By Dusty Sonnenberg, CCA, Ohio Field Leader: a project of the Ohio Soybean Council and soybean checkoff.
Trade and Macroeconomy Outlooks were the topics for Day three of the 2020 Agricultural Policy and Outlook Conference sponsored and hosted by The Ohio State University Department of Agricultural, Environmental and Development Economics.
Dr. Ian Sheldon, Professor and Chair of Agricultural Marketing, Trade, and Policy, in the Department of Agricultural, Environmental and Development Economics began the program by discussing the impact of the pandemic on global and U.S. Trade.
According to the World Trade Organization (WTO), global trade is forecast to decline by 9.2% in 2020, followed by a 7.2% rise in 2021. “Things could have been worse,” said Sheldon. “The April forecast was for a 13% decline optimistically, and 32% decline pessimistically. There is still considerable uncertainty about the trajectory of trade for the rest of 2020 and into 2021, especially now as we see a resurgence of COVID-19.”
There is concern of a resurgence of COVID-19 and what the response will be around the world. “A COVID-19 required lockdown could reduce global GDP growth by 2-3% in 2021,” said Sheldon. “This uncertain outlook for fiscal policy and high rates of unemployment in many countries could reduce global trade by 4% in 2021.”
This week things look a little more optimistic with the Pfizer announcement of the vaccine. “Rapid deployment of a vaccine could boost confidence and raise global GDP growth by 1-2%, and global trade by 3% in 2021,” said Sheldon. “Trade may also be affected by growth in technology sectors and the leveraging of information technology.”
Global agricultural trade experienced an initial focus on food security, with export restrictions and stockpiling. “Agricultural trade proved relatively resilient, with exports rising 2% by the end of May, with some regional variations,” said Sheldon. “This was due in large part to the fact that food is essential and the demand is rather inelastic. There were also no major disruptions to the bulk shipping chains. There was increased demand for staple products such as processed fruits and vegetables. However, we saw reduced exports of produce, as well as diary and meat products, primarily due to the decline in food service demands.”
One major concern looking to the future is an increase in food insecurity worldwide. “The World Food Program estimates that by the end of 2020, roughly 270 million people are expected to be acutely food insecure, which is an 82% increase from pre-pandemic levels. There is no reason this health crisis should turn into a global food security crisis,” said Sheldon. “Stocks and production levels for key staples are at all-time highs. It is critical that we keep trade flows open and supply chains operational.”
Dr. Wendong Zhang, Assistant Professor and Extension Economist at Iowa State University, followed with a presentation about Agricultural Transformations in China and its Global Trade Implications.
“China remains an indispensable trading partner for the U.S. said Zhang. “U.S. agricultural trade with China is one of the areas where we are running a trade surplus, whereas the general areas we are running a deficit. From China’s perspective, this is a mutually beneficial relationship.”
“Agricultural trade with China is impacted by many other non-trade issues,” said Zhang. “In light of the pandemic, the U.S. China – Phase 1 Trade Deal has become more significant. Both countries are making concerted efforts to make sure the trade deal is still alive.”
“One half of the soybeans produced in the U.S. are exported globally. Of those, 60% are purchased by China,” said Zhang. “China can only produce 15% of their domestic demand. Using the best methodology, we have calculated that China has purchased 71% of its target for 2020. They have purchased $23.6 Billion in agricultural products so far this year. This is substantially more than the base year of 2017, and should end up being the best year ever in sales to China. It still is to be seen whether China will meet their target, but given the COVID-19 effects on the global economy, they have made substantial progress.”
Dr. Mark Partridge, Professor and Swank Chain in Rural-Urban Policy was the final presenter of the day, and discussed the U.S. economy post-election.
“The economic conditions now show us growing,” said Partridge. “We were growing really fast in May and June, but that slowed down, and it has continued to slow down. A question will be, is as that growth flattens out, are we going to stay flat, or go from what is described as a “V” shaped curve to a “W” shaped curve.”
Employment is down now more in the COVID Recession, than it was in the Great Recession of 2007. “Ohio typically does worse than the nation, but since February we have followed closely what the nation has done,” said Partridge. “Typically, in a recession, Ohio falls faster than the rest of the U.S. but also recovers faster. That may not be the case this time. There remains uncertainty if we will have an additional stimulus from the federal government.”
This recession is different than those in the past. “Looking at new business start-ups, the start of 2020 looked much like 2019 in terms of the number of new business filings. Once COVID-19 hit and the shut downs occurred, new business starts fell by 50%. Then by late May it turned around, and new business filings were up by nearly double what they were at the same time in 2019, and still today they are up 30-40% higher than they were at this time in 2019,” said Partridge. Normally in a recession we get fewer start-ups.”
Partridge went on to look at the political landscape and government’s response to the pandemic. “The initial response to the pandemic was stimulus from programs like the CARES Act,” said Partridge. “Finally, the policy makers have learned from their mistakes of the Great Recession, when they did not stimulate the economy enough, and then pulled back too fast. The Federal Reserve has been very clear that they feel that they got the economy going with the “V” curve and it needs to be kept going. Another boost is needed in their minds. That now looks uncertain, and whatever happens appears that it is going to be smaller than what it would have been in a different political environment.”
The 2020 Agricultural Policy and Outlook Conference continues for day three on Friday, with a focus on Consumer Demands and Commodity Outlooks.
For more information visit: https://aede.osu.edu/programs/202021-agricultural-policy-and-outlooks