United States 

Department 

of Agriculture 

www.ers.usda.gov 

 A Report from the Economic Research Service

European Financial Imbalances: 

Implications of the Eurozone 

Sovereign Debt Problem for 

U.S. Agricultural Exports

Abstract

The European sovereign debt problem became the focus of world attention in 2010 

when the interest rates on Greek government bonds rose dramatically, requiring immediate action by the European Union to avoid an imminent default. It soon became 

clear that the problem was not limited to Greece when government bond interest rates 

on other Eurozone countries began to increase as well due to excessive accumulation of debt. The financial markets’ reluctance to fund continued borrowing by the EU 

debtor countries forced EU governments to come to grips with fundamental imbalances 

and underlying inconsistencies in the Eurozone economic system of using a single 

currency for a set of countries that lack a unified economic and political system. The 

major consequences will be largely felt by the Eurozone countries themselves, who 

will be forced to go through some significant structural adjustments over the next few 

years. The adjustment process could generate a range of alternative macroeconomic 

outcomes—including differences in growth, exchange rates and investment—which 

could have significant implications for U.S. agriculture and agricultural trade. This 

paper attempts to allay some of that uncertainty by exploring a wide range of alternative macroeconomic outcomes and their potential impact on U.S. agricultural exports. 

While U.S. exports vary, they remain robust across the full range of potential outcomes 

explored. Because the EU has represented an increasingly smaller share of U.S. agricultural exports, the direct impact of changes in European demand affects U.S. agricultural exports less than the secondary effects of changes in exchange rates and global 

investment patterns associated with alternative EU outcomes. 

Keywords: World economic problem, European Union, euro, depreciation, U.S. 

trade-weighted exchange rate, U.S. agriculture, U.S. agricultural exports, agricultural 

commodity prices, sovereign debt 

David Kelch, dkelch@ers.usda.gov

Mathew Shane, mshane@ers.usda.gov

David Torgerson, dtorg@ers.usda.gov

Agapi Somwaru, agapi@ers.usda.gov

WRS-1102

May 2011

Contents

Approved by USDA’s 

World Agricultural 

Outlook Board

Introduction.............................. 3

The Scenarios Defined............ 5

Problems of a Single 

EU Currency........................ 8

Scenario Outcomes 

Compared.......................... 11

The Potential Effects of the 

Euro Problem on 

Agricultural Trade............... 13

Conclusions........................... 16

References ............................ 17
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Acknowledgments

The authors would like to acknowledge the support and assistance of our 

ERS colleagues Cheryl Christensen, Erik Dohlman, Suchada Langley, and 

Paul Westcott. We would like to thank Jason Carver and Daniel Whitley of 

USDA, Foreign Agricultural Service and David Blandford, professor at Pennsylvania State University, for helpful comments and suggestions. We also 

appreciate and acknowledge the editorial and design assistance of Priscilla 

Smith and Susan DeGeorge. 
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The Eurozone sovereign debt problem could have major implications for 

U.S. agriculture.1 But even under the most adverse of the scenarios considered in this report, total U.S. agricultural exports are projected to increase 

over time. While the loss of confidence in the euro as a reserve currency 

would result in a weaker euro relative to the dollar, the direct results are 

modest since the EU has become a much less significant destination for 

U.S. agricultural exports. However, because the problems in the EU will 

encourage the flow of investment capital away from the EU to emerging 

market economies, the even more rapid economic growth in emergingmarket nations will result in increasing demand for food and agricultural 

commodities in those countries. This will be the driving force for U.S. 

agricultural exports over the intermediate to longer term. While there are 

many actions that the EU can take to quiet financial markets in the short 

term to intermediate term, the structural changes that are required to solve 

individual government budget and current account deficits will take years 

to implement. A Eurozone country’s commitment to the euro takes away 

the traditional financial option of devaluing a national currency to turn 

around a current account deficit.

While the global financial crisis of 2008-09 did not cause the Eurozone 

problem, it did precipitate the crisis by focusing attention on the unsustainable current account imbalances associated with growth in government 

and private bank debt and the shortfall in tax revenues in the EU countries operating at a deficit. The worldwide recession undermined government revenues, exposing countries with high debt payment burdens and 

reducing their short- to-intermediate-term growth prospects. The Eurozone’s sovereign debt problem emerged in 2010 first in Greece but was 

followed by problems in Ireland, Portugal, and Spain. Once the magnitude 

of these problems became known, interest rates for government bonds 

went up for all euro-denominated debt, including German bonds. The 

EU policy response was to provide a fund for the problem countries to 

guarantee debt repayments. However, as a condition for borrowing from 

that fund, major austerity programs were required for indebted countries 

to bring their government expenditures more closely in line with receipts. 

The longer term outcome of these policies is likely to reduce growth and 

investment in the indebted Eurozone countries for some time to come. 

The Eurozone sovereign debt problem could affect the U.S. in 

three ways:

•	it undermines the euro’s role as a reserve currency leading to a flight 

out of the euro and into the dollar, which would reduce long-term 

interest rates over the projection period in the United States from what 

they were assumed to be in the Economic Research Service’s late 2009 

international macroeconomic data set (USDA/ERS, 2010b)

•	increased investment in emerging economies raises their income 

growth, driving increases in demand for U.S. agricultural exports

1The Eurozone consists of the 17 

member states of the European 

Union that use the euro as their 

currency—Belgium, Ireland, 

France, Luxembourg, Austria, 

Slovakia, Germany, Greece, Italy, 

Malta, Portugal, Finland, Estonia, 

Spain, Cyprus, the Netherlands, 

and Slovenia. Countries that are 

EU members but do not use the 

euro currency are Bulgaria, the 

Czech Republic, Denmark, Latvia, 

Lithuania, Hungary, Poland, 

Romania, Sweden, and the United 

Kingdom.

Introduction
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•	a depreciation of the euro relative to the U.S. dollar makes Eurozone 

exports cheaper in global markets, increasing competitive pressure on 

U.S. exports

On balance, our analysis suggests that the longer term implications of income 

growth in emerging market countries will be more important for the future of 

U.S. agricultural exports than the increasing competition from EU agricultural exports.2 2In Shane et al. (2008), we show that 

long-term growth in U.S. agricultural 

exports is driven by GDP growth in 

our export market countries. The appreciation of the dollar caused by adverse movements of exchange rates in 

primary U.S. export destinations has 

been, at most, a temporary constraint 

to the longer term pattern of export 

growth to export market countries. 
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The broad implications of the 2010 sovereign debt problem in the Eurozone 

and its effects on U.S. agricultural trade are the focus of this analysis. Three 

alternative macroeconomic scenarios will be explored and the consequences 

of those scenarios for U.S. agriculture will be presented. The U.S. agricultural sector is largely driven by macroeconomic outcomes in the United 

States and in our major markets around the world, assuming no changes in 

agricultural policies and normal weather conditions (Liefert, 2000; Gehlhar 

et al., 2007; Schuh, 1974). To assess the likely outcomes of the Eurozone 

problem, we develop two dramatically different scenarios around a reference 

scenario—the “high euro scenario,” in which the euro does not weaken and 

continues to appreciate into the future and the “low euro scenario,” in which 

the euro depreciates sharply back to parity with the dollar. The reference 

scenario assumes that the Eurozone problem will lead to some depreciation 

of the euro relative to the dollar and some weakening of growth prospects in 

the EU. We consider this scenario to be the most likely outcome. 

The high euro scenario assumes that there is no adjustment to the Eurozone 

current account and fiscal imbalances and was drawn from projections made 

before there was any perception of the Eurozone problem. The low euro 

scenario assumes that the euro depreciates back to parity with the dollar, 

interest rates rise sharply for Eurozone debt, and net investment in the Eurozone countries is stagnant, leading to low GDP growth among member countries.3 Using the Oxford Economic Forecasting model, the implications of 

the alternative Eurozone assumptions on exchange rates, interest rates, and 

investment, result in changes in exchange rates and gross domestic product 

(GDP) growth rates in other major trading countries around the world. We 

assess what the potential outcome might be for U.S. agricultural exports in 

the alternative scenarios by taking country-by-country real GDP and real 

exchange rate outcomes of the alternative runs in the Oxford Economic 

Model, and use these as inputs (macroeconomic exogenous drivers) in the 

PEATsim model. The PEATsim model is used to determine the differences 

in U.S. agricultural exports from the alternative macroeconomic scenarios. 

Implicit in these projected outcomes are assumptions of macroeconomic 

policy responses of both the U.S. and foreign governments between 2010 and 

2019. We use actual 2008 USDA Foreign Agricultural Trade of the United 

States (FATUS) data exports as our “point in history” basis (see http://www.

ers.usda.gov/Data/FATUS). Given the large degree of uncertainty with regard 

to the long-term euro/U.S. dollar relationship, the high and low scenarios 

represent what we feel are the range of feasible outcomes for future investment, GDP growth, and trade for both the United States and other major 

countries around the world.

Exchange rate adjustments are a major policy vehicle to overcome current 

account imbalances. A depreciation of the euro relative to the dollar and other 

currencies in real terms helps Greece and other affected EU countries by 

lowering the real price of their exports and raising real import prices. Longterm euro depreciation relative to the U.S. dollar is likely to lead to third 

countries depreciating their currencies relative to the dollar, but to a smaller 

degree than the euro depreciation. The most direct and significant implication of a euro depreciation for U.S. agriculture is the increased competition 

3Since the focus of this report is on the 

implications of the Eurozone problem, 

we assume that U.S. policy environment remains the same under the three 

scenarios. This does not imply that 

the macroeconomic outcomes in the 

United States in the three scenarios 

are the same. The Oxford Model has 

international linkages so that changes 

in the EU do result in changes in the 

U.S. long-term outlook. By April 

2011, there was no evidence that U.S. 

policy has changed in response to the 

problems in the Eurozone. The base 

macroeconomic scenario does include 

some increase in inflation and a rise 

in interest rates. If macroeconomic 

conditions change with a dramatic 

increase in inflation or a setback in 

economic growth and employment, 

then macroeconomic policy in the 

United States is likely to be different 

from what is assumed in this report 

and the outcome for the United States 

and other countries around the world 

would differ. 

The Scenarios Defined
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The Oxford Economic Forecasting (OEF) Global Macroeconomic Model is a quarterly dynamic international 

econometric model. It covers 76 countries, with primary models for 44 countries and secondary models for 32 others. 

Data are imbedded in the model for a wide variety of macroeconomic variables going back to 1970, and the model 

generates projections out to 10 years in the future. The model is updated every month and a new base projection is run. 

For major countries such as the United States, the underlying database contains about 450 variables. For secondary 

countries, the variable coverage is smaller. The model is designed to be user friendly.

The Oxford model is used to generate the projected values of countries’ gross domestic product (GDP,) exchange rates, 

inflation rates (as measured by the consumer price index), GDP deflator, the world price of oil, and interest rates. These 

are then used to calculate real GDP and real exchange rates, which are entered into USDA’s PEATSim model. The various 

macroeconomic scenarios are produced by changing a key variable, computing a new solution, and comparing the new 

results with those of the base run (the reference scenario). Charting and tabling tools are available to evaluate the scenarios.

The macroeconomic assumptions used in all three projection scenarios (including the reference scenario) differ from 

those that underpin the USDA agricultural projections to 2018, which means that the projections made in this report for 

U.S. agricultural exports, prices, and other market effects also differ from those in the USDA agricultural projections to 

2018. The macroeconomic assumptions for the USDA baseline were made in October 2009, while the assumptions for 

this report were made in January 2009, when the empirical evidence indicated that the world economic problem would be 

more severe than was thought in mid-autumn 2009. 

Oxford Global Macroeconomic Model

The Partial Equilibrium Agricultural Trade Simulation model (PEATsim) is an annual projection, partial-equilibrium, 

multicommodity, multiregion global gross-trade model of the agriculture sector. The model produces 10 years of 

projections, which in this paper are 2010-19. The model uses supply and demand equations to capture the economic 

behavior of producers and consumers in a global market, and includes variables for production, acreage, yields, 

consumption, exports, imports, stocks, world prices, and domestic producer prices. The model calibrates each country’s 

agricultural activities to USDA’s long-term projections (USDA, 2010). The model balances global supply and demand. 

Prices are determined at levels that achieve global market equilibrium. Simulations in this paper take exogenous changes 

in real GDP and real exchange rates generated by the macroeconomic scenarios in the Oxford Economic Forecasting 

Model to create alternative paths for trade in agricultural commodities.

PEATsim covers 37 agricultural commodities: 

•	 12 crops—rice, wheat, corn, other coarse grains, soybeans, sunflowers, rapeseed, peanuts, cotton, other oilseeds, 

tropical oils, and sugar

•	 12 vegetable, oil, and meal products from soybeans, sunflower seed, rapeseed, cottonseed, peanuts, and other oilseeds

•	 4 livestock products—beef and veal, pork, poultry, and raw milk

•	 6 dairy products—fluid milk, butter, cheese, nonfat dry milk, whole dry milk, and other dairy products

•	 3 biofuel commodities and byproducts—ethanol, biodiesel, and dried distillers’ grains 

PEATsim includes 13 countries or regions—the United States, the European Union, Canada, Mexico, Japan, South 

Korea, Australia, New Zealand, China, Brazil, Argentina, India, and the rest of the world (ROW). 

PEATsim can model country-specific trade and domestic policies. The model’s innovative and flexible specification 

enables it to analyze a variety of scenarios. Model solutions provide information on changes in prices, consumption, 

production, imports, and exports.

ERS PEATsim Model
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in the world markets for agricultural commodities. This implies that EU 

agricultural exports will become cheaper relative to U.S. exports and, thus, 

EU exports will increase relative to U.S. exports. While there might be some 

overall appreciation of the U.S. dollar in response to the Eurozone problem 

(mostly related to the euro), the dollar is likely to remain low by historical 

standards against the trade-weighted average of U.S. agricultural market 

countries, implying a continued growth in U.S. agricultural exports over the 

next decade.
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Once a set of countries move to a single currency, individual members lose 

the ability to devalue their own currency as a means to overcome current 

account deficits. While adjustments to the combined currency would be 

expected, it will represent an average change reflecting the conditions in 

the currency union as a whole. Since a single country is only a small part 

of the currency union, conditions in that country will only marginally affect 

the currency’s value, particularly if the country has a small GDP relative to 

the aggregate. In the event of imbalances, policy options for countries with 

current account deficits entail domestic adjustments in fiscal policies such as 

cutbacks in government programs, minimum wages, retirement benefits, and 

higher taxes. By inducing slower growth and lowering aggregate demand, 

these policies will result in lower wages and domestic prices. The objective 

of the domestic adjustments that induce deflation is to increase the country’s 

relative competitiveness and thus reduce its current account deficits. For 

Greece to overcome its current account deficit, it has to reduce its price and 

wage inflation below that of the major exporters such as Germany, Sweden, 

and the Netherlands. Given Germany’s commitment to very low rates of 

inflation, high productivity growth, and modest wage increases, it will be 

very difficult for countries such as Greece to achieve enough deflation to alter 

their fundamental imbalances. 

Current account figures in the Eurozone countries demonstrate the growing 

degree of disequilibrium within the Eurozone before the crisis. Figure 1 

aggregates current account surplus and deficit countries in the EU. Within 

Problems of a Single EU Currency

Figure 1

EU surplus countries offset EU deficit countries: current account imbalances, 1980-20081

Billions of current $

1

The surplus countries are Germany, the Netherlands, and Sweden. 

The deficit countries are Spain, Italy, Greece, France, Portugal, and Ireland.

Source: World Bank, World Development Indicators, 2010.

EU surplus

EU deficit

−500

−400

−300

−200

−100

100

200

300

400

500

0

1980 85 90 95 2000 05 08
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the EU, the outstanding surplus countries are Germany, the Netherlands, 

and Sweden (an EU member but not in the Eurozone). The countries with 

the largest deficits are Spain, Italy, Greece, France, Portugal, and Ireland. 

The offsetting nature of European deficits and surpluses is evident from the 

figure. However, more troubling for the Eurozone are the widening surpluses 

and deficits evident since the formation of the common currency in 1999. 

This suggests fundamental policy discordance between the surplus and deficit 

Eurozone members. Resolution of that policy discordance is a difficult and 

time-consuming process involving harmonizing macroeconomic policy in 

all Eurozone countries. Action taken so far by the EU through the European 

Central Bank (ECB) to create a fund for deficit countries will provide a short 

timeframe for those countries to make the necessary adjustments and for the 

EU to begin the process of creating an institutional structure for a unified EU 

financial system. Not resolving the underlying policy discordance implies the 

potential for continuing imbalances and increasing pressures for future crises.

While in nominal terms there is only one euro for all Eurozone countries, 

the purchasing power of the euro differs by country because of differences 

in inflation, wage rates, and productivity growth. One indication of the cause 

of the growing imbalances since the formation of the Eurozone has been 

In an effort to spur deeper political integration, the EU in the past three decades took a series of steps through treaties and 

agreements to establish an EU common currency. In 1979, the European Council (comprised of the EU heads of state) 

adopted the European Monetary System (EMS), which used an exchange rate mechanism (ERM) to keep the fluctuations 

of their currency exchange rates within a band which became known as “the snake.” Through the EMS, a European 

Currency Unit (ECU) was calculated from a gross domestic product (GDP)-weighted average of the participating 

countries’ national currencies. Plans for the European Monetary Union (EMU) were formalized in provisions in the 1992 

Maastricht Treaty which would result in the establishment of a single European currency by 1999. The Treaty set up 

convergence criteria that had to be met by 1998 before a member state could join the EMU: 

•	 the country’s financial system had to be compatible with the treaty provisions controlling the European system of 

central banks 

•	 its rate of inflation had to be within 1.5 percent of the inflation rates of the three participating countries with the lowest 

rates 

•	 its government deficit had to be below 3 percent of its gross domestic product and total debt at 60 percent of GDP or 

below

•	 its currency exchange rates had to be within the ERM band for at least 2 years 

•	 its interest rates had to be within 2 percent of the rates in the three countries with the lowest rates 

The momentum toward the goal of a single European market without borders and a single European currency was 

carried forward by abolishing all physical borders of member states in 1992 to allow for the free movement of goods, 

capital, services, and people. The introduction of the Single Market is estimated to have decreased monopoly rents by a 

quarter and may have increased potential output in the range of 5 to 10 percent. By 1998, the EMU criteria were met by 

11 member states, and exchange rates were fixed. In 1999, the European Central Bank (ECB) was established and the 

euro currency was created. Euros replaced national currencies in the 11 member states that qualified: Austria, Belgium, 

Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. Greece was admitted in 

2001. Slovenia was admitted in 2007, Cyprus and Malta in 2008, Slovakia in 2009, and Estonia entered on January 1, 

2011. The United Kingdom, Sweden, and Denmark opted out of the EMU in part out of concern that weak economic 

performance by one member state would affect all other member states. 

Establishment of a European Union Common Currency
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the relative real appreciation of the euro evaluated by the inflation in Greece 

relative to that of Germany (fig. 2).4 As can be seen, before the Greeks 

adopted the euro in 2001, the Greeks maintained a relatively undervalued real 

currency compared with Germany. Between 1996 and 2000 there was relative 

parity in the value of two currencies. Since 2000 there has been a widening 

divergence in the underlying real value of the two country currencies leading 

to the imbalance in their current accounts (USDA/ERS, 2010a).

4The real euro can vary by country 

because underlying inflation and wage 

rates differ. This implies that the purchasing power of the euro can differ 

between countries and the competitiveness of the Eurozone countries can 

therefore differ even though they all 

use the same currency. While our calculation of the real exchange rate only 

incorporates differences in inflation 

rates, this still provides some indication of purchasing power and competitiveness across countries even with the 

same base currency. The formula we 

use to calculate real exchange rates 

is: RXRit=NXRitxCPIUSt/CPIit where 

RXR is the real exchange rate, NXR 

is the nominal exchange rate, CPI is 

the consumer price index, and i is a 

country index and t is a time period. 

Using this formulation it is clear that 

with differences in inflation, the real 

exchange rate can differ by country 

even using the same currency.

Index value (1998=100)

Figure 2

The real exchange rate indices of Germany and Greece: 

The Greek exchange rate was undervalued before the euro and 

overvalued since 2000

Germany

Parity

period

Undervaluation

period

Overvaluation

period

Greece 

Source: USDA/ERS international macroeconomic data set, 2010.

1970 75 80 85 90 95 2000 05 10

60

80

100

120

140

160

The EU currently does not have the economic institutions necessary for 

operating a federal economy because it is an aggregation of sovereign nations 

and not a unified political system. It has no Federal Treasury that can borrow 

money and no internal mechanism to transfer funds from one member state 

to another. Consequently, the EU has had to rely on the European Central 

Bank (ECB) to provide funds to buy bonds issued by member states in danger 

of default. This ad hoc method has come under political and legal threat, 

particularly in Germany, because of resistance of the body politic towards one 

Eurozone country bailing out another (Wolf, 2010a). 

The ECB was set up in 1998, under the Treaty on European Union. Its job 

is to manage the euro and to safeguard price stability in the 17 members of 

the Eurozone. It is also responsible for framing and implementing the EU’s 

economic and monetary policy. It was not set up to transfer funds through 

loans from one member state to another, although it has been forced to do so 

during the Eurozone problem. The 17 member states’ central banks, together 

with the ECB, make up what is called the Eurosystem. The ECB is intended to 

work in complete independence from political influence of its member states. 

European Central Bank
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 Three scenarios are analyzed to capture the broad zone of uncertainty about 

the future macroeconomic path of the Eurozone countries. The greatest 

difference between the high and low euro scenarios is the euro to dollar 

exchange rate (fig. 3). 

A change in the euro alone will only have a minor impact on the U.S. macroeconomic outlook. What happens to the U.S. dollar in real terms depends to 

a very large degree on the reaction of central bankers and treasury officials 

in the rest of the world and thus the economic outcome in those countries. In 

our high euro scenario, we assumed that most of the countries in the rest of 

the world allow their currencies to appreciate. In the low euro scenario, we 

assume that most countries will allow their currencies to depreciate, but by 

less than the euro. On a trade-weighted basis, this is equivalent to assuming 

that other countries try to maintain a relative constancy in their real effective 

trade-weighted exchange rates. However, this implies some appreciation of 

the dollar on a trade-weighted basis (fig. 4). In our reference scenario, the 

changes represent a middle course of exchange rate adjustment where some 

countries’ currencies depreciate while other countries’ currencies appreciate. 

The implications of the alternative scenarios on the EU growth rate are quite 

significant. The difference between the long-term growth rate between the 

high and low euro scenario is a loss of EU GDP growth of almost 1 percent a 

year (fig. 5).

In the depreciation scenarios, the low euro and reference scenarios, one interpretation of the results is that the degree of euro depreciations depends on 

the degree of loss of confidence by other central banks and currency holders 

in the euro as a reserve currency: the euro problem has exposed a weakness 

of the Eurozone that results in some flight from the euro to the dollar. In the 

low euro scenario, in addition, we assume that net investment stagnates in 

the EU as a result of the lack of confidence in the ability of the Eurozone to 

overcome the structural imbalances between its member countries. Besides 

Scenario Outcomes Compared

1990 95 2000 05 10 15

0.6

0.7

0.8

0.9

1.0

1.1

1.2

19

Real euros per dollar (2005 base)

Figure 3

Real euros per dollar scenarios: 

The euro responds to the sovereign debt crisis

Note: 2011-2019 are scenario runs.

Source: USDA, ERS exchange rate data set, 2010.

Euro high

Euro reference

Euro low
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leading to a depreciation of the euro, the inflow of funds into the U.S. capital 

market results in a decline in U.S. long-term interest rates. This decline in 

long-term interest rates in turn will reduce the cost of investments and will 

tend toward raising the overall U.S. GDP growth rate.

Index value (2005=100)

Figure 4

U.S. agricultural trade-weighted real exchange rate: 

The rest of the world responds to the euro depreciation

1990 95 2000 05 10 15

70

80

90

100

110

120

Note: 2011-2019 are scenario runs.

Source: USDA, ERS exchange rate data set, 2010.

Euro high

Euro low

Euro reference

19

Percent

Figure 5

Eurozone GDP growth rate projections under alternative scenarios: 

A continued euro crisis would dampen growth prospects

1990 95 2000 05 10 15

0

1

-1

-2

-3

-4

-5

2

3

4

5

Note: 2011-2019 are scenario runs.

Source: USDA, ERS exchange rate data set, 2010.

Euro high

Euro low

Euro reference

19
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The macroeconomic effects of the euro problem can have significant implications for agricultural trade as exchange rates, investment, GDP growth, 

interest rates, inflation, and productivity are affected in countries around the 

world. The primary factors that affect agricultural trade are income growth 

and the relative prices of agricultural commodities and products affected by 

changes in exchange rates. The global consequence of the Eurozone problem 

is driven by the changes in the euro relative to the U.S. dollar, EU GDP 

growth, and GDP growth of emerging economies. The alternative macroeconomic scenario assumptions run through the Oxford Economic Forecasting 

Model provides the GDP and exchange rate results for the major economies 

in the rest of the world. These results are then used in the PEATsim model to 

estimate the effect on agricultural trade for the 37 commodities and in the 9 

regions in PEATsim. Trade effects for the three scenarios are compared in the 

results that follow.

The most salient results are in the pork, poultry, wheat, and other coarse 

grains (principally barley) sectors. Compared with the high euro scenario, 

imports increase in emerging economies in the low euro scenario and the 

reference scenario as higher investment levels raise their GDP, stimulating 

greater demand for livestock products and food and feed grains. The EU 

benefits substantially from higher exports of these commodities due to a 

lower euro relative to other exporting countries’ currencies. But the overall 

increase in import demand in the rest of the world, particularly in emerging 

economies, spills over to other competing countries as well. Relative to the 

high euro scenario, U.S. exports increase substantially for corn, wheat, and 

pork, modestly for other coarse grains, soybeans, poultry, and beef while 

soybean exports decline marginally. These results are driven primarily by 

changes in investment flows and income growth, rather than exchange rates. 

An analysis of commodities of interest to the United States follows.

Grains 

The United States exports more wheat and coarse grains in the low euro 

scenario, compared with reference or high euro scenarios, as demand for 

food and feedgrains in emerging economies increases with higher incomes 

(fig. 6). U.S. corn exports increase to feed larger pig herds in emerging 

market economies. EU exports of wheat and other coarse grains increase as 

the euro depreciation allows the EU price to be more competitive. However, 

U.S. grain exports also increase, as global demand provides the United States 

with a larger export market despite the rise in the U.S. dollar relative to the 

depreciated euro. 

The Potential Effects of the Euro Problem 

on Agricultural Trade
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Soybeans 

Demand for U.S. soybeans decreases marginally in the low euro scenario 

relative to the high euro and reference scenarios as GDP growth increases 

the demand for soymeal imports in developing countries, replacing soybean 

imports somewhat (fig. 7). The EU does not export soybeans—so the euro 

devaluation has no direct effect on U.S. soybean exports since the EU is not 

a competitor in this sector—but the EU does import soybeans and soymeal. 

Brazil and Argentina’s soymeal exports increase marginally in the low euro 

scenario because the demand for feeds for livestock in emerging market 

economies increase. However, growth of soymeal and soybeans from Brazil 

and Argentina in 2008-2019 leads to lower U.S. soybean exports in 2019 

overall.5 The EU demand for soybeans and soymeal declines in the low euro 5 See USDA (2010) for a detailed 

analysis.

Million metric tons

Figure 6

U.S. grain exports: 2008 historical data* and 2019 projected scenarios**

2008 High euro

(2019)

Low euro

(2019)

Reference

(2019)

Sources: * = USDA, ERS Foreign Agricultural Trade of the United States data set; 

** = Oxford Global Macro Model projections and USDA, ERS PEATsim model results.

0

65

70

75

80

85

90

Million metric tons

Figure 7

U.S. soybean exports: 2008 historical data* and 2019 

projected scenarios**

2008 High euro

(2019)

Low euro

(2019)

Reference

(2019)

Sources: * = USDA, ERS Foreign Agricultural Trade of the United States data set; 

** = Oxford Global Macro Model projections and USDA, ERS PEATsim model results.

0

24

26

28

30

32
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scenario as EU meat demand slows with lower EU GDP growth relative to 

the high euro and reference scenarios. 

Livestock Products

U.S. pork exports increase significantly in the low euro scenario compared 

with the reference and high euro scenarios. U.S. exports of beef and poultry 

increase slightly in the low euro scenario despite a lower euro and increased 

exports of EU pork and poultry. The depreciation of the euro and the increase 

in GDP in developing markets give an advantage to EU poultry and pork 

exports relative to beef. EU beef is not competitive in the world market 

because of its low quality and thus, EU beef exports are confined to markets 

that are not designated as being free of foot-and-mouth disease (FMD). 

Million metric tons

Figure 8

U.S. meat exports: 2008 historical data* and 2019 projected scenarios**

2008 High euro

(2019)

Low euro

(2019)

Reference

(2019)

Sources: * = USDA, ERS Foreign Agricultural Trade of the United States data set; 

** = Oxford Global Macro Model projections and USDA, ERS PEATsim model results.

0

4

2

6

8

10

12
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Our analysis shows that an understanding of an integrated world economy 

where capital flows affect investment, income levels, and exchange rates is 

critical to a comprehensive analysis of global agricultural markets. While it 

may seem logical to assume that U.S. agricultural exports would be adversely 

affected by a significant devaluation of the euro, considerations of other 

macroeconomic factors greatly alter the outcome. U.S. agricultural trade 

analysts must take into account which countries are affected by a change in 

exchange rates and GDP and whether the countries are competitors in export 

markets or a source of import demand. For importers, it is important to know 

how their income levels are affected by the movement of capital around 

the globe. These capital movements can change productivity, inflation, and 

income levels, significantly affecting demand and supply patterns.

In the analysis applied to the low euro scenario where the euro exchange 

rate declines significantly and no growth in net investment results in slower 

growth in EU incomes, the EU domestic market changes as well. EU meat 

consumption and feeding rates decline, allowing feedgrains and livestock 

products to be exported to countries with growing economies, principally 

emerging economies that have benefitted from higher investment rates. 

Significant price changes result from exchange rate adjustments but other 

macroeconomic factors are important determinants of trade patterns when 

global investment flows affect GDP levels. The low euro scenario in this 

analysis demonstrates the complexity of the effects of macro variables on 

U.S. agricultural trade. In the final analysis, U.S. exports fare quite well for 

nearly all commodities, particularly in the low euro scenario as emerging 

markets benefit from an increase in investment. That scenario results in 

higher GDP levels and greater import demand for livestock products and food 

and feedgrains, which the United States is able to supply.

Conclusions
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