ECONOMIC ISSUES IN AGRICULTURE

Agricultural & Applied Economics

The University of Georgia
 

April, 1999

Financial problems in the Far East are having widespread effects on U.S. farms. Countries in that part of the world account for nearly ½ of our farm exports.

Prices of most of our commodities with export markets have declined, for several reasons.

First, we've had three consecutive years of large world crops.

Second, many countries that were once leading importers of U.S. farm commodities have economies so weak that they no longer have the cash to buy commodities from the U.S.

Third, the value of the dollar relative to many currencies has risen. The high value of the dollar relative (to the Japanese yen) means our farm commodities are expensive when in priced in the Japanese currency. If Japan is importing goods, it is less expensive to import goods from a country whose currency is also declining relative to the dollar.
 

Global Trade Liberalization...

...Has been pushed by the U.S. the past thirty years. Has it been effective?

"It is misleading" according to Desmond O'Rourke of Washington State University.

He says U.S. agricultural exports in FY '99 are about 35% below that of FY 1980, when one adjusts for inflation. At the same time, our imports are about 13% higher. The U.S. net balance of trade in agricultural products in 1980 was almost $40 billion. In FY 1999 it was about $10.6 billion. What has happened?
 

Most Producers View Exports as Good

Producers view exports are a signal they are competitive in yield, price or quality in the world market. Exports are a reward for excellence. And other countries are often perceive as cheating if they are selling in our markets. The usual culprit is government subsidies.

Economists typically view the world differently than does the typical producer. Some build multivariate, multi-dimensional models of the real world. They weigh offsetting impacts on producers, consumers and societies.

In contrast, producers view the world selectively. They focus on factors likely to affect them. It gives them little solace that their loss is the consumer's gain. They view effects of trade policy in absolute terms - whether it had a positive or negative effect on their prices or incomes.
 

Are Producer Perceptions Correct ?

Producers can legitimately complain that they have accepted Freedom to Farm as spelled out in the 1996 Farm Bill, but have been denied complimentary freedoms to make the freedom to farm work.

As traditional farm programs are being phased out, producers are facing increasing restrictions on their use of land, air, water, chemicals and labor , and on many farm practices. In marketing farm products, the food safety bandwagon has brought with it a whole new set of intrusive restrictions on farm practices, most involving additional costs to producers.

Many producers of specific commodities feel betrayed as they watch the outcomes of past trade liberalization efforts. U. S. grain farmers see continued lack of access to many major markets. Florida winter vegetable growers are unhappy with inroads made by Mexican suppliers. Pacific Northwest fruit producers are irritated by Mexican trade restraints. California avocado producers are angered by market assess concessions to Mexico. In commodity after commodity, there is a litany of complaints.
 
 

Is Trade Necessary ?

Yes, if U.S. agriculture is to survive and prosper in the world economy. We've all seen data that says we export about 1/3 of our farm production to other countries. If we were to go back into traditional farm subsidy programs and increased protectionism, it would lead many other countries to slip back into a protectionist mode.

But producers have reason to believe that the agricultural trade liberalization process has not benefitted them. Not all of these reasons are valid, as many are based on biases or on a partial selection of events. They also believe that trade liberalization has brought much pain and frustration and insufficient compensating gains.

O'Rourke further contends that, "we are in danger of losing the slim majority of U.S. producers who helped promote the Uruguay Round of GATT, NAFTA, and APEC".
 

What Will Policymakers Do ?

Efforts were made by Washington lawmakers in 1998 to prop up U.S. farm incomes resulting from record harvests in the rest of the world along with declining world-wide demand. But they have shown little inclination to reopen the 1996 farm bill.

U.S. farmers can expect the prices of most basic agricultural commodities to become increasingly volatile and uncertain. It is the guess here that lawmakers will re-examine farm programs such as disaster assistance and crop insurance and perhaps income insurance.

And it is imperative they address the real and perceived concerns of producers regarding trade. Any less will cause a loss of support of trade liberalization.
 

William Givan, Editor

Extension Economist

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