China seen as economic leader

China seen as economic leader

CHINA will continue driving the demand for global commodities and will continue driving the world's economy for several years, according to North American agribusiness and food executives surveyed by Rabobank International.

The executives -- 350 from leading agribusiness and food companies -- also said they are concerned about the effect of ongoing weather extremes on commodity production, but at the same time, 25% said they anticipate corn yields to exceed 200 bu. per acre by 2025.

They also said the influence of social media is changing the way they do business.

The executives were surveyed during Rabobank's recent market forum in New York City.

When asked to identify the country or region that will have the greatest impact on demand for agricultural commodities over the next 10 years, 61% of the executives participating in the forum's survey chose China, far more than the 14% who named India, 10% who named Africa, 9% who named Latin America and 6% who named Southeast Asia.

A large majority of the respondents said China will, accordingly, be the most critical driver of long-term economic growth in the world, with 41% saying China will drive the world's economy for the next 5-10 years and 40% saying China will be the world's economic engine for the next 50 years.

This contention is not surprising and reflects the significant impact China has had on the agribusiness and food industry in North America and worldwide, said Bill Cordingley, director of agribusiness and food research for Rabobank.

He noted that China has the second-largest middle class in the world -- at 157 million people -- that will surpass the size of the middle class of the U.S. in 10 years. Accordingly, China's demand for agricultural commodities will continue growing, he said.

Naturally, North American agribusinesses and food producers will continue to play a major role in China not only as exporters but as investors who will bring capital and know-how to support development of the Chinese food system, Cordingley said.

 

Weather

The executives expressed concern about continuing weather extremes and volatility, with 68% acknowledging that this will be the major factor in agribusiness and food production next year, far outweighing the 13% who identified consumer demand and the 10% who chose policies and regulations.

Geopolitical events and trade, including trade barriers, were also identified as important by a small percentage.

Reflecting the concern over weather extremes, 59% of respondents said the 2012 drought has changed how they manage risk, with 25% reporting that they have increased their focus on financial liquidity, 21% saying they have increased their companies' investment in insurance and risk management and 13% saying they have increased their companies' diversification.

 

Corn yield

Corn is obviously a critical input for food producers, and consistent and strong growth in corn yield "has underpinned the food industry for the past 10 years," Cordingley said, noting that the executives surveyed were optimistic that this trend will continue.

More than 90% said they expect U.S. corn yields to exceed 170 bu. per acre by 2025, and of those, 40% expect yields to increase to 200-250 bu., while one-quarter expect yields to exceed 250 bu. per acre.

This compares with current trend-line yields of 150-160 bu. per acre and this year's drought-ravaged yield of 120 bu.

Yields will be a function of precision farming and other technology, including genetic modification to get seeds to perform well under both normal and stressed conditions, Cordingley said.

Although genetic modification is well accepted and established in the U.S., it remains controversial in other parts of the world. However, the executives believe that biotechnology's uptake will be driven by continued high commodity costs, according to 56% of those surveyed, and increased consumer acceptance, according to 34% of those surveyed.

 

Social media

The executives said the rise and spread of social media have pushed them to adopt different approaches in their businesses, with 51% saying they are changing how they handle brand and reputation management and 9% saying they are changing how they handle supply chain management.

Social media "has introduced a new and widely accessible communications platform" that's creating both opportunities and risk for companies in the food industry, Cordingley said.

"Business as usual" may need to be abandoned, he said, but the phenomenon also offers opportunities for companies to engage in direct discussions with customers, consumers and other stakeholders "to address concerns, to educate and to clarify fact from misinformation and rumor."

Cordingley noted that "one thing is certain" in that social media "is changing the food business in North America."

Rabobank International is a leading financial institution serving the North American agribusiness and food industry, and the market forum brings together hundreds of executives and senior managers from its clients. Rabobank is part of Dutch-based Rabobank Group, a global financial services institution.

Volume:84 Issue:53

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