Issues Driving the Outlook for Specialty Crops December 3, 2012 Daniel A. Sumner University of California Agricultural Issues Center, and UC Davis Department of Agricultural and Resource Economics
Core economic drivers: global income patterns, demographic changes, Outline of topics consumer and activist trends Weather (year to year) and climate (long term) Policy: International, National, State, Local Opening of markets and subsidies elsewhere Subsidies for program crops, Crop insurance, Regulations (including greenhouse gas policy), water, labor, air quality, water quality, etc.
The University of California Agricultural Issues Center AIC mission: provide broadly-based and objective information on agricultural issues and their significance for California We study a variety of practical topics with an emphasis on public policy and economic concerns A small staff that draws on researchers from throughout the UC system and beyond and a half dozen associate directors An active and committed advisory board Located at Davis since 1986 http://aic.ucdavis.edu/
The Measure of California Agriculture An AIC compilation of useful statistics from various sources for those interested in California agriculture and its role in the economy
Source: S. Harris, 1992.
Most important take-away messages Current economics of specialty crop agriculture are driven by weather, exchange rates, policy and slowly evolving economic trends of technology, demographics and economic development But, besides our commodity specific and local issues, national and global cross-commodity issues affect specialty crop agriculture. None of these drivers are easy to forecast. Anyone who claims crystal ball is either fooling themselves or trying to fool you. So, decisions must be made, but they cannot be made with certainty, so pay attention to long term risk management and hold on to your wallet.
California cash receipts and acreage, by commodity grouping Grains and cotton 9% Nursery/green house 10% Vegetables and melons 19% Cash receipts Dairy 16% Other livestock 10% Grains and cotton 38% Acreage Hay and forage crops 19% Fruits 15% Tree nuts 14% Fruits 23% Nursery/green house 0.004% Vegetables and melons 9% Tree nuts 13%
Geographic diversity of tomato acreage Most tomato acreage is for processing tomatoes Tomato acreage is mainly in the Central Valley from Chico to Bakersfield Production takes place in several different climate zones
Index of real prices of wine grapes, lettuce and almonds 200 180 160 Wine grapes Almonds Lettuce 140 120 100 80 60 40 20 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Index of total production, acreage and inflation-adjusted (real) value of principal California agricultural commodities, 1960-2008 250 230 210 190 170 Total production Total acres Total real value 1960 = 100 150 130 110 90 70 50
Historical maximum average temperature in summer and winter months for the period of 1909-2008 for Davis, CA 100 90 80 Max in Summer Max in Winter Linear (Max in Summer) Linear (Max in Winter) 70 60 50 1909 1912 1915 1918 1921 1924 1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
60 Historical minimum average temperature in summer and winter months for the period of 1909-2008 for Davis, CA 55 50 45 Min in Summer Min in Winter 40 35 30 1909 1912 1915 1918 1921 1924 1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
California agricultural exports to the top 10 destinations, by value, 2011 Turkey 2% India 2% Taiwan 2% United Arab Emirates 2% South Korea 5% Rest of the World 18% Canada 24% Mexico 6% EU-27 16% Japan 10% China/Hong Kong 12%
Share of CA Farm Quantity Exported Grapes, all 27 % Almonds 72 % Lettuce 10 % Strawberries 12 % Hay 7 % Tomatoes, processed 14 % Walnuts 45 % Cotton 96 % Oranges 38 % Rice 40 % Olive oil: About zero exports and 97% imports! Source: Agricultural Issues Center, Ca Export Data
U.S., China and India population, with projections until 2030 World population is now 7 billion and will reach 8.2 billion by 2030 1,600 1,400 1,200 China India United States 1,000 800 600 400 200 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Population in millions
World map weighted by population in 1960 Total population = 3.04 billion 16
World map weighted by estimated population in 2050 Total population (est.) = 9.07 billion 17
125 100 China s population by age, 2011 and 2050 (projected) 2011 2050 90+ 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 75 Millions 50 25 0 0 25 50 Millions 75 100 125 Millions Population: 1.34 billion in 2011 1.30 billion in 2050
Real Gross Domestic Product (GDP), with projections $100 $90 $80 $70 $60 World Developed economies less USA United States Developing economies $50 $40 $30 $20 $10 $0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 $ trillions
World map weighted by GDP in 1960
World map weighted by estimated GDP in 2015
Consumer-side regulations for production and processing Food safety... New federal law not yet implemented Drive for labeling COOL Generally the demand for more label data even if it contains no information.
New Yorker Feb. 1, 2010
The GMO issue is still alive Every badly designed survey confirms that consumers want and assert the right to know what is in their food. We know labels can be misleading And labels are not free And, segregations and traceability have large costs in any operation with any scale. But, it seems free to activists, if not to actual buyers.
Local can be a profitable niche for some When local provides useful data on seasonality or freshness or some other interesting characteristic it provides added value. When it becomes a political driver to block comparative advantage, local can be costly to sellers and buyers. Most environmental or sustainability claims about local have no support in the data. And, of course, when fashion and Political Correctness take over, real buyers can become overwhelmed.
Some Consumers are paying for added services and information with their food, other are not so sure
Adaptation of Specialty Crops to Climate Policy NOT effects of agriculture on climate change or the effects of climate change on agriculture. Our focus here is on the effects of climate policy on and specialty crops adaptation to policy Facilities that emit more than 25,000 tco2eq must report their emissions to ARB and face a cap under AB 32 Emissions from many food processing plants (tomato processing, dairy butter/powder plants) meet the threshold and have been capped They must adjust or pay for credits Moreover, input prices for fuel, fertilizer and other goods will become more expensive
AFFECTED AG-RELATED FACILITIES Some well known names: CDI, Hilmar and other dairy plants Anheuser-Busch breweries, Gallo winery Spreckels sugar, Olam tomato processing Liberty and Ingomar packing plants Over 40 ag-related facilities produced about 1.6% (1.9 million tons) of all reported emissions in 2010\ Fruit and nut processing plants don t yet qualify, but when cap is lower... But costs rise with higher energy costs, and Effects on the relative economics of alternative crops. A drop in tomato prices relative to tree crops, fewer cows, less hay and more acres of other crops.
WELL KNOWN: EVEN AN EFFECTIVE AB 32 MAY INCREASE GLOBAL AGRICULTURAL GHG EMISSIONS Agricultural markets are global and Californians will continue to consume food Raising costs here shifts food production out of state, Production practices elsewhere are often more land intensive and therefore more GHG intensive per unit of output Thus reducing GHG emission here along with less output here would not reduce global emissions unless it raises costs enough that people eat less food or less GHG-intensive foods
Current farm safety net programs Projected avg. current program outlays FY2012- FY2021: $15.2 billion/yr Commodity programs Direct government payment ($5 billion per year) Price-based payments for eligible commodities (about $1 billion per year) Risk management (about $8 billion per year) Federally subsidized insurance for yield shortfalls Federally subsidized insurance for revenue shortfalls New Farm Bill Programs Make commodity programs similar to insurance (or in the case of cotton actually insurance)
12 Government costs of U.S. crop insurance, 2012 through the roof 10 8 Total government costs Premium Subsidy Billion dollars 6 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
California participation in U.S. crop insurance 5 Net Acres 40 Net Acres (millions) Liabilities (billion $) 4.5 4 3.5 3 2.5 2 1.5 1 0.5 Liabilities Policies Sold 35 30 25 20 15 10 5 Policies Sold (thousands) 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0
Thank you. Dan Sumner www.aic.ucdavis.edu