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Notes on Illinois agriculture, global food security, and agricultural policy (Michael Dougherty talk)

Event context and audience

  • Presentation about a student competition team in the context of agriculture and global markets.
  • The speaker mentions a pharma global case competition team meeting next Wednesday from 5 to 6 PM, location 106, with costs sponsored except food.
  • Purpose of attending: step out of comfort zone, test practice, meet practitioners and experts in agriculture globally.
  • Next year’s competition location: Ireland.
  • A Brazil-case participants group who competed in the summer will share their experiences, including what they did and how scary the experience was.
  • The session is framed as engaging, informative, and enjoyable, with more details to come.

Speaker profile: Michael Dougherty

  • Former senior economist and policy analyst at the Illinois Farm Bureau (IFB) from 2004 to 2023.
  • Concurrently served as the executive director of the Illinois Wheat Association from 2018 to 2023.
  • Responsibilities include research and policy analysis on agriculture, production, income, and marketing systems.
  • Conducted external research projects, analyzed government policies and proposed legislation, and integrated with markets and other factors affecting the Illinois agricultural economy and related quarterly outlets.
  • Quoted in publications such as the Wall Street Journal and the Chicago Tribune (Crain’s Chicago Business) and regularly interviewed on radio and TV about Illinois agricultural economy.
  • The talk features his personal journey: Peace Corps volunteer in Fiji, studies in economics, and a long career focused on international agriculture and food security.

Core focus: Food security and the role of Illinois farmers

  • Central question: What role do Illinois farmers play in global food security and in emerging markets?
  • Key idea: Illinois’ primary contribution is exporting corn and soybeans; wheat exports exist but are smaller and more localized.
  • Wheat role in Illinois: Soft red winter wheat mainly used for crackers and processed foods in a band across Southern Illinois; bread uses are limited. Local mills between Saint Louis, Terre Haute, and Tatopolis.
  • Corn and soybeans are the dominant export crops.
  • Soybeans are the larger export percentage-wise compared to corn among the two major crops.
  • The Illinois wheat association role and the broader export pattern influence questions about how Illinois contributes to global food supply.

Illinois agriculture: geographic advantages and production patterns

  • Illinois’ geographic advantages include proximity to the Port of New Orleans (great for barge-based transport to export markets) and a river-based logistics network that is not present in most other states (e.g., Iowa).
  • The state is near major river corridors that enable low-cost transport for bulk commodities.
  • Relative to Iowa and other Midwestern states, Illinois has a river-based, cost-efficient route to export terminals, reducing transportation costs for corn and soybeans.
  • Agro-climatic conditions in Illinois are highly favorable for a corn–soybean rotation, contributing to a specialized agricultural economy focused on these crops.
  • The region’s river access and rail infrastructure enable large-quantity shipments (e.g., 110-car unit trains) to ports and processing facilities.
  • As a result, Illinois has a comparative or absolute advantage in corn and soybeans versus many other states due to geography and infrastructure, rather than just factor inputs.

Crop specifics: corn, soybeans, and wheat

  • Soybean basics:
    • Soybeans are released as oil and meal after processing; the typical split is approximately:
      ext{Soybean oil}: ext{Soybean meal} \,\approx\, 1:2/3
      (i.e., about two-thirds of the value comes from meal, one-third from oil).
    • Soybean meal is largely used for animal feed and cannot be eaten directly; it must be processed.
    • A large share of soybean value derives from animal feed use; processing is essential for its use in feed mills.
  • Soybean exports and China:
    • Historically, roughly half of Illinois soybean exports have gone to China, with fluctuations (e.g., around 40% in some years, up to ~60% in others).
    • In some crop years, China’s share of Illinois soybean exports has been substantial, but current-year data may vary (e.g., a year with zero purchases prompts market uncertainty).
    • China’s demand for soybeans is a major driver of global prices and farm-gate revenues in Illinois.
  • Corn exports:
    • Illinois exports a significant share of corn; less dependent on export markets than soy, but still influenced by international demand.
    • Export markets include Mexico (via cattle and feed chains) and other regions, with the same price signals as soy due to global markets.
  • Wheat (soft red winter) in Illinois:
    • Primarily used for crackers and processed food; not a primary bread wheat export for the state; much of it is processed locally by mills.
  • Concept: derived demand for soybeans
    • The demand for soybeans is derived from the demand for animal protein (pork, beef, poultry, dairy). As incomes rise and populations grow, protein demand increases, driving soybean demand via feed consumption.
    • This linkage is called derived demand in economics.

Global demand, markets, and price formation

  • Global meat and protein demand:
    • UN FAO projections suggest a growing global meat consumption, with notable increases tied to income growth and population growth.
    • A key insight: protein consumption tends to rise with income and life expectancy improvements; calories alone do not explain demand growth, but protein does.
    • Per capita protein availability varies by country; regional maps (e.g., 2023 FAO/UN maps) show Argentina’s beef consumption is high, whereas some West African nations have very low per capita protein supplies due to affordability.
  • Price setting and market signals:
    • A farmer’s price for corn or soybeans is determined in a global market context, not just local deals. The Chicago market serves as a clearing price reflecting global supply and demand.
    • Export demand, particularly for soybeans, drives the foundation for prices; domestic buyers (ethanol, processors) adapt to the global price signal.
  • China tariff/trade dynamics and port geography:
    • Trade negotiations (e.g., US-China discussions) influence the timing and volume of soybean exports; market participants monitor negotiations for price and storage implications.
    • Northern Plains to Pacific Northwest rail and port infrastructure are essential for shipping soybeans to Asia; a disruption can cascade through the system.
  • Substitution and alternative markets:
    • When a major buyer (e.g., China) slows purchases, farmers and traders seek alternative buyers; South American producers (Brazil, Argentina) can also supply soybeans to global markets, including China via different routes.
    • Brazil’s ethanol program and market policies are used as comparisons for policy-driven demand shifts in other regions.

Ethanol, policy, and market incentives

  • Ethanol demand is highly policy-driven and politically determined (not purely market-driven):
    • The speaker cites the view that ethanol demand is a political decision (e.g., blending requirements) rather than a free-market outcome.
    • Brazil also uses government policy to drive ethanol production and export, affecting corn markets indirectly.
  • Impact on corn and soybeans:
    • Ethanol use increases corn demand, which can influence corn prices and the overall farm economy; however, the expansion of ethanol does not solve all market needs and relies on policy support.
  • Market share considerations for alternatives:
    • Other uses of corn and soybeans (e.g., advanced materials from corn or soybean-based products) typically represent small shares of total production compared with feed and export uses.
    • The argument remains that demand for meat and dairy remains the primary driver of soybean demand long term, with ethanol as a supplementary, policy-driven channel.

International development, trade promotion, and aid architecture

  • Checkoff programs and trade promotion:
    • Illinois soybean and corn checkoffs fund trade promotion, fund overseas trade teams, and support producers meeting overseas processors and meat producers.
    • These programs leverage USDA grants and private funding to promote Illinois crops abroad and create market opportunities.
    • Major associations include Illinois Soybean Association, American Soybean Association, Illinois Corn Growers Association, and National Corn Growers Association.
    • Careers in trade promotion and association staff support these efforts and can be a potential job path for students.
  • USAID and international development funding:
    • USAID historically funded development projects in agriculture, including cooperative development and extension services, with a focus on market development and capacity building.
    • The speaker notes a reduction in USAID funding and a loss of leverage in some countries (e.g., Colombia) due to funding cuts.
    • The policy environment shapes how international agricultural projects are implemented and sustained.
  • Remittances and development corridors:
    • In Guatemala, remittances from the United States constitute a substantial portion of the economy, with estimates around 18% of GDP and significant portions of growth attributed to remittance inflows in recent years.
    • Remittance flows influence rural livelihoods, farming capacity, and local investment in agriculture.
    • The speaker shares anecdotes from field experiences noting how remittances support households in San Marcos, Guatemala, and how family labor can be complemented by such funds.
  • Lessons from cacao and other value chains:
    • Colombia’s cacao projects (cocoa as a peace-building crop) illustrate how development programs can align with local markets to support livelihoods.
    • Other examples include catfish feed in Ghana and soybean meal promotion to catfish producers in Mississippi, highlighting how agricultural products and markets link globally.
  • Extension services and land-grant universities:
    • The speaker notes that many countries lack a robust extension service and a land-grant university system like the U.S., which underpins agricultural research, extension, and education.
    • Argentina, Brazil, and Ukraine are cited as having some agricultural institutions, but many countries do not have comparable systems, limiting local capacity for extension and innovation.
  • Local entrepreneurship and board development in co-ops:
    • The speaker describes working with co-op boards (e.g., Prairie Central Grain Co-op) to introduce strategic planning and board policy development, highlighting the importance of governance in agriculture.

Personal anecdotes and experiential insights

  • Peace Corps and self-reflection:
    • A key turning point in Dougherty’s life occurred after a Peace Corps stint in Fiji, which influenced his passion for international agriculture and redirected his academic path toward economics and agriculture.
  • Cross-cultural observations and perceptions of America:
    • The speaker shares experiences in Guatemala, noting how remittances shape household decisions and the high regard for the United States among locals who connect to U.S. labor markets.
    • The narrative includes interactions with local farmers who view the U.S. and American farmers positively, partly due to aid programs and personal exchanges.
  • Humility in development work:
    • Stories about working with smallholder farmers in Nicaragua and Guatemala illustrate the complexities of development: farmers’ choices between export markets and domestic consumption, and the impact of income growth on consumption patterns.
  • Real-world challenges in development:
    • Example of potato farmers in Guatemala aiming to bypass brokers to achieve better value-added processing and prices.
    • The importance of market access, logistics, and value-chain development in rural areas.

Key concepts, numbers, and formulas to remember

  • Major export dynamics for Illinois:
    • Exports of corn and soybeans are central to Illinois’ agricultural economy; wheat exports are smaller and largely processed locally in the state.
  • Proportions and shares:
    • Livestock revenue vs. crop revenue in Illinois agriculture: approximately
      ext{Livestock revenue} \approx 20\% \text{ of total agricultural revenue},
      ext{Corn & soybeans} \approx 80\% \text{ of total agricultural revenue}.
  • Soybean value composition:
    • Approximately ext{meal} : ext{oil} \approx 2:1/3 (meal ~ two-thirds of value, oil ~ one-third).
  • Protein and per-capita consumption mapping:
    • FAO/UN maps of per-capita protein supply show regional variation; exact numbers require consulting the 2023 maps, but the concept is to measure grams of protein per person per day and compare across countries.
  • Global meat demand projection:
    • UN FAO projection indicates a ~14% increase in meat consumption worldwide, driven by income growth and population growth; note that production growth may lag if efficiency or other constraints apply.
  • Trade and price signals:
    • Relative price signals for soybeans are influenced by overseas animal feed demand more than domestic demand, especially in the context of exports to China.
  • Remittances in Guatemala:
    • Remittances approximate ext{Remittances} \approx 0.18 \,\times\, ext{GDP} for 2021 and contributed a substantial portion of growth; in some analyses, remittance inflows are linked to a large share of economic growth as observed in specific years.
  • Logistics and capacity:
    • Illinois transport capabilities include substantial rail capacity and proximity to the Port of New Orleans, reducing distance to export markets by roughly riangle d \approx 250\ ext{miles} in comparison to some inland corridors.

Ethical, philosophical, and practical implications

  • Global food security and equity:
    • The reliance of global markets on a few staple crops (corn, soybeans) highlights concerns about resilience, price volatility, and food access for low-income regions.
  • Policy-driven markets vs. market-driven markets:
    • Ethanol mandates and other biofuel policies show how government decisions can shape commodity markets, sometimes in ways not aligned with pure market fundamentals.
  • Aid effectiveness and development strategy:
    • Cuts to USAID funding and shifting aid modalities can alter the effectiveness of development programs, with implications for agricultural capacity building and market development in recipient countries.
  • Knowledge transfer and institutional capacity:
    • The lack of robust extension services and land-grant-style universities in many countries constrains technology transfer, research adoption, and productivity growth, affecting global food supply chains.
  • Social and cultural dimensions:
    • Personal anecdotes illustrate how global agricultural development interacts with local livelihoods, migration, and remittance-driven economies, shaping household nutrition and community resilience.

Quick takeaways for exam-style understanding

  • Illinois is a leading producer of corn and soybeans, with exports forming a large part of the state’s agricultural economy due to geographic and logistical advantages (river systems and proximity to major ports).
  • Soybean demand is heavily driven by global animal protein demand (derived demand) and is highly sensitive to China’s import needs and trade policy dynamics.
  • The price of soybeans and corn is largely determined in a global market, with Chicago serving as a price clearing mechanism reflecting international supply and demand.
  • Ethanol policies illustrate how government decisions can augment or distort market signals for corn, while not being a universal solution to all biofuel demand.
  • International development efforts (USAID, trade associations, checkoffs) play a significant role in opening markets, promoting U.S. agricultural exports, and building capacity in partner countries, though funding and policy changes can affect effectiveness.
  • Real-world narratives from fieldwork underscore the importance of market access, value-added processing, and the social dimensions of agricultural development, including remittance-driven economies and cross-border trade.