the global supply and demand for land in 2050: a perfect storm

The Global Supply and Demand for Land in 2050:

A Perfect Storm in the Making?1

By Thomas W. HertelPurdue University

with assistance from Uris Baldos

1 Seminar presented at the World Bank, October 28, 2010. Previously presented Presidential Address at the AAEA Annual Meeting, July 25-27, 2010, Denver, Colorado. To be published in the American Journal of Agricultural Economics, Forthcoming, January 2011. A longer version of the paper, including the technical appendix is available at AgEcon Search (http://ageconsearch.umn.edu/handle/92639)

Motivation• Recent worldwide commodity crisis underscored vulnerability

of global agricultural system to exogenous shocks- Continued pop growth, coupled with dietary upgrades- Growth in bio-energy: mandates and oil prices- Climate change impacts as well as mitigation policies - Increased demand for other environmental services

• Confluence of adverse shocks can have devastating impact on poor and risk degrading global land resource base

• Foreign investment in agricultural land: “ A Land Grab?”• Are we heading to a perfect storm over the next 40 years?

Hertel, T. W. (2010). The Global Supply and Demand for Land in 2050: A Perfect Storm in the Making?

Two important findings:• Literature on global land use change makes limited

use of economics• Where economic considerations are reflected in the

analysis, it is often limited by two factors:- The perspective is near term, not long run- Spatial resolution is inadequate to capture the

biophysical and environmental heterogeneity at play in land use decisions and policy impacts


Outline of the Talk

• Historical perspective• Analytical framework• Factors shaping demand for land• Factors shaping supply of land• Critical evaluation• Conclusions


Long Term Perspective

Source: Foley et al. (2005)


Population density per cropland hectare in selected regions: 1900 vs. 1990

Source: Ramankutty et al. (2002)

Steeper line = greater pop density, more output/ha.

Divergences from line permitted by increased trade:Intensification of production in Asia

Most regions lie close to global pop/ha. ray


Cropland cover changes: 1700-1900

Source: Ramankutty, N. McGill University


• Lepers et al. (2005) survey “hotspots” of change over 1980-2000 period:- Changes in cropland cover: small in aggregate, but

considerable changes in composition- Soil degradation- Deforestation (see next slide): While deforestation is

not new, the current pace is unprecedented

Near Term Historical Perspective


Forest-cover hotspots concentrated in tropics (1980–2000)

Source: Lepers et al. (2005)


Outline of the Talk



Analytical Framework

• Consider global agriculture as a single sector– produces all food, fiber and fuel from agriculture– employs land and variable inputs; the prices of the latter are

determined by exogenous (nonfarm) considerations in long run– Farmers minimize costs, entry/exit results in zero economic profits

• Examine the long run equilibrium % change in agricultural land, and commodity prices as a function of three exogenous drivers: – demand growth, includes food, fiber, fuel– “trend” yield growth, alters derived demand for land – reductions in supply of agr land (e.g., urbanization)


Analytical Framework: Single Global Sector

• Exogenous drivers of land use change: – demand growth, includes food, fiber, fuel ( )– “trend” yield growth, alters derived demand for land ( )– Reductions in supply of agr land (e.g., urbanization) ( )

• Three key margins of economic response (price elasticities):– Price elasticity of demand for agr products ( ) – intensive margin of supply response – yield response to price ( )– extensive margin of supply response – area response to price ( )

• Together, these determine the long run change in agr land use:

– aggregate economic response acts as a shock absorber on the system


Long Run Equilibrium Land Use Change

• Stronger economic response (larger demand- and intensive-supply elasticities) diminishes demands on biophysical system

• Land use depends on relative, not absolute, size of intensive and extensive margins: large intensive response will not limit land use change if extensive margin is also large

• If all price elasticities equal, then each margin (yields, area and demand) absorbs 1/3 adjustment to economic shock

• In the special case where the intensive supply and demand elasticities are zero, the long run land use change simplifies to:

in which case we can simply deflate demand by yield growth (this has been the FAO approach); exaggerates predicted change in land use


Outline of the Talk



Factors shaping demand: Population • UN (2010) estimates

population rising by 50% during 2000-2050 period: 6 to 9 billion people

• However:– Annual growth rate

diminishes:• from 1.3% in 2000 • to just 0.36% in 2050

(Tweeten and Thompson, 2008)– Over past 25 years, fertility

in many middle income Asian nations below replacement levels (Southgate et al,. 2010)

• Global population could begin to decline by 2050

• Bulk of growth will be in additions to urban population developing countries

• China remains question mark

Correspondence to model:


Income growth is also an important driver of global demand for land

Source: Southgate, Graham, and Tweeten (2010)

LivingStandards& Land Intensity

Plant Proteins(beans, lentils, etc.)

Cereals andOther Carbohydrates

FreshFruit and

Vegetables

LivestockProducts

Quantity of Food Consumed

Sugar,EdibleOils,etc.



Income growth contributes relatively more to food demand growth as horizon lengthens

Source: Tweeten and Thompson (2008)

100

120

140

160

180

200

220

Low Medium High

Year

200

0 =

100

Population variants for 2025

Food demand growth due to income growth

Food demand due to population only



Income growth contributes relatively more to food demand growth as horizon lengthens

Source: Tweeten and Thompson (2008)

100

120

140

160

180

200

220

Low Medium High

Year

200

0 =

100

Population variants for 2050

Food demand growth due to income growth

Food demand due to population only



Biofuels are another driver of demand• US ethanol accounted for half of global increase in cereals

consumption: 2005/06 - 2007/08 (Westhoff, 2010)

• FAO/OECD (2008) project large share of growth in coming decade derived from biofuels - maize = 52%- oilseeds = 32%

• Depends partly on subsidies and government mandates

Correspondence to model: ,


Source: Fischer (2009)

IIASA Projections of biofuel demand based on current targets



However, oil prices are the key to long run biofuel demand; price responsiveness of final demand

• Governments budget constrained - will limit subsidies, environmental concerns may limit mandates

• But sustained high oil prices would give a big boost to biofuels

• CAST report notes that, at high oil prices: “the potential demand for farm output is nearly unlimited” - will boost total demand elasticity(Buchanan, Herdt, and Tweeten, 2010)

• Oil price forecast is highly uncertain: Introduces an important new source of uncertainty into long run agricultural demand Source: Energy Information Agency (2010)



Price responsiveness of LR food demand is a key determinant of demand for land

00.10.20.30.40.50.60.7

abs value elasticity

Source: Seale, Regmi and Bernstein (2003)

Expect responsivenessof food demand margin to diminish as world becomes richer; avg for high income about 0.25



Factors shaping derived demand for land: What scope for increasing yields?• FAO estimates (Bruinsma, 2009) over past 50 years

- 77% of production growth from yields- 9% from increased cropping intensity- Just 14% from area expansion - Can this be maintained for next 40 years?

• Yield growth has been slowing- wheat and rice 3-5%/yr in 80’s; just 1-2%/yr in last decade

(Byerlee and Deininger, 2010)- yield growth in 2 dozen breadbasket regions has slowed to less

than 0.5%/yr (Fischer, Byerlee and Edmeades, 2009)• Is this simply due to slowing demand growth? Or is it a

function of shrinking yield gaps?Correspondence to model:


Evaluating global yield gaps • Lobell et al. (2009) survey findings on this topic:

- irrigated areas at 80% of potential yields- rainfed areas less than 50% of potential

• Licker et al. (2010) use global data set on area/yields- disaggregate globe into 100 climatic zones- within grid cell compare to 90th percentile = max yield

with current technology- Gap = (1 – Actual yield/Climatic potential yield)

• Closing yield gaps boosts production of maize (50%), rice (40%), soybeans (20%), wheat (60%)


Yield gap fraction values for maize

Source: Licker et al. (2010)


Factors affecting maize production efficiency vary greatly across regions

Source: Neumann et al. (2010), frontier production function estimated based on the Monfreda et al. (2008) data set

Darkened areas are more efficient – serve to “set the frontier”. Circled areas are inefficient; primary source of production inefficiency is identified


Yield gaps depend on economic incentives

• Robert Herdt’s bottom line from in-depth IRRI (1979) study of yield gaps – it’s all about the economics:“the overall weight of the evidence examined suggests that it is relatively easy to account for the dramatic gap between what is technically possible and what has been achieved: what is technically possible is more modest than most observers admit; the economics of substantially higher yields is not attractive.”



Outline of the Talk

• Historical perspective• Analytical framework• Factors shaping demand for land• Factors shaping supply of land• Synthesis and critical evaluation


Factors shaping supply of land: Urbanization over the past 50 years

Source: Nordpil and the UN Population Division (2010): urban areas with more than 750,000 inhabitants


Urbanization over the next 50 years will be more concentrated in developing countries

Source: Nordpil and the UN Population Division (2010): urban areas with more than 750,000 inhabitants


Increasingly land will be withheld from agriculture for environmental purposes

• An illustration of the environmental Kuznets curve by Kauppi et al. (2006) who find $4600/capita is turning point for forest carbon

• Setting aside productive land can be a source of conflict (Thailand)

• Farming is biggest threat to bird species (Green et al., 2005), but biodiversity is hard to quantify/value: benefits are uncertain; will likely limit its impact

Trends in modern French forest area and population. The vertical bar marks a forest transition (Mather et al., 1999).


Climate change will also alter the effective supply of land to agriculture

• Very complex chain of analysis from GHGs to crop production• Several studies focus on 2050 (w/out CO2 fert)

- IFPRI: Yield declines in most LDCs, South Asia hardest hit, sharp price rises

- Fischer (2009): Southern Africa hit hardest, global yields drop 5%, prices rise 10%

- Schlenker and Lobell (2010) focus on SSAfrica; maize most severely affected – rule of thumb is 1 degree C rise translates into setback of 5 years trend yield growth; highlight uncertainty in biophysical estimates


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GHG mitigation efforts will also alter the effective supply of land to agriculture• Agr, forestry and land use change account for 30% of GHG

emissions, but are estimated to supply 50% of global abatement at $27/tCO2e (Golub et al. 2009)

• McCarl (2009): loss of 50 million acres of cropland to forest sequestration under US climate leg., doubling of corn prices

• Reilly et al. (2010): world food prices could rise by 80% if adopted land-based carbon pricing

• Seto et al. (2010): carbon forest sequestration is land-intensive: - To regulate global carbon emissions at current levels need to

allocate additional land to forests on the order to current cropland area (1 – 2 billion ); this forest will be satiated after 100 years


Water availability and agri. land supply

• Irrigated agriculture is extremely important- accounts for 42% global crop production- accounts for 70% of global freshwater withdrawals

• McKinsey & Co. (2009) released a recent study of global water use (building on IFPRI model for agriculture)

- At current efficiency, water demand will exceed existing, sustainable, reliable supplies by 40% in 2030

- One-third of world’s pop in 2030 will live in river basins with water gap > 50%

- Efficiency improvements only close 40% of global gap• Water prices will have to rise in future, limiting lands on

which irrigation will be profitable


Critical Assessment• Long run use of land in agriculture hinges critically

on six factors identified here:– Exogenous shocks have received considerable attn– Demand and supply elasticities are critical for translating

shocks into land use change• I believe that work to date has erred in two related

dimensions:– Too much is rendered exogenous (e.g., yield trends,

biofuel demand growth, both of which are endogenous)– Elasticities used in models are not truly long run

Hertel, T. W. (2010). The Global Supply and Demand for Land in 2050: A Perfect Storm in the Making? Presented at the AAEA Annual Meeting, July 25-27, Denver, Colorado.

Are we using short run elasticities to analyze long run land use?• Equilibrium price change depends on elasticities:

• Can infer from equilibrium price change and deviation from baseline due to - IIASA analysis of climate change: 0.40 < < 0.5- IFPRI on climate change: 0.30 < < 0.6

• These are more like near term elasticities; they are what you need to replicate events like 2007/08, but are inconsistent with true long run responses

Hertel, T. W. (2010). The Global Supply and Demand for Land in 2050: A Perfect Storm in the Making? Presented at the AAEA Annual Meeting, July 25-27, Denver, Colorado.

Critical Assessment: Perfect storms likely to be localized• Land is, by definition immobile in supply – yet

demand for its services are increasingly global• Dramatic spatial variation in key agronomic, market

and environmental characteristics• Therefore cannot assess supply and demand in the

absence of spatial resolution• UK Foresight Proposal for spatially explicit data base

infrastructure for long run analysis of global land use http://www.agecon.purdue.edu/foresight/


http://www.agecon.purdue.edu/foresight/

Thank you for your attention!


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the global supply and demand for land in 2050: a perfect storm

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