PL3_Paper - Understanding Global Agriculture Through Agri Benchmark

Global agricultural production is the result of millions of farmers’ decisions on what type of product they produce and how. Hence, understanding economic conditions and options available to farmers is a prerequisite to understanding global agriculture. Detailed knowledge of the profitability of production for individual crops and livestock products is an important ingredient. But when it comes to assessing possible structural change within a country between different farming systems or products (e.g. beef vs. crops; corn vs. wheat) a detailed understanding of the profitability of individual products alone will not allow for a realistic projection; the reason being that the system “farm” is rather complex. Assuming there is an increase in relative output prices for a certain commodity, farmers are faced with the following options in order to react:
• Depending on the current status of production systems, there may be room for an increase in input usage leading to a growth in supply.
• A shift from extensive crops such as barley to a more intensive crop such as corn can become a viable option. However, this shift itself is subject to non-linearity because there may be an interaction between crops leading to non-monetary effects.
• Farmers can move from one production system (in terms of economic theory: production function) to another.
Against this background it becomes obvious that a detailed understanding of the options for and determinants of farmers’ decision-making is key to understanding the future of global agriculture. Forecasting based on previous trends and farmers’ reactions to market signals very often will not yield meaningful results. This is particularly true in a situation where major commodity prices increased by 100 % and more compared to the pre-boom period before 2008.