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Assistant Secretary of Agriculture
for International Affairs and Connnodity Programs at the
National Agricultural Outlook Conference November 15, 1976
AGRICUL1URAL TRADE OUTLOOK
The past 7 years has been a period of exceptional growth in U.S. exports of agricultural products. Since 1969, there have been
7 successive years of record U.S. exports of agricultural products. As you know, Congress has changed the official fiscal year for the United States Government. It now begins October 1 rather than July 1.
In the year which ended last September 30, the United States exported a record $22.8 billion worth of agricultural products. This was four times the $5.7 billion exported in the year ended September 30,
1969.
The Department of Agriculture expects this record level to be maintained in the current fiscal year ending September 30, 1977. In
this period, we presently expect exports of U.S. agricultural products to total $22.8 billion, equalling last year's record.
The total tonnage of U.S. agricultural exports in fiscal year 1977 may be below that for the past fiscal year, but higher export prices for soybeans, oilseed products and cotton will offset the decline in overall export tonnage.
The world grain supply in 1976/77 is considerably larger than , that of the past several years: World wheat production is about 12
percent higher than this past year, and world coarse grain produc-tion is forecast about 6 percent higher. World rice producproduc-tion will be down slightly in 1976/77, after 3 successive record crops. World grain stocks, therefore, are expected to increase substantially --by around 20 percent -- during 1976/77.
Demand for U.S. grain in the world market has slackened some from last year's high level, but exports of U.S. grain (including rice) in the 1976/77 marketing year are expected to be maintained at a high level, and probably will be second only to the record 83 million metric tons exported in marketing year 1975/76.
At present, we expect U.S. grain exports (including rice) in 1976/77 to be around 77.5 million metric tons. Although both corn and wheat exports will continue .at a high level in 1976/77, exports of corn will be Imlch higher than wheat exports.
Several factors account for the United States continuing a high level of U.S. agricultural exports in fiscal year 1977. European supplies of grain, potatoes and forage were sharply reduced by last SUJI!Iler's drought. At the same time, demand for livestock products is improving in the major industrialized countries and encouraging the use of more grain and high-protein meals in livestock rations. Economic recovery in both industrialized and developing countries has enhanced the demand for food as well as the demand for raw materials used in livestock production.
Another factor helping maintain exports of agricultural products at a high level is the continuation of large exports of corn, wheat
and soybeans to the Soviet Union. It now appears that the Soviet grain harvest in 1976 will exceed 220 million metric tons. This is 80 million tons above last year's disastrous crop and could equal or even exceed the record crop of 222 million tons harvested in 1973.
Despite the huge grain harvest in the Soviet Union this year, the Soviets have purchased 8.4 million metric tons of U.S. wheat, corn and soybeans from our 1976 crops. Purchases include 2.9 million tons of wheat, 4 million tons of corn and 1.5 million tons of soybeans.
The long-term Grain Supply agreement concluded between the United States and the Soviet Union in October 1975 is undoubtedly an important factor in the continuation of Soviet purchases of U.S. grain despite a huge crop in the Soviet Union this year. The agreement'commits the Soviet Union to purchase a minimum of 6 million metric tons of U.S. wheat and corn -- in approximately equal quantities -- each year for
5 years irrespective of the size of the Soviet crop. The value of this agreement to American agriculture is apparent. It provides
American farmers a continuous, regular market on which they can depend. Soybeans and oilseed products will be a star performer in 1976/77 as far as exports are concerned. We expect to export $6.1 billion worth of soybeans and oilseed products in the fiscal year 1977. This will be about $1.4 billion more than last fiscal year.
A number of factors account for the increased export value of soy-beans and oilseeds in the current fiscal year. Predominant among these is the fact that the Soviet Union has purchased 2 million metric tons of soybeans from the world market for delivery in 1976/77, including 1.5 million tons expected to be shipped from the United States. Demand for soybean meal continues strong in many key areas of the
world, reflecting improved economic conditions. Uncertainty
affecting the production of f ishrneal in Peru is also a factor as is the smaller-than-expected sunflower seed crop in the Soviet Union. The 1976 sunflower seed crop may be 5.5 million tons or less which offers some possibility of further Soviet purchases.
The largest percentage increase in U.S. agricultural exports in the current fiscal year, however, will be in cotton. We pre-sently expect U.S. cotton exports in fiscal year 1977 to be about $1.6 billion, more than 60 percent above last year. Continued expansion of textile activity abroad, competitive U.S. prices and smaller export availabilities from other exporting countries are all contributing to the current surge·~n world demand for U.S. cotton.
Combined exports of livestock, dairy and poultry in fiscal year 1977 are expected to total $2.3 billion-or about the same as in the past fiscal year. The value of tobacco exports will be up again in fiscal year 1977. Exports of fruits, nuts and vegetables will be up, but only slightly. The heavy rains which hit California in
September drastically curtailed export supplies of dried fruit. U.S. imports of agricultural products are expected to increase around 15 percent in fiscal year 1977. A large part of the increase will be due to higher-priced coffee imports. The agricultural trade
surplus in fiscal year 1977 will total around $11 billion, which will be below the record $12.3 billion of this past fiscal year.
Western Europe will edge out Asia as the top export market for U.S. agricultural products in fiscal year 1977. We expect exports to
Western Europe to amount to $8 billion compared to $7.8 billion to Asia. This is expected to be a temporary situation caused by last sununer's European drought. Japan will continue as our top single-country market.
Impact of Government Policies
Although we have had 7 successive years of record U.S. exports of agricultural products, the sharpest growth has been in the past 3 or 4 years. Admittedly, weather-reduced crops in many parts of the world during recent years was an important factor contributing to the surge in exports. This growth in U.S. exports did not just happen. It took a lot of hard work by farmers, exporters and other people involved in export marketing. Government policies in this period also encouraged the sharp growth.
Government policies in this period have been particularly effec-tive at opening and developing new export markets for U.S. farm products. The most dramatic example in this regard, of course, has been the
opening of the new markets in the Soviet Union, the other corrnnunist countries in Eastern Europe and the Peoples' Republic of China.
Our gaining access to markets in corrnnunist countries for U.S. farm products in 1971 was a milestone for American agriculture. It opened to American farmers about a third of the world's population which previously had been closed as a potential market for U.S. farm products. The coITilIRlnist countries take only 10 to 12 percent of our total exports of U.S. agricultural products, but they add an extra dimension of demand which gives impetus to the entire export market.
Domestic farm policies have also been instrt.nnental in helping promote greater exports of U.S. farm products since 1970. Most of the growth in U.S. agricultural exports in recent years has been in
the principal field crops -- wheat, feed grains, oilseeds and cotton. Since enactment of the Agricultural Act of 1970, domestic fann
programs have been designed to pennit U.S. wheat, feed grains, most oilseeds and cotton to be priced competitively by private export firms and fanner cooperatives in a free market environment. Loan rates for wheat, feed grains, soybeans and cotton have been set at levels which do not interfere with export pricing. Export subsidies on wheat and rice have been eliminated.
There should be no mistake about it! The market-oriented fann policies of the past 5 years have enabled us to take advantage of export opportunities in world markets. This would not have been possible under the old policies.
It is particularly important that loan rates not be set at levels which interfere with export pricing and which prevent the market from being allowed to work. We are nearing such a situation
for wheat.
Wheat prices have been under pressure for some months. This pressure, however, is not caused by a decline in wheat exports. We in the Agriculture Department continue to believe that U.S. wheat exports will exceed a biliion bushels in 1976/77 despite
intense competition from other exporting countries, particularly from Canada and Argentina.
Wheat prices are under pressure because wheat supplies have
accumulated at a time when the world is just beginning to recover from an economic recession and the growing demand for grain for livestock feeding
has lost some of the momentum it had before the recession.
Wheat is a food, but it first of all is a grain. When supplies become too large, wheat generally is priced as a feed. This tends to get supplies back in line with effective demand. It is important that loan rates -- or other government measures -- not interfere with this adjustment.
It also is important that loan rates and other government
measures not be permitted to distort geographic production patterns. In 1976 we planted about 65 percent more acres of wheat in the
United States than in 1970. In fact, in 1976 we planted almost as much wheat as corn.
A large part of the increase in wheat acreage since 1970 is in areas where alternative crops can be grown. For example, wheat acreage in the corn belt in 1976 was about 138 percent higher than
in 1970. It was 75 percent higher in the spring wheat area.
Both of these areas will grow alternative crops when there is economic incentive to do so. Farmers in these regions will reduce their wheat acreages in 1977. They will plant more feed grains and soybeans, and this adjustment is needed if world demands are to be met. As far as export markets for U.S. farm products are concerned,
the big potential still lies in providing raw materials for live-stock feeding rather than food for direct conslililption.
It is important to resist pressure to tinker with government policies so as to gain short-term goals. Such tinkering usually leads only to bigger problems. We have a perfect example of this in the Public Law 480 (Food for Peace) program.
Congress has badly crippled P.L. 480 as an effective tool for developing export markets for U.S. farm products. A year ago, Congress amended P.L. 480 to require that in any fiscal year no more than 25 percent of the food assistance provided under P.L. 480, Title I, go to countries with per capita gross national products
(GNP) of more than $300. Title I of P.L. 480 permits government financing of export sales of U.S. farm products to developing countries with long-term, low interest credit.
Generally, we ship large quantities of food under P.L. 480, Title I, to South Asia -- Bangladesh, India, Pakistan and Sri Lanka. Crops in South Asia this past y~ar, however, have been generally good and the need for food assistance is drastically reduced. Food import needs in several countries in North Africa and the Middle East, on the other hand, are greater this year, but we are unable to respond to these needs because these countries have per capita GNP in excess of $300.
We originally planned to export about 3.8 million tons of wheat under P.L. 480, Title I, in fiscal year 1977, and thus far we have made good progress in moving toward that goal. Although we are only
in the second month of the new fiscal year, we already have made corrnnitments for nearly 2 million tons of wheat for shipment under P.L. 480, Title I, in fiscal year 1977. But frankly, we now have doubts whether the original goal can be met because of the restraint imposed by the 25 percent requirement, and this comes at a time when U.S. wheat growers need more, not less, wheat exports.
World Financial Situation
Forecasting exports of U.S. agricultural products in perhaps more hazardous than usual this year because of the weak financial positions of a number of col.Illtries and, in particular, the uncertainty related to a possible increase in petroleum prices by the OPEC
(Organization of Petroleum Exporting Col.Illtries) at the end of this year. Many economists believe that a substantial increase in petroleum prices at this time would be more dangerous to the world economy in general -- and could have a more adverse impact on
agricultural exports -- than was the case 3 years ago when the OPEC first raised prices.
Since that increase 3 years ago, a number of foreign markets for U.S. agricultural exports have incurred large foreign debts. By and
large, this is true of all the non-petroelum developing colllltries and several European col.Illtries such as Italy, Denmark, and the United Kingdom. Together, these countries take about a third of U.S. farm product exports.
Repayment of some of the debts incurred is now coming due, and most of these col.Illtries must take actions to strengthen their external
financial positions. Already, Italy, Mexico, and the United Kingdom have depreciated their currencies to improve their competitive
positions. Also, these and other countries have tightened their fiscal and monetary policies.
Thus the situation is very different from 3 years ago, when the non-petroelum developing countries had large reserve of foreign exchange and the developed nations had little or no foreign debt. If OPEC increases the price of oil significantly this December,
additional corrective actions almost certainly will be necessary. Other factors aside, exports of U.S. agricultural products could be dampened by these moves.
At the same time, we should view these pressures in their proper perspective. During part of 1975, and to a lesser extent during 1976, world recession placed some downward pressure on exports. In effect then, external financial problems of various nations replace world recession as an economic factor to be considered in forecasting foreign demand for our agricultural products.
International Trade Policy
Another longer-term consideration in the future of agricultural trade is the question of international trade policy: What course is the world likely to take in terms of liberalizing or further restricting world trade? This question is being tested in a number of world forums. It involves for the first time major efforts by the developing countries to affect the outcome.
While the United States has more firmly connnitted itself to market-oriented policies, both at home and abroad, the developing world is espousing a totally different approach. 'Those countries, numbering more than 100, have engaged the developed worid in what is connnonly called the North-South dialogue. A whole range of issues, including commodity policy in particular, is being explored in the United National Conference on Trade and Development (UNCTAD) and in
the Conference on International Economic Cooperation (CIEC), the latter in Paris. They have possibly important implications for world trade in agricultural products.
The UNCTAD has proposed a so-called corrnnon fund. Its objective would be to improve the earnings of developing countries from
corrnnodities by stabilizing corrnnodity prices around a long-term trend, or by raising corrnnodity prices to levels higher than they would otherwise be. Buffer stocks would be created to achieve this objective. As envisaged by UNCTAD, the fund is estimated to need at least $6 billion, with $2 billion to be provided by governments and the balance to be raised by international borrowing. International discussions on this fund will begin shortly.
In addition to the discussions on the corrnnon fund, the UNCTAD is convening meetings on 14 corrnnodities, most of which are agricul-tural. They include oils and oilseeds, cotton, meat, jute, hard fibers, bananas, tea, phosphates, plus minerals and metals. This series of corrnnodity meetings has already begun with meetings on copper in September and on jute in October.
Our experience with the jute meeting, just completed, is dis-couraging. The developing countries after a preliminary exchange of views considered that the exrunination of the problem had been com-pleted and the meeting only needed to arrive at a solution to the problem. The United States registered its disappointment with this approach.
We in the Agriculture Department believe that the political atmosphere of that meeting does not bode well for the future, since we fear that technical and economic considerations will be dis-missed in a similar way at coming meetings on other corrnnodities.
Contrast this situation with the objectives of the Multilateral Trade Negotiations (MI'N) in Geneva. The objectives of the MIN are to improve the conditions of trade and access to markets for every colllltry -- to expand trade, not to burden trade with restrictive price agreements -- to get rid of trade barriers, not to compensate some countries for the losses which trade barriers help create.
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The MIN provides ample opportllllity to meet the special trade needs of developing colllltries while giving them at the same time the opportunity to participate more fully in shaping the rules of the game. It is the MI'N, therefore, that should receive the major emphasis in progress toward solution of specific corrrnodity problems as well as improvement of general trading rJles.
Trade is one of the oldest fonns of communication. More per-haps than any other single factor, agricultural trade in the past 5 years has opened new channels of dialogue throughout the world. The ultimate significance of that fact is difficult to appraise in the daily hurly-burly of international oratory -- some of it
abrasive and unfriendly. But to me it seems inescapable that events of the past 5 years have not only opened new doors to American
agriculture -- they have also opened a new era in the prospect for international cooperation and world peace.
