Global Agribusiness and International Trade

Trade is an essential part of the world economy, allowing economies, humans, and regions to specialize in what they do best. In the 21st century, international trade, led by China and the United States, represents a multi-trillion dollar economic activity that defines the modern world. Producing both consumer goods and commodities, agribusiness represents a major element of world trade. As a central part of the world’s economy, international trade was severely affected by the 2008 financial crisis. However, over the last decade, global trade has recovered and enjoyed a steady growth of over 2.0% yearly. Currently, worldwide merchandise trade accounts for almost US$20 trillion, whereas trade in commercial services accounts for approximately US$5 trillion. Unsurprisingly, amongst the world’s major traders are the United States, China, Russia, Mexico, and the European Union. Within international trade, products from the agribusiness industry account for approximately US$3 trillion annually. Furthermore, the agribusiness sector features five of the ten most traded commodities: coffee, wheat, cotton, corn, and sugar. Agricultural trade in commodities is coordinated through several international markets, including the New York Board of Trade, the Kansai Commodities Exchange in Japan, the Singapore Commodities Exchange, and Euronext Exchange in London.

Global Agribusiness and International Trade

Historically, developing nations have been commodity providers and developed nations have manufactured the added value to finalize consumer goods. Today, however, 52% of merchandise exports from developing economies are traded with other developing economies and regions. This percentage is ten points higher than a decade ago, when most merchandise exports from developing economies went towards developed economies. Thus, the so-called South-South trade has gained enormous traction and importance during the 21st century. South-South trade attests to the economic dynamism driven by Asian manufacture and to the creation of a new middle class worldwide.

Over the last couple of years, the most affected sector of world trade has been energy, given the substantial drop in fossil fuel prices. Similarly, another factor that has played a major role in international trade over the last several years has been the strengthening of the US Dollar (USD). In fact, the Federal Reserve’s Federal Open Market Committee (FOMC) has been struggling for several years now with US inflation consistently below the 2.0% target rate, which is mainly due to the strength of the US Dollar and low energy prices. Recently the two most volatile sectors of the Consumer Price Index (CPI), energy and food, have been trending in opposite directions. The agribusiness industry is experiencing higher costs and prices, whereas the energy industry is dealing with low prices. Even though the agricultural industry is only one of the several sectors that make up world trade, it is a dynamic and indispensable component of global markets. Therefore, business and investors would be wise to consider the macroeconomic conditions surrounding the agricultural industry and find a way to participate in its supply chain.

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