of the Multi-Fiber Arrangement (MFA) phaseout on December 31, 2004, is expected to have a major influence on world cotton production and trade. The MFA phaseout is expected to speed the transfer of raw cotton production to countries where resource endowments and technology result in the lowest production costs. Textile production and raw cotton consumption will increase in developing countries, such as China, India, and Pakistan, where labor costs are lowest. Countries in Europe and East Asia with higher cost labor markets will continue to reduce their cotton imports through the baseline.

Macroeconomic Assumptions: February 2005 Baseline

Macroeconomic assumptions underlying the USDA baseline are characterized by above-trend growth in 2004 followed by steady growth at average historical levels beginning in 2005. Costs of energy and other raw materials and exchange rate developments are important uncertainties in the outlook. The baseline's macroeconomic assumptions were completed in October 2004.

The U.S. and world economies continue to become increasingly interdependent both through growing trade and through financial market integration. The United States maintains its global share of gross domestic product (GDP) at about 30 percent. With the largest GDP and capital market, the United States plays a large role in determining economic conditions around the world, although growing economic interdependence implies that international macroeconomic conditions also have important effects on the U.S. economy.

The baseline assumes that U.S. GDP growth moderates in the near term from the rapid growth in 2004 as the economy moves toward a longrun annual growth rate near 3 percent. Continuing U.S. technological advances associated with computing and telecommunications will provide support for worldwide productivity growth.

• Global economic growth is also projected to reflect steady gains as most countries of the world move close to longrun sustainable economic growth rates.

• Relatively high oil prices in 2004 and beyond will constrain Asia and its manufacturing sector, which is far more dependent on energy for GDP growth than are more developed economies.
  

Definition of country groups

World economic growth is projected to strengthen from the slow growth of 2001-03, averaging over 3 percent through 2014. Increased incomes and growth in population raise global food demand, leading to gains in agricultural trade and U.S. exports.

• Consumption and imports of food and feed in developing countries are particularly responsive to growth in income. As incomes rise in these countries, consumers generally diversify their diets, moving away from staple foods to include more meat, fruits, vegetables, and processed foods. These consumption shifts increase import demand for feedstuffs and high-value food products. Historically, this has included increases in U.S. exports of meat and processed foods.

Definition of country groups

Developed economies are projected to grow at rates similar to those of the 1990s, averaging 2.6 percent in 2006 and beyond.

• The adoption of the euro enhanced cross-border trade and investment within the European Union (EU). Enlargement of the EU to include countries of Central and Eastern Europe implies closer integration, creating more trade and investment opportunities.

• In spite of this, the EU does not grow as rapidly as the United States, reflecting smaller population growth and rigidities in labor markets that constrain economic gains.

• Japan continues to face significant economic challenges, largely the result of its unresolved banking problems and persistent deflation. Japan's share of world GDP is expected to decline to less than 13 percent by 2014, down from more than 17 percent in the early 1990s.

Definition of country groups

Economic growth in developing countries is projected at a 5.1 percent average annual rate in 2006-14, while overall growth in the former Soviet Union (FSU) is projected to average slightly below 5 percent per year.

• Long-term growth near 4 percent is projected for Latin America. This will attract foreign capital inflows, sustaining growth.

• Growth in the developing economies of East and Southeast Asia is projected to be about 6 percent for the next decade, but still will be below the very strong average growth of over 7 percent in the 1990s.

• China's economic growth is consistently the strongest in Asia, and is expected to average above 7 percent over the next decade.

• Russia, Ukraine, and the other former Soviet Republics benefit from their shift to market economies, with GDP gains of 4-5 percent annually in these countries for the next decade.

Definition of country groups

Global population growth is a major factor underlying agricultural demand and trade. Historically, about 70 percent of increases in food use have been related to population growth, leaving about 30 percent driven by increasing incomes and other factors. With population growth slowing in the baseline projections and income growth strengthening, population gains will become relatively less important in determining food and agricultural demand growth.

• World population growth declines from an annual rate of 1.7 percent in the 1980s to an average of about 1.1 percent annually during the projection period.

• Developed economies and the FSU have very low projected rates of population growth in the baseline, 0.4 and 0.1 percent respectively. The projected annual average population growth rate for the United States is the highest among developed countries, 0.9 percent, in part reflecting large immigration.

• Population growth rates in developing countries decline by almost half between the 1970s and the projection period, but remain above those in developed countries and the FSU. As a consequence, the share of world population accounted for by developing countries continues to increase, from 80 percent in 2004 to 82 percent by 2014.

• China's population growth rate slows from 1.5 percent per year in 1981-90 to 0.6 percent in 2005-14. The population growth rate in India, the world's second most populous nation, is projected to decline from 2.1 percent to 1.3 percent per year between the same periods. Nonetheless, this growth narrows the gap between its population and that of China.

• Brazil's population growth rate falls from 2.1 percent annually in 1981-90 to 1.0 percent in 2005-14. Sub-Saharan Africa's population growth rate declines from 2.9 percent to 1.9 percent per year for the same periods, still leaving Africa with the highest population growth rates of any region.

Exchange rates in the baseline are expressed as local currency per U.S. dollar, in real (inflation-adjusted) terms, thus reflecting nominal exchange rates and relative inflation rates. With this measure, a decrease in a country's exchange rate indicates an appreciation of its currency since fewer units of that currency are needed to equal the value of one U.S. dollar. Implications for the value of the U.S. dollar are then measured as weighted averages of individual country-specific exchange rates. For example, the U.S. dollar value index shown in the chart is a trade-weighted measure for U.S. agricultural markets, where the weights reflect relative U.S. agricultural exports to foreign countries. Alternative measures of the value of the U.S. dollar can be constructed using different weights, such as agricultural trade weights of competitors in global trade or U.S. exports weights for a specific commodity.

• While there is a depreciation of the U.S. dollar in the near term in the baseline, the dollar is projected to appreciate again starting in 2007. A strengthening U.S. dollar in the baseline assumes that capital moves into the United States to take advantage of well-functioning financial markets, transparent financial accounting standards, a relatively risk-free environment, and high expected long-term productivity growth and investor returns, which mitigates concerns with the budget and trade deficits. Nonetheless, high aggregate U.S. trade and budget deficits and a historically low domestic savings rate could make the near-term depreciation of the dollar sharper and longer than assumed in the baseline. If this were to occur, near-term U.S. and world economic growth would be weaker as well.

• A return to a strengthening dollar in the baseline reduces U.S. agricultural competitiveness and constrains growth in exports. This is partially offset by longer term global economic growth, which increases the demand for U.S. exports. U.S. exports of bulk commodities and horticultural products tend to be the agricultural products most sensitive to an appreciating U.S. dollar due to relatively stronger global trade competition in those markets.

• China is assumed to maintain a policy of a fixed nominal exchange rate relative to the U.S. dollar, keeping its currency at a level that several indicators suggest is significantly undervalued. This policy lowers prices for Chinese exports, thereby affecting both agricultural and nonagricultural trade. Even with a fixed nominal exchange rate, higher projected inflation in China than in the United States implies some real appreciation of the Chinese currency. However, an appreciation of the Chinese currency in nominal terms would make the real currency appreciation greater, which would tend to lower China's exports and raise the volume of its imports.

Definition of country groups

Inflation rates, which came down in the 1990s (except in the transition economies of the FSU), are projected to remain low through 2014.

• For developed countries and the world as a whole, inflation is projected to be below 3 percent.

• Inflation rates for countries of the FSU are sharply lower than the exceedingly high rates during the transition period for those economies in the 1990s.

• Inflation rates in developing countries are also projected to fall. Inflation in Asia declines to rates comparable to those in developed countries. Those in Latin America and Africa and the Middle East, while declining, will remain substantially above inflation rates in the rest of the world.

• As the U.S. and world economies move to longrun sustainable rates of economic growth, inflationary pressures will begin. In response, the Federal Reserve Board and central banks in other countries are assumed to raise short term interest rates to limit price increases. In addition, as world economies grow, demand for credit rises and further boosts interest rates. Finally, a weaker U.S. dollar relative to the yen and the euro in the near term is expected to result in U.S. interest rates rising more than those in Japan and Europe to continue financing the U.S. budget and trade deficits. However, relatively low inflation rates will keep domestic interest rates from moving to the high levels seen in the 1980s.

Oil prices increased in 2004 due to uncertainties in the international oil market that resulted from the unstable situation in the Middle East, supply problems from the Gulf of Mexico to Norway that lowered effective production capacity, and economic expansion in developing Asia (especially in China) that raised demand. Crude oil prices are projected to average somewhat higher in 2005 as continued (although slower) growth in the major Asian economies will keep oil demand strong, outpacing gains in new crude oil supplies.

• From 2006 to 2009, real oil prices are projected to fall as supply and demand adjust to recent high prices and move the market to a more sustainable long-term balance.

• From 2010 on, crude oil prices are projected to rise slightly faster than the general inflation rate. New oil discoveries, along with new technologies for finding, extracting, and refining oil, are assumed to allow for continued substantial growth in demand with modest relative energy price inflation. These projections are broadly consistent with the U.S. Department of Energy, Energy Information Administration's January 2005 Annual Long-Term Outlook.

• Most of the growth in world oil demand will be due to strong Asian GDP growth, which is highly dependent on energy availability. Higher oil prices could lower Asian and global GDP growth from rates projected in the baseline, although ensuing economic adjustments through adoption of existing energy-saving technologies common in developed economies make a sustained growth slowdown less likely.

• Oil prices have historically affected prices of natural gas and supply conditions for nitrogen-based fertilizer. However, the links between the oil and natural gas markets have weakened significantly due to dramatic growth in the demand for natural gas and deregulation throughout the natural gas supply and demand system. As a result, prices for natural gas and fertilizer will continue to be volatile. U.S. imports of fertilizer will mitigate the impact of rising natural gas prices on farm operations in the United States.

More Detailed Data

Baseline Macroeconomic Data

U.S. Crops: February 2005 Baseline

Steady U.S. and global economic growth assumed for the baseline provides a favorable demand setting for field crops, supporting longer run increases in consumption, trade, and prices. Despite recent depreciation of the U.S. dollar relative to many currencies, a strengthening dollar (U.S. agricultural export weighted basis) starting in 2007 and trade competition from areas such as Brazil, Argentina, and the Black Sea region constrain U.S. exports for some crops, however.

Baseline assumptions for field crops reflect the Farm Security and Rural Investment Act of 2002 (2002 Farm Act), which is assumed to continue through the projection period. The 2002 Farm Act continues planting flexibility provisions, giving farmers almost complete flexibility in deciding which crops to plant. Support to field crop producers is provided by marketing assistance loans, counter-cyclical payments, and fixed direct payments. During the baseline period, area enrolled in the Conservation Reserve Program (CRP) is assumed to rise to 39.2 million acres from about 35 million acres currently. This increase in enrollment reduces land available for crop production, with about two thirds of the land in the reserve allocated to the eight major field crops (corn, sorghum, barley, oats, wheat, rice, upland cotton, and soybeans), based on historical plantings.

Projected plantings for the eight major field crops in the United States increase slowly in the baseline, from a low of 247 million acres to nearly 252 million acres by 2014, in response to higher producer net returns. Yield increases also contribute to production gains, limiting price increases and reducing the need for more land to be cropped. Thus, the eight-crop plantings total remains considerably lower than the more than 260 million acres planted in 1996.

Plantings of different crops are influencd by expected net returns among competing crops. Net returns are determined by market prices, yields, and production costs, with returns augmented by marketing loan benefits when prices are low. Some benefits to growing crops may not be fully reflected in a single year's net returns, such as agronomic benefits of crop rotations. Nonetheless, while consideration of these factors can also affect planting choices, measures of farmers' response to net returns based on historical data implicitly include these effects.

• Corn, wheat, and soybeans account for about 87 percent of acreage for the eight major field crops. The cropping mix shifts somewhat more to corn and away from soybeans as growth in global supply and demand is reflected in prices and net returns.

• Corn acreage rises gradually through the projections as increasing exports and domestic demand lead to rising prices and net returns. The increase in corn plantings is facilitated, in part, by a reduction in soybean area.

• Wheat acreage falls below 59 million acres early in the projections period, reflecting lower prices. A moderate increase in land planted to wheat is projected over the rest of the baseline as gains in demand exceed increases in supply provided by rising yields, thus raising prices and providing incentives to plant.

• Soybean plantings initially decline from a relatively high level in 2004 in response to lower prices caused by record 2004 production. Soybean acreage declines further through 2009 as higher prices and net returns for competing crops, particularly corn, provide incentives to switch some land from soybeans. Soybean plantings then stabilize in the remaining years of the projections.
  

Domestic corn use continues to grow throughout the projections period, particularly for feed use and ethanol. Global economic growth underlies longrun increases in U.S. corn exports.

• Feed and residual use of corn rises in the baseline as the U.S. livestock sector grows in response to increases in domestic demand and exports of beef, pork, and poultry. An expanding domestic economy will raise overall meat consumption in the United States. Additionally, as incomes grow in the rest of the world, especially in developing economies, consumers shift to more meat in their diets, which requires more feed grains for meat production. As a result, the baseline analysis also expands world trade in feed grains and increases exports from the United States to support growth in global meat production.

• Large increases are projected in corn use for ethanol production over the next several years, reflecting continued expansion of production capacity. State-level bans (such as those already in place in California, Connecticut, and New York) on methyl tertiary butyl ether (MTBE) as a fuel oxygenate increased incentives for ethanol expansion in recent years, while strong petroleum prices have provided additional support for ethanol use.

• Gains in most other food and industrial components of domestic corn use are projected to be smaller than increases in population. Consumer dietary concerns also limit increases in the use of corn for high fructose corn syrup (HFCS) and for glucose and dextrose.

• U.S. corn exports rise faster than global trade with the United States increasing its market share, reflecting a U.S. comparative advantage in corn production. Corn exports from Argentina will continue to grow and provide competition to the United States, but China's corn exports drop as its livestock sector expands. Strong increases in corn exports to Mexico reflect increased feed demand for a growing Mexican poultry sector. Additionally, U.S. corn exports to Mexico are boosted by the reduction and elimination by 2008 of the tariff rate on over-quota corn imports from the United States under the North American Free Trade Agreement (NAFTA). This tariff reduction shifts some U.S. exports to corn from sorghum, which already has tariff-free status.

Demand in the U.S. wheat sector grows through the projections, with moderate gains for exports and small increases in domestic food and feed uses.

• Wheat demand in the United States is a relatively mature market. After declining from 2000 to 2003, food use of wheat resumes moderate gains. Growth is somewhat slower than population increases, reflecting a continuation of dietary adjustments by many consumers. Additionally, new technologies can significantly extend the shelf life of bread and reduce spoilage, lowering flour needs required to meet consumer demand.

• Feed use of wheat, a low-value use of the crop, shows only small increases in the projections. Gains in wheat feed and residual use are driven by increases in production in the baseline.

• U.S. wheat exports increase through the projections as income and population in developing countries grow, raising global wheat consumption and trade. Competition from the European Union, Canada, Argentina, Australia, and exporters from the Black Sea region continues through the projections, holding the U.S. market share relatively constant at about 24-25 percent. Market shares for Australia, Argentina, and the Black Sea region increase.

Domestic use of soybeans continues to rise, but U.S. soybean exports edge down from projected 2005 levels due to moderate output growth and increased global competition.

• Growth in domestic soybean crush is largely driven by increasing demand for domestic soybean meal, mostly because of rising feed demand for expanding meat production. Domestic demand for soybean meal is tempered somewhat by a rising volume of corn byproducts from the production of ethanol.

• Low prices help U.S. soybean exports rise to 1.1 billion bushels in 2005-07. Exports then fall, leveling off near 1.03 billion bushels in 2009-14, largely due to strong competition from Brazil. Consequently, the U.S. market share of global soybean trade declines in the baseline.

• U.S. exports of soybean meal and soybean oil also face strengthening competition from South American producers, holding exports of these soybean products relatively flat after 2005/06, with declining global trade shares.

• The baseline does not include potential effects of Asian soybean rust in the United States. The finding of U.S cases of soybean rust occurred after the baseline commodity projections in this report were completed.

Mill use of upland cotton in the United States continues to fall through the projection period from its peak in 1997/98. Upland cotton exports rise to and hold at about 13 million bales for most of the baseline as more cotton processing occurs in developing countries with lower labor costs.

• Starting in 2005, textile and apparel import quotas established under the Multi-Fiber Arrangement are eliminated in accordance with the Uruguay Round's Agreement on Textiles and Clothing. Apparel imports to the United States increase, reducing domestic apparel production and lowering the apparel industry's demand for fabric and yarn produced in the United States. Some increase in U.S. yarn and fabric exports is projected, but the net effect is for declining domestic mill use, which is projected at less than 40 percent of its 1997/98 level at the end of the projection period.

• Upland cotton exports remain relatively stable at 12.8-13.6 million bales annually through the projections. As growth in the textile industry in China slows from the rapid expansion of recent years, growth in China's import demand and growth in global cotton trade slow as well. Thus, despite only a small expansion in U.S. cotton exports, the U.S. share of global cotton trade remains about 36-37 percent in the projections.

Steady expansion of domestic food use of rice is projected over the baseline, although the rate of expansion is well below rates in the 1980s and 1990s. U.S. rice exports are projected to expand at a modest pace.

• Growth in domestic use of rice is largely due to an increasing share of the U.S. population of Asian and Latin American descent, expanding imports of specialty rice from Asia. Use of rice in processed foods and pet foods also increases. Overall, these factors result in a small, but steady rise in per capita rice use in the United States.

• U.S. rice exports increase as production growth more than offsets expanding domestic use, keeping the U.S. price difference over Asian competitors quite small early in the baseline. In the later years of the projections, larger domestic use pushes U.S. prices higher, reducing U.S. competitiveness in global markets and slowing the growth in U.S. rice exports.

• Global rice prices are projected to increase about 3 percent per year over the baseline, reaching $8.43 per hundredweight (rough basis) by 2014/15, about equal to the 1997/98 El Niño-driven $8.45 price and more than twice the 2000/01-2002/03 annual averages. Slower production growth in Asia and growing worldwide import demand for rice are behind the steady increase in global trading prices.

U.S. stocks to use ratios for corn and soybeans are up sharply in 2004/05 following the record yields and large production of the 2004 growing season. Large corn and soybean stocks are reduced early in the projections and stocks to use ratios for those crops decline from their initial high levels. Later in the projections, prices rise and encourage additional production, resulting in stocks-to-use ratios leveling. The wheat stocks-to-use ratio also is up initially but not as much as for corn and soybeans because 2004 wheat production, while large, was not a record. The stocks to-use ratio for wheat rises through 2006/07, largely reflecting weak exports, but declines in subsequent years as exports strengthen.

As with corn and soybeans, stocks to use ratios for cotton and rice are initially large due to high 2004 yields and production. Both decline from these high levels, with each flattening in the later years of the projections.

Projected prices for corn, wheat, and soybeans reflect, in part, movements in U.S. stocks to use ratios.

• Price movements in the near term reflect adjustments following the large 2004 production levels. Corn prices rise from the lows of 2004/05 as a return to trend yields reduces production and overall supplies from the 2004 record. Soybean production is reduced from the 2004 level, but large carryover stocks increase total supplies in the near term and lead to further price declines. Greater foreign competition and weaker U.S. wheat exports initially reduce wheat prices.
  

• Prices for each of these three crops then rise through the remainder of the projections as stocks-to-use ratios decline from the near-term high levels.

The sugar price support program includes the loan rate program and domestic marketing allotments. The loan rate for raw sugar is 18 cents per pound and the rate for refined beet sugar is 22.9 cents per pound. Marketing allotments are functioning each year of the projections. The annual marketing allotment (called the Overall Allotment Quantity, or OAQ) is set according to provisions of the 2002 Farm Act.

• Planted and harvested area in the projections are assumed to be related to lagged real sugar crop prices relative to prices for alternative crops and adjustments to the previous year's ratio of blocked stocks (those held by processors that cannot be marketed because of marketing allotments) to allotted marketings. These variables imply that there is little incentive to expand acreage for sugar crops in most years of the baseline.

• Historical growth trends in productivity measures, such as yields, are assumed to hold through the projection period.

• Sugar deliveries to producers of sugar-containing products (SCP) and to non-industrial endusers are a function of U.S. population growth. SCP imports are projected to increase throughout the baseline, although the rate of gain slows as the import share of SCPs levels off beyond fiscal year 2010. At that time, domestic deliveries of sugar are projected to increase about 81,000 short tons, raw value (STRV) a year.

• The sugar baseline projects that the raw sugar tariff-rate quota (TRQ) is established each year at 1,117,195 metric tons, raw value (MTRV), the World Trade Organization (WTO) minimum access level, except for fiscal years 2010, 2012, and 2015. In those years, the raw sugar TRQ is increased to compensate for levels of domestic production below the OAQ. In the year following a rise in the TRQ, the baseline projections assume that domestic producers respond by increasing sugar crop acreage on land that had been withdrawn from production in previous years due to adjustments to blocked stocks (stocks unable to be marketed because of marketing allotments). The refined sugar TRQ is established each year at 39,000 MTRV. The yearly raw sugar TRQ shortfall is assumed to equal 50,000 STRV.

• The Mexican consumption tax on soft drinks that use fructose is assumed to remain in place through 2015, thereby limiting sugar available for export to the United States under the terms of the North American Free Trade Agreement (NAFTA).

Since 1938, tobacco production in the United States has been under a marketing quota program with price supports. However, legislation enacted in October 2004 ends the U.S. tobacco marketing quota and price support program after the 2004 crop year. A buyout of tobacco quotas accompanies the termination of the program. With the elimination of the tobacco program, producers will no longer be restricted in the location or quantity of tobacco they produce, nor will they receive price support for the tobacco they sell. Mandatory inspection of imported tobacco will cease, although inspections will continue for some domestic types. As part of the quota buyout, stocks of tobacco currently held by grower-owned cooperatives will be sold in a manner that does not destabilize tobacco markets.

• Ending the tobacco program will have unprecedented effects on the U.S. tobacco industry. Initially, an exodus of farmers will cause leaf production to decline. However, after this initial response, expansion by remaining growers will cause production to recover as production costs decline due to the elimination of costs associated with acquiring quota and as economies of scale are achieved on fewer, larger farms. Additionally, production will likely shift to areas where producers can achieve more economically viable scales of operation.
  
  
• Lower prices will make U.S. leaf more competitive in domestic markets and global trade, although the tobacco industry will continue to face declining domestic cigarette consumption and trade competition from foreign producers, particularly Brazil. Nonetheless, with lower prices, a greater share of U.S. leaf will be used in domestic production of tobacco products, raising total domestic use. Lower prices also underlie projected increases in U.S. exports of tobacco leaf. The projected gains in domestic use and exports reverse the generally downward trend of recent years in those markets.
  
  
• Cigarette sales in the United States are expected to continue declining at 2-3 percent per year for the baseline period. Per capita consumption declines as those who smoke find fewer opportunities to smoke in public places and the cost of cigarettes increases due to higher prices and taxes. Exports of cigarettes will likely stabilize near current levels.
  
  
• After an initial multi-year adjustment period following the end of the tobacco program, the market will stabilize at higher production levels in the second half of the projection period and reflect trends in domestic and global demand for tobacco leaf.

The United States remains a net importer of horticultural products (fruit and nuts, vegetables, and greenhouse and nursery products). Export growth continues to be important to the U.S. horticultural sector.

• U.S. exports of horticultural products, worth $13.8 billion in fiscal year 2005, are projected to grow in value by 2.6 percent on average from 2005 to 2014. Horticulture imports of $24.8 billion in 2005 expand by 3.6 percent over the same period. Thus, the estimated $11 billion horticulture trade deficit in 2005 increases to more than $16 billion in 2014.

• Major export markets for U.S. horticultural products include Canada, Japan, and Southeast Asian nations. Among fruit exports, fresh noncitrus fruits and fruit juices lead in growth. The largest exports are grapes, strawberries, apples, and orange juice. Export prospects for processed vegetables are stronger than for fresh vegetables. Frozen potatoes are the leading U.S. vegetable export.

• Major U.S. horticultural imports include potatoes, tomatoes, bananas, grapes, frozen concentrated orange juice, apple juice, melons, and tree nuts (especially cashews) from Mexico, Chile, Canada, and Brazil. Imports play an important role in domestic supply during the winter months and, increasingly, during other times of the year as lower costs and reduced trade barriers make horticultural imports more competitive.

U.S. Livestock: February 2005 Baseline

Livestock sector projections over the baseline period reflect strong domestic demand for meat. Beef and poultry exports rise from the reduced levels of 2004 that reflected concerns with bovine spongiform encephalopathy (BSE) and Avian influenza, respectively. The baseline assumes a gradual rebuilding of U.S. beef exports to Japan, reflecting the October 2004 U.S.-Japan beef trade framework agreement that will permit the resumption of beef trade between the two countries. While overall meat exports benefit from stronger foreign economic growth in the baseline, U.S. beef exports do not return to levels attained prior to the discovery of a U.S. BSE case in December 2003.

Moderate returns to red meat production lead to only small gains in beef and pork production in the second half of the projections. Larger gains in poultry output result in poultry becoming a larger proportion of total U.S. meat consumption as per capita beef consumption declines and per capita pork consumption levels off.

U.S. beef production increases from the sharp declines of 2003 and 2004. Despite the loss of export markets following the case of BSE in late 2003, strong domestic demand for beef has resulted in favorable producer returns which, together with favorable forage and feed grain supplies, begins the process of retention of cows and heifers for future expansion. Cattle herds are expected to increase somewhat from cyclical lows near 95 million head in 2005 and 2006. Rising slaughter weights augment gradual herd expansion over the remainder of the projections. Pork production grows slowly as the coordinated/integrated industrial structure dampens the U.S. hog cycle. Poultry production continues to rise, but at a lower rate than during the 1990s due to the maturity of domestic demand and slower export growth.

The trend toward larger livestock systems continues throughout the baseline period. Efficiency gains allow production to expand while real prices generally decline.

• Strong demand for consistent, higher quality beef continues in the domestic hotel and restaurant market and increasingly in the retail market. Additionally, the rebuilding of beef export markets is primarily for high-quality beef. Increasing movement toward transparent animal identification in international trade will strengthen quality assurance.
  
  
• Increased efficiency of the U.S. hog breeding herd is reflected in a shift to larger, more efficient operations and in the decline of smaller, less efficient operations. For the baseline, the increase in efficiency slows somewhat since larger, more efficient operations already account for a large share of the U.S. pig crop.
  
  
• Production coordination and market integration between the United States and Canada continues to increase in the hog sector. Canada is the major supplier of live hog imports to the United States. Feeder pigs produced in Canada are finished and processed in the United States, where feed grain prices remain favorable and processing costs are lower. Large wholesale and retail buyers source pork cuts where prices are attractive, with demand accommodated by trade between the two countries.
  
  
• The poultry sector has 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 are projected to average somewhat lower than the high levels of 2004, particularly in the second half of the projections period when per capita consumption flattens at record high levels.

U.S. consumers buy more meat, but spend a smaller proportion of disposable income for these purchases, continuing a long-term trend. Over the next 10 years, consumer meat expenditures decline from about 2 percent to 1.4 percent of disposable income.

• Poultry expenditures continue to increase as a share of consumer spending on meats.

Higher levels of total per capita meat consumption are projected over the next decade, largely reflecting continued increases in poultry consumption. On a retail weight basis, per capita consumption rises to about 234 pounds from the 2004 level of 223 pounds.

• Per capita consumption of beef remains at relatively high levels through the baseline in part because beef exports, although growing, do not return to 2003 levels in the projections.

• Pork consumption remains stable at 52-53 pounds per person throughout the projections.

• 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 from the reduced levels in 2004 that reflected disease-related loss of markets, especially for beef and broilers. Improved global economic growth and rising demand for meats contribute to the gains in U.S. exports. The gradual recovery in beef exports to markets such as Japan and South Korea is also critical to the projections. The baseline assumes that Brazil and Argentina will not be recognized as free of foot-and-mouth disease (FMD) by key importing countries, such as Japan.

Beef

• U.S. beef exports primarily reflect demand for high-quality fed beef, with most U.S. beef exports typically going to markets in Pacific Rim nations. With the loss of those markets following the BSE case in the United States in late-December 2003, U.S. beef exports were sharply lower in 2004. However, U.S. beef exports are projected to rise slowly in the baseline as the October 2004 beef trade framework agreement between the United States and Japan facilitates the resumption of beef trade between the two countries. A gradual recovery in U.S. beef exports to South Korea is also assumed.
  
  
• U.S. imports of processing beef from Australia and New Zealand decline in the baseline as more, lower quality processing beef comes from domestic sources with the rebuilding of the cattle herd. The United States is a net beef importer on a volume basis through the projections as the recovery of high-quality fed beef exports does not reach prior levels.

Pork

• U.S. pork exports benefit somewhat from reduced beef exports as import demand shifts among competing meats. Pacific Rim nations and Mexico remain key markets for long-term growth of U.S. pork exports. Canada continues to be a strong competitor in these markets. Brazil also is a major pork exporter. However, without nationwide FMD-free status, Brazil focuses its pork exports on Russia, Argentina, and Asian markets other than Japan and South Korea.
  
  
• While increased efficiency in pork production helps limit production costs, 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 growing pork industries, such as Brazil and 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, and Mexico. Gains in these markets reflect strong economic growth and rising consumer demand.

The sharp decline in beef exports in 2004 lowered the overall meat export share of the total value of domestically produced meat from about 11 percent in 2003 to under 8 percent, based on a measure that weights exports of beef, pork, and chicken by farm-level prices. While U.S. meat exports grow in importance in the projections, the domestic market remains the dominant source of demand and exports only recover to 10 percent of the production value.

Relatively favorable farm milk prices encourage strong gains in milk production during the next several years. Demand for dairy products increases moderately.

• Management and productivity gains are expected to boost milk output per cow and total milk production. Further development of large, specialized operations in many regions will be a significant contributor to these gains.

• The baseline assumes a return to normal availability of the bovine growth hormone rBST (recombinant bovine somatotropin) to the dairy sector in 2006. Nonetheless, growth in milk output per cow is projected to slow as gains are less easily boosted by simply increasing the amount of concentrate feeds fed.

• Milk cow numbers are expected to decline at a relatively slow pace. Increasing specialization of dairy farms over time (and the associated less-attractive salvage uses for dairy capital and other inputs) probably makes exit rates from milk production lower than in past decades.

• Domestic dairy product use grows slowly throughout the baseline period, slightly faster than the growth in population. Cheese and butter demand benefit from greater consumption of prepared foods and increased away-from-home eating. Per capita consumption of fluid milk, however, is expected to decline slowly.

• Real farm-level milk prices are projected to decline.

U.S. Agricultural Sector Measures: February 2005 Baseline

Longrun developments for the U.S. farm sector reflect steady domestic and international economic growth, which support gains in consumption, trade, and prices. With productivity of U.S. agriculture growing faster than domestic demand, farmers rely increasingly on export market growth. Although export competition is projected to continue, global economic growth, particularly in developing countries, provides a foundation for gains in world trade and U.S. agricultural exports. Combined with gains in domestic demand, the results are rising market prices and cash receipts, as well as improvement in the financial condition of the agricultural sector. Consumer food prices are projected to rise more slowly than the general rate of inflation.

Strengthening domestic and export demands help to improve financial conditions in the sector. Income projections for the next decade average about $61 billion, sharply higher than the $47.7 billion average in the 1990s. Gross cash income (cash receipts, direct government payments, and farm-related income) gradually rises through the projections, with cash receipts for both crops and livestock increasing.

• Net farm income falls from the record high 2004 level over the next several years, reflecting changes in cash receipts that are largely offset by changes in government payments, large swings in changes in the value of inventory, and generally rising farm production expenses.



• As growing demand pushes market prices and cash receipts higher, gains in gross incomes match increases in production expenses. This results in net farm income stabilizing at near $60 billion, particularly after prices for crops rise high enough to eliminate most counter-cyclical payments and stabilize aggregate government payments to farmers.

After a large increase in government payments in 2005 that reflects emergency spending and higher expenditures for price-linked programs, government payments fall and level off as rising market prices for program commodities reduce marketing loan benefits and counter-cyclical payments.

• Direct government payments to farmers are projected to fall from over $24 billion in 2005 to about $11 billion in 2010-14. Toward the end of the projections, direct government payments largely reflect fixed direct payments under the 2002 Farm Act and conservation payments.



• With government payments stabilizing, the agriculture sector relies increasingly on the market for more of its income and the share of income provided by government payments declines. Government payments, which are projected to represent about 9 percent of gross cash income in 2005, account for less than 4 percent at the end of the projections.

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

• The largest percentage increase is for the other expenses category, reflecting increases in labor expenses and interest costs. Labor expenses rise as sector output increases and wage rates rise. Projected increases in interest costs reflect higher interest rates, as well as higher debt facilitated by rising gross cash income.



• Increases in manufactured input expenses reflect movements in oil prices and expansion of crop production. Overall, these expenses rise less than the general rate of inflation as increases in 2006-09 are held down by decreases in oil prices from recent highs.



• Cash operating margins tighten somewhat over the next several years as expenses rise while changes in cash receipts and government payments combine to keep gross cash incomes relatively constant. For 2009-14, however, as government payments level off, operating margins stabilize, with cash expenses representing 75-76 percent of gross cash income.

Increasing cash receipts and gross cash income assist in asset accumulation and debt management, with farm equity rising through the projections.

• Gains in farmland values and real estate assets (representing about 80 percent of total farm assets) reflect increases in agricultural revenues, as well as rising demand for nonagricultural land uses, such as housing and recreation.



• There is considerable variation in the growth of farmland prices across the country. This reflects a variety of factors, including differences in land quality and location, demand for urban development and recreational use, credit conditions, nonfarm investment opportunities, and production risks and weather uncertainties unique to each region's agriculture. As the general economy continues to expand, demand for land for nonagricultural uses contributes to rising farmland values. Farmland in areas with recreational amenities also will increase in value as second-home market demand remains strong.



• Farm debt moves up less rapidly than asset values in the projections, rising an average of about 1.2 percent per year compared with an increase of 1.7 percent annually for assets, resulting in equity gains of 1.8 percent.

Increasing gross cash income assists in asset accumulation and debt management, raising farm equity and leading to improved financial conditions in the agricultural sector.

• Debt-to-asset ratios decline moderately in the projections to under 14 percent by 2014, compared with over 20 percent in the mid-1980s.

Retail food prices are projected to increase less than the general inflation rate.

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



• Prices for food away from home reflect a large service component, with gains held down by competition in the fast-food and foodservice industries.

A forecasted decline in the value of U.S. agricultural exports and an increase in agricultural imports for fiscal year 2005 are expected to result in a U.S. agricultural trade balance of 0, which, if realized, would be the first year without a surplus since 1959. The 2005 export value decline results from large 2004 production and lower prices for many grains, oilseeds, and fibers and reduced exports of beef due to BSE-related bans on shipments to Japan and South Korea. Strong domestic economic growth and consumer demand boost imports in 2005, particularly horticultural products, continuing to reflect U.S. consumer preferences for a wide variety of foods. Beyond 2005, as export demand rises in the baseline due to increasing global income and as commodity prices strengthen from recent lows, U.S. exports rise more than imports through most of the projections. The agricultural trade surplus increases moderately to over $3 billion before declining in the last few years of the projections as export growth slows while imports growth continues.

• Strengthening world economic growth, particularly in developing countries, provides a foundation for gains in trade and U.S. agricultural exports. However, competition in global markets remains strong. Overall, the value of U.S. agricultural exports is projected to grow from $56 billion in fiscal year 2005 to $78.6 billion in 2014.



• High-value product (HVP) exports continue to grow, accounting for almost two-thirds of total U.S. exports. Much of the growth in HVP exports is in animal products and horticultural products. Most of the growth in the value of bulk commodity exports (grains, oilseeds, cotton, and tobacco) reflects expected price increases and gains in volume for grains.



• U.S. agricultural imports rise to more than $76 billion in 2014, reflecting gains in consumer income and demand for a large variety of foods. Strong growth in horticultural imports is assumed to continue in the projections, contributing much of the overall agricultural import increase. Processed foods are expected to account for a growing share of total agricultural imports.

Global Agricultural Trade: February 2005 Baseline

With strong world economic growth, global agricultural trade is projected to rise throughout the baseline. Agricultural trade will remain very competitive, reflecting expanding production in a number of foreign countries.

The growing economies of developing countries provide a foundation for gains in demand for agricultural products and increases in trade. Broad-based economic growth and increasing urbanization lead to diet diversification in most developing regions, generating increased demand for livestock products and feeds, as well as for fruits, vegetables, and processed products. Developing-country import demand is further reinforced by population growth rates that remain nearly double the growth rates of developed countries.

International trade in animal products, however, remains heavily dependent on demand from developed countries and from market access achieved under existing global trade agreements, although trade is also affected by disease-related concerns such as bovine spongiform encephalopathy (BSE) and Avian influenza (AI). Strong policy support for domestically produced meat is expected to motivate growth in feed grain trade, especially to those regions where limited land availability or agroclimatic conditions preclude expanding domestic crop production, such as North Africa, the Middle East, and East and Southeast Asia.

Strong agricultural trade competition is expected in international commodity markets, not only from traditional exporters such as Argentina, Australia, and Canada, but also from countries that are in the process of making significant investments in their agricultural sectors, including Brazil, Russia, Ukraine, and Kazakhstan.

Baseline trade projections to 2014 are founded on long-term assumptions concerning trends in foreign area, yields, and use and on the assumption that all countries fully comply with all existing bilateral and multilateral agreements affecting agriculture and agricultural trade.

The baseline does not incorporate any effects of agreements not formally ratified by November 2004. However, the baseline does incorporate the effects of trade agreements and domestic policy reforms already in place in November 2004. For example, the expansion of the European Union (EU) from 15 to 25 countries in May 2004 and scheduled reforms of the EU's Common Agricultural Policy (CAP) affect the baseline projections for many commodities.

Domestic agricultural and trade policies in individual foreign countries are assumed to continue to evolve along their current path, based on the consensus judgment of USDA's regional and commodity analysts. In particular, economic and trade reform underway in many developing countries is assumed to continue. Similarly, the development and use of agricultural technology and changes in consumer preferences are assumed to continue evolving based on past performance and analysts' judgment regarding future developments.

Rising unabated since the early 1990s, global trade in soybeans and soybean products has surpassed wheat—the traditional leader in agricultural commodity trade—and total coarse grains. Continued strong growth in global demand for vegetable oil and protein meal is expected to maintain soybean and soybean-product trade well above wheat and coarse grains trade throughout the next decade.

• These three major commodity grouping—wheat, coarse grains, and oilseeds (including soybeans)—compete with each other and with other crops for increasingly limited temperate cropland. However, previously uncropped land in tropical regions of Brazil and Indonesia are being converted to soybean and palm oil production.

• Virtually no growth in overall global wheat and coarse grain trade occurred in the 1990s, largely reflecting reductions in imports by the former Soviet Union (FSU) and Central and Eastern Europe (CEE). With those demand adjustments largely complete, the continuing growth in import demand from other countries leads to overall gains in global grain trade.

• In the projections, total area planted to all crops changes little in most countries. Growth in production is derived mostly from rising yields. The growth rate in crop yields has slowed somewhat during the last several decades and is projected to continue to do so.

• Slower growth in aggregate crop production is offset by slower growth in world population. Nonetheless, population is a significant factor driving overall growth in demand for agricultural products. Additionally, rising per capita income in many countries generates growth in demand for livestock and horticultural products.

Definition of country groups

Growth in wheat imports is concentrated in developing countries, primarily Africa, the Middle East, and Asia, where robust growth in income and population underpins increases in demand. Important growth markets include Brazil, Egypt, Sub-Saharan Africa, Indonesia, and Mexico. World wheat trade (including flour) expands by 20.7 million tons (19 percent) between 2005 and 2014 to 129 million tons.

• China's imports jumped sharply in 2004, rising to about 8 million tons, and the country surpassed Egypt as the world's largest importer. While China's imports are projected to remain flat during the baseline, Egypt's imports are projected to climb slowly to about 8 million tons. Imports by Brazil, another large importer, are also projected to rise to nearly 8 million tons. Brazil's climate does not favor wheat, and in some key wheat-producing states, winter corn is expected to have better returns than wheat.

• Population growth boosts imports by some countries. Egypt remains one of the world's largest wheat importers with growth driven by increases in population. Even though Pakistan's per capita consumption is projected to decline, wheat imports rise because of population growth.

• Imports by developing countries in Sub-Saharan Africa, North Africa, and the Middle East rise to over 40 percent of world wheat trade. In most developing countries, little change in per capita wheat consumption is expected but imports expand modestly because of population growth and limited potential to expand production.

• Changing consumption patterns affect the projections for some major importing countries. In Indonesia, diversification of diets and strong economic growth are projected to increase per capita wheat consumption. Mexican consumers are projected to continue substituting some wheat for corn in their diets.

Definition of country groups

The top five wheat exporting nations (the United States, Australia, the EU, Canada, and Argentina) account for about 79 percent of world trade through 2014. This is down from the average of 82 percent during 1996-2003, mostly due to increased exports from the Black Sea area. U.S. wheat exports are projected to account for about 25 percent of global wheat trade.

• Australia's share of the world wheat market rises slightly, offsetting a small decline by Canada.

• In Canada, increased demand for barley and oilseeds is expected to cause wheat area to decline. Declining wheat area, combined with slow growth in yields and expanding domestic demand, causes Canadian exports to trend slowly downward.

• Exports by the EU and Other Europe will be constrained by several factors. Some marginal EU land will go out of wheat and rice production as a result of CAP reform. In 2004, the set-aside rate was lowered from 10 percent to 5 percent in response to the drought-reduced 2002 crop and low stock levels. These projections assume that the set-aside rate reverts back to 10 percent.

• Kazakhstan and Ukraine become modest wheat exporters. Low costs of production and ongoing investment in their agricultural sectors are expected to enable their export market share to rise from 4-6 percent in recent years to 11 percent by the end of the period, although high year-to-year volatility in production and trade can be expected.

Growth in trade of coarse grains is strongly linked to expansion of livestock activities in regions unable to meet their own forage and feed needs, particularly North Africa, the Middle East, and East and South East Asia.

• Corn is the dominant feed grain traded in international markets. Corn accounts for an average of 78 percent of all coarse grain trade through the projection period, followed by barley (14 percent), and sorghum (5 percent).

• Hogs and ruminants, such as cattle and sheep, are capable of digesting a broad range of feedstuffs, making demand relatively price-sensitive across alternate feed sources. However, as pork and poultry production become increasingly commercialized, they also demand a higher minimum quality of feedstuffs, particularly related to energy and protein content. This commercialization of livestock activities has been a driving force behind the gains in global protein meal markets and the growing dominance of corn in international feed grain markets.

• Gradual elimination of Mexico's over-quota tariffs on corn imports will shift some of Mexico's grain imports from sorghum to corn.

• Trade in barley and oats is becoming increasingly driven by specific end-use demands such as barley for feed and malt markets, and oats used for horse feed rather than human consumption.

Definition of country groups

Rising incomes and associated gains in per capita meat consumption, particularly in developing countries, are important drivers of projected gains in coarse grain use and trade. Key growth markets include Mexico, China, and North Africa and the Middle East.

• World coarse grain trade expands about 29 million tons (28 percent) from 2005 to 2014. About two-thirds of global coarse grain supplies are used as animal feed. Industrial uses, such as starch, ethanol, and malt production, are relatively small but growing. Food use of coarse grains, concentrated in parts of Latin America, Africa, and Asia, has generally declined over time as consumers tend to shift consumption toward wheat, rice, and other foods as their incomes rise.
  
  
• A key factor that weakened global coarse grain demand during the 1990s was the drop in livestock numbers and feeding that occurred in the FSU and CEE as these economies underwent structural reform. These adjustments are largely completed. In the projections, steady longrun growth in the livestock sectors of developing countries in Asia, Latin America, North Africa, and the Middle East is expected to more than make up for the lost feed demand of the FSU and CEE.
  
  
• Mexico's imports of corn are projected to rise from 6.3 million tons in 2004 to more than 15 million in 2014. Imports will be stimulated by rapidly rising poultry production and a steady reduction in Mexico's over-quota tariff on corn imports from the United States to zero by January 1, 2008. Some corn imports will substitute for imports of sorghum, which already have tariff free status.
  
  
• North Africa and the Middle East experience continued growth in import demand for grain and protein meals through 2014, as rising populations and increasing incomes sustain strong demand growth for domestically produced animal products.
  
  
• Increasing meat imports will limit coarse grain imports in Japan, South Korea, and Taiwan.

Definition of country groups

The United States dominates world trade in coarse grains, particularly corn. The U.S. share of world corn trade is expected to grow to nearly 73 percent by 2014 as few countries have similar capabilities to respond to rising international demand for corn. China's share of world exports drops, but the U.S. corn sector faces increased competition from non-EU Eastern Europe and Argentina, which also increase their shares of the global corn market.

• Argentina, with a small domestic market, remains the world's second largest corn exporter. As Argentina's economy expands, investments and planted area gradually return to corn production over the baseline, with exports projected to rise from 11 million to nearly 15 million tons.
  
  
• China's corn exports decline in the baseline, reflecting strengthening domestic demand driven by its rapidly expanding livestock sector.
  
  
• The Republic of South Africa continues exporting some corn to neighboring countries in southern Africa, but amounts remain small (less than 2 million tons).
  
  
• Corn exports from non-EU Eastern European countries rise to over 2 million tons by 2014. Favorable resource endowments, increasing economic openness, and greater investment in their agricultural sectors are behind projected gains in production and trade.
  
  
• Brazil continues to export about 2-4 million tons of corn in response to niche market demand for non-genetically modified grain, but strong growth in domestic demand from the livestock sector prevents corn exports from increasing.

China is projected to become a net corn importer in 2007/08 as demand for feed for a growing livestock sector overtakes China's internal supplies of corn. However, China continues to export corn throughout the projection period, although in declining amounts, due to regional supply and demand differences. Northern China runs a corn surplus, while Southern China is corn deficit.

• Corn is the favored crop in Northeast China. The proximity to South Korea and other Asian markets provides a nearby source of demand, while various government measures—including waiver of certain transportation construction taxes, and a rebate of the value-added tax on exported corn—keep corn exports competitively priced in international markets. Currently, high ocean freight rates raise the delivered cost of U.S. corn to Asian markets, another factor that keeps Chinese corn competitive. Shipments of corn from Northeast China to the country's southern markets are limited by China's high internal transportation costs.

• China experienced a large buildup of corn stocks in the mid- to late-1990s due to a combination of favorable weather and local self-sufficiency policies that boosted grain production to record levels. In the last half decade, China's corn consumption exceeded production, and stocks have declined sharply. Because a continued drop in stocks is unsustainable, China is projected to increase imports and reduce exports, and to become a net corn importer, as livestock production (and thus feed demand) continues to increase in response to income growth and rising meat demand.

Definition of country groups

Global barley trade expands throughout the baseline, driven by rising demand for both malting and feed barley.

• Feed barley imports by North African and Middle Eastern countries—where barley is preferred as a feed for large populations of camels, goats, and sheep—grow steadily through the period. In the mid-1990s, corn overtook barley as the principal coarse grain imported by these countries, due mainly to rising poultry production. This pattern is expected to continue through the projection period. However, the North Africa and Middle East region is expected to remain the world's largest barley importing area.

• Saudi Arabia—the world's foremost barley importer—accounts for over 30 percent of world barley trade through the baseline. Saudi Arabia's barley imports are used primarily as a ruminant feed.

• International demand for malting barley is boosted by strong growth in beer demand in many developing countries, notably China—the world's largest malting barley importer. China's beer demand is rising steadily due to growth in incomes and population and malting barley is a leading ingredient used by brewers to produce beer.

Definition of country groups

Historically, global barley exports have originated primarily from the EU, Australia, and Canada. However, Ukraine and, to a lesser extent, Russia, have emerged as important competitors in international feed barley markets and remain so throughout the baseline period.

• Barley production is expected to increase throughout the EU as a result of CAP reform and EU enlargement. The abolition of EU intervention for rye, combined with higher barley prices in the acceding countries, will stimulate more area allocated to barley production. Within the enlarged EU-25, barley trade will rise. However, EU-25 exports to non-EU countries are projected to hover around 3.0 million tons over the projection period (18 percent of world trade).

• The FSU remains a major barley exporter throughout the baseline as exports exceed 5 million tons. Together, the FSU and EU-25 account for 50 to 55 percent of world barley trade throughout the baseline.

• Malting barley is a different variety and quality than feed barley and commands a substantial price premium over feed barley. In the long run, the malting barley price premium is expected to strongly influence planting decisions in Canada and Australia, and, in both countries, malting barley's share of total barley area rises in the latter half of the projections period.

Definition of country groups

World sorghum trade, which averaged nearly 7 millions tons during the last decade, declines to about 6 million tons by the middle of the projection period before rising through the remainder of the baseline. This trade pattern is driven almost entirely by Mexico.

• Mexico is the world's leading sorghum importer, although its sorghum imports were reduced in 2002 and 2003 due to reduced U.S. production. During this 2-year period of reduced U.S. exportable supplies of sorghum, U.S. exports to Mexico of kibbled corn (processed corn that has tariff-free status) rose sharply, reaching a record 1.97 million tons (whole-corn equivalent) in 2003/04. Under NAFTA, Mexico's over-quota tariff on corn imports from the United States is gradually reduced to zero by 2008. The projections assume that the tariff will be low enough to facilitate some over-quota corn imports before 2008. As corn substitutes for sorghum in the import mix, Mexico's sorghum imports decline by about 1 million tons to less than 3.5 million tons by 2008/09. Even at the reduced sorghum import level, Mexico still accounts for about 60 percent of world import demand for sorghum.

• Japan imports a fairly stable volume of sorghum (1.3 million tons) throughout the period to maintain diversity and stability in its feed grain supplies.

• The United States is the largest exporter of sorghum, accounting for about 80 percent of world trade in recent years. During the projection period, the U.S. share declines to 72 percent by 2014, as U.S. sorghum exports to Mexico decline.

• The primary sorghum markets for Argentina, the world's second largest exporter, are Japan, Chile, and Europe. Argentina's exports rise steadily during the projection period.

Strong income and population growth in developing countries generates increasing demand for vegetable oils for food consumption and for protein meals used in livestock production. World soybean trade grows at an average annual rate of 3.8 percent through the projection period compared with rates of 2.9 and 2.3 percent for soybean oil and soybean meal.

• Many countries with limited opportunity to expand oilseed production continue investment in oilseed crushing capacity, such as China and some countries in North Africa, the Middle East, and South Asia. As a result, oilseed import demand is maintained above protein meal import demand throughout the baseline. However, strong competition in international protein meal markets is expected to pressure crushing margins and shift some of the import demand for oilseeds to cheaper meals. The steady competitive pressure of new oilseed crushing capacity is expected to result in many inefficient crushers going out of business.

• Growth in import demand for total vegetable oils exceeds growth in import demand for either oilseeds or protein meals. Consequently, economic incentives to produce palm oil and high-oil content oilseeds, such as rapeseed and sunflower seed, strengthen through the baseline period.

• China's policy of expanding domestic crushing capacity instead of importing protein meal and vegetable oil significantly influences the composition of world trade by raising international import demand for soybeans and other oilseeds rather than for products.

• Brazil's rapidly increasing area planted to soybeans enables it to gain a larger share of world soybean and soybean meal exports, despite increasing domestic feed use. Its share of world exports of soybeans plus the soybean equivalent of soymeal exports rises from about 35 percent in recent years to 45 percent by 2014.

Definition of country groups

• The EU has been the world's leading importer of soybean meal, and until 2002, of soybeans. However, increases in grain and rapemeal feeding are expected to continue to slow the growth in EU soybean meal and soybean imports. Abundant EU grain stocks, lower internal EU grain prices due to Agenda 2000 price cuts, increased barley production due to CAP 2003 reforms, greater supplies of coarse grains from acceding countries, and more rapemeal available as a result of the biofuels initiative, combine to slow the growth of soymeal consumption. These factors are only partially offset by an increase in the dairy quota that would increase the feeding of soymeal.

• China accounts for over 75 percent of the world's 26-million-ton growth in soybean imports over the next 10 years. Significant investments in oilseed crushing infrastructure by China drive strong gains in soybean imports as China seeks to capture the value added from processing oilseeds into protein meal and vegetable oil.

• East Asia's trade outlook is dominated by a continuing shift from importing feedstuffs to importing meat and other livestock products. As a result, this region's import demand for protein meal and oilseeds slows over the baseline. This process occurs most noticeably in Japan.

Definition of country groups

• The three leading soybean exporters—the United States, Brazil, and Argentina—account for more than 90 percent of world trade throughout the baseline.

• With continuing area gains, Brazil maintains its position as the world's leading exporter of soybeans and soybean products. Although combating soybean rust disease increases the costs of producing soybeans, soybeans remain more profitable than other crops in most areas of Brazil.

• In the United States, projected declines in acreage planted to soybeans and increased domestic crush limit exportable supplies.

• Argentina's soybean exports hold steady at about 7 million tons, reflecting the country's substantial crush capacity and an export tax structure that favors domestic crushing of whole seeds and exporting of the products.

Definition of country groups

• Despite increased domestic feeding of grains, the EU remains the world's principal destination for soybean meal through the projection period, as import prices for meal relative to soybeans pressure crush margins, curtailing soybean imports in favor of soybean products.

• Latin America, North Africa, the Middle East, Southeast Asia, and the former Soviet Union remain important growth markets for soybean meal.

Definition of country groups

• Argentina, Brazil, and the United States are the three major exporters in international protein meal markets. These countries increase their share of global soybean meal trade from about 85 percent in recent years to more than 90 percent at the end of the projection period.

• Argentina and Brazil, the world's two largest exporters, increase their share of soybean meal exports slightly, while the export shares of the United States and other exporters fall.

• Strong growth in domestic meal consumption due to rapid expansion of the poultry and pork sectors constrains growth in Brazil's soybean meal exports.

• Significant expansion in domestic crushing in China and large imports of oilseeds in the baseline result in Chinese soybean meal exports near 1 million tons annually in the projections. These are joined by increasing exports from other South American countries (mostly Paraguay) to keep international protein meal markets very competitive.

• The EU continues to be a small but steady exporter of soybean meal exports. India remains an exporter, although export volume declines.

Definition of country groups

• Import demand for soybean oil rises in nearly all countries and regions except for the FSU and Other Europe. Countries with the largest projected gains are China and India. In the North Africa and Middle East region and in Latin America (particularly Central America and the Caribbean), income and population growth drive strong gains in soybean oil imports.

• In China, growing demand for high-quality vegetable oils outpaces domestic oil production and fuels expanding soybean oil imports. Land-use competition from other crops constrains area planted to vegetable oil crops in China.

• In India, relatively lower tariffs on soybean oil (held in check by World Trade Organization tariff-binding commitments) compared with those for other vegetable oils favor continued strong imports of soybean oil. India accounts for an increasing share of world soybean oil imports, due to burgeoning domestic demand for vegetable oils and limitations on domestic production of oilseeds. Low yields associated with erratic rainfed growing conditions and low input use limit oilseed production in India.

Definition of country groups

A strong emphasis on exporting soybean products pushes Argentina's and Brazil's combined share of world soybean oil exports from about 80 percent in 2004 to 86 percent by the end of the baseline.

• Argentina is the leading exporter of soybean oil, reflecting the country's large crush capacity, its small domestic market for soybean oil, and an export tax structure that favors the exports of products rather than soybeans. Increases in crush and soybean oil exports are supported by gains in Argentine soybean production due to extensive double-cropping, further adjustments to crop-pasture rotations, and the addition of marginal lands in the northwest part of the country.

• Brazil's expansion of soybean production into new areas of cultivation enables it to increase both its volume of soybean oil exports and its share of world trade.

• The United States remains the world's third largest soybean oil exporter throughout the baseline, although its share of world trade continues a downward trend to less than 5 percent by 2014.

• The EU-25 remains a small exporter, although export volume and share of world trade decline.

Definition of country groups

Global rice trade is projected to average 2.3-percent annual growth from 2005 through 2014. By 2014, global rice trade is projected to reach more than 34.5 million tons, over 20 percent higher than the record set in 2002. Despite the growth, rice trade as a share of global rice use is less than 8 percent and remains small relative to other cereals.

• International rice trade consists predominantly of long-grain varieties, which also account for the bulk of expected trade growth over the next decade. Long-grain rice is imported by a broad spectrum of countries in South and Southeast Asia, the Middle East, Sub-Saharan Africa, and Latin America. Indonesia, Nigeria, Iran, Iraq, the Philippines, and Saudi Arabia are typically the top long-grain import markets.
  
  
• In contrast, medium- and short-grain rice is primarily imported by countries that have taste preferences for Japonica rice, such as Japan, South Korea, Taiwan, Turkey, and Jordan. Expansion in medium-grain rice trade is projected to be much slower than for long grain, despite the partial opening of domestic markets to imported rice by Japan and South Korea in 1995 and Taiwan in 2002 as part of World Trade Organization (WTO) commitments.
  
  
• Aromatic rice, primarily basmati and jasmine, makes up most of the rest of global rice trade. Aromatics typically sell at a substantial price premium to long- and medium-grain varieties in global markets. Aromatics are imported mostly for high-income consumers. Glutinous, or sweet rice, varieties only account for a small share of global rice trade.
  
  
• Rising food demand from rapidly growing populations in Indonesia and Bangladesh is responsible for much of the expected growth in global rice imports over the baseline. Already two of the world's leading rice importers, their share of global rice imports grows from less than 7 percent in 2004 to nearly 14 percent in 2014. Land constraints and already high cropping intensities indicate little opportunity for either country to significantly expand production.
  
  
• Sub-Saharan Africa and the Middle East are also major destinations for internationally traded rice. In both regions, strong demand growth driven by rapidly expanding populations and rising incomes confronts limited opportunities to expand production, due to constraints such as agroclimatic conditions in the Middle East and infrastructure deficiencies in Sub-Saharan Africa.
  
  

Definition of country groups

Asia is the largest rice exporting region throughout the projection period.

• Thailand and Vietnam, the world's largest rice-exporting countries, account for nearly half of all rice exports in the baseline. Both countries produce and export primarily long grain rice. Rising production, mostly due to higher yields, and declining per capita consumption, drive the expansion in exports from both countries.

• The United States is projected to be the third largest rice-exporting country during the first half of the baseline. Rising domestic demand and a slower growth rate in yields constrains the expansion in U.S. rice exports.

• Midway through the baseline, India becomes the third largest rice exporter. India was a volatile and sometimes large rice exporter during the 1990s, primarily due to fluctuating production and stocks. Exports are projected to steadily increase over the next decade as high internal prices stimulate production and exportable supplies. India exports both low-quality, long-grain rice and smaller quantities of high-quality basmati rice.

• Rice exports from China, typically the world's fifth-leading exporter, increase early in the baseline and then level off as production growth stagnates. Higher yields are offset by declining area planted to rice. Consumption growth is negligible as declining per capita rice consumption offsets rising population. China exports high-quality, short-grain rice to Northeast Asian markets and low-quality, long-grain rice to Sub-Saharan Africa and some lower income Asian markets.

• Pakistan exports both high-quality basmati and low-quality, long-grain rice. Although rice is an important source of foreign exchange, Pakistan has little ability to expand rice area, and its agricultural sector is confronting a growing water shortage. Rice exports rise early in the baseline and then are stable at almost 2.5 million tons, fractionally above the 2000 record.

Definition of country groups

Completion of the Multi-Fiber Arrangement (MFA) phaseout at the end of calendar year 2004 eliminated the quotas that governed much of the world's trade in textiles and apparel for more than 30 years. These restrictions were removed per WTO commitments by the United States, the EU, and Canada, and their removal has been a major influence on world cotton trade patterns. For apparel production, labor is the decisive input factor. As a result, textile production and raw cotton consumption will increase in developing countries where labor costs are lowest. High-cost labor markets in Europe and East Asia continue to reduce their cotton imports through the baseline.

• The textile industries in China, India, and Pakistan are the major beneficiaries of the MFA's elimination. Much of the increase in world imports is attributable to China, whose textile industry has been importing record amounts of cotton since 2003/04. After 2004, China's cotton imports are expected to stabilize, but remain by far the world's largest.

• India is expected to benefit significantly from the MFA phaseout as well, but cotton imports are expected to remain below recent record levels. The use of manmade fiber in India's textile industry has been accelerating in recent years, and cotton use is not expected to grow as rapidly as in China, despite India's growing textile exports. Furthermore, improved cotton crop yields, in part due to the adoption of GMO cotton, have raised India's output in recent years, reducing the need for imports.

• In contrast, Turkey's cotton imports decline slightly. In recent years, Turkey's textile industry has benefited from favorable trade access to the EU, its major export market for textiles and apparel. However, the end of the MFA quotas will now give lower cost competitors the same favorable access to EU markets.

• Similarly, the EU, Japan, Taiwan, and South Korea all steadily reduce their cotton imports as textile trade reforms and/or higher wages in these countries drive textile production to lower wage countries.

Definition of country groups

The end of the MFA phaseout is expected to move raw cotton production to countries where resource endowments and technology result in the lowest production costs. Land is a key input factor. Traditional producers with large land bases suitable for cotton production are expected to benefit from post-MFA phaseout trade patterns. Such producer/exporter regions include the United States, Sub-Saharan Africa, the former Soviet Union, Australia, and Brazil.

• The United States remains the world's leading cotton exporter throughout the baseline period with annual exports (upland and extra-long staple) increasing from 12.8 to 13.8 million bales.

• Central Asian countries of the former Soviet Union, the principal competitors of the United States in world raw cotton markets for the last decade, have been overtaken by Sub-Saharan Africa, which is expected to expand its lead. Government policies in Central Asia promoting investment in textiles have increasingly resulted in exports of textile products rather than exports of raw cotton.

• Economic reforms have lagged throughout much of Central Asia, limiting the transmission of price signals from world markets to cotton producers.

• Sub-Saharan Africa's exports have risen in large part due to economic reforms. A large correction in the foreign exchange value of the currency of the major cotton exporting countries of West Africa in 1994 led to nearly a decade of growth in West Africa's cotton production. As West Africa's production gains began to lag at the end of the 1990s, several southern African countries began increasing their cotton production, aided by reforms such as ending marketing board monopolies. Continued increases in output are expected as producers take advantage of more export-oriented government policies.

Increased market access achieved under existing global trade agreements was behind much of the gains in animal product trade over the past decade. During the baseline, per capita income growth in a broad number of importing countries is the driving force behind rising global meat demand. However, animal disease remains a dampening force in world meat trade.

• BSE in Canada and the United States has resulted in changes in Canada's beef and live cattle exports to the United States. Although Canadian beef exports have recovered much of the decline following the 2003 BSE case, they are projected to remain flat over the baseline period. Canadian exports to the United States of live cattle under 30 months of age are assumed in the baseline to resume in 2006 (see box, Baseline Trade Assumptions for Cattle and Beef).
• EU enlargement results in greater shipments between the EU-15 and the acceding 10 countries and less trade of meat outside the EU-25. EU beef exports remain below the annual WTO export-subsidy limit of 817,000 tons as a stronger euro limits their competitiveness and policy changes lower beef production and the need to remove beef from the domestic market.
• Beef exports from Australia and New Zealand, mostly of grass-fed beef destined for markets in the United States and Asia, increase slightly through the baseline.
• Argentine exports of fresh/chilled beef and processed products remain strong due to competitive pricing into Hong Kong and European markets.
• The baseline assumes that Brazil does not gain nationwide FMD-free status. However, Brazil's expanding pork production is expected to be very competitive in non-FMD free markets. Its pork exports rise strongly and are focused on Russia, Argentina, and Asian markets other than Japan and South Korea.
• U.S. poultry exports face strong competition from other countries, particularly Brazil.
• A growing share of Brazil's rapidly increasing poultry production enters international markets at very competitive prices, and Brazil's poultry exports rise strongly.
• Thailand's exports of chilled and frozen poultry meat are reduced by Avian influenza.

Definition of country groups

Beef trade occurs largely between developed countries and is closely linked to market access gains achieved under prior trade agreements. BSE in Canada and the United States resulted in restrictions on trade in the international beef market. However, the baseline assumes a re-opening of trade to Japan and South Korea.

• Higher income countries, such as Japan and South Korea, increase imports of beef, reflecting domestic cattle sectors that are constrained by land availability. These imports are primarily of higher quality beef. Although U.S. beef exports to these countries are projected to gradually rebuild, they do not return to levels attained prior to the U.S. BSE case in 2003.

• U.S. beef imports, primarily from Australia and New Zealand for ground beef and other processed products, decline slightly through the period.

• Robust import growth of U.S. higher quality beef is also projected for Mexico.

• The baseline assumes that the tariff rate quota (TRQ) for beef that Russia imposed in 2003 remains in effect until 2006 (the period established by current Russian legislation). In the longer run, the growth in Russia's beef imports resumes as rising consumer demand continues to outpace gains in domestic production. Russia remains a large market for EU-subsidized beef exports as well as Brazilian beef.

Definition of country groups

• Mexican pork imports increase about 400,000 tons between 2005 and 2014, making Mexico the fastest growing pork importer. Increases in income and population are the primary drivers of Mexico's increasing demand for pork products.

• Higher income countries of East Asia, such as Japan, Hong Kong, and South Korea, increase pork imports as their domestic hog sectors are constrained by environmental issues and imported feed costs. In South Korea and Japan, the presence of BSE boosts pork consumption and imports.

• As with beef, the baseline assumes that the TRQ that Russia imposed for pork in 2003 remains in effect until 2006. Although the TRQ initially lowers pork imports, Russia remains a major destination for competitively priced pork exports from the EU and Brazil as demand growth continues to exceed Russian meat producers' ability to respond.

• Although China's pork production and exports continue to rise rapidly, its net exports decline slightly to 300,000 tons in 2014 as imports rise more than exports.

Definition of country groups

• Russia remains the world's foremost poultry importer as rising consumer demand continues to outpace increases in domestic production.

• The quota on poultry imports that Russia imposed in 2003 is assumed to exist until 2006. The quota raises domestic prices, thereby spurring domestic poultry production and feed demand. As a result, wheat and barley feeding, as well as corn imports, rise over the period. Imports rise after the poultry quota is discontinued, and then climb steadily during the rest of the baseline, driven by growing consumer demand.

• In Mexico, the world's second largest importer, strong economic growth raises per capita poultry consumption, and trade liberalization under NAFTA generates a large increase in poultry imports. Domestic poultry production also rises rapidly.

• Poultry consumption growth in China is met largely by expanding domestic production, but imports are also projected to grow.

• Thailand's exports of frozen and chilled poultry meat are curtailed by Avian influenza. Exports of cooked chicken products replace some but not all of Thailand's frozen poultry exports.
  
  
• Poultry imports into Saudi Arabia continue to rise through the baseline. However, consumer preference for freshly killed birds keeps domestic production strong.