What does it all mean?

This is all very nice, this trip to China, but what does it have to do with agriculture in Vermont and the Northeast?

For a variety of reasons, in recent years the world has effectively become smaller. (Thomas Friedman says the same thing a different way. He says "The World Is Flat.") The reasons include:

• Advances in transportation (e.g., container ships).
• Advances in communications (e.g., the Internet, fiber optics).
• The lowering of trade barriers (e.g., the World Trade Organization).
• The lowering of political barriers (e.g., the end of the Cold War).
• Increasing wealth in many parts of the world, including China, India and oil producing countries, causing increased demand.

Supply and demand no longer operate in merely local markets. They now operate in global markets. The result is that farmers in Vermont and the Northeast are now affected by China and the rest of the world in many ways.

On the input side, China now competes with the rest of the world, including us, for basic commodities such as oil, steel and fertilizer. This increased demand is increasing prices worldwide.

On the output side, China affects world markets in two ways. One the one hand, their increasing demand can drive up prices. This is a factor in today's high dairy prices. On the other hand, China's production of certain agricultural products is also increasing. This increased supply puts downward pressure on prices. We have seen this in apples and timber.

Specifically concerning dairy, China is presently a net importer. The U.S. exported over $100 million of dairy products to China in 2006, mostly powders and concentrates. China has plans to become self-sufficient in dairy, even an exporter. It remains to be seen if those plans can be realized.

We saw several dairy processing facilities in China, but few produced cheese and none produced aged cheese. There isn't presently much demand in China for cheese. But demand for other dairy products has increased in recent years as China's increasing wealth has resulted in changes in diets. It is likely that demand for cheese will increase, too. The U.S. Dairy Export Council has noted that demand for cheese in both Japan and Korea increased significantly after those countries hosted the Olympics:

Perhaps the same will happen in China.

So, to return to the subject of this post: What does it all mean? In short, China significantly affects the prices that Northeast farmers receive for their products and pay for their inputs, whether or not there is direct trade between the Northeast and China. This brings both new opportunities and new challenges.

Note: If I counted correctly, this is my 69th post (and nearly my last post) about the trip to China with the agricultural delegation led by Vermont Secretary of Agriculture Roger Allbee. The trip was a wonderful adventure! Blogging about it has been fun, too. Thanks for reading.