The ever-changing global economy

By Al Gunderson Browse the Internet on your tablet or smartphone and you know we’re living in a global world where information flows across borders seamlessly.  That applies to economics too. The Greek debt crisis plunged the whole Euro zone into crisis and affected our U.S. markets.  A huge, global trading company placed a “bet” on the outcome and, within two days, found itself bankrupt, putting the commodity markets into a deep sea of uncertainty. It seems the other major contributor to global commodity supply and demand swings is China.  My recent trip to this evolving nation helped me see the challenges and global impacts it may have in the years ahead. China is not governed with the same form of communism we liken to the former Soviet Union.  China has been shaped by “five-year plans” since 1949.  A five-year plan is a process used to determine how to develop the entire country over a span of five years.  In the past, China pursued a planned economy model where the central government allocated resources and decided the targets for each region. Now the Chinese government is moving away from the Soviet-style planned economy to a socialist market economy.  In its 12th five-year plan, which will guide development from 2011 to 2015, China has put forth the following goal: Address rising inequality and create an environment for more sustainable growth by prioritizing more equitable wealth distribution, increasing domestic consumption and improving social infrastructure and social safety nets. This plan is representative of China’s efforts to rebalance its economy, shifting emphasis from investment toward consumption and from urban and coastal growth toward rural and inland development.  So how does this affect our farm businesses a half a world away? The world’s most populous nation, China has 22 cities with more than 5 million people each and 140 cities with 1 million or more.  As Chinese incomes rise and domestic consumption increases, the demand for animal-based protein is exploding. Keep in mind major food safety concerns on the dairy side.  Chinese consumers are still leery of Chinese dairy products after the 2008 melamine scandal.  The breaking news of another milk contamination incident – this time with aflatoxin – could keep Chinese consumers demanding dairy products from outside the country’s borders.  In addition, issues like currency values, inflation, competition and global power will all affect China’s role in the global economy moving forward. So how do you develop a global perspective that will help you keep up on events that might bring change to your doorstep?  Here are some things you can do:

• Read. Whether it’s a newspaper or Internet articles, widen your scope to see the world through the eyes of others.
• On that note, subscribe to a business publication like the Wall Street Journal. It will give you information about what’s happening in the world and where investments are being made that can shape your future costs of inputs and outputs.
• Watch the markets – not just milk and grain.  Keep an eye on oil, currency values and foreign catastrophes.
• Think global, but act local. Protect your margins first.
• Ask your professional advisors – banker, nutritionist, vet, etc. – what they are hearing and seeing.  Use them.  They are watching these events as well.
• Don’t be afraid of change. Try new things.  What would your operation look like if you were stuck doing what you did 10 years ago?

This article was written in conjunction with Gunderson’s kick-off presentation at Vita Plus Dairy Summit 2011.  Watch the video below for his key take-home messages from the event.  Click here to watch a full-length video of Gunderson’s presentation.   About the author: Al Gunderson is the Vita Plus vice president of sales and marketing.  He has served as the general sales manager since 1987 and added purchasing to his responsibilities in 1999.  Gunderson first came to Vita Plus in 1979 as the swine product manager after he earned a bachelor’s degree in meat and animal sciences and master’s degree in ag business management from the University of Wisconsin-Madison.  He is a member of the American Registry of Professional Animal Sciences (ARPAS) and the American Society of Animal Sciences (ASAS).  Gunderson is the chair-elect of the board of directors of the American Feed Industry Association and chairman of the board of trustees for the Institute for Feed Education and Research (IFEEDER).