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idSa.dk ®f Sana Framsisc® October 12,1973 F©®<db Tla© Fnataains Despite the problems it has created for harried housewives, the farm boom has brought untold pros perity to the farm community and its associated industries. Farm cash receipts, at a $74-billion annual rate in the first half of 1973, were onefourth higher than a year ago; net income per farm, at close to $8,700, for the second straight year was running about 16 percent above the year-before level, even after adjust ment for rising prices. Farmers may rightly be skeptical about the continuation of such prosperity, since they have suffered too many boom-and-bust cycles over the past generation, with the inevitable overhang of surpluses creating heavy downward pressures on prices. This time may be differ ent, however, as problems of a different sort emerge. The im mensely productive American agri cultural economy, despite its four fold increase in output per man hour since World War II, may be hard-pressed to keep up with the heavy demands generated by a rap idly growing and increasingly inte grated international economy. The nation's—and the world's— farmers must operate with neces sarily limited resources to meet a demand for food that could actually accelerate as the world's people become more prosperous over time. In the past, farm economists questioned whether agricultural production could increase as rap idly as population, at between one percent and three percent annually, depending on country. (With a two percent population growth overall, merely maintaining current per capita consumption levels would require a doubling of world produc tion within a single generation.) Today, pundits wonder whether food production, in addition, can keep up with rates of increase in per capita income of up to five percent a year. Demand: affluent people Economists have long argued that food spending declines relatively as income increases (Engel's Law). In view of changing diet patterns, however, this need not necessarily be true. Three square meals a day may be the physical limit for any person, but the quality of meals can be improved substantially. Thus, meat consumption tends to rise steadily as affluence increases. In South Asia, 7 pounds per capita annual consumption may be the rule, but in this country the total is about 200 pounds per capita, which suggests that total demand could rise stratospherically as other coun tries strive to reach the American standard. Americans consume indirectly about 80 percent of their domestic grain supply, first using it for feed and then consuming the meat it produces. We eat slightly less grain directly for food than others do, but we absorb far more than others when both food and feed grains are considered together. Thus, each American consumes almost one ton of grain per year, while inhabitants of poorer countries consume ap proximately one-fifth as much. (continued on page 2) Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco, nor of the Board of Governors of the Federal Reserve System. Growing affluence and growing population together affect world food demand, so that it tends to grow proportionately with GIMP. More exactly, a combination of 3percent population growth and 3percent per capita income growth would typically produce a 5-percent increase in demand for food, ac cording to a World Bank study. Many countries have increased their annual demand by that margin but have been unable to meet it from domestic supplies, and hence have relied increasingly on the American granary. Even before the recent export boom, farm economists had noted an 11-percent increase in import demand for each 10-percent rise in per capita income of im porting countries. Much of the recent increase in demand has come from the northern tier of industrial countries (Europe and Japan), whose dietary habits approach those of this country a generation ago. As in comes rise in these countries, which contain two-thirds of a billion people, a larger share of the addi tional income is converted into demand for livestock products. However, many of these countries — for example, land-short japan and water-short Russia— do not have the resources to satisfy that de mand, so that they are forced to import increasing amounts of live stock products or, alternatively, feed and soybeans with which to expand their livestock production. Demand: nutrition An important demand consideration Digitized for F R A S E R is the worldwide struggle to stave off malnutrition as well as actual starvation. Human diets must con tain six basic kinds of nutrients: carbohydrates, proteins, fats, min erals, vitamins and water. An ade quate daily diet must contain 1,400 . calories or more, obtained from such sources of carbohydrates as wheat, rice and potatoes; but it must also contain 40 to 50 grams of protein, to provide the eight essen tial amino acids. If the protein comes from animal rather than vegetable sources, the protein molecules are more similar to those of humans. In the digestive process, animal-based protein pro vides the ingredients in the propor tion required to rebuild human pro tein. Vegetable-based protein fails in this regard, with cereal grains (for example) being deficient in certain essential amino acids. Thus, even if a person receives a sufficient quan tity of proteins, their quality may be deficient, with the nutritious value of these proteins being reduced by a proportional shortage of one or more amino acids. One solution to protein deficiency is to increase the meat consumption of the world's people. Still, if the developing countries were to even approach U.S. food-consumption standards, they would need a very substantial expansion of grain sup plies. Meat consumption, desirable as it is for nutritional purposes, is an inefficient way of eating grain; in this country, it takes about six pounds of grain to raise one pound of meat, with the grain/meat ratio ranging between three pounds for poultry to ten pounds for beef. A simpler and quicker solution, which is possible with present tech nology, is the enrichment or fortifi cation of existing foods by physi cally adding nutrients during the food-processing stage. Children eating a few slices of enriched bread thus will obtain the vitaminmineral equivalent of a diet filled with fruits, vegetables and milk. Alternatively, some newly-devel oped foods should be useful; for example, Vita-Soy, a cola drink high in nutritional value, and Wheat-Soy Blend, a food with protein quality • similar to ground beef or cheese. Yet, despite the expectation of con tinued technological progress, warning signals are already evident in the crucial area of protein supply —specifically, soybeans, beef and fish. Soybean yields lag because of unresponsiveness to nitrogen ferti lizer, cattle herds grow only slowly because of biological constraints, and many of the world's fisheries are being seriously depleted. The world protein market (like the en ergy market) thus appears to be shifting from a buyer's to a seller's market. Supply: tightening As demand climbs due to rising population and rising affluence, the world's farmers face several impor tant constraints in their efforts to expand global food production. The traditional solution— increasing the area under cultivation— may have only a limited scope in the future. In fact, some parts of the world face Digitized fb r K R A S E R i ction in farmland because http://frasir.stlouisfed.org/ Federal Reserve Bank of St. Louis of the growth of competitive uses— recreation, transportation, in dustrial and residential develop ment. For example, the city of San Jose has expanded within two dec ades from 17 to 136 square miles, covering some of the world's prime agricultural land with a vast expanse of freeways, housing tracts and shopping centers. Even where arable land is available, water shortages may hamper pro duction growth, since most of the rivers that lend themselves to dam ming and irrigation have already been developed. Future efforts to expand fresh-water supplies for farming focus on such costly tech niques as desalting sea water, di verting rivers and manipulating rain fall patterns. For several decades, the world has been fortunate to have two major food reserves: grain reserves in the principal exporting countries, and cropland idled under U.S. farm programs. In recent years, however, the need to draw down grain re serves and to utilize idled cropland has occurred with increasing fre quency, with predictable results for world prices. The devalued Amer ican dollar has cushioned the im pact for foreign buyers—and stimu lated the U.S. export boom in the process— but the full force of these developments has been felt by American food buyers. A prolonged period of remarkably stable world prices for the principal food com modities (based on U.S. commodity support levels) has come to an end. William Burke ucnSumse/w • qPlfl • uoSaio • epeAaN . oi(Bp| jjBMen • pjujo /!JB3 • Buozuy • e>|SBjv ip&aapgijj BANKING DATA—TWELFTH FEDERAL RESERVE DISTRICT (Dollar amounts in m illions) Selected Assets and Liabilities Large Commercial Banks Loans adjusted and investments * Loans adjusted— total* Securities loans Com m ercial and industrial Real estate Consum er instalment U .S. Treasury securities Other securities Deposits (less cash items)— total* Dem and deposits adjusted U .S. Governm ent deposits Tim e deposits— total* Savings O ther time I.P.C . State and political subdivisions (Large negotiable CD 's) Weekly Averages of Daily Figures Member Bank Reserve Position Excess reserves Borrowings Net free (+ ) / Net borrowed ( - ) Federal Funds— Seven Large Banks Interbank Federal funds transactions Net purchases (+ ) / Net sales ( - ) Transactions: U .S. securities dealers Net loans (+ ) / Net borrowings ( - ) Amount O utstanding 9/26/73 Change from 9/19/73 74,954 58,125 1,144 20,355 17,482 8,671 5,023 11,806 73,180 21,066 1,080 49,934 17,467 23,468 5,970 12,373 763 760 _ 874 — 53 + 95 22 + — 97 94 + + 241 — 143 + 367 + 142 + 91 — 49 + 85 — 159 - - Week ended 9/26 / 73 Change from year ago Dollar Percent + 9,907 + 10,117 — 793 + 3,370 + 3,092 + 1,326 — 1,005 + 795 + 9,169 + 1,310 117 + 8,066 872 + 7,046 +. 841 + 6,568 W eek ended 9/19 / 73 15.23 21.07 — 40.94 + 19.84 + 21.49 + 18.05 — 16.67 7.22 + 4- 14.32 6.63 + — 9.77 + 19.27 4.75 + 42.91 + 16.40 + 113.14 + + Com parable year-ago period 29 264 -2 9 3 + 33 86 - 53 - 23 88 65 -9 % -1 4 8 - 360 + 150 + 668 + 367 - in c lu d e s items not shown separately. Inform ation on this and other publications can be obtained by callin g or w riting the Diaitized for ( A d m in is t r a t iv e Services Departm ent. Federal Reserve Bank of San Francisco, P.O . Box 7702, http://fraser.stlo § S 5Sr8fg/isco ' Califo rn ia 94120. Phone (415) 397-1137. Federal Reserve Bank of dt. Louis
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