Conventional wisdom would suggest that shipping hay bales long distances is not practical. Transport and handling costs for bulky forage products make their production close to livestock more rational than exporting it halfway around the world.That is, unless the economics dictate otherwise, as has increasingly been the case the past five years.

Shifts in global supply and demand for forage crops have transformed the export market into a viable revenue source for many U.S. forage crop producers.

On the supply side, streamlined containerized shipping and advances in technology for compressing hay have reduced transport costs.

Meanwhile, policy changes and a growing demand for animal protein in developing countries along the Pacific Rim are, in turn, increasing the demand for U.S. forage products.

From the beginning of 2004 through the end of 2008, the U.S. shipped an average 2.8 million tons of hay products overseas. From January 2009 through the end of 2013, this annual average increased 46 percent to 4 million tons.

For reference, California, the second-largest hay- producing state in the U.S., produced a total hay crop of 9.6 million tons in 2012. The 2013 volume of U.S. hay exports (including grass and alfalfa) accounts for 3.4 percent of total U.S. hay production.

Japan is still the most important export market for U.S.-grown hay, receiving close to 40 percent of total U.S. hay exports in 2013.

However, the increase in U.S. hay exports over the past five years is primarily due to upward demand shifts in two other destinations, the United Arab Emirates (UAE) and China.

The surge in demand by these two countries is due to unique circumstances, and the outlook for future demand growth is also specific for each destination.

Imports of U.S. hay products to the UAE increased sharply starting in 2009, when export volume went from 123,000 tons the previous year to 745,000 tons.

Since 2009, the average annual volume of U.S. hay exported to the UAE has been 770,000 tons, with 2013 hay exports expected to top out at over 966,000 tons.

The cause of this sharp spike is linked directly to a policy shift by the UAE government. In 2008, UAE officials, as a means of protecting scarce water resources, restricted the production of alfalfa hay within the kingdom. In the Arabian Peninsula, water supplies originate primarily from fossil sources and are not renewable.

Given local herd dependence on forage, this policy shift created an immediate increase in demand for imported hay.

Like the UAE, forage production in Saudi Arabia is scheduled to be completely phased out by 2016, resulting in additional market opportunities for U.S. exports to the Arabian Peninsula.

These developments in the UAE and Saudi Arabia have the potential to provide a steady source of revenue for U.S. hay producers. Once this supply vacuum has been filled, long-term growth in demand will taper.

According to United Nations projections, neither population nor livestock numbers are expected to increase greatly. The UAE population, currently around nine million people, is expected to grow to approximately 15.5 million by 2050, so the overall food market will grow.

But there has been little change in per-capita consumption of animal protein over the past decade. The total demand for forage products in the Arabian Peninsula may be expected to grow by about 60 to 70 percent over the next few decades.

In contrast to the economic conditions in the UAE and Arabian Peninsula, the increased demand for U.S. forage products in China are linked to shifts in population and changes in population dynamics and diet.

The United Nations projects China’s population to increase by about 93.4 million people over the next 15 years before growth starts to level off and even decline. That rate of increase is tiny, but it starts from a huge base.

Much more important than population growth is income growth and a continued migration from rural to urban areas of the country. In 2000, it was estimated that 36 percent of China’s population lived in the cities; by 2025 this share is expected to be over 65 percent.

The promise of better jobs and incomes that average 3.5 times that of the rural Chinese population are driving this migration. Government encouragement, through continued relaxation of restrictions, further encourages migration.

Increases in income and the urbanization of populations lead to dietary shifts that include greater consumption of animal protein. The World Health Organization links urbanization to improvements in infrastructure, including food safety practices that increase trade in perishable goods such as fresh meat and dairy products.

Compared with the diets of rural populations, city dwellers consume a broader range of foods and have diets that include more calories from meat, poultry, milk and other dairy products.

This has proven to be the case in China, as per-capita consumption of all meat and dairy products has been on an upward trend. Dairy consumption, for example, has gone from 4.2 kg (9.26 pounds) per capita in 1990 to 28 kg (61.72 pounds) in 2012.

Increased demand in dairy products has led to national policy changes targeting increased productivity in China’s domestic dairy industry as well as imports of dairy products.

In an effort to switch the county’s dairy production away from small backyard operations to larger, more efficient commercial producers, the Chinese government has been offering subsidies to increase herd size and promote breeding of more productive cows.

Economic forces and policy led to an increase in the China dairy cow herd from 7.1 million head in 2000 to 8.4 million head in 2013. The USDA projects China’s dairy herd will increase by 500,000 cows in 2014.

China’s challenge with increasing domestic dairy production is its inability to feed the growing number of animals. China’s domestic hay industry is hampered by poor weather and growing conditions.

Although the Chinese government is embarking on a major program to improve domestic alfalfa production, most experts believe that domestic production will not satisfy domestic

Chinese demand for at least the next five to 15 years. In addition, most large dairy operations are located within urban settings in eastern China and are a long distance from the hay-growing regions of western China, making efficient transport of hay to the dairies challenging.

In recent years, the changes in China have been a boon for the bottom line of U.S. hay producers. U.S. hay exports to China, which were just over 2,000 tons in 2007, have grown to about 888,000 tons in 2013.

The USDA’s Foreign Agriculture Service (USDA-FAS) post in China states that U.S. hay accounted for about 94 percent of China’s 2013 hay imports. China’s strong demand for U.S. hay, which is recognized for its high quality, is expected to continue.

China’s expanding appetite for dairy products benefits U.S. hay producers via increased U.S. dairy product exports to China.

Demand for dairy products in China is expected to outdistance domestic supply for the foreseeable future, and local productions will shift to production of beverage products.

For example, Chinese dry milk powder imports, which averaged about 56,000 tons from 2005 through 2009, topped out at 200,000 tons in 2013, and the USDA-FAS expects this to increase another 11 percent in 2014.

The economic circumstances in the Arabian Peninsula and China will make the demand for U.S. forage products strong for the foreseeable future. The U.S. forage producers’ ability to satisfy export and domestic demand will depend on increased crop productivity per land unit, and especially per irrigation water unit.  FG

William A. Matthews is a project scientist with University of California. Daniel H. Putnam is an extension specialist, alfalfa and forage crops, University of California. Daniel A. Sumner is director of University of California Agricultural Issues Center. Frank H. Buck Jr. is a professor with the Department of Agricultural and Resource Economics, University of California – Davis.