Posted on August, 9, 2024 at 09:56 am
Gross Domestic Product (GDP) is likely the most closely watched and commonly cited economic indicator. GDP is “…the market value of all goods and services produced within a country in a given period of time” and is “…the best single measure of a society’s economic well-being” (Mankiw, 2007). While tracking and forecasting GDP is important for businesses, labor, investors, policymakers, and economists, it has important implications for the farm economy as well. GDP can be thought of as how well off your customers are to buy the things you produce.
The International Monetary Fund uses GDP to track global economic growth by country and country groups. Real GDP growth (adjusted for inflation) has exhibited interesting trends since 1980 that have implications for grain markets (Figure 1). From 1980 to 2000, there was very little difference between growth rates of GDP between advanced economies (e.g., U.S., Japan, most of Europe, Canada, Australia, U.K), and emerging market and developing economies (e.g., Brazil, Russia, India, China, Mexico). Advanced economies grew at an average rate of 2.9%, with emerging market and developing economies growing by 3.5%.
Figure 1. Global Economic Growth, real GDP, 1980-2029
In the early 2000s, world economic growth rates began to be driven by emerging economies. Gains in productivity, rising per capita incomes, and a growing middle class have made many emerging economies more competitive as suppliers to world export markets and increased the size of their domestic markets (Kose and Prassad, 2010). From 2000 to 2019, the growth rate of advanced economies was 1.9%, with emerging and developing economies growing by an average of 5.5%.
Since 2020, economic growth rates in emerging economies have slowed. Global conflicts, trade tensions, inflation, and rising interest rates are a few of the factors cited for a slowdown in economic growth, factors that hit emerging and developing economies especially hard (IMF, 2024). Estimates for 2020-2024 show advanced economies growing by an average of 1.5% and emerging and developing economies by 3.6%. Including forecasts by the IMF for the next five years, average GDP growth from 2020-2029 is projected to be 1.7% for advanced economies and 3.8% for emerging and developing.
Figure 2. Real GDP growth in emerging and developing economies and world per capita grain consumption
Trends in world grain consumption have shown significant changes since 1980 as well (Figure 2; blue line). In 1980, consumption of barley, corn, millet, mixed grains, oats, rice, rye, sorghum, soybeans, and wheat was 348 kg per person. By the end of the 1999/2000 marketing year, that number was down to 340 kg. Then, per capita consumption began to grow, reaching over 400 kg by 2019. With increasing protein in diets and grain for fuel, the most recent estimate of world per capita grain consumption in 2024 is 410 kg.
An overlay of GDP growth in emerging and developing economies and world per capita grain consumption shows the relationship between these factors (Figure 2). From 1980-1999, a period with little difference between growth in advance economies and emerging economies, GDP grew by 3.5% while grain use per capita fell by 7 kg (-0.4 kg/yr). From 2000-2019, an era of globalization and expanding economic impact in emerging economies with GDP on the rise, grain use increased by 62 kg (+3.1 kg/yr). Since 2019, post-pandemic, with slower rates of growth in GDP, grain use has increased by 8 kg (1.6 kg/yr), about half the rate of growth of the previous 20 years.
Per capita grain consumption is one measure of global grain demand. Even if per capita consumption is unchanged, growth in the population base would still mean an increase in grain consumption. In 1980, the world population was increasing by 1.6% per year. In 2000, population growth was 1.3%. That growth rate is down to 0.9% in 2024 and forecast to be 0.8% by 2030, half the rate of growth in 1980 (USDA, ERS, 2024).
Important to levels of grain use are patterns of global economic growth, especially GDP growth in emerging and developing economies. As growth rates in this region slow down over the next decade, per capita grain use may yet increase, but at a slowing rate.
The combination of slowing population growth and a slowdown in economic growth may alter recent patterns in world grain use. That means gains in productivity (weather permitting) have a higher likelihood of exceeding gains in use. When that happens, that is a recipe for lower prices.
Source: Farm Progress