Bill Tierney likes to talk about comparative economic advantage.
Tierney, a University of Kansas agricultural economist, is a leading analyst of the United States and world grain scene.
In an interview last week, he identified three regions with the ability to upset the grain trade status quo – the former Soviet Union, China and Brazil.
Not surprisingly, the economics professor applied the theory of comparative economic advantage in his assessments.
The theory is that people, companies and countries are most efficient when they do the things that they are best at doing.
Read Also
Russian pulse trouble reports denied
Russia’s pulse crop will be larger than last year, which won’t help prices rally from their doldrums.
Accordingly, Tierney expects that Russia and Ukraine wheat exports are not an anomaly.
The climate, soil and open spaces of Ukraine and western Russia are ideal for wheat. Tierney notes that in the early 20th century, oil and wheat were the Russian empire’s largest exports.
Now that communism’s distortions are fading, wheat and oil are top earners as comparative advantage again makes itself felt.
China has become a major corn exporter and was for the first time last year a net exporter of wheat, thanks to rudimentary irrigation. But Tierney expects that can’t last because it has a disadvantage in moisture.
He said the north China plain today is like California in the early 20th century: a dry climate, growing urban and industrial water demand and plans for enormous water diversion projects.
California could afford to put the expensive water only on high value vegetable and fruit crops.
The same thing will happen in China, Tierney predicts, adding it will again import wheat and corn in the next few years.
As for Brazil, Tierney quoted the U.S. Department of Agriculture’s recent assessment that vast grazing lands once thought unsuitable for soybean production are turning out to be ideal, with three crops a year possible in some areas.
Clearly, this is a comparative advantage over the U.S., now the leading soybean producer.
These developments limit the opportunities for North American agriculture, he said.
Grain farming in the U.S. and Canada is a mature industry with few prospects for growth, given robust competition from Brazil, Ukraine and Russia.
North American land will be farmed, but the agricultural scene will increasingly mimic a European model where it will be discussed in social terms rather than economic.
