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Outlook for the US Pork Industry

by 5m Editor
29 December 2008, at 12:00am

Swine consultant, Dr Dennis DiPietre, offers his view of the future of the nation's pig industry for Farms.com. He concludes that production and export of a commodity are no longer reliable predictors of future growth areas for meat production.

In a world where all of life and business gradually comes more and more managed by extra-market interventions, everything that government entities desire to control will be defined as a negative externality. A negative externality is a cost incurred by a production system or business – or even a person – that escapes being captured by the normal accounting system and is therefore unpaid. Unpaid means it is off-loaded on someone else or on everyone (society).

Greenhouse gas is a classic example of a negative externality. Producers in the United States do not yet have to pay for the capture and disposal of methane and carbon-dioxide, yet a substantial majority of developed-world governments are getting ready to internalize this cost, as the EU largely has. The EU does this in the form of 'cap and trade' frameworks, taxes on emissions or outright bans. Since the market fails to charge the individual producer, the government must step in to 'fix' this.

China's forced abortions for families producing more than one child is an example of how far a government can justify reaching into its citizens' personal life and freedoms as long as it can define children as externalities. What can possibly be off-limits for future consideration both there and here?

As nationalization and eventual globalisation of health care as a right occurs, being obese is no longer a private issue between a person and their fat; rather it is an increased health care cost for which everyone is being forced to pay up. It is therefore a kind of personal negative externality. It also already provides a way for those who want to see modern US agriculture shrink (for a variety of political, social and sustainability reasons), a justification to manage it down.

The proposed 'fat tax' on sugared soda pop in New York is prototypical of a wave of new local, state, US and global management of agribusiness which is upon us. These taxes replace the revenues to government that fall as business is restricted, reduced and encumbered by growing regulation. New York City is considering limiting the amount of salt that restaurants can place in food during preparation. It long ago banned trans-fats. For some time now, the US 'cheap food' policy and so-called 'corn-based' agriculture has been gradually teed up as the cause of the obesity epidemic. Since obesity imposes costs on society, society must manage the cause.

I trust you are getting the logic. The number of published studies and papers is growing, especially in second- and third-level journals, prestigious panels and global think-tanks that make these types of claims. It is incestuously citing itself, which expands the volume of now-established literature for what appear to be nearly completely politicized conclusions. This has happened in a number of issues, but is especially evident in regard to 'industrialized' agriculture, which has come to mean any farm large enough to have hired labour.

No amount of exchange-rate advantage can overcome government intervention, which turns itself to measuring 'food miles' (the distance food must travel from production areas to consumption areas, as a proxy for greenhouse gas emission) and legislating to reduce them. The aforementioned literature is quoting the head of the United Nations. Intergovernmental Panel on Climate Change, who recently stated that global meat production creates more greenhouse gas emissions than all the cars and trucks plying the roadways throughout the globe.

The availability of energy in whatever form – old school or new wave – is about to be managed in both production and use. There is a sizeable, empowered majority, who believe that the right price for gasoline in the United States is currently about $4.00/gallon (the price that finally resulted in a reduction of consumption). The lament is that when market forces cause 'low prices', such as right now, the public forgets about conservation and goes back to gluttony. It is described as our 'addiction' to oil.

As we all know, an addiction justifies a family intervention to help the victim. Taxing US gas at the pump to the demand flex point of $4.00 a gallon, such as is done in the UK already, regardless of its market price, is one of the many policies being given serious consideration because energy use is too important to let markets manage.

Someone smarter than markets must step up to the plate. Exporting commodities is a very energy-demanding endeavour. The logic is: isn't it enough for US producers to produce for the domestic market? Chasing exports is just causing more externalities both here and for the global population.

Food security is a topic on the rise, especially in Asia. And you can see why after reading the previous paragraph. The recent global food price escalation (especially coarse grain prices) leading to bread riots in Egypt, rice riots in India and Indonesia and over forty countries banning exports to preserve domestic supplies, provides a wakeup call for nations whose political stability and survival depend on feeding the populace. Daewoo Logistics just announced a plan to develop a million hectares of crop production in Madagascar for South Korea. China has Africa in its target sites, both as a rich source of raw materials that China lacks and as a 'contract grower' of food and grains to shield it from the volatility and dependence on imports in the international marketplace.

Expect more food alliances, contractual relationships and outright purchases of foreign lands as a strategy to side-step the global market or at least some dependence on it. By doing so, a country reduces the risks of things like 'food as a weapon' strategies executed against it, extraction of exorbitant profits during shortages, and some if not a substantial amount of the 'externality' motivated emerging global regulations. It provides a means to reduce political instability and entrench current regimes.

As you can see, developing a new set of global thumb-rules for forecasting is going to be a challenge. Perhaps as never before, the normal structures, which suggest a comparative advantage in production and export of a commodity, may not be reliable predictors of future growth areas for meat production nor provide the long-term prosperity as they have in the passing age of markets.

Note: Dr. Dennis DiPietre is a swine consultant in Columbia, Missouri. His monthly commentary is sponsored by Elanco Animal Health.

December 2008