Ag trade value down 20 percent

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The global economic crisis that started in late 2008 has led to a sharp a short-term 20 percent decline in the value of global agricultural trade, according to a new report from the USDA’s Economic Research Service.   After slowing, global agricultural trade will continue to grow in the future, according to the report. The crisis is leading to a realignment of exchange rates, and the ultimate resolution of the crisis will depend on adjustments in the exchange value of the U.S. dollar. The U.S. agricultural sector, the report notes, would benefit from a depreciating dollar, which results in high export earnings, high agricultural commodity prices, increased production, and increased farm income.

The economic crisis is transforming the global financial system, according to ERS, and likely leading to a permanent restructuring of the international economy. In the short term, with negative growth in world gross domestic product, trade will decline and agriculture as a heavily trade-dependent sector will have to adjust accordingly.

The volume of global trade in 2009 will decline for the first time since 1982, according to projections from the World Bank. The International Monetary Fund (IMF) projects that the volume of goods imported by developed countries will decline by 3.1 percent this year and the emerging and developing countries will experience an unprecedented 1-percent decline in the volume of their exports.

These projections appear to be conservative, as current information indicates that the decline in the value of merchandise trade in the first quarter of 2009 is 20 percent or more according to the ERS report. The value of China’s exports in the first quarter of 2009 declined on a year-to-year basis by 20 percent, and the value of U.S. exports also fell during the first 2 months of 2009 by 22 percent, compared with 2008 exports’ value.

The value of merchandise imports of the European Union, South Korea, Mexico, and the United States declined by 30 percent during the first several months of 2009 in comparison to the previous year.

The discrepancy between the IMF estimate of the percentage decline in trade and the reported declines in value of trade indicate that a substantial part of the decline in value is due to falling prices. This suggests that consumption is not falling as sharply as the decline in the value of trade.

Preliminary results show that there will be short-term declines in agricultural trade. This decline will result in lower agricultural prices and reduced farm incomes around the world.

The worsening of global economic conditions is also creating the potential for much more serious food-security challenges in traditionally food-insecure developing countries, as well as in some countries that have not experienced major food insecurity in recent years. Declines in export earnings for some countries as well as fewer remittances returning to those countries’ economies from their citizens working abroad are eroding purchasing power while food prices, despite declining agricultural commodity prices, remain higher than they were before the 2008 price spike.

Click here for the full report.

Source: Drovers.com



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