International Agricultural

Development and Trade

AAEC 3204
Introduction
George W. Norton
Agricultural and Applied
Economics
Virginia Tech
Copyright 2009

Objectives Today

Discuss basic dimensions of the

world food situation
Availability & prices
Malnutrition
Effect of poverty
Population
Environment
Globalization

Poverty and malnutrition remain

problems in much of the world

Why? How severe are they? Where?

Does globalization help or hurt?
What role does agriculture play?
How do poor countries affect rich
countries and vice versa?
How does poverty relate to food safety,
the environment, public health, energy,
and food prices?
These are a few of the issues
addressed in this course

Why is it important to
understand agriculture in
other
countries?
Agriculture is the most
important sector in many
developing countries and
it affects agriculture
in more developed
countries

Weeding in Bangladesh

Extremes of
poverty
and wealth coexist in
many
developing
countries
Photo taken in
Dhaka, Bangladesh

Where do most of the worlds

poor live?

Incomes (GNP) per capita (US$)

(Source: World Bank, 2005)

Child mortality (per 1000 live births)

Source: World Bank, 2005

Number of Undernourished People in Developing

Countries by Region

Percent of Population
Undernourished by Country

Are people hungry because the world

does not produce enough food?

No. In the
aggregate there
is a surplus of
food if the Worlds
food supply were
divided up equally

Index of per capita food

production.
(Source: FAOSTAT Data, 2005)

If enough food, why do people

Lack income to
diepurchase
from hunger
related causes?
food

Especially elderly, sick,

orphaned
Especially when food
prices are high

Incomes unevenly
distributed
Disasters

How many people in the world

live on less than $1.00 per day?

One-fifth of the
Worlds
population or
more than a
billion people

Ethiopian Woman and Child

In what ways do we see

global interdependence?

Trade, prices
Capital movements
Labor movements
Technology
Environment
Energy
Political
Information flows

What is Globalization?

Expansion of economic, political, social,

and cultural linkages among countries
around the world
Tendency toward universal application
of economic, institutional, legal,
political, and cultural practices
Spillovers from the behavior of
individuals and societies to the rest of
the world

Why do so many people oppose

globalization?
1. Involves change, some good and some not
2. Winners and losers

Can globalization be reversed?

No

Why has environmental degradation become an

increasing problem in developing countries?

Desertification
Flooding

Chemical pollution
Soil Erosion

Houses in Dhaka,
Bangladesh

Food Prices

What has happened to food prices in

the world over the past year? three
years? 15 years? 40 years?
Why might high (low) food prices be
both good and bad?

World food prices have increased

significantly, especially since 2006
after a long period of
stable or slowly
declining prices

High food prices

can be good for
farmers

High food prices

are a serious
problem for low
income consumers

Why did food prices rise sharply

from 2006 to 2008?
1.
2.
3.

4.

5.
6.

7.

High price of energy

Subsidized bio-fuel production
Poor weather in certain countries such as
Australia
Economic growth in certain countries such as
China and India
Certain countries have restricted exports
Lack of attention to agr. research and
infrastructure investments over time
Continued population growth

What has happened over

the past year?

Food prices have retreated from their

highs. Why?
Global recession

Will they go back to lower levels of

three years ago soon?
Not for most commodities. Why?

Population Issues

Most of the world lives in developing

countries and most population
growth occurs there
Rapid growth
Positive and negative benefits of
population growth
Food-income-populationenvironment interacts

U.S. agriculture Developing

country linkages

Effects of U.S. agriculture on developing

countries?
Helps keeps food prices down to the extent we
export our surplus

Effects of developing countries on U.S.

agriculture?
Importer of many products
Competitor for some products

How might China affect the

U.S. economy and U.S.
agriculture?

Examples:

Buys U.S Treasury bonds which affects longterm U.S. interest rates
Export competitor for some farm products and
importer of others
Its growing demand for fuel drives up prices
Large labor supply and open economy keeps
price of labor down relative to capital

What is economic
development?

Improved standard of
living for the entire
population
Income up, poverty
down, reduced
inequality

Increased
opportunities for
individual choice
self esteem

and

If development is good

Why is it good?
Poverty and hunger down
Population growth rate down
Increased choice
Improves chances of global
stability

If development is good

Why is there also pain with

development?
Some industries shrink while others
grow
Urban areas grow creating new
challenges
Cultural disruptions
Environmental challenges can increase,
at least in short run

Is average per capita income

a good measure of
development?
Why or why not?
Level of living and income highly
correlated, but distributional element
missing
Fails to capture changes in natural
resource stock
Omits certain goods and services
Differences in cost of living

Per Capita Income by Country

Income distribution within countries

In general, income is more unequally

distributed in developing countries than in
developed countries
Income distribution tends to become more
unequal as development proceeds up to
$8000 GDP/capita, and then more equal
Conclusion: distribution may affect ability
of country to move from middle income to
upper income country

Why is the labor force in

developing countries heavily in
agriculture?
People have to

eat and if
productivity low,
must farm to
feed themselves
Provides
employment

Why does economic development

require expansion of the nonagricultural sector?
Capacity of

agriculture to
continue to employ
everyone is limited
People want to
consume more than
food and fiber as
income grows

Why is agricultural
development particularly
important to LDCs?

Provide food
Free up resources such as labor
Generate capital
Create market demand
Improve rural welfare

Trade issues

Why countries trade and why trade

might be helpful to developing and
developed countries
Interrelationships among poverty,
population, environment, and trade
How macroeconomic and trade
policies are interrelated

Trade issues continued

How developed country policies help

or hurt developing countries (and
vice versa)
Effects of global trade agreements on
agriculture in developing and
developed countries
Why capital movements have
become as important as trade in
goods and services

Summary

Still a great deal of poverty and hunger

Hunger-poverty-populationenvironment interrelated
Global economy with U.S. and developing country
agriculture interlinked
Development involves broad-based increase in
standard of living
Involves pain as non-ag sector grows relative to
agriculture
Growth in non-ag sector usually depends on growth
in agriculture
International markets (trade and capital
movements) play a role