Fault lines and fissures in the ag economy: Part 2

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The rise of China as a world economic power and it's impact on the United States.

The last column centered on fault lines and fissures in the agriculture economy with discussion focused on the clear and present danger of inflation, non-recuring government support payments, and the transition from fossil fuels spurred by the green energy movement. Now, let's move forward and discuss some longer-term aspects.

The Rise of China

There is no doubt that the last three decades have seen the rise of China as a world economic power. Through the guidance of their leaders, the implementation of authoritarian capitalism provided a roadmap for this rise. The U.S. agriculture industry benefited with increased export markets throughout the Asian rim, where the purchasing power parity doubled in a matter of 15 to 20 years.This created demand for more food, fiber, and fuel products and was one of the reasons for the great commodity super cycle that lasted over five years from about 2007 to 2012.

Under the leadership of President Xi, China is now reaping the benefits from the Belt and Road Initiative. Over the past eight years, over $1 trillion dollars has been invested in 68 countries, including some of American agriculture's biggest competitors in South America and Eastern Europe. After agreeing to agriculture trade deals that assisted China in rebuilding its domestic protein complex, their demand for corn, soybean and livestock imports may decline. The communist party, led by President Xi, is now decoupling from Western economies. In other words, they are attempting to be less dependent on exports from Western economies and encouraging their citizens to consume more from their domestic economy using various incentives. Next, they will be curtailing technology and real estate investments and redistributing wealth through the common prosperity philosophy. This could result in a slowdown of economic growth in China and around the globe, which could ripple through various commodities.

Next, there has been increased discussion of China's bid to enter into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which would be direct competition to Western nations like the U.S. and the rising economic region of Asia. Agriculture trade and competition from countries in South America and Eastern Europe could impact profits later in this decade and be the biggest fissure of all.

Changing consumer habits

Changing consumer habits and the increase in alternative meat and milk products needs to be on the radar screen of agriculture producers. The younger generation in the U.S. and particularly in Asia are moving toward these products. This could be a real challenge, or possibly even a tsunami, for the agriculture industry.

Of course, geopolitical shifts and changing consumer habits will require producers to have a counter strategy. Agriculture industry groups and individual producers need to realize that their economic fortunes may, in part, hinge on the rumblings from abroad and changing consumer habits.

Check out part one of the series here. 

Source: Dr. David Kohlwhich is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.

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