Introduction
Formerly, the growth in the agricultural sector of the United States had been quite unpredictable. Strong growth at a certain time of the year was sometimes also followed by a decline. In recent years however the growth had been somewhat steady and predictable. In 1996 the agricultural exports peaked at almost $27 billion (US department of state dispatch, 1998). After a decade, the imports began to raise hence this figure came down. There are many factors such as development, population growth, etc, which affect the growth of the agricultural sector. The macroeconomic changes especially have a significant impact on the growth, exports, etc of the agricultural sector.
Earlier, the demand for agricultural products was dependent on a few prospering markets. These were Japan, European Union, etc. As no new markets coming up, hence a steep decline in agricultural products was noticed. This affected the overall exports of the United States. Recently, as new markets are coming up hence there hence been an increase in the demand has been noticed. With this change, the USDA (United States Department of Agriculture) has been making a few changes in its long-term projections. The main reason for this rapid change is population growth and changes in export, import trends.
Impact of macroeconomic changes
The rate of economic growth has a significant impact on the demand for agricultural products in the United States. USDA (1996) predicted that in the 1990s the growth would not be that erratic, but it will rise steadily. There was no decline predicted in the agricultural market’s growth. Even the fast-growing markets such as Japan and European Union would also continue to grow (USDA, 1996). However, the actual results were somewhat different from the projections. The demand for agricultural products went down in the high-income markets i.e. Japan, European Union, etc. In 1996, these two markets alone represented almost 35% of the United States agricultural exports. However, this percentage came down in the next ten years and in 2006 they represented only 22% of the total exports.
The changes in the growth pattern of the exports of agricultural products can be due to many reasons. Apart from population changes, changes in per capita income, etc, the macroeconomic change of the country also has a significant impact on the growth pattern. The American economy has been noticing an increase in the income spending of consumers. This has increased the imports of the country. People were now emphasizing less on savings and more on buying goods and hence affecting the imports and exports of the country in a direct way. The dollar was quite strong as compared to other currencies. Moreover, the interest rate in the country was also relatively low hence the country was always benefiting from exports. However, after 2002, as the value of the dollar depreciated the exports have become less expensive and the people are paying more for the imports (Dohlman, Gehlhar; 2007).
The spending of America has been increasing continuously. This has contributed to ever-increasing trade. This increase has also helped in the growth of the deficit. In 2006, this deficit was almost $880 billion. This accounts for almost 6.3% of the GDP. This was only $100 billion in 1996. The increase in this deficit reflects the increase in the imports of the agricultural and other goods (Dohlman, Gehlhar; 2007). As the dollar enjoyed a special position in the world market hence this deficit could be maintained (Mann, 1999). However, people were still confused whether this deficit will remain as it is or will fall down in the future. Mann (1999), also said that as the economy of the United States was growing at a faster rate than the rest of the world, therefore people will continue to invest in it. The investments will increase considerably over a period of time and hence the value of the dollar will also remain high. The US economic survey (OECD, 2004), has forecasted that a change in the current account of America will eventually bring a change in the demand for the United States dollar.
It has also been forecasted that this capital inflow in the economy of the United States would eventually subside. The reason for this is that the less developed economies usually present a higher rate of return. But in their case, it is riskier also. The reason for this risk is the shortage of capital in less developed countries. According to Bernake (2005):
“We see that many of the major industrial countries—particularly Japan and some countries in Western Europe—have both strong reasons to save (to help support future retirees) and increasingly limited investment opportunities at home (because workforces are shrinking and capital-labor ratios are already high)”
He also said that as compared to the lesser developed regions of the world, the more developed regions have a lower capital to labor ratio. This means that in long term the developed nations will have current account surpluses hold. Many countries which had large current account deficits had a reversed case in the near future. However, this was more likely to happen in the case of the United States (Edwards, 2005; 2006). Moreover, It cannot be forecasted when this change will happen, however, it will definitely bring an increase in the interest rate. The exchange rate might also go down due to this change (Corden, 2006; Carter and Pick, 1989).
As the exchange rate will go down, the demand for the agricultural product of the United States will rise. This is due to the fact that as the value of the dollar will go down, the agricultural products of the United States will become cheaper in the international market, and hence people would want to buy more from America. This will also mean that the people in the country will have to depend on imports for consumption. If the interest rate went up, then this change will be inevitable.
If the trade shifts from the developed markets to the new and emerging markets, this will result in an increased demand for the agricultural products of the United States. During 1990-2001 almost 2.6% growth of the exports in the agricultural sector came from these changes. It has been projected that this percentage will go up to 3.7% in the coming years. Moreover, the emerging markets will contribute almost 60% of the net exports. This will be more than what the developed markets are contributing. (Dohlman, Gehlhar; 2007).
During the past decade, the population growth and economic growth had not been contributing effectively to the growth in the agricultural sector. Since 1996, the agricultural exports have doubled within a decade. The primary reason for this is several independent factors emerging from the macroeconomic changes brought in the country. One of the major factors is consumer preference. People now want more variety. Secondly and most importantly this change was brought about by the macroeconomic factors. These include the changes in the trade deficit, net investments, earnings, etc. As the country came out of the unemployment age it was going through, more and more people got employment. Moreover, the per capita income of people in the country has also increased, contributing to more spending. Moreover, people are focusing more on spending rather than saving. Therefore, the past decade has experienced an increase in the demand for agricultural products. The country has been able to fulfill these demands due to the technological advancements made in this sector.
The increase in the US trade deficit has also contributed to this change. The current account deficit actually represents the landings. For example; if there is a reduction in the demand for foreign vestment in the United States, then the dollar value can go down making the interest rates go up. Moreover, as lesser people invest in the country there can be a reduction in the consumption of the goods. This can however bring growth in the net exports of the agricultural products.
All these projections can hold true if the macroeconomic changes in the country happen accordingly. However, sometimes the projections do not hold true and for this reason, many people have come up with different methodologies in order to forecast the demand and supply in the agricultural sector. Such as; Ludena (2006) has come up with a different methodology. Her methodology provides ideal projections for the demand for goods in the agricultural sector. Moreover, Reimer and Hertel (2003) have used a GTAP model for doing so.
Conclusion
Due to erratic changes in the growth of the agricultural products of the United States, it is difficult to predict whether the country will experience growth or a decline in the growth in the near future. The erratic behavior of the agricultural sector was due to the changes in the demand of the developed markets. The ever-changing import demands eventually brought changes in the demand for agricultural goods as a whole.
The decrease in the demand for agricultural products of the United States was due to changing policies of the developing countries and mature markets. Moreover, a decline in consumption was yet another factor. However, as the population increases the demand for agricultural products also increases. Moreover, the growth in the GDP of the developing nations was rather slow and hence the agricultural products are predicted to have lesser exports.
It was found out that as these factors slowed down the growth of the agricultural products, it was also forecasted that this growth will increase in the near future. The reason for this increase is that there are many new markets coming up which are growing at a faster pace. This change in the entire world will bring an increase in the demand for agricultural products of the world. This also means that the demand for the agricultural products of the United States will also increase. Moreover, an increase in the per capita income, all over the world is also contributing to the growth in this sector. This macroeconomic change in the United States and all over the world will provide a foundation for any future growth in this sector. In the previous decade, neither the per capita income was high as is today, nor was the demand for the agricultural products comparable to the demand of this decade. Hence an increase in the exports of agricultural products has increased the demand. The agricultural sector is able to fulfill this demand due to the technological advancement this sector has made in the past decade.
The change in the agricultural trade of the United States is also due to the changes brought by macroeconomic factors. The changes in the domestic and foreign savings pattern brought a change in the consumption of agricultural products. The exchange value of the dollar and the consumer spending pattern has also changed. This means that there will be a steady increase in the imports of agricultural products. However, this can be true assuming that the investors continue to invest in the United States and do not diversify their portfolios. All of these macroeconomic changes will bring an eventual change in the dollar value. The value of the dollar can go down increasing the exports of the country in the agricultural sector as the products of the unit4ed states will now become cheap and people would want to buy the same product at a lower price.
References
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