Macroeconomics and structural changes in foreign market participation both affect U.S. agricultural trade.
Two key influences on recent developments in US agricultural trade have been global growth, in particular among emerging markets, and the macroeconomic landscape, which is subject to a host of aggregate interrelated factors. Economic models can provide a framework whereby U.S. agricultural trade trends may be analyzed and projected into the future. However, these models cannot always account for unexpected factors that can cause the predictions to topple.
Income Level & Rate of Economic Growth in Foreign Markets
A key economic consideration in the overall level and pattern of agricultural exports in the U.S. is the recent structural change in global growth and foreign economic activity. Specifically, the income, population and rate of economic growth, and in particular the change in composition of U.S. trade partners, have been important factors in determining demand for US agricultural products. Recent trends have shown that a smaller proportion of these exports is going to high-income developed markets such as the EU and Japan, resulting in a total drop in agricultural revenues from these markets. From 1996 to 2006, these markets contributed to a decline from $21 billion in U.S. agricultural exports to $15.3 billion. These declines were abetted by aging populations with reduced dietary needs and the tendency of high-income markets to spend less overall on food.
New Demand From Emerging Markets
In contrast to mature markets' shrinking share of U.S. agricultural exports, a greater percentage of exports is now going to emerging markets, which is helping to offset the declines elsewhere. In recent years, 2004 to 2008 saw record shipments to countries such as China, Southeast Asia and Mexico, with burgeoning Gross Domestic Product and populations spending relatively large portions of their income on food. Exports to these countries have grown from 30 percent in the 1990s to 43 percent in 2006. Overall, US agricultural imports went up from $51 billion in 2000 to $78 billion in 2007. The younger populations of these consuming countries favor continued brisk growth in food demand, while population and income growth in those countries further reinforce the trend of sustained growth of U.S. agricultural exports.
Domestic Consumer Preferences for Variety
Macroeconomics, or the branch of economics that looks at the dynamics of the overall aggregate economy, can be seen to affect agricultural trade according to general principles. However, contrary to what macroeconomics would have predicted would happen in the face of severe depreciation of the U.S. dollar in the early part of the 21st century, U.S. imports of food and beverage increased during this period. Exchange rates could not abate Americans' varied appetite for foreign food and drink, with changing tastes in consumer food preferences, demand for variety, high consumption and high per capita income of the U.S. population fueling import growth.
Macroeconomic Conditions
Macroeconomic influences on agricultural trade, specifically imports, take into account the interaction between changing foreign demand for U.S. financial assets on the one hand and macroeconomic indicators such as exchange rates, interest rates and consumption on the other. Macroeconomically speaking, foreign demand for U.S. assets is tied to U.S. consumption, a stronger dollar and increases in net imports. Reduced foreign demand would have a converse effect, with the dollar weakening and net exports increasing as a result. However, there are many contingencies here: depreciation of the dollar may not be enough in itself to reduce imports. If consumption has not slowed down, as was the case in 2001 to 2006 -- when exchange rates hardly daunted US agricultural imports from the EU despite a significant depreciation of the dollar against the euro -- the state of the dollar may not affect imports. In market reality, the influence of exchange rates on U.S. agricultural imports and exports is complicated and dependent on which foreign countries experience the greatest exchange rate fluctuations, as well as the "J-Curve Effect," which refers to the lag in purchasing behavior by importers and exporters; it is further dependent on the degree to which exchange rate disparities are passed on to buyers.
