A Review of U.S. Competitiveness in

Agricultural Trade

October 1986

NTIS order #PB87-140760
Recommended Citation:

Library of Congress Catalog Card Number 86-600586

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402
Foreword

America’s ability to compete in international agricultural markets has come into

question during the past several years. Several factors have contributed to recent declines in the volume and value of U.S. agricultural exports. The global recession of the

early 1980s, along with expanded production among the major exporting nations, accentuated competition for world markets. Many countries, especially those in the developing world, began to develop sophisticated domestic production capacities, and

cut back on imports wherever possible. Technology transfer from the United States has

become increasingly rapid.

This OTA technical memorandum reviews key factors that influence U.S. trade

in agriculture. It is part of a larger OTA project that analyzes the effects of technological change on both international trade and the structure of the domestic economy. Despite basic structural changes in the economy of the United States in recent years, agriculture and food production remain important parts of this country’s economic

framework.

Agriculture’s importance to U.S. trade grew during the 1970s, when an agricultural trade surplus helped to offset damaging trade losses in other areas. With the Nation’s trade deficit reaching record levels, recent declines in the volume and value of

agricultural exports pose formidable questions concerning the U.S. position in an increasingly complex system of international trade. We trust that Congress will find this

OTA review an informative and useful tool in addressing these questions.

Director

Iii
List of Reviewers

Charles Benbrook

Executive Director, Board on Agriculture

National Research Council

Washington, DC

Richard Crowder

Senior Vice-President, Strategic Planning

Pillsbury Co.

Minneapolis, MN

‘The Econornlc l{ewar~h %rvlce at USDA grouped exterwve review by,

several dltterent anal},sts under lohn E Lee s ausp]ces

John E. Lee Jr.’

Administrator, Economic Research Service

U.S. Department of Agriculture

Washington, DC

Michael J. Phillips

Senior Associate, Food and Renewable

Resources Program

Office of Technology Assessment

Washington, DC

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the reviewers. The reviewers do

not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and the accuracy of its contents.

iv
A Review of U.S. Competitiveness in Agricultural Trade

OTA Project Staffl

Lionel S, Johns, Assistant Director, OTA

Energy, Materials, and International Securities Division

Henry Kelly, Project Director,

Technology and the American Economic Transition

Kenneth A. Cook, Analyst 2

Jamie

Daniel

Linda

Grodsky, Research Analyst

Chenok, Research Assistant

Administrative Staff

Long Phyllis Brumfield

Contributors

Robert E. Evenson Carl Pray Jonathan Putnam
Contents

Chapter Page

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

Factors Behind the Decline of U.S. Agricultural Exports,.. . . . . . . . . . . . . . . . . . . . . . . . . 4

The Role of Technology Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Relative Costs of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

U.S. Competitiveness in High-Value Agricultural Products . . . . . . . . . . . . . . . . . . . . 6

Questions for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Consequences for the American Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Areas for Policy Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Trade Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Trade Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Addressing the Third World Debt Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Modification of U.S. Domestic Farm Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1. Influences on International and U.S. Trade in Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . 15

Agricultural Trade and the World Recession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

The Value of the U.S. Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

U.S. Agricultural Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Policies of Other Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Government Support for Agriculture.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2. World Trends in Agricultural Production and Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Crop Production Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Harvested Area ..., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Extensive v. Intensive Agricultural Production ., . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

U.S. Market Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

The Long-Term Outlook for International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

World Trade in Wheat, Corn, and Soybeans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

3. Cost-Competitiveness of U.S. Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

International Comparisons of Production Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Trends in Prices Paid and Received by Farmers . . . . . . . . . . . . . . . . . . . . ., . . . . . . . . . . . . 41

U.S. Costs of Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Regional Production Costs and Agricultural Structure. . . . . . . . . . . . . . . . . ., ..., . . . . 45

4. Technology Transfer and the Competitiveness of U.S. Agriculture . . . . . . . . . . . . . . . . . 51

Agricultural Technology Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Patent Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Indirect Transfer of Agricultural Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

The Role of International Agricultural Research Centers. ., . . . . . . . . . . . . . . . . . . 57

Agricultural Research Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Capacity Transfer: Foreign Students Trained in the United States . . . . . . . . . . . . . . 59

Technology Transfer and Major Export Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

International Transfer of Corn Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

International Transfer of Wheat Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

International Transfer of Soybean Technology . . . . . . . . . . . . . . . . . . . . . ., . . . . . . . 63

International Transfer of Emerging Agricultural Technologies . . . . . . . . . . . . . . . . . . . . . . 63

Conclusions, . . . . . . . . . . . . . ..., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

5. U.S. Trade in High-Value Agricultural Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Factors Influencing HVP Trade.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

The Significance of HVP Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Barriers to Expanding U.S. Trade in HVPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

World and U.S. Trends in HVPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

International HVP Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Contents—continued

Page

Marketing Programs . . . . . . . . . . . . . . . 74

Leading U.S. HVP Export Commmodities . . 75

Oilseed Products . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Tobacco and Cigarettes . . . . . . . . . . . . . 78

Cattle Hides . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Rice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Corn Gluten Feed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Tallow . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Beef . . . . . . . . . . . . 87

Pork . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Poultry, . . . . . . . . . . . . . . . . . . 89

Wheat Flour . . . . . . . . . . . . . . . . 92

Horticultural Products . . . . . . . . . . . . . . . . . . . . . . . . 94

Appendix: Contributions . . . . . . . . . 101

List of Tables

Table No Page

I-1.

I-2.

I-3.

1-1.

1-2.

1-3.

1-4.

2-1.

2-2.

2-3.

2-4.

2-5.

2-6.

2-7.

2-8.

2-9.

2-1o.

2-11.

2-12.

2-13.

2-14.

2-15.

2-16.

Projected Growth Rates in Crop Yields . . . . . . . . . . . . . . . . . . . 5

If U.S. Trade in Agriculture and Other Products Increases by a Dollar, Which

Business Sectors Benefit From This Gain? . . . . . . . . . . . . . . . . . . . . . 8

Jobs Produced by a Million Dollar< Worth of Exports (or Jobs Lost by a

Million Dollars’ Worth of Imports) in the Categories Indicated 9

Agricultural Trade-Weighted Indices of the Foreign Exchange Value of the

U.S. Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Simulated Impacts of a 10-Percent Appreciation in the Value of the Dollar 17

Price Support and Export Policies of Major U.S. Wheat, Corn and Feed Grains,

and Soybeans and Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Direct Government Assistance to Agriculture, Selected Countries, 1978-80 . . . . . . . . 20

Wheat: Harvested Area, Selected Countries, 1969-84 . . . . . . . . . . . . . . . . . . . . . . . . . 23

Corn: Harvested Area, Selected Countries, 1969-84 . . . . . . . . . . . . . . . . . . . . . . . . . 24

Soybeans: Harvested Area, Selected Countries, 1969-84 . . . . . . . . . . . 24

Rates of Change in Harvested Area of Cereal Grains, Cereal Yields and

Production, By Region, 1969-71 to 1979-81 and Projected, 2000 ....,.., .., ,,.., 24

Rates of Change in Harvested Area of Oilseeds, Oilseed Yields and Production,

By Region, 1969-71 to 1979-81 and Projected, 2000, . . . . . . . . . . . . . . . . . 25

Wheat Yields, Selected Countries, 1969-84 . . . . . . . . . . . . . . . . . . . . . . . 25

Corn Yields, Selected Countries, 1969-84 . . . . . . . . . . . . . . . . . . . . 26

Soybean Yields, Selected Countries, 1969-84 . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

OTA Projections of Crop Yields, Crop Production, and Average Annual Growth

Rates for Yields and Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

World and U.S. Production of Corn, Wheat, and Soybeansr Selected Periods,,, 28

World Production and U.S. Share for Wheat, Corn, and Soybeans, 1970-85 . . . . . . 28

Sources of Change in Cereal Grain Production, by Region, 1969-71 to 1979-81

and Projected to 2000: Average Annual Changes in Area and Yield as a Percent

of Change in Production . . . . . . . . . . . 29

Sources of Change in Oilseed Production, by Region, 1969-71 to 1979-81 and

Projected to 2000: Average Annual Changes in Area and Yield as a Percent of

Change in Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

U.S. Ending Stocks and Stock-to-Use Ratios for Wheat, Corn, and Soybeans,

1970-84 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

World Exports and U.S. Market Share for Wheat, Corn, and Soybeans, 1970-85, . 32

World Coarse Grain Exports, 1979-86 Crop Years,.. . . . . . . . . . . . . . . . . . . . . . ,,.. 33

vii
Contents—continued

Table No. Page

2-17,

2-18,

2-19,

2-20.

2-21.

3-1.

3-2.

3-3.

3-4.

3-5.

3-6.

4-1.

4-2,

4-3.

4-4

4-5

4-6

4-7

4-8

Production and Consumption of Cereal Grains, 1978-80 and Projected to 2000,

by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Production and Consumption of Oilseeds, 1978-80 and Projected to 2000,

by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

World Exports as a Share of World Production, 1970-83 . . . . . . . . . . . . . . . . . . 35

Trade Patterns Implied By Projected Balance of Production and Consumption of

Cereal Grains and Oilseeds, 1978-80 and Projected for 2000, by Region. . . . . . 36

Projected Shifts in Shares of World Trade in Cereal Grains and Oilseeds,

1978-80 to 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Average Variable Costs of Production for Wheat, Corn and Soybeans, Selected

Countries and Regions, 1980-82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Indexes of Price Received by Farmers for Crops and Prices Paid for Production

Inputs, Selected Countries, 1976-82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Average Variable Cost of Production for Wheat, Corn and Soybeans, U.S. and

Selected Regions, 1980-82. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Percent of Wheat Crop Produced at Less Than Specified Variable Cost of

Production, 1974 and 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Percent of Corn Crop Produced at Less Than Specified Variable Cost of

Production, 1974 and 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Production Costs, Farm Size, and Yields for Corn, Wheat and Soybean

Enterprises in Selected Crop Production Areas, 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Plant Patents in the United States, 1970-84 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

U.S. Patents Granted in Agricultural Technology Fields . . . . . . . . . . . . . . . . . . . . . . . . 54

Indices of International Trade in 13 Agricultural Technology Fields, 1978-84:

Trade Index for Patents by Country; U.S. Trade Index for Patenting Activity

With United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Total Origin Patents and Patents Granted in 13 Agricultural Technology Fields,

1978-84 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

U.S. Patents Granted in Agricultural Technology Fields . . . . . . . . . . . . . . . . . . . . . . . 57

Total Publications in 24 Countries for 10 Applied Agricultural Science Fields and

U.S. Share, 1973-77 and 1978-82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Agricultural Research Expenditures and Scientist-Years, by Region, 1959-80 . . . . 58

Total Number of Ph.D. Degrees Awarded in 20 Fields Associated With

Agriculture and Home Economics and the Proportion of Degrees Awarded to

Non-U.S. Citizens With a Temporary Visa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Technology Fields With At Least Medium Productivity and Transfer Potential . . 64

Major HVP Exporters: Leading Commodities and Major Markets, 1980 . . . . . . . . . . 70

U.S. Leading HVP Export Commodities, 1985 . . . . . . . . . . . . . . . . . . . . . . . . . 75

U.S. Horticultural Exports, 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

U.S. Fresh Noncitrus Fruit Exports, 1985 Value . . . . . . . . . . . . . . . . . . . 95

Leading Ve~etable Exports, 1985 Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

4-9.

5-1.

5-2.

5-3.

5-4.

5-5. g

. Vlll
Contents—continued

Figure

I-1 .

I-2.

3-1.

3-2.

5-1.

5-2.

5-3.

5-4.

5-5.

5-6.

5-7.

5-8.

5-9.

5-1o.

5-11.

5-12.

5-13.

5-14.

5-15.

5-16.

5-17.

5-18.

5-19.

5-20.

5-21.

List of Figures

No Page

U. S. Trade in Food, Feeds, and Beverages . 3

U.S. Merchandise Trade Balance . . . . . ., .,,., 4

Wheat Produced at Less Than the Specified Variable Cost per Bushel, 1981 43

Corn Produced at Less Than the Specified Variable Cost per Bushel, 1981 44

World and U.S. Soybean Meal Exports . . ,. 76

U.S. Soybean Meal Exports by Destination, 1983,. . 77

U.S. Soybean Oil Exports by Destination, 1983 . , 77

World and U.S. Exports of Tobacco. ,..,.. 79

U.S. Unmanufactured Tobacco Exports by Destination; 1983 “.. 8 0

World and U.S. Exports of Cigarettes .. .,..., 80

U.S. Cigarette Exports by Destination, 1983 ,. 80

U.S. Cattle Hide Exports by Destination, 198 3 82

World and U.S. Rice Exports ,, .,, .,..,.., . , 84

U.S. Rice Exports by Destination, 1983 ., 84

World and U.S. Exports of Animal Fats. ,.. ,., ,. 86

U.S. Inedible Tallow Exports by Destination, 1983 87

World and U.S. Beef Exports ..,. . 88

U.S. Beef Exports by Destination, 198 3 89

U.S. Poultry Meat Exports by Destination, 1983 89

World and U.S. Poultry Meat Export s 9 0

World and U.S. Wheat Flour Exports , . 93

U.S. Wheat Flour Exports by Destination, 1983 ,. . 93

U.S. Citrus Fruit Exports by Destination, 1983. 94

U.S. Fresh Noncitrus Fruit Exports by Destination, 1983 95

U.S. Shelled Almond Exports by Destination, 1983 96
Introduction
Introduction

Are farmers in the United States losing their

ability to compete in international markets? The

question would have seemed absurd during the

1970s, when each year brought enormous increases in the value and volume of U.S. grain and

oilseed exports. The U.S. share of burgeoning

world markets seemed secure; agricultural exports

were considered a bright spot in the United States’

generally poor trade performance, In 1981, however, exports of wheat, corn, soybeans, and other

key U.S. crops fell sharply, while slow but consistent growth in imports of a large variety of agricultural products continued unabated (see figure

1-1). U.S. farmers confronted the possibility that

lems that have plagued steel, automobiles, and

other major U.S. production enterprises.

Despite numerous theories about “post industrial” societies, agriculture remains a crucial part

of the U.S. economy. Declining agricultural exports confront this country with the prospect of

losing an important counter to trade deficits in

other areas. Agriculture is among the Nation’s

most capital- and research-intensive enterprises.

It has become a “high-technology” enterprise

which, combined with this country’s vast wealth

of resources, could remain a critical element in

they might begin to face the kinds of trade ‘prob- the U.S. trade balance.

40

38

36

34

32

30

28

26

24

22

20

18

16

14

12

10

8

6

4

Figure l-1 .—U.S. Trade in Food, Feeds, and Beverages

1968 1972 1976 1980 1984

— Export s — -- Imports

SOURCE U S Department of Commerce Bureau of Economic Analys!s “’National Income and Product Accounts table 43, March 1986

3
4

This technical memorandum reviews the debate

over the future competitiveness of U.S. agriculture—influences on world agricultural trade;

trends in production, consumption, and trade of

key commodities, including “high-value products”; and the cost competitiveness of U.S. agriculture.

The technical memorandum places special emphasis on the relationship between technology and

the United States’ competitive agricultural position. New technologies have led to increased

yields in virtually every aspect of agriculture and

food processing, and there is every indication that

such progress will continue. However, the United

States faces increasing technological competition

from all parts of the world. The rapid pace of technology transfer suggests that unless domestic research and development efforts are continued and

strengthened, foreign competitors may develop

production capacities that match those of the

United States.

FACTORS BEHIND THE DECLINE OF U.S. AGRICULTURAL EXPORTS

The export boom of the 1970s was made possible by a number of factors, including Third

World economic growth, China’s entry into world

agricultural markets, and the Soviet Union’s decision to import grain in order to increase livestock output. U.S. grain and oilseed producers

expanded output rapidly, aided by a favorable exchange rate and by U.S. Government programs

like agricultural price and income supports, liberal

credit, and a favorable tax code. Other nations

increased output to meet growing world demand,

but U.S. producers captured a large share of this

growth, using the United States’ large stockpiles

and enormous, underused areas of arable land

to expand production. During the early 1970s,

U.S. harvested wheat acreage rose by an amount

greater than the total wheat acreage harvested by

Canada, and between 1979 and 1981 the United

States commanded 39 percent of the volume of

all world trade in agriculture—up from 23 percent between 1969 and 1971.1 In addition, the

United States captured 71 percent of world volume trade in coarse grains in 1980, well over 10

times the share of the nearest competitor, Argentina (see table 2-16 of this technical memorandum).

Conditions changed after 1981, when global

recession slowed rates of growth in demand.

World corn and wheat production, for example,

grew nearly 4 percent annually during the 1970s,

but slowed to 3 percent per year between 1980

and 1985. 2 Approximately one-third of U.S. exports during the preceding decade were purchased

by developing nations, who were forced to reduce

imports after 1981, because their economies were

weakened by the global recession. This problem

was compounded by debt burdens. Moreover,

many developed nations began to subsidize exports while imposing tariffs and quotas on imports. The “variable levy” of the European Economic Community (EEC), for example, has been

cited as the single most important barrier to U.S.

agricultural exports by the Office of the U.S.

Trade Representative .

3 The EEC also began to

subsidize food exports heavily, through the Common Agriculture Policy (CAP).

Other factors have worked against U.S. exporters. Many developing nations have cut back on

imports, relying instead on the growth of domestic

production capacity. Others have attempted to

boost agricultural exports, in order to meet the

crushing burden of foreign loans. In fact, both the

U.S. Government and the World Bank have encouraged Latin American nations to increase exports as a method of raising revenue.

At the same time, production capacity in the

developed world continued to climb, creating

massive surpluses in key export commodities. As

a result, prices fell sharply in the early 1980s; exporting nations struggled to maintain market

‘U. S. Department of Agriculture, Economic Research Service, unpublished data.

‘See table 2-11 of this technical memorandum.

3’1-Jpcoming World Trade Talks: What’s at Stake for U.S. Agriculture, ” Congressional Research Service Review, Washington, DC,

vol. 7, N-o. 8, September 1986.
5

share. U.S. producers were hurt by the additional

factor of an overvalued dollar. While the recent

decline of the dollar may help U.S. producers to

compete for Japanese and European markets, the

dollar has not changed significantly with respect

to Canadian and Australian currencies. Also,

many Latin American nations tie their currencies

directly to that of the United States.

Despite shrinking world markets, U.S. agricultural production continued to increase in the early

1980s. Profit margins for crop producers narrowed; for some producers, profits disappeared

entirely. Government transfer payments, in the

form of U.S. Department of Agriculture (USDA)

price support loans and direct cash advances, rose

sharply, compensating for some of the lost farm

income. But the costs of these programs spiraled

while stocks of wheat and feed grains—much of

it owned by the government—accumulated. The

price of maintaining U.S. exports, even at 1985

levels, has been high; the 1985 Farm Bill, which

included plans for a 3-year, $52 billion series of

programs to help U.S. farmers, will likely cost

nearly $30 billion for fiscal year 1986 alone and

should top the initial ceiling after 1987, according to USDA.

A separate issue, and another potential factor

behind the decline of agricultural competitiveness

in the United States, is the comparatively low

quality of U.S. grain. Recently, there has been a

sharp increase in foreign complaints concerning

the quality of U.S. grain stocks. This issue deserves comprehensive analysis, and OTA will

soon commence a study that focuses on U.S. grain

quality.

The Role of Technology Transfer

International trade in agriculture has also been

affected by significant improvements in farm production technologies achieved over the past 15

years. Innovations in such areas as biotechnology, fertilizers, weed control, and animal reproduction and nutrition have led to spectacular

gains, and this trend should continue. Table I-1

shows net gains in the productivity of wheat,

corn, and soybean production. Similar kinds of

efficiency improvements occurred and will continue to occur in dairy and livestock production.

While the United States once enjoyed an

unchallenged lead in agricultural technology, foreign innovations have grown rapidly. The most

significant development has been the upgrading

of agricultural research capacity in developing

countries, aided by technology transfer from the

United States. The U.S. Government has encouraged this development, through a variety of bilateral and multilateral agreements designed to

promote economic growth in developing nations

and to coordinate scientific research. The establishment of International Agricultural Research

Centers has also facilitated technology transfer to

the developing world.

Other avenues of transfer exist. Much technological information is freely available in publications. Many foreign students study at U.S.

schools. Perhaps most importantly, multinational

corporations move technology to foreign subsidiaries with increasing speed, and sometimes—due

to domestic regulations—introduce new technologies abroad before they are introduced in the

United States.

Relative Costs of Production

The relative impact of new agricultural technology on production costs throughout the world

is difficult to document, given the inconsistencies

in international statistics, differing patterns of

agricultural subsidies, enormous differences in

patterns of land ownership and land values, and

changing exchange rates. Still, the “green revolution” has clearly allowed countries such as India to increase production and change from net

food importers to net food exporters. Many technologies permit significant increases in yields per

acre, diminishing the comparative advantage of

Table l-l .—Projected Growth Rates in Crop Yields

Actual Projected

1970-84 1984-2000

Wheat . . . . “. . . . ----- . . . . . . 1.5 1,2

Corn . . . . . . . . . . . . . . . . . . . . 2.1 1.2

Soybeans . . . . . . . 0.2 1.2

SOURCE For past growth rates, see tables 24.2-7, =nd 2-8 of th!s report Prolec

[Ions come from U S Congress, Of ftce of Technology Assessment

Technology, Pub/Ic Po/Icy, and the Chang/ng Structure of Arr?er/can

Agr/cu/fure OTA.F285 (Washington, DC U S Government Prtnttng

Off Ice, March 1986), table 3-4 Projections are for “most Ilkely environment
6

large U.S. land areas in a period of surplus production capacity. The surpluses do not, however,

mean that technology has eliminated hunger; production increases trailed population growth in

Third World nations least able to afford food

imports.

Technical advances can allow foreign producers to grow many important crops below average

U.S. costs. However, comparisons with average

U.S. costs may be misleading. Unlike most manufactured products, U.S. farm production costs

vary widely depending on region and farm size.

While statistically precise statements cannot be

made, it appears that a large percentage of U.S.

farms are competitive with the most efficient producing areas in the world. These areas form the

basis of U.S. strength in international agricultural

markets. On the other hand, it appears that some

U.S. farmers are operating at costs above world

prices.

Of course, many foreign producers may also

be operating with costs above world prices. For

example, 1984 soybean yields in Argentina were

37 percent higher than those of the United States,

and wheat yields in France were 250 percent

higher. It is likely that this resulted from national

programs designed to encourage exports, rather

than from any advantage in resources or production technology.

U.S. Competitiveness in High-Value

Agricultural Products

As total U.S. agricultural exports have declined,

U.S. imports have grown at a slow but consistent rate, especially in a variety of “high-value”

products (HVPS). HVPS include products that

have been processed to some degree before export,

as well as certain unprocessed commodities like

horticultural crops. World trade value in HVPS

now exceeds world trade value in bulk agricultural commodities. USDA estimates that the

world high-value product market could rise by

9 to 12 percent per year until 1990, an increase

of up to $2o billion.4 Leading U.S. HVP exports

include soybean meal, tobacco, cigarettes, cattle

hides, and corn gluten feed.

While many European nations have moved aggressively to profit from the growth of HVP trade,

the United States has not performed well in these

markets. In fact, while the United States had captured 39 percent of world trade volume in agricultural products between 1979 and 1981, its relatively small share of high-value products meant

that it held only an 18 percent share of the value

of world agricultural trade. The U.S. share of the

HVP market remained at about 10 percent during the 1970s; the United States has experienced

a negative balance of trade in processed food since

1983. 5

Many HVP export markets are highly volatile.

Countries which at first import processed products often develop their own processing capabilities, and shift to imports of unprocessed products. In the 1970s, for example, the EEC was a

major importer of soybean meal. As it developed

its own processing capacity, its import emphasis

shifted to raw soybeans, allowing it to reap the

economic benefits associated with processing a

raw commodity,

Questions for the Future

While it is likely that world demand for food

exports will grow in the future, slow growth may

occur for traditionally strong U.S. export commodities. For example, recent projections made

by Resources For the Future (a Washington, DC,

based research institute) point to vigorous growth

in Third World economies and diets, but suggest

that world demand for cereal grains will grow at

about 2 percent per year for the remainder of the

century—below the average rates of the past 5

years.’ In addition, North American exports of

cereals will command a shrinking share of total

trade because of growing competition from other

producers.7

The unfavorable conditions that faced U.S. producers in the early 1980s gave a number of other

nations the opportunity to gain export market

‘U.S. Department of Agriculture, Economic Research Service,

“High Value Agricultural Exports: U.S. Opportunities in the 1980s,”

U.S. Department of Agriculture, Economic Research Service, Foreign Agn”cultura/ Economic Report No. 188, Washington, DC, 1983.

“’Upcoming World Trade Talks, ” op. cit.

‘See table 2-17 of this technical memorandum.

7See table 2-21 in this technical memorandum.
shares, which they will give up only reluctantly.

In the case of the EEC, for example, expanded exports are a part of a larger strategy to protect

European agriculture. Other nations have borrowed funds to make significant investments in

such areas as land preparation, purchases of agricultural equipment, and construction of port facilities and roads. These activities encourage exports, which will likely be increased in order to

repay the initial loan.

U.S. markets could be further eroded by developing nations that continue to absorb agricultural innovations and transfer them to local producers. Crop productivity in these nations may

7

grow more rapidly, aided by U.S. technologies—

many of which boost the productivity of both

U.S. agricultural exports and those of our export

competitors.

It is important to note that the measure of U.S.

agriculture’s international competitiveness may

not necessarily be whether the peak market shares

of the late 1970s can be regained. Rather, the focus for the future may revolve around whether

U.S. producers can profit from their exports. If

this does not occur, trade may actually decrease

the total income available to U.S. farmers, which

would tend to have a negative effect on the total

number of agricultural jobs.

CONSEQUENCES FOR THE AMERICAN WORKPLACE

Why should the United States be concerned

about balance of trade in agriculture and agricultural products? The most obvious answer is

agriculture’s historical contribution to net balance

of trade. Figure I-2 illustrates the disastrous performance of U.S. merchandise trade during the

past 5 years, a situation that would have been

worse without the decline of petroleum prices.

Agricultural exports constituted one of the few

areas where the United States enjoyed positive

trade balances that offset deficits occurring in

Figure 1-2. —U.S. Merchandise Trade Balance

(exports minus imports)

100 — 110

\

1968 1972 1976 1980 1984

SOURCE U S Department of Commerce Bureau of Economic Analysls Na

tl~nal Income and Product Accounts table 43 March 1986

other areas. However, USDA forecasts a U.S.

agricultural trade surplus for 1986 of $7.5 billion,

the lowest such level since 1973.

Loss of agricultural exports translates into direct and indirect affects throughout the U.S. economy. Table I-2 summarizes how a decrease in

agricultural trade could “ripple” through the economy, in comparison with trade in other areas.

While agricultural trade could generate a significant amount of employment outside the farm sector, links to the rest of the economy may not be

as great as those that result from trade in manufactured products. The table estimates that about

60 percent of the dollars gained or lost in livestock

trade and 45 percent of the dollars gained or lost

in other agricultural products occur in businesses

outside the traditional farming sectors. By comparison, about 60 percent of the income lost from

automobile imports would be lost by firms outside the automobile industry. g

Table I-3 suggests what kinds of jobs might be

gained or lost through agricultural trade. It can

be seen that the total number of jobs gained or

lost through a given volume of trade in grain

products or food processing is roughly equivalent
8

Table l-2.—lf U.S. Trade in Agriculture and Other

Products Increases (or Decreases) by a Dollar,

Which Business Sectors Benefit From This Gain

(or Suffer the Loss)?

$1 of trade in livestock and livestock products

Other agricultural products . . . . . . . . . . . . . . $0.21

Livestock and livestock products. ... . . . . $0.2 0

Food and kindred products . . . . . . . . . . . . . . . . . . . $0.09

Wholesale and retail trade. . . . . . . . . . . . . . . . . . . $0.08

Real estate and rental . . . . . . . . . . . . . . . . . . . . . . . $0.07

Transportation and warehousing . . . . . . . . . . . . . $0.03

Crude petroleum and natural gas. . . . . . . . . . . . . . $0.03

Business services . . . . . . . . . . . . . . . . . . . . . . . . . . $0.03

Agricultural, forestry, and fishery services, . . . $0.03

Finance and insurance. . . . . . . . . . . . . . . . . . . $0.03

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.19

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.00

$1 of trade in “other agricultural products” (mostly grains)

Other agricultural products . . . . . . . . . . . . . . . . . . . $0.55

Real estate and rental . . . . . . . ... . . . . . . . $0.09

Wholesale and retail trade. . . . . . . . . . . . . . . . . . . $0.05

Crude petroleum and natural gas. . . . . . . . . . . . . . $0.04

Chemicals and selected chemical products . . . . $0.04

Business services. . . . . . . . . . . . . . . . . . . . . . . . . . $0.03

Agricultural, forestry, and fishery services ., . $0.02

Transportation and warehousing . . . . . . . . . . . . . $0.02

Finance and insurance. . . . . . . . . . . . . . . . . . . . $0.02

Electric, gas, water, and sanitary services . . $0.02

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.12

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.00

$1 of trade in food and kindred products

(mostly food processing)

Food and kindred products . . . . . . . ... . . . . . . . $0.35

Other agricultural products . . . . . . . . . . . . . . . . . . . $0.11

Wholesale and retail trade. . . . . . . . . . . . . . . . . $0.09

Livestock and livestock products, . . . . . . . . . . . . . $0.05

Business services. . . . . . . . . . . ... . . . . $0.04

Real estate and rental . . . . . . . . . . . . . . . . . . . . . $0.04

Transportation and warehousing . . . . . . . . . . . . . $0.04

Crude petroleum and natural gas. . . . . . . . . . . . . $0.03

Electric, gas, water, and sanitary services . . . $0.02

Chemicals and selected chemical products . . . $0,02

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.22

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.00

$1 of trade in motor vehicles and equipment

Motor vehicles and equipment . . . . . . . . . . . . . $0.39

Wholesale and retail trade. . . . . . . . . . . . . . . . . . . $0.07

Primary iron and steel manufacturing . . . . . . . . . . $0.07

Screw machine products and stampings . . . . . . $0.04

Business services . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.04

Rubber and miscellaneous plastic products . . . . $0.03

Transportation and warehousing . . . . . . . . . . . . . . $0.03

Primary nonferrous metals manufacturing . $0.02

Other fabricated metal products . . . . . . . . . . . . . . $0.02

Crude petroleum and natural gas. . . . . . . . . . . . . . $0,02

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.27

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.00

SOURCE U S Department of Commerce, Bureau of Economic Analysts, “1977

Input Output Model, ” Survey of Currenf Elus/rtess, VOI 64, No 5, May

1984

with that of automobile manufacturing. All three

enterprises could generate about 25 jobs per $1

million of output. Livestock products appear to

be more labor-intensive, mainly because of the

large number of individuals who classify themselves as “self -employed.” Of course, all of these

estimates must be considered as approximations

since statistics on agricultural employment, particularly on part-time and “self-employed” persons, are notoriously inaccurate.9 And while more

detailed analysis of-agricultural trade’s impact on

the economy as a whole would be a valuable contribution, such depth is beyond the scope of this

technical memorandum.

In looking to the future, however, it is also important to recognize that the labor productivity

of agriculture and related businesses have been

growing at rates significantly faster than the rest

of the economy. The kinds of technical progress

suggested in table 1-1 will also reduce the number of jobs generated per dollar of output. In fact,

if the labor productivity of agricultural sectors

grows at the average rate of the last 10 years, total agricultural employment per dollar of output

will fall by 22 percent. These trends, however,

may be misleading; labor productivity in the

“food and feed grains” category grew 6.8 percent

per year during the “boom years” of 1973 to 1979,

but fell 0,2 percent per year between 1979 and

1984. ‘0

“Figures were calculated using $1 million of demand for the commodit y indicated expressed in 1984 do] lars, Estimates of the way

this demand translates into business output are made using the 1977

input-output table (see table I-2 ). Estimates of employment by occupation are made by using estimates of jobs per unit output in each

industry prepared by the Bureau of Labor Statistics for the year 1982,

Conversions have been made using deflator series appropriate for

each industry. The BLS series providing occupation by industry and

standard BLS estimates of total national employment do not use

the same definition of farmers, farm workers, and laborers, The estimates shown above are prepared by scaling jobs in these categories

to make them consistent with employment data maintained in series published in the Monthly Labor Review,

“’U.S. Department of Commerce, Bureau of Labor Statistics, unpublished data (“Employment Requirements’ ), Washington, DC,

June 1985.
.

Table 1-3—Jobs Produced by a Million Dollars’ Worth of Exports (or Jobs Lost by a Million Dollars’

Worth of Imports) in the Categories Indicated

$1 million of livestock and livestock products $1 million of other agricultural productsSelf employed .” . ., . . : . . . . . . . . . . . . . 13 Self employed . . . . . . . . . . . . . . . . . . . . . . 10

Farmers and farm workers . . . . ... . . . . . . . . . . 8 Farmers and farm workers . . . . . . . . . . . . . .

Clerical workers ., . . . . . . . . . . . . ... . . . . 3 Clerical workers . . . . . . . . . . . . . . . . . . . .

Laborers, except farm . . . . . . . . . . . . . . . . . . . 2 Laborers, except farm ... . . . . . . . . . . . . . .

Managers, officials, proprietors . ., .....,, .. .,.., 1 Managers, officials, proprietors ., ... . . . . .

Salesworkers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Salesworkers . . . . . . . . . . . . . . . . . . . . . . . . . .

All other operatives ., . . ., . ., . . ., .,,..,. . 1 Other craft and related workers ., . . . . . . . . . . . . .

Transport equipment operatives . . . . . . . . . . 1 All other operatives . . . . . . . . . . . . . . . . . . . . . . .

Other craft and related workers .,, .,, . . . . . . . . . . . . 1 Transport equipment operatives ., . .

Mechanics, repairers, installers . . . . . . . . . . . . . . . . . . 1 Mechanics, repairers, installers . . . . . . . . .

Other, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Other. ...,..,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Total . . . . . . . . . . . . ..., . . . . . . . . . . . . . . . .

$1 million of-food and kindred products -

$1 million motor vehicles and equipment

Self employed.;..,,. . . . . . . . . . . . . . . . . . . . . . 5 Clerical workers ~, .;. ..., . . . . . . . . . .

Clerical workers . . . . . . . . . . . . . . . . . . . . . 3 Laborers, except farm . . . . . . . . . . . . . . . . .

Laborers, except farm . . . . . . . . . . . . . . . . 3 All other operatives ..., . . . . . .

Farmers and farmworkers . . . . . . . . . . . . . . 3

All other operatives . . . . . . . . . . . . . . . . . . . . . . 2

Transport equipment operatives . . . . . . . . . . . . 2

Managers, officials, proprietors ..,.....,.. . . . . . 1

Salesworkers ...,... . . . . . . . . . . . . . . . . . . . 1

Other craft and related workers . . . . . . . . . . . . . . . . . 1

Mechanics, repairers, installers, . . . . . . . . . . . . . . . 1

Other, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Metalworking operatives . . . . . . . . . . .

Other craft and related workers. ., . . . . . . . .

Assembler occupations . . . . . ..., . . .

Managers, officials, proprietors . . . ,

Mechanics, repairers, installers . . . .

Metalworking craft workersa 

. . . . . . . ,.

Salesworkers. ..., ., ..., .

Other. ..., ..., . . . . ..., .,

Total . . . . . . . . . . . . . . . . . . . . 27 Total . . . . . . . . . . ., . .

aExceot mechan{cs

-. —

9

10

7

2

1

1

1

1

1

1

1

3

28

3

2

2

2

2

2

2

1

1

1

7

25

NOTES Calculated using one mllltondoltars ofdemand for the commodity Indicated expressed In 1984 dollars Estimates of the waythls demand translates Into busl

ness output are made using the 1977 Input output table (see table I-2) Estimates of employment by occupation IS made by using estimates of jobs per unit

output In each industry prepared by the Bureau of Labor Statlsttcs for the year 1982 Conversions have been made using deflator series appropriate for each

Industry The BLS series providing occupation by Industry and standard BLS estimates of total national employment do not use the same deflnltlon of farmers

farmworkers and laborers The esf!mates shown above are prepared byscallng jobs In these categor!esto make them consistent with employment data ma!n

!atned In serlespubl[shed In (he Monthly Labor Revtew Estimates have been rounded to the nearest whole job Including jobs that are both full and part ttme

SOURCE OffIce of Technology Assessment 1986

AREAS FOR POLICY ANALYSIS

It is clear that U.S. farmers are facing serious

difficulties in international markets. What can be

done, however, is subject to debate. While a comprehensive review of policy strategies is not the

subject of this technical memorandum, OTA can

outline broad areas where changes in policy might

lead to improvements in U.S. agricultural competitiveness, and in the ability of U.S. producers

to profit from their exports. These categories

should be viewed not as specific alternatives, but

as starting points for analysis.

Trade Negotiations

World competition for agricultural markets has

begun to increase tensions between the United

States and its allies, and may soon threaten programs designed to stimulate economic development in developing nations. Intensified competition in export subsidies, import tariffs, and other

nontariff barriers cannot benefit international

trade in agriculture. However, persuading nations

to change their strategies regarding agricultural

exports is a difficult task, since many policies

are tied to domestic programs. Also, success in

achieving an improved world position for U.S.

agriculture may depend heavily on other areas of

trade negotiations. Some possible strategies

include:

• Using the General Agreement on Tariffs and

Trade (GATT) to organize an international

consensus network on issues related to agricultural trade. Goals might include the relaxation of domestic price supports, export subsidies, import quotas, and nontariff barriers
10

like variable levies, as well as the establishment of voluntary export restraints; in fact,

trade ministers from the 92 nations that participate in GATT have placed agricultural

trade as a priority item in the next round of

GATT talks, scheduled to begin in 1987. This

will, of course, require the United States to

grant other concessions in programs that are

particularly critical for products like peanuts,

cotton, milk, and other dairy products. 11

● Developing a consensus on reporting production costs and domestic policies. Negotiations

about unfair trading practices are extremely

difficult, given the complex nature of statistics on production costs and subsidies.

● Establishing binding, bilateral trade agreements with partners like the EEC, Japan, and

Canada, and developing a bilateral mechanism for communication and dispute resolution.

Trade Promotion

A variety of techniques can be used to support

U.S. agricultural exports. These range from direct

subsidies to exporters through “marketing loans”

to assistance available through consulates and

agricultural attaches in U.S. embassies throughout the world. Many U.S. producers, especially

those of high-value products, are not sophisticated

in world trade, and need help both in identifying

potential markets for their products and in satisfying the often complex procedures required by

importing nations. USDA’s Agricultural Information and Marketing Service (AIMS), which serves

as a liaison between U.S. producers and potential importers of U.S. goods, represents one model

for promoting U.S. exports. AIMS maintains a

computer database that includes current information on such factors as domestic prices and product availability and foreign market potential.

Addressing the Third World

Debt Problem

U.S. strategies for encouraging Third World

nations—and Latin American countries in partic-

““Upcoming World Trade Talks, ” op. cit

ular—to reduce their debt by expanding agricultural exports can have the effect of eroding U.S.

exports both directly and indirectly, as can those

for encouraging Japan to purchase more products

from Third World producers. These nations then

compete with U.S. producers for markets and

drive international prices well below U.S. price

support levels, placing tremendous economic pressures on U.S. farm programs. The United States

has a clear interest in helping developing nations

to expand their domestic economies in a way that

would make them better markets for U.S. agricultural exports. Moreover, a policy that allows

these nations to manage their debt problems without being forced to compete in tight world agricultural markets would assist all producers.

Research and Development

U.S. producers may find it increasingly difficult to benefit from agricultural research and development for long periods of time, due to the

rapid diffusion of agricultural technology. This

increases the need for government encouragement

of research in agriculture and related biological

sciences. Research spending on agriculture is high

throughout the world; indeed, the fraction of nondefense research spent on agriculture in Japan,

France, and several other nations exceeds that of

the United States. ’z Many new technologies, particularly biotechnologies, raise unique problems

that require a balance between the benefits of research, development, and fielding of new technologies on the one hand, and the interests of public health and safety on the other. A mechanism

for dealing with these issues in a fair and expeditious way would facilitate agricultural research

and development.

Given the growing importance of high-value

agricultural products, it may also be necessary to

increase research in areas not directly related to

bulk cereal and soybean production, including

technologies for value-added processing. *3 Technologies that could allow profitable production

IZNationa] science Board, “Science Indicators 1982” (Washington, DC: U.S. Government Printing Office, 1983).

“U.S. Congress, Office of Technology Assessment, Agricultural

Postharvest Technology and Marketing Economics Research, OTATM-F-21 (Washington, DC: U.S. Government Printing Office, April

1983).
of high-value crops in areas with relatively high

production costs for bulk commodities would be

particularly valuable.

In addition to emphasizing the role of agricultural research in the developed world, it is important to note that despite the transfer of technical innovations, many nations now produce less

food per person than they did a generation ago.

Per capita grain production in at least 13 African

nations is at least 20 percent lower than it was

30 years ago; per capita production in Algeria and

Mozambique fell by more than 60 percent during the same period. *4 Research done by sophisticated agricultural programs has little impact on

subsistence farmers working small plots of poor

soil.

“U.S. Department ot Agriculture, Economic Research Set-v]ce,

11’or)cf ]ndlces O} Agricultural and Fod Production, 1 Q.50- JQ84

(\\’a\hlngton, DC: 1Q851

Modification of U.S. Domestic

Farm Policies

While there is little doubt that domestic farm

programs influence the competitiveness of U.S.

products on world markets, there is little agreement about what changes in these programs, if

any, could stimulate U.S. exports. There may be

an unavoidable tension between the objective of

domestic equity—maintaining the profitability of

domestic farmers in different production cost

categories—and the goal of creating a farm industry that could compete successfully in an international market free of foreign export subsidies.

A program designed to achieve both objectives

is likely to be expensive.

Of course, most agricultural exporters face similar dilemmas. Domestic programs designed to

preserve traditional farm enterprises, both here

and abroad, are viewed by other countries as unfair intervention in free trade. Given the many

distortions in agricultural trade, there can be no

easy resolution of this issue.
Chapter 1

Influences on International and

U.S. Trade in Agriculture
Chapter 1

Influences on International and

U.S. Trade in Agriculture

AGRICULTURAL TRADE AND THE

For U.S. agriculture policy, the most important

development in world agricultural trade in the

early 1980s was a slowdown in the rapid rates of

growth of key commodity markets that had characterized the preceding decade. International trade

in coarse grains, wheat, soybeans, and soybean

meal increased fairly steadily during the 1970s,

but exhibited varying rates of decline in the early

1980s. The most serious reversal was in coarse

grains—all grains but wheat and rice—which are

used primarily for livestock feed. Coarse grain

trade rose throughout the 1970s, and jumped

abruptly in 1981 to 109 million metric tons (MT).

Thereafter, exports for this commodity declined

for three consecutive years, producing a 17-percent decrease by 1984. U.S. corn farmers, who

dominate world coarse grain trade, were hit especially hard. U.S. corn export volume has declined

every year since 1980, from 61,4 million MT to

46.3 million MT in 1985—a 24,5-percent decrease.

The decline and stagnation of many world agricultural markets resulted from the global recession of the early 1980s. Characterized by slower

growth in incomes, rapidl y increasing interest

rates, and—especially in developing countries—

serious repayment problems on external debts, the

recession constricted trade in a broad range of

commodities and manufactured goods.

Generally, the change in a country’s agricultural

exports as a function of a given change in export

price—the “elasticity of excess supply ’’—depends

on “domestic demand and supply elasticities, the

importance of trade, and effects of domestic agricultural programs on producer and consumer behavior.”] Smaller export levels relate to domestic supply and use, while larger levels respond to

price changes.

“’The U.S. (-ornpetitive Position in World Commodity Trade, ”

Agricultural-Food Policy f<e~riew’, Economic Research Service, U.S.

Department of Agriculture, Agricultural Economic Report No 530,

1985, p. 104.

WORLD RECESSION

The United States appears to be more sensitive

to declines in international agricultural trade than

other exporting nations. Relative to Canada and

Australia, the United States has experienced a proportionately greater decline in exports for both

wheat and coarse grains during the early 1980s.

However, because of large U.S. stocks, domestic

supply and demand are more sensitive to price

changes than in Canada or Australia; a decline

in export price causes a relative reduction in supply and relative increase in demand. In recent

years, U.S. Government stocks have absorbed

much of the excess supply that has resulted when

price support loans act as a floor on market prices.

When export demand falls, U.S. commodity programs shift American grains into storage at the

floor price instead of to exports, bringing about

a decline in the U.S. market share.

As for developing nations, debt problems have

prompted strong measures to reduce imports and

expand exports in order to repay international

lenders. Developing countries played a key role

in the U.S. agricultural export boom of the 1970s,

due to significant demographic and economic

growth in those countries, and to the availability of large amounts of credit on favorable terms.

The onset of the world debt crisis and recession

at the end of the 1970s led developing countries

to reduce agricultural imports more than nonagricultural imports; the exception was lowincome Africa, where severe drought triggered

large increases in food purchases and aid. U.S.

Department of Agriculture (USDA) analysts have

noted the importance of developing countries on

U.S. agricultural exports:

Because the 93 developing countries make up

approximately one-third of the U.S. export market for agricultural commodities, their import performance (our export potential) is highly significant for U.S. agricultural export performance.

These countries have the potential to increase or

15
16

decrease total U.S. agricultural exports by almost

20 percent. In addition, probable export losses are

concentrated in countries most severely constrained by external finances. The degree to which

such losses are realized depends heavily on the

scope and types of response by the United States.2

2 Matthew O. Shane and David Stallings, Financial Constraints

to Trade and Growth: The World Debt Crisis and Its Aftermath,

Economic Research Service, U.S. Department of Agriculture, Foreign Agricultural Econmic Report No. 211, 1984.

THE VALUE OF THE U.S. DOLLAR

An important and related feature of the world

economic environment in the early 1980s was the

strong and rapid growth in the value of the U.S.

dollar, following a decade of sustained depreciation against other currencies. A relatively weak

dollar served to boost U.S. exports, including

farm products, during the 1970s. This was of particular importance for the soybean and corn trade,

which grew rapidly over that period (see table

l-l).

Between 1980 and 1984, however, the dollar appreciated by over 40 percent against most other

currencies. American farmers, suffering from

The opportunity to export commodities and

manufactured goods to developed countries is crucial to resolving long-term debt and income problems in many developing nations. As a result, a

rise in protectionism in the developed world—including the United States—could delay recovery

of U.S. agricultural exports both directly and indirectly.

product price declines, faced the additional problem of export difficulties. Appreciation of the dollar meant that foreign customers had to expend

more of their currency to pay for U.S. agricultural imports. Accordingly, American farmers

were rendered less competitive: “U.S. exports of

wheat, corn, and soybeans were reduced by about

$3 billion in 1981 to 1982 as a result of the

strengthening of the dollar. That decline translates

into a volume of 16 million tons; corn exports

alone were nearly 10 million tons less, ” according to USDA. Furthermore, an economic model

developed by USDA indicates that “a 20 percent

rise in the value of the dollar will reduce farm exTable 1-1 .—Agricultural Trade-Weighted Indices of the

Foreign Exchange Value of the U.S. Dollara

Year Total Soybeans Wheat Corn — —

April 1971 = 100

1970 . . . . . . . . . . . . . . . . ~ . 102.10 102.40 101.29 102,38

1971 . . . . . . . . . . . . . . . . . . ~ ~ 98.98 98.25 99.84 98.65

1972 . . . . . . . . . . . . . . . . . . . . . . . 91.19 88.21 94.29 89.80

1973 . . . . . . . . . . . . . . . . . ~ . . . 82.74 77.75 87.15 80.61

1974 . . . . . . . . . . . . . . . . ~ . ~ 79.12 74.53 82.07 77.01

1975 . . . . . . . . . . . . . . . . . . . . 76.92 71.33 80.52 74.66

1976 . . . . . . . . . . . . . . . . . . . . . . . 77.97 73.33 80.66 76.89

1977 . . . . . . . . . . . . . . . . . . 75.30 69.99 76,93 73,79

1978 . . . . . . . . . . . . . . . . . . . . . . . 70.02 63.28 72.76 67.10

1979 . . . . . . . . . . . . . . . . . . . 71.00 61.62 74.35 67.27

1980 . . . . . . . . . . . . . . . . . . . . . . . 72.24 64.28 76.39 68.59

1981 . . . . . . . . . . . . . . . . . . . . . . . 79.43 74.43 79.05 77.55

1982 . . . . . . . . . . . . . . . . . . . . . . . 86.80 83,52 85.37 86.84

1983 . . . . . . . . . . . . . . . . . . . . . . . 90.64 88.23 91.73 91.80

1984 . . . . . . . . . . . . . . . . . . . . . . . 97.17 95.34 98.69 98.19

1985 . . . . . . . . . . . . . . . . . . . . . . . 101.27 98.39 104.74 101.48

AdjU~t@ by th,s consumer Price Index of the countries involved

SOURCE J. Longmlre and A Morey, Strong ~ollar ~arnpens Demand for U S Farm Exports, Econom!c Research Service, U S

Department of Agriculture, Foreign Agricultural Economic Report No 193, 1983
ports by 16 percent. ”3 As table 1-1 shows, the

reversal in the dollar’s value in the early 1980s

was considerably more acute for soybeans and

corn than for wheat.

The stronger dollar affected U.S. exports in a

number of ways. Because the dollar appreciated

in comparison to the currencies of competing nations such as Canada, Australia, and Argentina,

export prices received by producers in those nations rose relative to U.S. prices. The dollar’s rising value actually increased returns to producers

in several other nations, enabling them to compete with the United States. In addition, a considerable portion of the debt incurred by developing countries in the 1970s was denominated,

or payable, in American dollars. As the dollar appreciated in value, more of the debtor nation’s

currency was required to repay interest and principal, which constrained their ability to pay for

imports from the United States, and encouraged

purchases from other suppliers.

Estimated impacts of a 10-percent appreciation

in the value of the dollar appear in table 1-2. The

projected changes do not match real developments

within the given parameters, since factors other

than exchange rates affect prices, exports, and

stock levels. Nevertheless, the estimates show the

potential magnitude of an appreciation of the dollar, other things being equal.

Markets for corn and soybeans are more sensitive to exchange rate fluctuations, but all three

commodities are affected. The price that U.S.

farmers receive for their commodities declines because a strong dollar reduces U.S. exports. In the

cases of both corn and wheat, the predicted price

‘J. Longrnire and A, Morey, Strong Dollar Dampens Demandtor

1’. S, Farm E~ports, Economic Research Service, U.S. Department

of Agriculture, Foreign Agricultural Economic Report No. 1Q3, 1983.

U.S. AGRICULTURAL POLICIES

Falling export demand for U.S. grains and oilseeds in the early 1980s, combined with a simultaneous increase in U.S. production, drove U.S.

Table l-2.—Simulated Impacts of a 10-Percent

Appreciation in the Value of the Dollar

Percent change

Commodity U.S. price U.S. exports U.S. stocks

Wheat . . . . . . . . . . –5.6 – 1.9 4.8

Corn. . . . . . . . . . . . –6.2 –2.5 6.4

Soybeans . . . . . . . –5.9 –3.1 5.8

SOURCE “The U.S Competitive Posttion In World Commod!ty Trade, ”

AgriculturahFoodPolicy Review Cornrnodrfy Program Perspectives

Economic Research Service, U S Department of Agriculture, Agncul.

tural Economic Report No. 530, 1985

declines would amount to 20 cents per bushel for

1984. By comparison, target prices for wheat increased 25 cents per bushel between 1983 and

1984, and by 16 cents per bushel for corn between

1982 and 1983. The price-decreasing effect of a

lo-percent appreciation of the dollar would tend

to offset the price enhancement offered by USDA

commodity programs. Actual increases in the

1982 exchange value of the dollar were 11.4 percent for corn and 7.6 percent for wheat. Also, a

5.6-percent decrease in the price of soybeans

would have reduced the 1982 seasonal average

price by 34 cents per bushel.

Generally, reductions in exports and prices result in substantial increases in U, S. Government

stocks. As world prices fall below the government

price support loan rate, farmers participating in

the price support programs tend to forfeit commodities they have offered to the government as

collateral for the loan. Wheat stocks averaged

1.356 billion bushels between 1981 and 1983; an

increase of 4.8 percent, which would result from

a 10-percent dollar appreciation, would lead to

an increase of 65 million bushels—roughly the

amount of wheat produced in either Oregon or

Illinois in 1982. At 1982 stock levels, the increase

for corn would equal 169 million bushels, the

equivalent of the 1982 crop in North Carolina,

and 17 million bushels for soybeans, or the

amount of the 1982 crop in Virginia.

prices down to the price support loan rates for

wheat, feed grains, and soybeans, as set by Congress and USDA. In effect, this loan rate forms
18

a floor under domestic prices. A farmer can expect to receive the minimum price, even if he or

she is not participating in the price support programs. Because of the major role of the United

States as a producer, stockholder, and exporter

in the wheat, corn, and soybean markets, the U.S.

Government price support loan rate can also form

an artificial floor for the world price. Producers

in competing nations may be signaled by this artificially high price—driven higher by the appreciating dollar—to increase production, since

they may be able to undersell the United States.

Importers may purchase less from the United

States than they would have at a lower price. All

of these interactions serve to reduce the U.S. market share.

Income supports, provided to farmers participating in USDA wheat and feed grain programs,

have also affected U.S. exports. In the late 1970s,

market prices for wheat and feed grains did not

fall to the loan rate, but did decrease below the

POLICIES OF OTHER NATIONS

Policies of other nations directly affect every

major international market in which U.S. producers participate. Recent policies of U.S. competitors have brought about a decrease in American

agricultural export volume, value, and market

share.

Table 1-3 lists those agricultural policies of foreign competitors that have an impact on international trade in wheat, corn and other feed grains,

and soybeans, all of which are major U.S. export

commodities. Macroeconomic policies that affect

the agricultural export performance of these other

countries, such as currency devaluations, are not

included.

The agricultural policies of the European Economic Community (EEC) have the most adverse

effects on U.S. interests in wheat and feed grain

markets. EEC policies that insulate their wheat

and feed grain producers from world market fluc-

“target prices” established for each commodity.

As a result, participating farmers qualified for direct “deficiency” payments, equal to the difference between the official target price and the lower

market price. If market prices fall to the loan rate,

participating farmers receive the difference between the loan and target prices. During the late

1970s, some participating farmers were able to receive these payments without having to idle land;

in fact, acreage planted in program “bases,” or

the acreage on a farm that is eligible for program

enrollment, expanded dramatically at that time.

The availability of deficiency payments, along

with tax and credit policies and low real rates of

interest, stimulated grain production in the late

1970s. This resulted in lower U.S. and world

prices, which, in turn, boosted world exports. In

effect, by subsidizing production, U.S. commodity policy subsidized exports to high levels through

1981, contributing to the subsequent decline.

tuations have stimulated production, and restitutions paid to facilitate exportation of the resulting surplus crops cut directly into U.S. markets.

The Community’s policies for soybeans have the

effect of encouraging imports to the EEC from this

country, but Community subsidies tend to erode

U.S. markets for higher-valued soybean meal and

oil.

Policies of Brazil, and more recently those of

Argentina, which encourage rapid development

of soybean processing industries, have also had

a pronounced impact on the U.S. market share

for soybean products. Brazil now leads the United

States in soybean meal exports, and Brazil and

Argentina combined surpass America in exports

of soybean oil. Ironically, importation of American technology has played a key role in the development of the South American soybean industry (see ch. 4).
Table 1.3.—Price Support and Export Policies of Major U.S.

Corn and Feed Grains, and Soybeans and Products

commodity:

Country Policy and effect —

Wheat:

Canada . . Canadian Wheat Board stabilize s

wheat prices; Western Grain StabiIization Program stabilizes farm incomes.

Little impact on producer price levels.

Credit offered to importers.

Australia . . Reforms in Australian Wheat Board policies will reduce insulation of producers from world prices and increase

price variability, Little impact on producer price level. Subsidized credit

sales of wheat for export to some markets (mainly China and Egypt).

Argentina . . . . . . . Sales through National Grain Board

and private companies. Export taxes,

official exchange rate regulations act

to discourage production of wheat for

export, Long-term agreements with

China, Iran, Algeria, Iraq. Government

“does not hesitate to undercut U.S.

price. ” (USDA Agr. Info Bull. 467)

France ., . . . . . . . . High CAP domestic support prices

combines with variable levy to insulate

producers from world price changes.

Exports subsidized by restitutions to

producers.

Corn and feed grains:

Argentina . . . . . . . Export taxes simiIar to those for wheat

discourage production of corn and sorghum for export.

South Africa. . . . . Government Maize Board offers price

stabilization, sets minimum support

price which provides some insulation

from world prices.

Thailand . . . . . . . Export controls for corn removed in

1981, but no direct incentives or restrictions for corn exports. Bilateral agreements with Taiwan and other countries,

France . . . . . . . . . . High domestic price supports and variable levies support domestic prices;

restitutions to producers and subsidized exports of corn and barlev.

Commodity:

Country

19 —

Wheat,

Policy and effect

Australia . . . . . . . Marketing boards handle sales of barley and sorghum, stabilize but do not

support producer prices. Long-term

agreements with Egypt, China, Japan,

and U.S.S.R. Subsidized credit sales of

wheat for exports to some markets

(mainly China and Egypt).

Canada . . . . . . . . . Marketing of barley and sorghum

through national boards, stabilizing but

not supporting producer prices. Longterm agreements with Brazil, China,

U. S. S. R., and East Germany for wheat

and feed grains.

Soybeans and products:

Brazil . . . . . . . . . . . Wide array of policies (tariffs, quotas,

licenses, price ceilings, currency adjustments, and subsidies); designed to

increase exports of soybean oil and

meal; discourage export of unprocessed soybeans, Policies also used to

assure adequate domestic supplies

and expand domestic crushing capacity, Differential export taxes are now

the main instrument for encouraging

export products, and bean exports are

expected to increase.

Argentina . . . . . . . National Grain Board restricts oilseed

and product exports to protect domestic prices; preferential taxes to encourage exports of processed soybean

products instead of beans; but export

taxes discourage product ion of beans

for export.

EEC . . . . . . . . . . . . Exports of soybean meal and oil aided

by “production aids” that support domestic prices above world price; crushers receive payments to compensate

for higher domestic bean prices (however, most soybeans are imported).

.

SOURCES “World Agricultural Markets and U S Farm Poitcy’” and “The U S. Competitive Position (n World Commodity Trade, ” Agr/cu/tura/-Food Po/Icy Rewew Corn.

modjty Program Perspectives, Economtc Research Service, U.S Department of Agriculture, Agricultural Economic Report No 530, 1985, and ‘‘Background

for 1985 Farm Legislation, ” Economtc Research Service, U S Department of Agriculture, Agricultural Information Bulletins No 467 (wheat), 471 (corn), and

472 (soybeans), 1985

GOVERNMENT SUPPORT FOR AGRICULTURE

USDA analysts have attempted to quantify the 10 selected countries. In absolute terms, Japan and

overall importance of a broad range of policies the United States maintain a comfortable lead. It

that support agriculture in other nations. Table is important to note that government expenditures

1-4 shows the magnitude of direct government ex- for agriculture in the United States have increased

penditures for agriculture from 1978 to 1980 in sharply since that time, from under $4 billion to
20

Table 1-4.–Direct Government Assistance to Agriculture, Selected Countries, 1978-80

Per capita

Total Percent of agricultural

assistance agriculture GDP population

Country (million $) (percent) ($ per capita)

Belgium . . . . . . . . . . . . . . . . . . . 518 57 4,655

West Germany. . . . . . . . . . . . . . 1,147 28 1,942

United States. . . . . . . . . . . . . . . 8,507 12 1,775

France . . . . . . . . . . . . . . . . . . . . 2,546 23 1,260

Japan . . . . . . . . . . . . . . . . . . . . . 15,888 38 1,083

Canada . . . . . . . . . . . . . . . . . . . . 1,231 14 1,005

Australia. . . . . . . . . . . . . . . . . . . 529 7 630

Mexico . . . . . . . . . . . . . . . . . . . . 2,620 21 106

Argentina . . . . . . . . . . . . . . . . . . 301 3 82

Brazil . . . . . . . . . . . . . . . . . . . . . . 1,925 8 53

SOURCE: ”The U.S. Competitive Position in World Commodity Trade,” Agricu/tura/-Food Po/ky Review: Cornrrrodity Program

Perspectives, Economic Research Service, U.S. Department of Agriculture, Agricultural Economic Report No. 5M, 19S5

more than $15 billion. Agricultural support levels

in the EEC have also increased substantially; more

recent figures for other countries are not available. Furthermore, these estimates do not reflect

the effects of certain government policies, such

as dairy price supports and import quotas, which

effectively raise consumer prices.

Expenditures as a proportion of agricultural

gross domestic product (GDP) reveal a different

picture. In this category, the United States ranks

seventh among the 10 countries; government expenditures constitute 12 percent of the U.S. agricultural GDP. This is well below Belgium at 57

percent, Japan at 38 percent, West Germany at

28 percent, France at 23 percent, and even Mexico at 21 percent. Canada and the United States

ranked about the same, at 14 and 12 percent, respectively. Three competitors ranked lower: Brazil

at 8 percent, Australia at 7 percent, and Argentina at 3 percent.

However, when government expenditures for

agriculture are divided by the agricultural population of these countries, the United States again

ranks fairly high—third, behind Belgium and

West Germany. France and Canada fall somewhat

below the United States; Australia, Argentina,

and Brazil rank far behind.

Absolute and per capita levels of expenditures

for agriculture may be interpreted as indicators

of overall commitment to agriculture. By these

measures, the United States ranked high from

1978 to 1980, and may increase its position as a

result of the rise in farm program outlays that has

occurred since 1981. In a Congressional Budget

Office analysis of government support for U.S.

business, agriculture ranked highest among industries in terms of support expenditures as a percentage of the sector’s “value added, ” or percentage of the gross national product.4

Government agriculture expenditures in relation to agricultural GDP reflect with greater accuracy the extent to which national agriculture

sectors depend on their governments for support.

By this measure, the United States ranks below

many countries, but above several other competitors. In recent years, high farm program costs

throughout the world—particularly in the EEC—

have made farmers more dependent on government expenditures for their livelihood.

4U .S. Congress, Congressional Budget Office, Federal Support of

U.S. Business (Washington, DC: U.S. Government Printing Office,

1984).
Chapter 2

World Trends in Agricultural

Production and Trade
Chapter 2

World Trends in Agricultural

Production and Trade

This chapter reviews changes that have oc- tion, and trade of cereal grains and oilseeds. Decurred in the production and trade of key agri- velopments that affect the U.S. market position

cultural commodities since 1970, and summarizes for wheat, corn, and soybeans are emphasized.

projected world trends in production, consumpCROP PRODUCTION TRENDS

World crop production trends are affected by

changes in both harvested area and yield. This

section describes trends in harvested area, yield,

and production for wheat, corn, and soybeans.

Because substitutes exist for each crop in world

markets, the section also reviews regional trends

and forecasts for the general categories of cereal

grains and oilseeds. In general, comparisons will

be made between the United States on the one

hand, and the principal producers and exporters

of a particular crop on the other; the base period

of 1969-71 is used to reflect levels of world production and trade prior to the export boom of the

1970s. Also, statistics relating to the European

Economic Community (EEC) do not include figures from Spain and Portugal, the two most recent additions to the EEC.

Harvested Area

Harvested area of wheat, corn, and soybeans

increased throughout the world during the 1970s.

For all three crops, the United States possessed

the largest harvested area among major exporters

at the beginning of the period, and was able to

expand that area significantly.

For wheat, U.S. harvested area increased substantially between 1969-71 and 1982-84, adding

approximately 9.1 million hectares—an area close

to that of Canada and Australia, the two leading

producer-competitors (see table 2-1). Nevertheless, Canada and Australia did expand at impressive rates, and the U.S. figure has increased only

slightly since 1974 to 1976, Argentina’s harvested

wheat area, a fraction of that of the United States,

also rose substantially. Brazil and France enjoyed

modest growth.

In harvested corn acreage, U.S. expansion dominated that of major competitors, especially Argentina (see table 2-2). Brazil was also able to expand its already large acreage. The enormous

proportional growth in Thailand has allowed that

country to compete actively with the United States

in certain Third World markets.

The 10 million hectare increase in U.S. soybean

acreage between 1969-71 and 1982-84 exceeded

Table 2.1 .—Wheat: Harvested Area, Selected Countries, 1969.84

Percent change

1969-71 1974-76 1979-81 1982-84 1969-71 to 1982-84

(1 ,000 ha)

Canada ., ., . . . . 7,669 9,888 11,148 13,130 71

United States. . . . . ... . . 18,669 27,760 27,412 27,823 49

Argentina ., . . . . . . . . 4,402 5,311 6,169 6,773 54

Brazil . . . . . 1,857 2,981 2,920 2,148 16

France ... ., ., . . . . . . . 3,892 4,099 4,391 4,921 26

Australia . . ... 7,695 8,606 11,144 12,214 59

S-O-Ul+CE FAO Product/on Yearboo~ Food and Agriculture Or~anlzatlo; of the Umted Nat Ions VOIS 36 and 381982 and 1984 Rome Italy

23
2 4

Table 2-2.—Corn: Harvested Area, Selected Countries, 1969-84

Percent change

1969-71 1974-76 1979-81 1982-84 1969-71 to 1982-84

(1,000 ha)

United States. . . . . . . . . . . . . . . 23,749 27,591 29,548 26,441 11

Argentina . . . . . . . . . . . . . . . . . . 3,880 3,107 2,828 3,055 –21

Brazil . . . . . . . . . . . . . . . . . . . . . . 10,021 10,882 11,348 11,855 18

Thailand . . . . . . . . . . . . . . . . . . . 771 1,180 1,424 1,511 96

SOURCE FAO Procfucfiorr Yearbook, Food and Agriculture Organization of the United Nations, VOIS 36 and 38, 1982 and 1984, Rome, Italy

the total harvested area of 1982-84 for Brazil, the

next largest competitor (see table 2-3). The greatest proportional increase, however—74 percent—

was achieved by Argentina, making it competitive with the United States. Much of this increase

occurred between 1979-81 and 1982-84, during

which time U.S. production actually declined. In

contrast, Brazil’s harvested soybean area fell by

20 percent over the 15-year period.

In the more inclusive category of cereal grains,

harvested area grew at an average annual worldwide rate of 0.65 percent per year during the period

1969-71 to 1979-81 (see table 2-4). Annual expansion rates were well above average in Oceania, at

3.2 percent, and North America, at 1.75 percent.

Area increases were also high in Sub-Saharan

Africa and East Asia, while declines occurred in

non-EEC Western Europe and Eastern Europe.

Projections of worldwide cereal grain trends in

harvested areas, prepared by Resources For the

Future and by Economic Perspectives, Inc. (RFFEPI) indicate a 0.27 per year expansion for the

period 1979-81 to 2000, only 42 percent of the

1970s rate (see table 2-4). Relatively rapid exTable 2-3.—Soybeans: Harvested Area, Selected Countries, 1969-84

Percent change

1969-71 1974-76 1979-81 1982-84 1969-71 to 1982-84

(1,000 ha)

United States. . . . . . . . . . . . . . . 17,036 20,822 27,160 26,717 57

Argentina . . . . . . . . . . . . . . . . . . 1,314 375 1,665 2,281 74

Brazil . . . . . . . . . . . . . . . . . . . . . . 10,976 5,795 8,347 8,525 –22

U.S.S.R. . . . . . . . . . . . . . . . . . . . . 860 801 843 830 – 3

SOURCE: FAO Production Yearbook, Food and Agriculture Organization of the United NatIons, VOIS. 36 and 38, 1982 and 1984, Rome, Italy.

Table 2-4. —Rates of Change in Harvested Area of Cereal Grains, Cereal Yields and Production,

By Region, 1969.71 to 1979-81 and Projected, 2000

Area Yield Production

1969-71 to 1979-81 to 1969-71 to 1979-81 to 1969-71 to 1979-81

Region 1979-81 2000 1979-81 2000 1979-81 2000

North Africa-Middle East. . . . . . . . . . . . . . . . 0.06 0.18 2.04 2.17 2.10 2.35

Sub-Saharan . . . . . . . . . . . . . . . . . . . . . . . . . . 1.17 0.70 0.93 1.00 2.10 1.70

EEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.09 –0.14 2.39 1.26 2.30 1.12

Other Western Europe . . . . . . . . . . . . . . . . . . –0.17 –0.10 1.76 2.56 1.58 2.46

U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.53 0.05 –0.20 2.26 0.33 2.31

East Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . –0.43 0.08 2.75 1.08 2.31 1.16

South Asia. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.42 0.14 1.94 1.97 2.37 2.11

East Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.12 1.28 1.47 1.21 2.60 2.51

Asia (planned) . . . . . . . . . . . . . . . . . . . . . . . . . 0.21 –0.22 3.44 1.85 3.65 1.63

Oceania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 2.10 0.78 1.16 4.00 3.29

Latin America . . . . . . . . . . . . . . . . . . . . . . . . . 0.73 0.49 2.18 1.98 2.92 2.48

North America . . . . . . . . . . . . . . . . . . . . . . . . 1.75 0.24 1.71 1.11 3.50 1.35

World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.65 0.27 1.94 1.56 2.6 1.83

SOURCE: Meeting Future Needs for Urrifed States Food, Fiber and forest Products, Resources For the Future, Washington, DC, 1984
pansion is forecast for East Asia and Oceania.

The North American rate falls below the world

average.

Average worldwide rates of harvested oilseed

area grew by 2.21 percent between 1969-71 and

1979-81. However, this overall picture has resulted from substantial increases in particular

areas—over 4 percent per year in Oceania, Latin

America, North America, the EEC, and other

Western European nations (see table 2-5).

The RFF-EPI projections through the year 2000

reveal a significantly different pattern. Expansion

of oilseed area slows to approximately one-third

of the 1970’s rate, or 0.80 percent per year, Nevertheless, expansion should continue to be an important source of increased production in many

25

regions, since RFF-EPI predicts that rates of yield

increase will decline as well.

Yields

Expansion of harvested acreage often leads to

a trade-off in yield, because marginal land is

brought into production. Although actual yields

may decline, a slowdown in the rate of yield increase is more common. The performance of U.S.

competitors varied by both crop and country between the early 1970s and early 1980s.

The expansion of Canada’s wheat area, though

variable, was not accompanied by a significant

change in Canadian yields, which remain below

those of the United States (see table 2-6). Expansion of harvested acreage in Australia and Brazil

Table 2-5.— Rates of Change in Harvested Area of Oilseeds, Oilseed Yields and Production,

By Region, 1969-71 to 1979-81 and Projected, 2000

Area Yield Product ion

1969-71 to 1979-81 to 1969-71 to 1979-81 to ‘1969-71 to 1979-81

Region 1979-81 2000 1979-81 2000 1979-81 2000

North Africa-Middle East. ... . . . . . . . . . . –0.50

Sub-Saharan ... ... . . . . . . . . . . . . . . . . –0.99

EEC . . . . . . . . . . . . . . . . . . . . 4.04

Other Western European ... . . . . . . . . . 9.06

U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . . . . –0.25

East Europe . . . . . . . . . . . . . . . . . 2.37

South Asia . . . . . . . . . . . . . . . . . . 0.63

East Asia ., . . . . . . ... . ... 1.07

Asia (planned) ., . . . . . . . . . . . . . . . . . . . . 1.23

Oceania . . . . . . . . . . . . . . . . . . . . . 7.53

Latin America . . . . . . . . . . . ... ... 6.95

North America . . . . . . . . . . . . . . . . . 4.18

World . . . . . . . . . . . . . ... ... . 2.21

1.23

0.47

2.35

1.69

0.30

2.56

0.43

0.69

1,64

1,08

1.00

0.69

1.84

–0.05

2.74

– 1.91

0.74

1.14

0.39

1,46

1,30

2.34

4.02

1.33

0.80 2.02

0.18

0.70

0.91

2.56

2.66

1,26

1,19

2.47

1.38

1.37

0.90

1.08

1.33

– 1.04

6.89

6.98

0.49

3.53

1,02

2.54

2.54

10.04

11.26

5.57

1.33 4,27

1,41

0.22

3.28

4,30

2.97

3.85

1,63

3,18

3.04

2.47

1.91

1.79

2,13

SOURCE Meet/rig Future Needs for Un/fed States Food, F/ber and Forest Products, Resources For the Future, Washington DC, 1984

Table 2-6.—Wheat Yields, Selected Countries, 1969-84

—

1969-71 1974-76 1980 1981 1982 1983 1984 ‘- -

Kilograms per hectare

Canada . . . . . . . . . . . 1,813 1,819 1,738 1,996 2,143 1,941 1,611

United States . . 2,144 1,980 2,249 2,323 2,386 2,651 2,608

Argentina . . ., . . . . 1,334 1,603 1,549 1,297 2,049 1,788 2,124

Brazil ., . . . . 939 879 865 1,151 646 1,190 1,054

France . . . . . . . . . . . . . . . . 3,626 4,078 5,169 4,809 5,236 5,127 6,454

Australia ... . ... 1,171 1,362 962 1,377 770 1,709 1,521

Percent of U.S. yields

Canada . . . . . . . . . . . . 85 92 77 86 90 73 62

United States . . . . . . . . 100 100 100 100 100 100 100

Argentina ., . 62 81 69 56 86 67 81

Brazil ., . . . . . 44 44 38 50 27 45 40

France . . . 169 206 230 207 219 193 247

Australia . . . . . . . 55 69 43 59 32 64 58

SOURCE FAO Product(on Yearbook Food and Agriculture Organization of the United NatIons, VOIS 38 and 38, 1982 and 1984 Rome, Italy
26

has led to yields that are more variable than those

of the United States. Argentine wheat yields constitute more than three-quarters of the U.S. total. Interestingly, France has retained its yield

advantage over the United States, even while expanding its harvested area by about one-quarter

over the 1969-71 figure.

Changes in Argentine and Brazilian corn yields

in relation to 1970’s U.S. yields were not significant. Argentine yields hover at around one-half

of the U.S. level, and Brazilian yields at around

one-quarter (see table 2-7). Thailand’s corn yields

have declined slightly, relative to the United

States.

The United States’ two major competitors in

world soybean trade, Argentina and Brazil, have

closed much of the yield gap that existed in 1969

to 1971 (see table 2-8), a development largely attributable to the transfer of U.S. soybean varieties and pesticides to these countries (see ch. 4).

In fact, 1984 Argentine soybean yields surpassed

those of the United States by nearly 40 percent.

The expected introduction of biotechnology to the

United States in the late 1990s may increase yields.

However, whether technologies will first be applied in other countries, even though such innovations may come from the United States, remains

to be seen (see ch. 4).

Projections of average U.S. wheat, corn, and

soybean yields through the year 2000, taken from

a recent OTA study, * appear in table 2-9. These

projections represent the “most likely environment” through 2000, and assume real growth in

U.S. research and extension expenditures of 2 percent per year, as well as the continuation of past

trends in the development and adoption of technology. Yields and production would increase

with larger research and extension service expenditures.

The OTA projections indicate that average U.S.

wheat yields in 2000 may be 25 percent higher

than 1982 yields. Over the same period, corn

yields may increase by 21 percent, and soybean

‘U.S. Congress, Office of Technology Assessment, Technology,

Public Policy, and the Changing Structure of American Agriculture

, OTA-F-Z8S (Washington, DC: U.S. Government printing Office, March 1986),

Table 2-7.–Corn Yields, Selected Countries, 1969-84

1969-71 1974-76 1978 1979 1980 1981 1982 1983 1984

United States . . . . . .

Argentina ., . . . . . . . .

Brazil. . . . . . . . . . . . .

Thailand . . . . . . . . . . .

Kilograms per hectare

Argentina . . . . . . . . . .

Brazil. . . . . . . . . . . . . .

Thailand . . . . . . . . . . .

5,164 6,166 6,342

2,247 2,516 3,612

1,365 1,543 1,220

2,567 2,271 2,014

44 41 57

26 25 19

50 37 32

6,883 5,711 6,891

3,107 2,570 3,801

1,442 1,779 1,836

2,187 2,245 2,354

Percent of U.S. yield

45 45 55

21 31 27

32 39 34

7,108

3,028

1,731

2,299

5,090

3,030

1,745

2,267

43

24

32

60

34

45

6,692

3,141

1,735

2,500

47

26

37

SOURCE FAO Producf/orr Yearbook, Food and Agriculture Organization of the United Nations, VOIS 36 and 38, 1982 and 1984, Rome, Italy

Table 2-8.–Soybean Yields, Selected Countries, 1969-84

1969-71 1974-76 1980 1981 1982 1983 1984

Kilograms per hectare

United States . . . . . . . . . . . . 1,830 1,766 1,776 2,027 2,121 1,759 1,893

Argentina . . . . . . . . . . . . . . . 1,178 1,491 1,724 2,005 2,090 1,754 2,601

Brazil . . . . . . . . . . . . . . . . . . 862 1,668 1,727 1,765 1,565 1,792 1,650

U.S.S.R. . . . . . . . . . . . . . . . . 606 674 615 568 715 665 699

Percent of U.S. yields

Argentina . . . . . . . . . . . . . . . 64 84 97 99 99 100 137

Brazil . . . . . . . . . . . . . . . . . . . 47 94 97 87 74 102 87

U.S.S.R. . . . . . . . . . . . . . . . . . 33 38 35 28 34 38 37

SOiJRCE FAO Production Yearbook, Food and Agriculture Organization of the Untted Nations, VOIS. 36 and 38, 1982 and 1984, Rome, Italy
27

.

Table 2-9—OTA Projections of Crop Yields, Crop Production, and

Average Annual Growth Rates for Yields and Production

Yield Product ion

Actual Projecteda Actual Projecteda

Crop 1982 2000 1984 2000

bushels/acre billion bushels -

Wheat . . . . . . . . . . . . . . 36 45 2.6 3.5

Corn . . . . . . . . . . . . . . . . . . . . 113 139 7,7 9.3

Soybeans . . . . . . . . . . . . . . . 30 37 1,9 3.2

Projected average annual

rate of growth through 2000 Percent of production growth

Crop Yield Production due to yield growth

percent percent

Wheat ... ... . . . 1.2 1.9 68

Corn . . . . . . . . . . . . . . . . . . 1.2 1.2 100

Soybeans . . . . . . . . . . . . . . . 1.2 3.4 35

aprojections for “most Itkely environment” ‘assumes to year 2000 (a) a real rate of growth i n research and extenston expen dl

tures of 2 percent per year and (b) the contlnuatton of all other forces that have shaped past development and adoption of

technology

SOURCE U S Congress, Office of Technology Assessment, Technology, Pub/Ic Policy, and the Chang(ng S(ructure of Amer/-

can Agriculture OTA-F-285 (Washington, DC U S Government Printing Off Ice March 1986)

yields by 23 percent. Combined production of the

three crops in 2000 is expected to increase by

nearly one-third over 1984 levels. Average annual

rates of yield increase projected for wheat and

corn —1.2 percent per year—fall below the RFFEP1 world rate for cereal grains over a comparable period. Recently, the United States has lagged

behind many regions of the world in terms of annual growth in yields, since actual U.S. yields are

relatively high.

For the broad category of cereal grains, substantial percentage yield increases occurred in

most regions of the world in the 1970s, mainly

because of improved varieties and management

practices (see table 2-4). Worldwide yields grew

at an annual rate of 1.9 percent. Substantial increases occurred in North Africa and the Middle

East, the EEC, Eastern Europe, centrally planned

economies in Asia—especially that of China—

and Latin America. Cereal yields in those regions

rose by over 2 percent per year between 1969-71

and 1979-81, compared to a 1.7 percent rate in

North America. The slight average annual decline

in yields experienced by the Soviet Union, —0.20

percent, represents the only average negative

trend over the period.

RFF-EPI projections indicate a continued increase in world cereal yields, but at a slower rate

than that of the 1970s (see table 2-4). Marked declines are projected for the EEC, Eastern Europe,

and Asian nations with centrally planned economies; North America may also experience a considerable drop, The Soviet Union, however, is expected to increase its average annual yield, from

a decline of 0.20 percent to a 2.26 percent growth.

Yields of oilseed crops also grew rapidly during the 1970s (see table 2-5), at a worldwide rate

of about 2 percent per year. Unlike wheat yields,

substantial increases in certain regions set the

pace: the EEC, Oceania, and Latin America all

enjoyed annual growth in oilseed yields of over

2.3 percent, compared to a 1.3 percent average

rise in North America, Annual yields fell in Western European countries not affiliated with the

Community, and in Sub-Saharan Africa. A sharp

decline in ‘the average annual growth rate for

world oilseed yields is foreseen by RFF-EPI, from

2.02 to 1.33 percent. Slower growth is forecast

for North Africa and the Middle East, the EEC,

Oceania, and especially for Latin America. In contrast, other Western European countries, the

U. S. S. R., Sub-Saharan Africa, East Asia, and

South Asia may enjoy significant increases.

Production

World production of wheat, corn, and soybeans increased appreciably over the past 15

years. Between 1970-72 and 1980-82, world wheat

production increased by 37 percent, corn produc-
28

tion grew 50 percent, and soybean output nearly

doubled (see table 2-10). U.S. production of corn

and wheat more than kept pace over this period,

with wheat production rising by 75 percent and

corn production by 50 percent. For soybeans, 75

percent U.S. production growth lagged somewhat

behind world trends. As a result, U.S. farmers increased their share of expanding world wheat and

corn production during this time.

Although U.S. production share for soybeans

decreased, it remains comparatively large. In recent years, this country has accounted for 13 to

16 percent of world wheat production and over

45 percent of corn production—excluding 1983,

when drought and government land idling programs cut the domestic corn crop in half. As for

soybean production, the United States’ share

stands at approximately 60 percent (see table

2-11).

Traditional U.S. competitors in world grain and

oilseed trade increased their crop production as

well, and new competitors emerged for certain

crops. For example, international corn production has increased by 40 percent since 1970 (see

table 2-10). Corn exports by other countries have

increased as well, but at a slower rate. Thailand,

the fourth largest producer, is the only competitor to have achieved steady gains in production;

its corn output has doubled since 1970, mainly

due to increases in planted area. Thailand still

Table 2-10.—World and U.S. Production of Corn, Wheat, and Soybeans, Selected Periods

Wheat Corn Soybeans

World U.S.. – World Us . World Us .

(million bushels)

1970 -72 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,348 1,506 11,195 5,125 1,641 1,145

1980 -82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,784 2,644 16,770 7,664 3,194 1,992

1983-85 a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,483 2,480 16,821 6,905 3,283 1,799

(percent increase)

1970-72 to 1980 -82. . . . . . . . . . . . . . . . . . . . . 36 76 50 50 95 74

1970-72 to 1983-85 . . . . . . . . . . . . . . . . . . . . . . 50 65 50 35 100 57

al 9M ~rellmlnay, 1985 projected

SOURCE’ “Background for 1985 Farm Leglslatlon, ‘ Economic Research Service, U S Department of Agriculture, Agricultural Information Bulletins No 467 (wheat),

471 (corn), and 472 (soybeans), 1985

Table 2.11.–World Production and U.S. Share for Wheat, Corn, and Soybeans, 1970-85a

Wheat Corn Soybeans

World U.S. share World U.S. share World U.S. share

Year (million bushels) (percent) (million bushels) (percent) (million bushels) (percent)

1970 , . . . . . . . . . . . . . . . . 11,530 12 10,291 40 1,627 69

1971 . . . . . . . . . . . . . . . . 12,893 13 11,736 48 1,734 68

1972 . . . . . . . . . . . . . . . . . 12,621 12 11,558 48 1,807 70

1973 . . . . . . . ... . . . . . . 12,705 12 12,574 45 2,292 68

1974 . . . . . . . . . . . . . . . . 13,235 13 11,362 41 2,007 61

1975 . . . . . . . . . . . . . . . . 13,099 16 12,818 46 2,409 64

1976 . . . . . . . . . . . . . . . 15,484 14 13,917 45 2,183 59

1977 . . . . . . . . . . . . 14,113 15 14,295 46 2,651 67

1978 . . . . . . . . . . . . . . . . . 16,417 11 15,326 47 2,843 66

1979 . . . . . . . . . . . . . . 15,597 14 16,613 48 3,443 66

1980 . . . . . . . . . . . . 16,274 15 15,893 42 2,969 60

1981 . . . . . . . . . . . . . . . 16,476 17 17,204 47 3,164 63

1982 ... . . . . . . . . . . . . . 17,604 16 17,216 48 3,438 64

1983 . . . . . . . . . . . . . . . . 18,037 13 13,624 31 3,042 54

1984 . . . . . . . . . . . . . . . . . 18,912 14 18,003 43 3,391 55

1985 . . . . . . . . . . . . . . . . . 18,513 — 13 18,930 47 3,457 61 — algu preliminaV, 1985, Pro]ected

SOURCE “Background for 1985 Farm Leglslatlon, ” Economic Research Service, U S Department of Agriculture, Agricultural Information Bulletins No 467 (wheat)

471 (corn), and 472 (soybeans), 1985
29

claims a small share of world production, about

10 percent, but this Asian nation has become an

important factor in world corn trade.

Furthermore, worldwide soybean production

and exports have changed dramatically since 1970

(see table 2-10). Production has tripled in Brazil,

and has increased tenfold in Argentina. Brazil enjoyed a sharp rise in soybean exports during the

mid-1970s, but has since fallen off. The Argentine export boom ensued in the late 1970s; it, too,

suffered a severe downturn in the early 1980s.

Increases in harvested area and yields resulted

in increased international production for both

cereal grains and oilseeds during the 1970s (see

tables 2-4 and 2-5). Cereal grain production rose

at an average annual rate of 2.6 percent, led by

Oceania at 4 percent, the planned economies of

Asia at 3.65 percent, and North America at 3.5

percent. The U. S. S. R., at 0.33 percent, trailed all

other regions.

Greater growth rates were achieved in oilseed

production. World production rose by over 4 percent per year, with notably high growth rates in

Latin America, Oceania, all of Western Europe,

and North America. The U.S.S.R. increased oilseed production at a slower rate than all regions

except Sub-Saharan Africa, which experienced a

decline.

Extensive v. Intensive

Agricultural Production

The relative importance of area expansion as

opposed to yields varies by both region and crop

(see tables 2-12 and 2-13). While technology can

play an important role in land expansion, especially with respect to land clearing and preparation for irrigation, it is more directly associated

with trends in yields. The more a country relies

on high yields, or “intensive” cultural practices,

to increase production, the greater its dependence

on agricultural technology.

World cereal grain production rose at an average rate of 2.6 percent per year between 1969-71

and 1979-81 (see table 2-4). one-quarter of this

increase resulted from expansion of harvested

area, and the remaining three-quarters from yield

improvements. Production increases in Oceania,

North America, and Sub-Saharan Africa were

more dependent on increasing land area, accounting for 80, 50, and 56 percent of average annual

production expansion, respectively. The U.S.S.R.

also depended on expansion of harvested area to

increase production, but the Soviets experienced

a trade-off in yields during the 1970s. Had the

U.S.S.R, matched the world average annual growth

rate in cereal yields of 1.94 percent, its total production would have increased by 2.47 percent per

Table 2.12.—Sources of Change in Cereal Grain Production, by Region,

1969-71 to 1979-81 and Projected to 2000: Average Annual Changes

in Area and Yield as a Percent of Change in Production

Area Yield

1969-71 to 1979-81 to 1969-71 to 1979-81 to

Region 1979-81 2000 1979-81 2000

North Africa-Middle East . . . . . . . . . . . . . 3 8 97 92

Sub-Saharan . . . . . . . . . . . . . . . . . . . . . . . . 56 41 44 59

EEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –4 –13 104 113

Other Western European . . . . . . . . . . . . . –11 – 4 111 104

U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 2 –61 98

Eastern Europe . . . . . . . . . . . . . . . . . . . . . –19 7 119 93

South Asia . . . . . . . . . . . . . . . . . . . . . . . . . 18 7 82 93

East Asia . . . . . . . . . . . . . . . . . . . . . . . . . . 43 51 57 48

Asia (planned) . . . . . . . . . . . . . . . . . . . . . . 6 –13 94 113

Oceania . . . . . . . . . . . . . . . . . . . . . . . . . . 80 64 20 35

Latin America . . . . . . . . . . . . . . . . . . . . . . 25 20 75 80

North America . . . . . . . . . . . . . . . . . . . . . . 50 18 49 82

World . . . . . . . . . . . . . . . . . . . . . . . . . . 25 15 75 85

SOURCE Meet/rig Future Needs for Un/ted Sfafes Food, Fiber and Foresf Products, Resources For the Future, Washington,

DC 1984
30

year instead

Table 2.13.—Sources of Change in Oilseed Production, by Region, 1969.71 to 1979-81

and Projected to 2000: Average Annual Changes in Area and Yield

as a Percent of Change in Production

Area Yield

1969-71 to 1979-81 to 1969-71 to 1979-81 to

Region 1979-81 2000 1979-81 2000

North Africa-Middle East . . . . . . . . . . . . . –38 87 138 13

Sub-Saharan . . . . . . . . . . . . . . . . . . . . . . . . 95 –214 5 318

EEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 72 40 28

Other Western European . . . . . . . . . . . . . 130 39 –27 60

U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . –51 10 151 90

East Europe . . . . . . . . . . . . . . . . . . . . . . . . 67 66 32 33

South Asia . . . . . . . . . . . . . . . . . . . . . . . . . 62 26 38 73

East Asia . . . . . . . . . . . . . . . . . . . . . . . . . . 42 22 57 78

Asia (planned) . . . . . . . . . . . . . . . . . . . . . . 48 54 51 45

Oceania . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 44 23 55

Latin America . . . . . . . . . . . . . . . . . . . . . . 62 52 36 47

North America . . . . . . . . . . . . . . . . . . . . . . 75 39 24 60

World . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 38 47 62

SOURCE” Meet/rig Future Needs forUn/fed States Food, Fiberand Forest Products, Resources For the Future, Washington,

DC, 1984

of 0.33 percent; this might have had

a profound impact on world cereal trade. The opposite pattern is noted in the EEC, other Western

European countries, and Eastern Europe. In these

regions, agricultural production became more intensive: yield increases more than compensated

for a decline inland area, raising average production as a whole.

The effects of extensive and intensive agricultural production as a source of growth will shift

dramatically for cereal crops over the next 15

years, according to the RFF-EPI projections. Approximately 15 percent of the anticipated annual

growth in world cereal production will result from

increased area, as opposed to 25 percent in the

1970s; 85 percent is expected to come from higher

yields, a reflection of high marginal returns to

nonland inputs and advances in technology. Area

expansion is forecast to play a lesser role in average annual production growth than during the

1970s in every region except East Asia and North

Africa and the Middle East. In two important

cereal regions, the EEC and the Asian centrally

planned nations, projected declines in harvested

area could reduce overall production growth rates

by 13 percent unless yields increase. Growth in

cereal production rates will also depend on more

intensive agricultural practices in the crucial regions of North America and Oceania.

The United States’ unique ability to increase

crop production rapidly aids its international competitiveness in agriculture. Several factors contribute to this responsiveness: a considerable stock

of arable land that suits world standards for intensive cropping, even though a sizable portion

is marginal from a domestic perspective; maintenance of large carryover stocks of wheat and feed

grains; and the technical capacity of U.S. farmers

to expand plantings while increasing yields. U.S.

farmers served the growing export markets of the

1970s and early 1980s, and can do so in the future.

Expansion of U.S. production capacity in the

1970s actually fostered trade, helping to keep

world grain and oilseed prices in check after depletion of stocks triggered abrupt price increases from

1972 to 1975. Increased production also allowed

U.S. farmers to increase their share in some markets, at least temporarily. In addition, the responsiveness of U.S. agriculture was an important factor in controlling inflation of domestic food prices,

which had reached a rate of 14 percent in 1973-

74 and which accounted for over one-half of the

overall 1973 increase in the consumer price index,2

Despite reductions in U.S. stocks of wheat and

corn—as well as increases in domestic exports of

‘Andrew Schmitz, “United States Competitiveness in Agricultural

Trade, ” contractor report prepared for the Office of Technology

Assessment, 1985,
these crops—between 1971 and 1975, stock levels

were still ample by 1975. In the case of wheat,

they were excessive.

To the extent that agricultural production can

insulate the U.S. economy from abrupt increases

in food prices and overall inflation, it has a positive effect on disposable income and thus can indirectly aid other sectors of the economy. Agriculture also enhances competitiveness in other

sectors by its moderating influence on cost-ofliving adjustments (COLAS) in wages. However,

a trade-off exists, which has been dramatically evident since 1981: overproduction may result in

lower farm incomes and increased costs for domestic farm programs.

As the export market contracted and became

more competitive after 1981, the robust expansion of the preceding decade exposed U.S. agriculture to serious adjustment problems. In the

price regime of the 1970s, grain and oilseed pro31

duction were profitable enterprises for more U.S.

farmers, in a wider range of production areas,

than has been the case since 1981. The increased

importance of feed grain—primarily corn—and

soybean exports, which are more sensitive to income changes than wheat, has added to the instability. By the early 1980s, area planted for wheat,

corn, and soybeans in the United States had

reached record levels. Yields were also exceptional

in 1981 and 1982, and international production

remained high as well. As a result, enormous

stocks of wheat and corn accumulated in this

country (see table 2-14 ). Wheat stocks at the end

of 1982 constituted 63 percent of total consumption—exports plus domestic consumption—and

corn stocks had reached the highest level in 20

years. Corn stocks did drop substantially between

1982 and 1983, the result of a national production control program, as well as a severe drought;

however, stocks doubled between 1983 and 1984.

Table 2-14.—U.S. Ending Stocks and Stock-to-Use Ratios for Wheat, Corn, and Soybeans, 1970-84

Wheat Corn Soybeans

Ending Stocks- Ending Stocks- Ending Stocksstocks to-use stocks to-use stocks to-use

Year (million bushels) (percent) (million bushels) (percent) (million bushels) (percent)

1

-

970 . -:. . . . . . . . . . . . . . -

823 55 ’666

—

15 99 8

1971 . . . . . . . . . . ... 983 66 1,127 22 72 6

1972 ., . . . . . . 597 30 708 12 60 5

1973 ., . . . . 340 17 484 8 171 12

1974 . . . . . . . . . 435 26 361 8 188 16

1975 . . . . . . . . . . . . 666 35 400 7 245 16

1976 . . . . . . . . . . . . . 1,113 65 886 15 103 7

1977 . . . ... 1,178 59 1,111 18 161 9

1978 . . . . . . . . . . . . 924 46 1,304 18 176 9

1979 . . . . ... . . 902 42 1,617 21 358 17

1980 . . . . . . . . . . . . . . 989 43 1,034 14 313 17

1981 . . . . . . . . . . . 1,159 44 2,174 31 254 13

1982 . . . . . . . . . . . . . . . 1,515 63 3,119 43 345 18

1983 . . . . . . . . . . . . . . 1,399 55 723 11 176 10

1984 . . . . . . . . . . . . . . . . . 1,425 55 1,379 20 316 18

SOURCE “Background for 1985 Farm Leglslatlon, ” Economic Research Service, U S Department of Agriculture, Agrl;ultural Information Bulletins No 467 (whea~

471 (corn), and 472 (soybeans), 1985

U.S. MARKET SHARES

Although the United States continues to dom- exports increased sharply between 1971 and 1973,

inate world trade in wheat, corn, and soybeans, from 33 to a record 53 percent. Since then, the

the U.S. share of world markets for these crops export share has ranged from 30 to 48 percent of

has fluctuated over the past 15 years (see table the world total. A declining market share since

2-15). For example, the U.S. share of world wheat 1981 has presented serious problems for U.S.
32

Table 2-15.—World Exports and U.S. Market Share for Wheat, Corn, and Soybeans, 1970.85a

Wheat b Cornc Soybeans

World U.S. share World U.S. share World U.S. share

Year (million bushels) (percent) (million bushels) (percent) (million bushels) (percent)

1970 . . . . . . . . . . . . . . . . .

1971 . . . . . . . . . . . . . . . . .

1972 . . . . . . . . . . . . . . . . .

1973 . . . . . . . . . . . . . . . . .

1974 . . . . . . . . . . . . . . . . .

1975 . . . . . . . . . . . . . . . . .

1976 . . . . . . . . . . . . . . . . .

1977 . . . . . . . . . . . . . . . . .

1978 . . . . . . . . . . . . . . . . .

1979 . . . . . . . . . . . . . . . . .

1980 . . . . . . . . . . . . . . . . .

1981 . . . . . . . . . . . . . . . . .

1982 . . . . . . . . . . . . . . . . .

1983 . . . . . . . . . . . . . . . . .

1984 . . . . . . . . . . . . . . . . .

1985 . . . . . . . . . . . . . . . . .

2,021

1,911

2,462

2,315

2,363

2,451

2,326

2,675

2,646

3,160

3,458

3,722

3,625

3,747

3,899

3.238

37

33

48

53

43

48

41

42

45

44

44

48

42

38

36

30

1,236

1,374

1,752

2,106

1,823

2,386

2,386

2,602

2,799

3,086

3,295

2,831

2,634

2,617

2,837

2,620

41

57

71

58

63

72

71

75

76

79

72

70

71

71

65

55

462

474

567

664

572

706

703

820

906

1,071

903

1,085

1,045

960

918

974

94

88

85

81

74

79

80

85

82

82

80

86

87

77

65

80

a1965 prelimlna~,

bwheat excl

u d e s intra-EEC trad e

ccorn includes intra-EEC trade

SOURCE’ ”Background for 1965 Farm Legislation;’ Economic Research Service, U.S Department of Agriculture, Agricultural Information Bulletins No 467 (wheat),

471 (corn~and472(soybeans~ 196S

wheat producers, but it is important to note that

pronounced declines were experienced in 1974 and

1976, when conditions were generally favorable

for U.S. exports. In other words, the U.S. market share for wheat has been unstable, to some

extent. Still, the effects of a decline in both market share and prices have been painful for U.S.

producers over the last several years.

The United States has also dominated world

corn exports, and has increased its share since the

mid-1970s; again, however, this trend has varied,

ranging from 41 to 79 percent since 1970. Markedly large annual changes occurred between 1970

and 1973, and relatively large decreases have occurred since 183. The fact that corn is one of numerous livestock feed sources traded in international markets complicates matters; other coarse

grains, such as sorghum, feed wheat, grain byproducts, manioc, and citrus pulp, compete with

corn. In this larger context, the United States has

suffered considerably in recent years. Argentina’s

exports of corn and sorghum have made that

country a major competitor in the world coarse

grain market. The U.S. share of coarse grain exports declined from 72 percent in 1979-80 to just

under 60 percent in 1981-82, where it remained

through 1984-85, while Argentina’s share doubled

over the same period (see table 2-16). An overall

decline in world markets for both corn and coarse

grains has made the U.S. farmer’s loss in market

share all the more difficult.

In soybeans, the United States has dominated

an international market that increased enormously

during the 1970s, but has since leveled off (see table 2-15), The U.S. share typically exceeds 80 percent of world exports. Still, there have been a

number of interludes during which U.S. market

share shifted up or down, notably 1970-71, 1973-

74, 1976-77, 1980-81, and each year since 1982.

Although the United States ships wheat, corn,

and soybeans to dozens of countries, the import

levels of several key countries or groups of countries present major sources of instability for U.S.

exports. Soybean purchases by centrally planned

and developing countries, and by the EEC, have

been a major source of variability. Corn purchases

by the EEC, the U. S. S. R., and China have a profound effect on U.S. corn exports. The U.S.S.R.

and China are also the most important sources

of variability in world wheat trade. In recent

years, China has increased wheat production and

has reduced imports from the United States.3

3

FA0 Trade Yearbook, Food and Agriculture Organization of the

United Nations, VO]S. 32-38, 1970 to 1984, Rome, Italy.
33

Table 2-16.—WorId Coarse Grain Exports, 1979.86 Crop Years

Country or region 1979-80 1980-81 1981-82 -

1982-83 1983-84 1984-85 1985-86a

Million metric tons

United States . . . . . . .

Canada . . . . . . . . . . . .

Australia . . . .

Argentina . . . . .

South Africa ... . . . . . . . . .

Thailand . . . . . . . . . .

Other . . . . . . . . . . . . . . . .

World total . . . . . . . . . .

71,4

3,8

4.1

5,3

3,5

2.2

9.1

99.4

United States . . . . . 72

Canada . . . . . . . . . . . . . 4

Australia . . . . . . . . . . . . 4

Argentina . . . . . . . . 5

South Africa, . . . . . . . . . 4

Thailand . . . 2

Other . . . . . . . . . . . . . . . . . . 9

69.6

5.5

2.3

14.2

4.1

2.4

10.7

108.8

64

5

2

13

4

2

10

58.4

7.2

3.1

10.3

4.7

3.5

9.4

96.6

54.0

7.1

1

11.6

2.3

2.3

11.6

89.9

Percent of world total

55.8

5.5

5.5

10.9

0.1

3.4

10.8

92

55.5

3.3

7.1

10.6

0.5

3.5

21,0

101,5

45.9

5.8

6.0

11.9

1.0

3.8

17,9

92.3

60 60 61

7 8 6

3 1 6

11 13 12

5 3 0

4 3 4

10 13 12

55 50

3 6

7 7

10 13

0 1

3 4

21 19

World total . . . . 100 100 100 100 100 100 100

SOURCE Agncu/fura/ Stat(shcs, US Department of Agriculture Washington, DC 1986

—

Although the United States has experienced a

pronounced decline from peak export years, U.S.

shares of world wheat, corn, and soybean exports

have not fallen so precipitously from long-term

levels as to indicate a major shift in this country’s

international position. Significant annual changes

in the U.S. market share—including some major

losses—did occur before 1981. But these fluctuations in market share did not attract as much attention in the 1970s, due to expanding world markets and more favorable prices. U.S. exports of

cereal and oilseed crops will probably increase

over the long term, but world trends in production and consumption, and in imports and exports, suggest that U.S. market shares will continue to fluctuate from year to year.

THE LONG-TERM OUTLOOK FOR INTERNATIONAL TRADE

Based on anticipated trends in the food consumption and production of other regions, exports

of cereals and oilseeds from North America are

likely to increase over the long term, but at a

slower average rate than experienced in the 1970s.

Also, North American exports will play a more

important role in the world food system. However, U.S. farmers will have to rely on world markets for their economic well-being to a greater degree than they do today, and will be exposed to

greater risks as a result.

Table 2-17 shows regional production and consumption of cereal grains in 1978-80, and as projected for the year 2000 by RFF-EPI. Production

is envisioned as increasing in all regions over the

next 15 years, but consumption—a function of

population, income trends, and evolving diets—is

projected to outstrip production in every region

but the EEC, Oceania, and North America. In

2000, Sub-Saharan Africa’s cereal consumption

exceeds production to a much greater extent than

in the late 1970s; North Africa and the Middle

East and South Asia will also be less able to meet

consumption needs from domestic production.

The entire Western European region should enjoy

a considerably improved production-consumption

balance,

Of the three surplus producing regions, Oceania

is the most dependent on exports, with a production/consumption ratio of 2.67 in the late 1970s;

a somewhat lower ratio is forecast for 2000. The

EEC is projected to increase its exportable surplus
34

Table 2-17.—Production and Consumption of Cereal Grains, 1978-80 and Projected to 2000, by Region

1978-80 2000

Production Consumption Ratio Production Consumption Ratio

(1 ,000 mt) (1,000 mt)

North Africa-Middle East . . . . . . . . . . . . . 59,899

Sub-Saharan . . . . . . . . . . . . . . . . . . . . . . . . 53,939

EEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,940

Other Western European . . . . . . . . . . . . . 32,708

U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,698

Eastern Europe . . . . . . . . . . . . . . . . . . . . . 95,256

South Asia . . . . . . . . . . . . . . . . . . . . . . . . . 180,675

East Asia . . . . . . . . . . . . . . . . . . . . . . . . . 100,245

Asia (planned) . . . . . . . . . . . . . . . . . . . . . . 302,715

Oceania . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,444

Latin America . . . . . . . . . . . . . . . . . . . . . . 85,513

North America . . . . . . . . . . . . . . . . . . . . . . 322,625

World 1,573,647

,,

84,032

58,324

123,115

42,358

220,312

109,489

182,754

130,082

317,712

8,398

91,315

199,753

1,567,644

0.71

0.92

0.99

0.77

0.89

0.87

0.99

0.77

0.95

2.67

0.94

1.62

1.00

95,317

78,897

153,330

49,446

276,488

119,153

277,446

170,709

425,333

41,749

151,310

450,546

2,289,724

141,827

108,187

133,337

57,747

306,290

138,879

291,288

223,804

456,912

16,413

161,123

253,917

2,289,724

0.67

0.73

1.15

0.86

0.90

0.86

0,95

0.76

0.93

2.54

0.94

1.77

1.00

SOURCE &feef/ng FufurefVeeds for Un/k?d Stafes Food, Fiber arrd Forest F’roducfs, Resources For the FutureWashington, DC, 1984.

Table 2.18.—Production and Consumption of Oilseeds, 1978-80 and Projected to 2000, by Region

1978-80 2000

Production Consumption Ratio Production Consumption Ratio

(1,000mt) (1,000mt)

North Africa-Middle East . . . . . . . . . . . . .

Sub-Saharan . . . . . . . . . . . . . . . . . . . . . . .

EEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Western European . . . . . . . . . . . . .

U.S.S.R . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Eastern Europe . . . . . . . . . . . . . . . . . . . . .

South Asia . . . . . . . . . . . . . . . . . . . . . . . . .

East Asia . . . . . . . . . . . . . . . . . . . . . . . . . .

Asia (planned) . . . . . . . . . . . . . . . . . . . . . .

Oceania . . . . . . . . . . . . . . . . . . . . . . . . . . .

Latin America . . . . . . . . . . . . . . . . . . . . . .

North America . . . . . . . . . . . . . . . . . . . . . .

3,417

7,508

2,002

1,059

12,008

3,900

13,997

3,145

19,213

460

24,058

67,119

4,811

5,324

32,362

6,127

11,963

10,805

11,256

9,032

20,251

408

8,840

32,870

0.71

1.41

0,06

0.17

1.00

0.36

1.24

0.35

0.95

1.13

2.72

2.04

4,679

7,539

4,527

2,403

21,405

8,468

19,172

5,998

38,455

793

38,083

97,695

10,065

8,734

43,796

9,783

20,306

16,633

17,046

22,565

36,659

1,989

18,359

43,282

World . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,796 154,049 1.02 249,217 249,217

SOURCE &feef/rrg Fufure Needs for Un/fed Stafes Food, Fiber and Forest Products, Resources For the Future, Washington, DC, 1984

0.46

0.86

0.10

0.25

1.05

0.51

1.12

0.27

1.05

0.40

2.07

2,26

1,00

by approximately 15 percent, suggesting that U.S.

imports to the EEC will decrease while competition with the EEC in other cereal markets will

grow more intense. The exportable surplus will

also increase in North America, where production is expected to exceed consumption by 77 percent in 2000, compared to 62 percent in the late

1970s.

Oilseed production is projected to increase in

every region (see table 2-18) by 2000, although

only 5 of the 12 regions should have an export

surplus. Sub-Saharan Africa is likely to become

a deficit region for oilseeds, with consumption

topping production. Production/consumption ratios will also grow more precarious in North

Africa and the Middle East, and in Oceania. The

major surplus regions will continue to be North

America and Latin America, both of which may

produce more than twice the oilseed volumes that

they consume. Latin America should lose its considerable dependency on exports to absorb production—nearly three times regional consumption

in 1978 to 1980—because its level of consumption will increase sharply. However, North America, and the United States in particular, is forecast to grow more dependent on foreign markets.

World Trade in Wheat, Corn,

and Soybeans

In absolute terms, world trade in these crops

has increased dramatically since 1970. World

wheat exports grew by 60 percent, corn exports
35

—

by 111 percent, and soybean exports by 110 percent between 1970 and 1985 (see table 2-15), In

terms of relative changes, however, world exports

of the three crops rose as a proportion of world

production throughout the 1970s, but have decreased since that time. The corn market held the

most pronounced change. World corn exports

constituted about 12 percent of total production

in the early 1970s; this figure climbed to a peak

of 21 percent in 1980 and remained high, at 19

percent, in 1983. Since that time, corn exports

have fallen to 14 percent of world production

(see table 2-19). The corn market, which had approached wheat in terms of the proportion traded,

has again fallen behind both wheat and soybeans

in this category. In addition, the shift of internaTable 2-19.—World Exports as a Share of

World Production, 1970.83 (percent)

Wheat Corn Soybeans

1970 . . . . . . . . . . . 18 12 28

1971 . . . . . . . . . . . . . 15 12 27

1972 ., . . . . . . . . . . . 20 15 31

1973 ., . . . . . . . . . . . . 18 17 29

1974 ... . . . . 18 16 29

1975 ., . . . . . . . . 19 19 29

1976 . . . . . . . . . . . . 15 17 32

1977 . . . . . . . . . . 19 18 31

1978 ... . . . 16 18 32

1979 . . . . . . . . . . . . . . 20 19 31

1980 ., . . . . . . . 21 21 30

1981 . . . . . . . . . . . . . . 23 16 34

1982 . . . . . . . . . . . . . . 20 15 31

1983 . . . . . . . . . 21 19 32

1984 . . . . . . . . . . . . . . 21 16 27

1985 . . . . . . . . . . . . . 18 14 28

SOURCE h.4eef/ng Future Needs for Urr/ted States Food, F/ber and Forest

Products Resources For the Future, Washington DC, 1984

tional wheat trade toward commercial sales represents an important development of the past two

decades,

Table 2-2o summarizes the flow of world trade

in cereals and oilseeds, as implied by the regional

production/consumption balances discussed in the

preceding section. Cereals trade could double between 1980 and 2000, and oilseed trade may rise

by about half. The RFF-EPI projections indicate

that the volume of U.S. cereal grain exports could

increase by about 58 percent, and oilseed exports

by about 64 percent, compared to 1979-80.

Future patterns of trade implied by the RFF-EPI

projections show a shift in world imports of cereal

grains, away from Europe and the U.S.S.R. and

toward regions where demand has been more

variable, like Asia (see table 2-21). Increased cereal

imports to Sub-Saharan Africa will largely be in

the form of food aid and confessional sales. A

similar shift in the flow of trade is anticipated for

oilseeds. European regions, especially the EEC and

Eastern Europe, will account for a smaller share

of imports; North Africa and the Middle East,

Sub-Saharan Africa, and in particular East Asia,

are expected to grow as import markets. A change

in import share toward developing countries may

increase the variability of world trade in cereals,

grains, and oilseeds. On the whole, production/

consumption trends imply that U.S. producers

will become more dependent on export markets,

while exports will become less predictable in other

regions. The burden of the increased risks associated with these developments will, in large measure, fall on the United States.
36

Table 2-20.—Trade Patterns Implied By Projected Balance of

Production and Consumption of Cereal Grains and Oilseeds,

1978.80 and Projected for 2000, by Regione

(l,OOO MT)

Cereal grains Oilseeds

Region 1978-80 2000 1978-80 2000

North Africa-Middle East . .

Sub-Saharan . . . . . . . . . . . . .

EEC . . . . . . . . . . . . . . . . . . . .

Other Western European . .

U.S.S.R . . . . . . . . . . . . . . . . . .

Eastern Europe . . . . . . . . . .

South Asia . . . . . . . . . . . . . .

East Asia . . . . . . . . . . . . . . .

Asia (planned) . . . . . . . . . . .

Oceania. . . . . . . . . . . . . . . . .

Latin America. . . . . . . . . . . .

North America . . . . . . . . . . .

World . . . . . . . . . . . . . . . . .

(24,133)

(4,385)

(1,175)

(9,650)

(24,614)

(14,233)

(2,079)

(29,837)

(14,997)

14,046

(5,802)

122,872

–130,905

(46,510)

(29,290)

19,993

(8,301)

(29,802)

(19,726)

(13,842)

(53,095)

(31,579)

25,336

(9,813)

196,629

–241,958

(1,394)

2,184

(30,360)

(5,068)

(6,905)

2,741

(5,887)

(1,038)

52

15,218

34,249

–50.652

(5,386)

(1,195)

(39,269)

(7,380)

1,099

(8,165)

2,126

(16,567)

1,796

(1,196)

19,724

54,413

–79,158

aparenthe~lzed values indicate amount by which consumption exceeds supplY (imPlYin9 imPorts).

SOURCE Meet/r?g Fufure Needs forUrr/fedStates Food, Fiberar?d Forest Products, Resources For the FutureWashington,

DC, 1984.

Table 2-21.— Projected Shifts ln Shares of World Trade in Cereal Grains and Oilseeds,

1978.80 t0 2000, Percent of lmports (exports parenthesized)

Cereal grains Oilseeds

Region 1978-80 2000 1978-80 2000

North Africa-Middle East . . 18 19 7

Sub-Saharan . . . . . . . . . . . . . 3 12 (4) 2

EEC . . . . . . . . . . . . . . . . . . . . 1 (8) 60 50

Other Western European . . 7 3 10

U.S.S.R . . . . . . . . . . . . . . . . . . 19 12 (o) (1)

Eastern Europe . . . . . . . . . . 11 8 14 10

South Asia . . . . . . . . . . . . . . 2 6 (5) (3)

East Asia . . . . . . . . . . . . . . . 23 22 12 21

Asia (planned) . . . . . . . . . . . (2)

Oceania . . . . . . . . . . . . . . . . . (11) (10) (:)

Latin America . . . . . . . . . (30) (25)

North America . . . . . . . . . . . (94) (81) (68) (69)

SOURCE &feef/ng Future Needs forUn/fedStafes Food, Fiberarrd Foresf Products, Resources For the Future, Washington,

DC, 1984
Chapter 3

Cost-Competitiveness of

U.S. Agriculture
Chapter 3

Cost-Competitiveness of

U.S. Agriculture

This chapter addresses the cost of producing

crops in the United States and in other nations.

Though such comparisons are fraught with

difficulties, many U.S. producer areas are costcompetitive with similar areas in other countries.

However, the United States does not appear to

enjoy a large cost advantage over its major competitors in several key markets.

Also, the chapter focuses on an aspect of international competitiveness that has received relatively little attention: policy problems posed by

the wide range of production costs associated with

U.S. agriculture. As a result, many U.S. producers and farming areas may not perform at the level

of better growing regions in other parts of the

world.

INTERNATIONAL COMPARISONS OF PRODUCTION COSTS

Ideally, the competitive standing of U.S. agriculture could be gauged by comparing full production and marketing costs in the United States

with those in competitor nations. But it may not

be possible to obtain reliable and comparable production cost data for many other countries. A

dearth of information is not unusual in international trade analysis; nevertheless, this handicaps

evaluation of America’s competitive standing in

world agriculture.

Even if reliable on-farm cost data were available, they would reveal only the absolute advantage that the United States enjoys at the farm level

in the production of specific crops. A complete

treatment of absolute advantage would require

comparison of costs associated with the marketing of farm goods, such as transportation—a major issue in the 1985 farm bill, raised by “cargo

preference” provisions—and a range of important

but indirect government expenditures, such as

subsidies, research and development, education,

and soil and water conservation. To examine the

U.S. final comparative advantage as an agricultural exporter would require even more extensive

analysis, which would determine whether land,

labor, and capital devoted to the production of

a specific crop might suit other agricultural products more effectively,

In 1985, U.S. Department of Agriculture (USDA)

analysts attempted to duplicate U.S. on-farm “cost

of production” (COP) budgets in other countries

for key commodities. The USDA found, however,

that the foreign data were not comparable. Several commodities and countries were examined:

wheat—the U. S. S. R., Argentina, France, and

People’s Republic of China; rice—Thailand; soybeans—Brazil; and cotton—Pakistan. In a staff

memorandum dated June 4, 1985, the USDA concluded that:

In no country except the U.S. could [crop]

budgets be developed using data collected by statistically reliable survey techniques and procedures. Sketchy budgets from other countries come

from data collected from a few select farmers in

the better producing areas. These budgets more

nearly represent what extension farm management specialists at the universities [in the United

States] put together using data provided by experiment station researchers and lead farmers. ’

Even the limited number of crop budgets that

were obtained from other countries did not compare to the USDA’s COP data. Nor could analysts

systematically isolate the impact of subsidies provided by various governments that affect input

use or prices.

1“Foreign COP Data, ” unpublished staff paper prepared for the

Economic Research Service, U, S Department of Agriculture, Junt’

1985,

3 9
40

Particular problems that USDA encountered in

gathering data for individual countries demonstrate the overall difficulty involved in this process. In the appraisal of Soviet production costs

for wheat, for example, USDA analysts note that:

. . . the Soviet agricultural sector is characterized

by extensive direct budgetary subsidies to farms,

extremely lenient State credit policies, a complicated system of administered prices, no direct land

rents, and other factors which not only make international cost of production analysis highly

problematic, but also make meaningful internal

Soviet cost-accounting an elusive goal , . . in no

case were actual wheat cost of production data

available [emphasis in original].2

Different but equally confounding problems

arose in assessing wheat production costs in

China:

Much of the inputs are not purchased and carry

an imputed value . . . the reported labor expense

item is “standard labor days” valued at a uniform

rate of 0.80 yuan per day for all years since 1956.

The cost of labor certainly increased between 1956

and 1979, so this is a questionable measure of labor cost . . . Nothing is known about other critical components of total cost. Depreciation and

return to collectively or individually owned assets are important but unknown. Estimation of

many of these items would be very difficult . . .

How do we estimate cost of land in an economy

in which there is no market for land?3

Conversion of foreign currency values to U.S.

dollars was necessary, in order to compare input

costs and crop prices. However, some of these calculations were influenced by shifting exchange

rates, government exchange rate policies, or financial conditions in certain nations. For instance,

the dollar appreciated by 40 percent in value

against the French franc over the 3 years for which

wheat production cost data were obtained for

selected farms in France—the exchange rate went

from 5.43 francs per dollar in 1981 to 7.62 francs

per dollar in 1982. “The strengthening dollar was

a major

duction

contributor to

costs, ”4 when

the decline in French prothose costs were denomi-

‘Ibid.

‘Ibid.

‘Ibid.

nated in U.S. dollars. Because Soviet rubles are

not conversable, analysts resorted to the exchange

rate set by the Soviet Government. The official

exchange rate also had to be used to denominate

Chinese costs and prices for wheat, which overvalued the yuan “to a significant but unknown

extent.’” In Brazil, financial analysis was complicated by inflation rates of approximately 10 percent per month:

Since the devaluation of the cruziero is linked

to inflation, conversion of Brazilian estimates to

U.S. dollars effectively deflates production costs

, . . it is necessary to assume that a given input

is used in a given month during the production

cycle . . . adjustment is important because payment at harvest may be in cruzieros that have inflated [by] 100 percent since soil preparation costs

were incurred. b

USDA analysts have recently evaluated variable production costs for major producing regions

in the United States and competing nations from

1980 to 1982 (see table 3-l). In theory, a farmer

will continue to produce an agricultural commodity, in the short term, for as long as variable

production costs can be recouped. Over the long

‘Ibid.

‘Ibid.

Table 3-1 .—Average Variable Costs of Production

for Wheat, Corn, and Soybeans, Selected Countries

and Regions, 1980-82

1980-82 Percent of

Crop and region average U.S. average

Wheat:

U.S. average. . . . . . . . . . . . . . . . 1.56 100

Corn Belt/Lake States . . . . 1.65 106

North Plains. . . . . . . . . . . . . . 1.29 83

Central Plains . . . . . . . . . . . 1.28 82

Canada (Saskatchewan) . . . . 1.28 82

Australia. . . . . . . . . . . . . . . . . 2.06 132

Corn:

U.S. average. . . . . . . . . . . . . . . . 1.22 100

Corn Belt/Lake States . . . . . 1.13 93

Argentina (Pergamino) . . . . . 0.87 71

Soybeans:

U.S. average. . . . . . . . . . . . . . . . 1,97 100

Corn Belt/Lake States . . . . . 1.46 74

Brazil (Southeast) . . . . . . . . . 1.84 93

Argentina (Pergamino) . . . . . 1.72 88

SOURCE: “The U S. Competitive Position In World C;mmod!ty Trade, ” Agr/cu/

fura/-Food Po/icy Review” Commodity Program Perspectives, Economic

Research Service, U.S. Department of Agriculture, Agricultural Eco

nomic Report No 530, 1985
.

term, production continues if the farmer can recover fixed costs—primarily associated with

land—and earn acceptable returns to labor and

management. At that point, fixed costs would begin to resemble variable costs. If prices fall below variable costs, farmers will tend to withdraw

productive resources from that enterprise in the

short term.

Many of these factors influence the data that

USDA collected from other countries. It is not

clear, for example, if the data presented for other

countries represent average production costs for

the nation or the region, or if they are costs for

a “typical farm” or an exemplary one. Leaving

these problems aside, however, it appears that

compared to other countries and regions, the

United States—as a whole—was not always the

low-cost producer of wheat, corn, and soybeans.

For the 1980-82 period, average variable production costs for wheat in the United States exceeded

those of Saskatchewan, Canada, by 18 percent;

41

.

for corn, the U.S. average exceeded that of Pergamino, Argentina, by 29 percent; and for soybeans, U.S. costs exceeded both those of Southeast Brazil by 7 percent, and Pergamino by 12

percent. When more productive U.S. growing

areas—wheat in the two Plains regions, and soybeans in the Corn Belt—are compared individually against foreign regions, U.S. performance improves. In addition, U.S. production costs do fall

below some competitors; Australian wheat production costs, for example, topped U.S. levels by

almost one-third.

To reemphasize, these data do not provide a

complete picture of U.S. cost-competitiveness

relative to other countries. Nevertheless, the fact

that most variable costs reported for other countries are comparable or below costs in the better

U.S. growing regions suggests that this country

does not enjoy a significant advantage in on-farm

production costs.

TRENDS IN PRICES PAID AND RECEIVED BY FARMERS

International production costs and profits may

be compared by examining national trends in

prices received for crops and production input

payments, and the relationship between these factors. Indexes of those prices are listed for the

United States and four competitors in table 3-2.

The indexes have been adjusted to a 1976 base

year for international price relationships, Prices

that farmers received for crops rose in all countries between 1976 and 1981. However, by the end

of the 1970s, prices paid were rising even faster

in every country but Canada. The ratio of prices

received to prices paid suggests that Canadian

producers enjoyed a more favorable price regime

betweeen 1976 and 1981 than did their counterparts. Even in the hyperinflated Argentine economy, the 1982 ratio of prices received to prices

paid was higher than in the United States. Interestingly, prices paid by farmers increased at roughly

uniform rates in Canada, France, Australia, and

the United States, although updated USDA data

indicate that the prices-paid index for the United

States rose to 173 in 1981, a higher level than that

of the table. Still, this finding suggests that the

United States has not been more vulnerable to cost

increases than several major competitors.

U.S. Costs of Production

Discounting the problems of international comparisons, fairly reliable data for U.S. production

costs reveal a wide range for most major crops.

As a result, the use of a single “national average

price” for a particular commodity can be misleading, particularly in the context of international

trade. In terms of average costs, U.S. agriculture

may be competitive for major traded commodities; however, many U.S. individual farm firms

may not be able to compete.

Table 3-3 indicates the regional diversity of U.S.

production costs for wheat, corn, and soybeans

between 1980 and 1982. Wheat production costs

in the Southern Plains topped the national aver-
4 2

Table 3“2.—lndexes of Prices Received by Farmers for Crops and and Prices Paid for Production Inputs,

Selected Countries, 1976-828

Country 1976 1977 1978 1979 1980 1981 1982

Canada

Prices received. . . . . . . . . 131 124 130 154 181 190 NA

Prices paid . . . . . . . . . . . . 100 104 116 136 149 169

Ratio . . . . . . . . . . . . . . . . . 1.31 1.19 1.12 1.13 1.21 1.12

Argentina

Prices received. . . . . . . . . 100 244 634 1,303 2,283 4,814 16,947

Prices paid . . . . . . . . . . . . 100 238 624 1,482 2,903 5,947 19,429

Ratio . . . . . . . . . . . . . . . . . 1.00 1.03 1.02 0.88 0.79 0.81 0.87

France

Prices received. . . . . . . . . 118 120 126 136 143 157 NA

Prices paid . . . . . . . . . . . . 100 108 115 126 145 164

Ratio . . . . . . . . . . . . . . . . . 1.18 1.11 1.09 1.08 0.99 0.95

Austra/ia

Prices received. . . . . . . . . 110 110 108 120 146 169 162

Prices paid . . . . . . . . . . . . 100 112 124 132 147 169 188

Ratio . . . . . . . . . . . . . . . . . 1.10 0.98 0.88 0.91 0.99 1.00 0.86

United States

Prices received . . . . . . . . . 107 105 110 122 131 141 127

Prices paid . : . . . . . . . . . 100 105 115 132 146 159 162

Ratio . . . . . . . . . . . . . . . . . 1.07 1.00 0,96 0.92 0.90 0.88 0.78

alndeX~~~~n~trU~t~d from FAO data, f~zproducfjofl ~ea~book, prices paid indexeswereadlusted toabaseyearof 1976. prices received Index was constructed

based on the ratio between prices received and prices paid in 1976

SOURCE FAOProducfion Yearbook, Food and Agriculture Organization of the United Nations, VOI 36, 1982, Rome, Italy

age by over 35 percent 1980; a difference of 56

percent existed that year between the lowest cost

region, the Central Plains, and the Southern

Plains. Also, considerable annual fluctuation in

production costs is evident within wheat producing regions, although the Central and Northern

Plains maintain consistently low levels. In the case

of corn, the Lake States and Corn Belt regions that

dominate U.S. corn production were also the lowcost producers of the early 1980s. The other regions had above-average production costs in all

3 years, which were especially high in the Southeast and Southwest. For soybeans, both the Lake

State/Corn Belt and Northern Plains regions hold

low costs, and are fairly competitive. A wide gap

exists between those two regions and the Delta

and Southeast regions.

Several factors contribute to regional differences in cost of production: varying yields, attributable to climate and soil conditions; differences in the amount and cost of inputs like

herbicides, insecticides, and fertilizer; and fluctuations in interest rates on loans for land, equipment, and operating expenses.

In addition to differences in production costs

between regions, such variation exists within small

areas as well. Regional aggregation tends to obscure these developments.

A high cost of production does not always relate to a misallocation of productive resources.

In some cases, low financial returns for a particular crop are actually higher than they would be

for other enterprises, especially when government

subsidies are taken into account. In certain regions, notably the Southeast, Delta, and Corn

Belt, wheat and soybean production costs might

be affected by double-cropping, in which case

wheat returns alone may not accurately measure

the economics of a particular farming enterprise.

Furthermore, prices received by farmers may

vary. In some cases, higher prices result from

higher production costs.

These qualifications may reduce the nationwide

range of wheat production costs, but actual variation remains wide. Some regions are more efficient than others in wheat production, and are

more vulnerable to price changes as a result.
43

— —

Table 3-3.—Average Variable Cost of Production for Wheat, Corn and Soybeans,

U.S. and Selected Regions, 1980-82

Dollars per bushel - Percent difference from U.S. average

1980 1981 1982 1980 ‘1 981 1982

Wheat (HRW)a

Central Plains . . . . . . . . . 1.06 1.54 1,25 –20 – 9 –16

Northern Plains . . . . . . . . 1.44 1.20 1.23 9 –29 –17

Southern Plains . . . . . . . . . 1.79 2.12 1.95 36 25 31

Southwest . . . . . . . . . . . . 1.43 1.48 1.69 8 –12 13

U.S. average . . . . . . . . . . . 1,32 1.69 1.49 0 0 0

Wheat (SRW)b

Lake States/Corn Belt . . . . 1.50 1.68 1.78 –10 – 7 – 9

Northeast ... . . . . . . . . . . 2.09 2.39 2.26 26 33 15

Southeast . . . . . . . . . . . . 2,02 1.93 2.11 22 7 8

U.S. average 1,66 1,80 1,96 0 0 0

Corn

Lake States/Corn Belt ... . 1.18 1.12 1.09 – 9 – 7 – 6

Northeast . . . . . . . . . . . . . 1.49 1.36 1.32 16 13 14

Northern Plains . . . . . . . . . . 1.36 1.23 1.26 5 3 9

Southeast . . . . . . . . . . . . . . . . 2.33 1.94 1.47 81 62 27

Southwest . . . . . . . . . . . 1,54 1.44 1.60 19 20 38

U.S. average 1,29 1,20 1.16 0 0 0

Soybeans

Delta . . . . . . . . . . . . . 3.77 3.46 2.66 83 72 45

Lake States/Corn Belt . . . . . 1.42 1.51 1.46 –31 –25 –20

Northern Plains . . 1.56 1.28 1.36 –24 –36 –26

Southeast . . . . . . . . . . . . . 4,63 3,39 2.90 125 69 58

U.S. average ., . . . . . . . 2,06 2.01 1,83 0 0 0

qHRW)- hard redw!;ter, -

b(SRw) = soft red winter

SOURCE “The U S Competitive Posltlon in World Commodity Trade, ” Agr/cu/tura/-Food Po/Icy Rewew CornrnodIfy Program Perspectives, Economic Research Service,

U S Department of Agriculture, Agricultural Economic Report No 530, 1985

Moreover, depending on international production

costs, certain U.S. regions may be more competitive than others in world markets.

A different perspective on the range of U.S.

wheat production costs is presented in figure 3-I

and table 3-4, which show how much of the 1981

U.S. wheat crop was produced at a given variable cost. USDA analysts constructed the graph

using the average variable cost of production and

the amount of production for wheat in each State,

arranging the States from lowest to highest cost

of production. Significant variations in costs of

production exist within individual States, but were

not captured by the graph. Variable costs account

for only those items required for production and

harvesting; depreciation, taxes, interest on longterm debts, and land charges were not included.

USDA estimates that the national average variable cost for wheat production in 1981 was $2.04

per bushel. Variable costs were below this level

for more than half of all wheat produced in the

United States (see table 3-4). About 1 billion

Figure 3-l.—Wheat Produced at Less Than the

Specified Variable Cost Per Bushel, 1981

Billion bushels produced

SOURCE “Commodity Price and Income Support Pollcles In Perspective, ”

Agr/cu/tura/-Food Po/Icy /?ewew Commodity Program Perspectives,

Economic Research Service, U S Department of Agriculture, Agricultural Economic Report No 530, 1985

bushels, approximately 40 percent of the crop,

were produced at a cost that was above the national average. Significantly, for about 97 percent

of the 1981 wheat crop, variable costs were below the government price support, or loan level,
44

Table 3-4.— Percent of Wheat Crop Produced at Less

Than Specified Variable Cost of Production,

1974 and 1981

Table 3.5.—Percent of Corn Crop Produced at Less

Than Specified Variable Cost of Production,

1974 and 1981

Percent produced Percent produced

Cost less than 1974 1981

$0.75/bu . . . . . . . . . . . . . . . . .

$1 .00/bu . . . . . . . . . . . . . . . . .

$1 .25/bu . . . . . . . . . . . . . . . . .

$1.50/bu . . . . . . . . . . . . . . . . .

$1.75/bu . . . . . . . . . . . . . . . . .

$2.00/bu . . . . . . . . . . . . . . . . .

$2.25/bu . . . . . . . . . . . . . . . . .

$2.50/bu . . . . . . . . . . . . . . . . .

$2.75/bu . . . . . . . . . . . . . . . . .

$3.00/bu . . . . . . . . . . . . . . . . .

$3.25/bu . . . . . . . . . . . . . . . . .

$3.50/bu . . . . . . . . . . . . . . . . .

$3.75/bu . . . . . . . . . . . . . . . . .

$4.00/bu . . . . . . . . . . . . . . . . .

$4.50/bu . . . . . . . . . . . . . . . . .

10

29

45

60

72

79

86

90

92

94

95

96

97

98

98

0

0

1

16

34

53

66

77

94

97

99

99

99

100

100

SOURCE:’’Commodlty Price and Income Support Pollcies in Perspective,”

Agricultural-food Po/lcy Revlew:Commodify Program Perspectives,

Economic Research Service, U.S. Department of Agriculture, Agricul.

tural Economic Report No. 530, 1985

set at $3.20 per bushel. As a result, in 1981, “producers who had a variable cost of less than $3.20

would have found it to their advantage to plant

their maximum acreage, assuming opportunities

on other crops were not as profitable.”7

A similar relationship existed between the government loan rate and variable costs for corn production in 1981. The national average variable

cost was $l.45 per bushel; roughly two-thirds of

the U.S. corn crop had variable costs below $1.50

(see table 3-5). The government loan rate of $2.40

for corn exceeded variable costs for 98 percent of

total corn production that year (see figure 3-2).

High market prices encouraged added production of wheat and corn for much of the 1970s. By

1981, however, government price supports that

topped variable production costs provided an incentive to retain large wheat production acreage.

As noted earlier, direct income support payments

to farmers, via the target price mechanism, offered

an additional impetus to expand wheat and feed

grain production.

These levels of government protection are significant, because while downward adjustments in

“’Commodity Price and Income Support Policies in Perspective, ”

&“cultural-Food Policy Review: Commodity Program Perspectives,

Economic Research Service, U.S. Department of Agriculture, Agricultural Economic Report No. 530, 1985.

Cost less than 1974 1981

$1.00/bu . . . . . . . . . . . . . . . . . 33 0

$1,25/bu . . . . . . . . . . . . . . . . . 62 28

$1.50/bu . . . . . . . . . . . . . . . . . 79 66

$1.75/bu . . . . . . . . . . . . . . . . . 87 80

$2.00/bu . . . . . . . . . . . . . . . . . 93 96

$2.25/bu . . . . . . . . . . . . . . . . . 95 98

$2.50/bu . . . . . . . . . . . . . . . . . 96 98

$2.75/bu . . . . . . . . . . . . . . . . . 97 99

$3.00/bu . . . . . . . . . . . . . . . . . 98 99

$3.25/bu . . . . . . . . . . . . . . . . . 98 100

SOURCE: “Commodity Price and Income Support Policies in Perspective, ”

Agricu/fura/-Food Po/icy Review: Cornrnodfty Program Perspectives,

Economic Research Service, U S Department of Agriculture, Agricultural Economic Report No. 530, 1985.

Figure 3-2.—Corn Produced at Less Than the

Specified Variable Cost Per Bushel, 1981

4 -

3 “

2 -

1

0 2 4 6 8

Billion bushels produced

SOURCE: “Commodity Price and Income Support Policies in Perspective,”

Agr/cu/tural-Food Policy Review: Commodity Program Perspectives,

Economic Research Service, US. Department of Agriculture, Agricultural Economic Report No, 530, 1985,

price support levels for wheat and feed grains tend

to make the United States more competitive in

world markets, the impact on high-cost U.S. producers–and on those in other countries—would

be significant. For example, if the 1981 loan rate

for wheat had been set at $2.50, in order to stimulate wheat exports and retain U.S. market share,

variable costs would have exceeded the loan rate

for approximately one-quarter of domestic wheat

production. This evidence, together with that

which will be presented in the next section, indicates that enterprises and regions that earned

acceptable returns under the higher commodity

prices of the 1970s could do so in the 1980s only

by virtue of U.S. Government price and income
45

—.

supports. Even with those government supports, lenders, including the Farmers Home Administracash flow problems associated with high variable tion, of financing farm operation and ownership

production costs would have been more acutely based on solid assets, such as land, rather than

felt were it not for the convention among farm on the basis of cash flow.

REGIONAL PRODUCTION COSTS AND AGRICULTURAL STRUCTURE

The continued concentration of ownership and

control of agricultural land and resources, and the

role of government in this process, has long been

a feature of agriculture policy debates. The fate

of small and medium-size “family farms” has been

of special concern to many policy makers. In

assessing international competitiveness, however,

it may be just as important to examine differences

between high-, medium-, and low-cost producers. Grouping farm enterprises according to production costs would resemble conventional classifications based on annual gross sales or acreage;

production costs often decrease as enterprise size

grows, The term “enterprise” refers to the resources devoted to production of a particular

crop, and is, in many respects, synonymous with

the term “farm. ”

A recent OTA study described the complex

relationships among enterprise size, dynamics of

farm expansion, geographic location, and production costs for major crops. g Table 3-6 lists characteristics for representative corn, wheat, and soybean enterprises of three different sizes in four

different production areas. The enterprises are arrayed on the basis of unit cost of production, from

lowest to highest. The unit cost ranges were

grouped in intervals of roughly 10 percent.

Clearly, production costs vary for each crop,

even in traditionally “fertile” areas. Corn production costs for the representative enterprises ranged

from $1.67 to $3.21 per bushel. For wheat, the

range was $2.05 to $3.91 per bushel, and for soybeans, $3.32 to $6.02 per bushel. The difference

between the lowest and highest cost enterprises

exceeded 90 percent for corn and wheat, and 80

percent for soybeans. These cost ranges are con-

*U, S. Congress, Oftice of Technology Assessment, Technology,

Public I’CIIICJ, and the Changing Structure ot American Agriculture, OTA-F-285 fh’ashmgton, IX: U S. Government Printing Office, hlarch 1986 I

sistent with nationwide variations in unit production costs for major crops, discussed earlier in this

chapter.

For each crop, the highest production costs tend

to be concentrated in one of the four areas studied: south central Nebraska for corn, central

North Dakota for wheat, and the Mississippi

Delta for soybeans. At the low-cost end of the

spectrum, western Kansas seems to enjoy a comfortable absolute advantage in wheat production.

Regional competition is evident in the case of corn

and—to a lesser degree—soybeans in the low-cost

ranges. Soybean competition appears keenest in

the middle range; a measure of competition is also

observed in that range for wheat and corn.

As would be expected, what constitutes a “very

large” enterprise size in one major producing area

may differ from an enterprise of similar size in

another. Enterprise sizes in the respective areas

are grouped by percentile distribution—based on

planted acreage, “very large” enterprises were in

the 90th percentile, “large” enterprises in the 70th

and 80th percentiles, and “moderate” enterprises

the 40th to 60th percentiles. However, in addition to acreage, unit production costs distinguish

enterprise size. A 1,283-acre wheat enterprise is

“very large” by central North Dakota standards,

but its per bushel cost of production might be 85

percent higher than a “very large” enterprise of

3,9o9 acres in western Kansas, 37 percent higher

than a “moderate” enterprise of 753 acres in eastern Washington, 24 percent higher than a “moderate” enterprise of 421 acres in northeast Montana, and 16 percent higher than a “very large”

enterprise of 2,388 acres in eastern Washington.

Even more interesting from a national perspective is the diversity of enterprise sizes in the lower

and middle ranges of production costs. At the

same time, unit production costs for corn and soybeans are similar in enterprises of different sizes
4 6

Table 3-6.—Production Costs, Farm Size, and Yields for Corn, Wheat, and Soybean Enterprises

in Selected Crop Production Areas, 1983

Production area size

North central lowa . . . . . . . . . . . . . . . . . . . . . . . . . . VL

East central lllinois . . . . . . . . . . . . . . . . . . . . . . . . . VL

Central Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . L

Central Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VL

East central lllinois . . . . . . . . . . . . . . . . . . . . . . . . L

North central lowa . . . . . . . . . . . . . . . . . . . . . . . . . . M

Central Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . M

North central lowa . . . . . . . . . . . . . . . . . . . . . . . . . . L

East central lllinois . . . . . . . . . . . . . . . . . . . . . . . . . M

South central Nebraska . . . . . . . . . . . . . . . . . . . . VL

South central Nebraska . . . . . . . . . . . . . . . . . . . . . . L

South central Nebraska . . . . . . . . . . . . . . . . . . . . . . M

Western Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . VL

Western Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . L

Western Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . M

East Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . M

Northeast Montana . . . . . . . . . . . . . . . . . . . . . . . . . . VL

Northeast Montana . . . . . . . . . . . . . . . . . . . . . . . . L

Northeast Montana . . . . . . . . . . . . . . . . . . . . . . . . M

East Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . VL

Central North Dakota... . . . . . . . . . . . . . . . . . . . . . L

Central North Dakota. . . . . . . . . . . . . . . . . . . . . . . VL

East Washington . . . . . . . . . . . . . . . . . . . . . . . . . . L

Central North Dakota. . . . . . . . . . . . . . . . . . . . . . . M

North central lowa . . . . . . . . . . . . . . . . . . . . . . . . . VL

East central Illinois.. . . . . . . . . . . . . . . . . . . . . . . . L

North central lowa . . . . . . . . . . . . . . . . . . . . . . . . . L

East central Illinois.. . . . . . . . . . . . . . . . . . . . . . . . . VL

North central lowa . . . . . . . . . . . . . . . . . . . . . . . . . M

Western Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L

East central Illinois. . . . . . . . . . . . . . . . . . . . . . . . . . M

Western Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M

Western Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VL

Mississippi Delta . . . . . . . . . . . . . . . . . . . . . . . . . . M

Mississippi Delta . . . . . . . . . . . . . . . . . . . . . . . . . . . VL

Mississippi Delta . . . . . . . . . . . . . . . . . . . . . . . . . . . L

Acreage

576

1,113

NA

903

NA

170

271

NA

246

1,715

NA

266

3,909

NA

774

753

577

NA

421

2,388

NA

1,283

NA

338

707

NA

NA

684

210

NA

270

244

897

795

1,262

NA

Crop: Farm Economies of Yield

Total cost

Corn:

$1.67/bu

$1.67/bu

$1.67/bu

$1.69/bu

$1.75/bu

$1.75/bu

$1.77/bu

$1.80/bu

$1.991bu

$2.83/bu

$3.03/bu

$3.21/bu

Wheat

$2.05/bu

$2.30/bu

$2.41/bu

$2.76/bu

$2.771bu

$2.94/bu

$3.05/bu

$3.26/bu

$3.60/bu

$3.79/bu

$3.86/bu

$3.91/bu

Soybeans:

$3.32/bu

$3.38/bu

$3.44/bu

$3.56/bu

$3.58/bu

$3.59/bu

$3.64/bu

$3.66/bu

$4.27/bu

$5.171bu

$5.20/bu

$6.02/bu

NOTECost of production exeludes land charges Relat!ve farm size wlth~n agwen area VL(very lafge~ L(large), and M (moderate) Econom\esof size rating 4

—.-

clear advantage for enterpnse rize relatlve to other stzes wtthln production area, O = no advantage

SOURCE US Congress, Office of Technology Assessment, Tecfrrro/ogy, Pub//c Pohcy, and ffre Ctrafrg/ng Structure of Arner/can Agncu/fure OTA F-285 (Washington

DC US Government Prtntlng Office, March 1986)

size rating

4

4

4

4

1

2

2

1

0

4

2

0

4

3

2

1

4

0

0

2

4

3

2

0

3

4

3

2

1

4

0

1

2

2

3

0

(bu/acre)

119.0

130.3

125.3

125,6

128.6

113.0

122.4

117.4

123.1

118.6

112.6

106,2

33.1

33.1

33.2

47.8

31,3

29.9

29.2

39,9

30.8

31.7

39.9

29.7

36.8

38.2

36,6

38.2

36,6

34.8

37.4

34.4

35.6

23.6

25.0

23.6

across various regions. For example, the unit production cost of corn on a l,113-acre corn enterprise in east central Illinois falls within 10 percent

of the cost for a 170-acre operation in north central Iowa or a 271-acre enterprise in central Indiana. Costs at 250-acre soybean enterprises in western Ohio resemble those at 700-acre soybean

operations in east central Illinois. Furthermore,

for every crop, ’’large’’ and “very large’’enterprises

in some regions appear to be less efficient than

medium-size farms in others,

Within a particular region, incentives may exist to expand enterprise size, which would lower

unit production costs. Expanding enterprise size

may also increase total income, even with little

change in unit costs. In contrast, “diseconomies”

of scale—rising production costs—tend to discourage expansion. On the whole, regional variation in production costs will remain, due to

differences in yields and input costs such as fertilizer, pesticides, and land preparation.

The “economies of size” rating indicates the extent to which a clear advantage exists for one enterprise size versus another within a particular region. The rating was derived from four indicators:

production costs, utilization of harvesting equip-
47

ment, and two measures of changing concentration of production—static for 1982, and dynamic

for the period 1978-82. A “4” denotes a “clear

advantage”; a “O” implies “no advantage. ” Table

3-6 reveals an interesting pattern for corn, wheat,

and soybeans: enterprises and regions with lower

costs of production tend to have higher ratings

for internal economies of size. This relationship

seems most compelling for corn, since the enterprises in the lowest range of production costs exhibit exceptionally strong economies of size; for

wheat and soybeans, the pattern is more ambiguous.

This complex system of regional production

costs and economies of scale raises important policy questions for international competitiveness.

A U.S. strategy that calls for downward flexibility in commodity prices, achieved in part by

lowering government price support levels, could

have important effects on the pace of resource

concentration within agriculture, which would

differ among crops and regions because of varying cost structures and economies of size. Program

participants would still be eligible to receive the

higher target price level for wheat and feed grains;

in this case, the relationship between target prices

and variable costs may be more relevant. However, acreage reduction requirements and limits

on government deficiency payments would affect

benefits for program participants, influencing their

decision to participate.

For example, if 1983 wheat prices had fallen below $3.60 per bushel in central North Dakota—in

fact, the national average market price that year

was $3.55 per bushel, and direct payments to program participants averaged 50 cents per bushel—

large enterprises would have been unable to recoup variable costs below this price. Although

they exhibited a clear advantage in internal economies of scale, large enterprises would have lost

money by expanding in this price regime. In addition, very large and moderate-size enterprises with

even higher unit production costs would have no

incentive to expand in that region, since they

would be unable to cover variable expenses even

by remaining the same size. The same could be

said for large farms in eastern Washington.

Other enterprises represented in table 3-6,

whose production costs are well below $3.60 per

bushel, would earn returns in excess of their variable costs. Nor would that price affect the dynamics of resource concentration for these areas.

Some wheat enterprises might even increase acreage, so as to lower average production costs.

Moreover, where unit costs did not differ widely

among enterprise sizes, expansion might occur if

farmers desired to increase income.

Similar observations apply to the corn and soybean enterprises in table 3-6. All other factors being equal, a low corn price—below $2.83 p e r

bushel—would affect irrigated corn operations in

Nebraska most severely. Likewise, soybean enterprises in the Mississippi Delta would be sensitive to a low-price environment. In lower cost

areas, production patterns and resource concentration would not be affected.

If relatively low market prices prevailed for several years, shifts might occur in the geographic

location of production, away from high-cost areas

and toward those with lower costs. Within highcost regions, movement toward different types of

farming enterprises—such as other crops or livestock—could occur.

The sharp downslide in agricultural exports

since 1981 has raised concerns about whether U.S.

farmers can compete in international markets.

However, emphasis on this dimension of the problem alone diverts attention from the competition

that U.S. farmers face from one another. U.S. enterprises and farms of different sizes compete

within regions, and enterprises and farms of all

sizes in one region may compete with those those

of another.

Few policy debates have focused on this particular type of competition, which may affect the

U.S. international agricultural position. Commodity policies designed to favor “moderate” over

“very large” enterprises, for example, could have

serious effects when viewed across several regions.

And downward flexibility of market prices, considered by many analysts to be a prerequisite for

a more competitive U.S. agricultural sector, could

create new and complex situations between and

within regions. Omnibus farm legislation, enacted

in 1985, does aim to increase U.S. competitiveness through lower price support loan rates for
48

major crops, In order to assess the full regional market orientation in government commodity

and structural effects of this policy, more thor- programs could improve the competitiveness of

ough analysis of USDA information on farm and the United States in world markets, but could also

enterprise characteristics and production costs is slow the concentration of resources in high-cost

needed. production areas, which may alter the geography

This discussion is based on limited data. How- of crop production.

ever, current information does suggest that greater
— .

Chapter 4

Technology Transfer and the

Competitiveness of U.S. Agriculture
Chapter 4

Technology Transfer and the

Competitiveness of U.S. Agriculture

New technologies have bolstered the remarkable gains in agricultural productivity that the

United States has enjoyed since World War II. To

a large degree, technology is the foundation of

the U.S. position as the world’s leading exporter

of agricultural products. In recent years, however,

poor export performance has led to questions

about whether the United States can maintain its

edge in agricultural science and technology. This

chapter examines the international transfer of agricultural technology, emphasizing the transfer of

‘Unless otherwise noted, the material in this chapter is drawn from

an OTA contract report entitled “The Potential for Transfer of U ,S.

Agricultural Technology, ” by Robert E, Evenson, Jonathan Putnam,

and Carl Pray, 1985.

U.S. technology to other countries, including

competitors.

In general, although this country continues to

dominate the field of agricultural technology,

other nations have begun to close the gap. Technology transfer from the United States has played

an important role in this process, and should continue to do so in the future. Over the next decade, the United States’ strategic advantage in agricultural technology may be reduced. Of course,

the introduction of crop biotechnologies into commercial use will enhance the U.S. advantage over

other nations; however, because international diffusion of biotechnology can occur rapidly, U.S.

farmers may enjoy cost advantages for a shorter

period of time than has been the case with technological innovation in the past.

AGRICULTURAL TECHNOLOGY TRANSFER

In general, transfer of agricultural production

technologies is more difficult than that of other

manufacturing technologies. This process is affected by economic conditions and policies in the

receiving nation, natural resources, and climate.

Agriculture’s biological nature often negates the

possibility of “direct transfer” to another country or region without adjusting for local growing

conditions; for example, plant varieties must be

adapted to specific soil types. As a result, “adaptive transfer” is more common. Diffusion of scientific findings or techniques—’’pretechnology

science transfer’ ’—represents another important

process. This may lead to new inventions in other

countries, or may support efforts to “adapt” technologies. Also, the transfer of technical and scientific capacity among nations, as in the training

of foreign graduate students in the United States,

constitutes a significant channel for the transfer

of agricultural technology.

Patent Information

Patent registration data provide imperfect but

useful information about invention activity, and

about the direction and pace of technology transfer between countries. One drawback of patent

data is that inventors may not wish to disclose

trade secrets in patent documents, tending to underestimate the actual number of inventions. International comparisons of patent data present

other difficulties. For example, about 90 percent

of all patent applications are granted in France,

compared to 35 percent in West Germany; a greater

degree of innovation maybe needed in West Germany to gain patent protection. Evaluation of patents awarded in a broad range of countries reduces

this problem. Finally, certain agricultural inventions—chemicals and chemical processes, for example—are excluded from patent protection in

such major agricultural nations as India, Under

51
52

these circumstances, a foreign technology that can

be imported constitutes an inexpensive alternative. In this situation, however, foreign firms may

be reluctant to transfer technology, and fewer incentives exist to import and adapt foreign innovations.

Three sources of agricultural patent information demonstrate trends in the international diffusion of technology, as described below.

U.S. Crop Variety Patents

The Plant Variety Protection Act of 1970 led

to a marked increase in the number of crop varieties registered for patent protection in the United

States. With the exception of patents for such

widely grown forage grasses as fescue, bluegrass,

and perennial ryegrass, foreign firms have not

been particularly active in this area. In contrast,

private U.S. firms have acquired many patents

for an array of minor crops, as well as for major

export crops like field corn, cotton, wheat, and

soybeans (see table 4-1). Although the private sector has dominated corn breeding over the years,

the growing number of private patents for wheat

and soybean varieties suggests a significant shift

in the locus of inventive activity. The public sector—U. S. Government, other national governments, and international research and development institutions—has traditionally dominated

the invention and transfer of soybean and wheat

varieties. Now, many U.S. companies with foreign subsidiaries, or with joint ventures for research and marketing, are positioned to play a

major role in this process. Also, in addition to

its impact on U.S. markets, the increase in private sector patents may affect avenues and rates

of international germplasm transfer for export

crops.

Foreign Patents Granted by the United States

for Agricultural Technology

Foreign firms that plan to transfer or produce

technologies in the United States—directly,

through subsidiaries, or via joint ventures—are

likely to seek U.S. patent protection. U.S. patent office data indicate that foreign entities obtained between 24 and 52 percent of all patents

in each of seven agricultural technology fields and

in postharvest technology (PHT) between 1980

and 1984 (see table 4-2). Foreign patent activity

is greatest in threshing equipment, fertilizers, and

biotechnology, which claimed shares of 46, 44,

and 52 percent of all patents, respectively. This

suggests that these areas have the highest potential for technology transfer to the United States.

The proportion of U.S. patents granted to foreign

firms increased from the 1975-79 period to 1980-

84 in five technology fields—planters and diggers,

harvesters, threshers, animal husbandry, and fertilizers.

In contrast, the proportion of patents received

for these technology fields by the U.S. Government did not change significantly between 1975-

79 and 1980-84. Nor did the percentage of patents

granted to U.S. citizens rise or fall dramatically,

except for a decline in the field of planter and

digging machinery and an increase in threshing

equipment. In fact, the actual number of patent

applications increased over the decade in only

three other technology fields—harvesting equipment, biotechnology, and PHT,

International Patents for Agricultural

Technology

One way to gauge the potential for technology

transfer is to examine international patent activity. Foreign patents protect property rights for

products that firms plan to market or license in

other nations. International patent data for 7 nations and 13 technology fields between 1978 and

1984 indicate that the United States is a leading

exporter of agricultural and postharvest technology. During that period, for example, U.S. inventors were granted 6,555 patents for agricultural

chemical technologies other than fertilizers. Onehalf of these patents were granted in this country, and one-half in the six other nations

examined—the United Kingdom, France, West

Germany, Japan, Canada, and Brazil. In other

words, U.S. inventors obtained a foreign agricultural chemicals patent abroad for every one they

received domestically.

U.S. inventors show an even greater degree of

international patent activity in biotechnology

fields. Inventors in the United States obtained 115

U.S. patents for mutation and genetic engineeer-
53

Table 4-l.— Plant Patents in the United States, 1970-84

Total

1970-90 1981-84

4

11

10

14

3

80

5

1

11

1

0

6

0

3

5

1

3

82

2

1

12

43

21

6

9

12

10

2

92

8

0

4

1

9

2

4

13

5

2

170

5

1

6

11

0

1

0

0

0

6

84

5

3

14

—

The Netherlands

1970-90 1981-84

o

17

1

7

9

26

3

1

14

2

1

6

3

3

17

2

0

33

3

1

26

6

8

;

4

12

1

52

2

3

1

3

3

0

8

21

0

0

139

2

5

0

5

13

1

3

1

4

7

39

4

0

11

0

0

0

0

0

2

0

0

5

0

0

3

0

0

0

0

0

0

0

0

5

0

0

0

0

0

0

1

0

0

0

0

0

0

0

1

4

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

0

0

0

1

0

9

0

0

4

0

0

6

0

0

0

0

0

0

0

0

9

0

3

0

0

0

0

1

2

0

0

0

0

0

0

2

8

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1 — 22 45

United Kingdom

1970-90 1981-84

0

0

0

0

o

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

1

0

0

0

0

0

0

0

0

0

0

0

0

0

3

1

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

7

0

0

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

0

0

3

0

0

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

Other -

1970-90 1981-84

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

6 1

0

1

0

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

2

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

Public

1970-90

0

7

0

2

2

0

0

1

0

0

0

0

0

2

0

0

0

0

2

0

5

0

0

2

0

7

0

0

0

2

0

0

0

0

1

0

1

0

1

27

1

0

0

0

0

1

0

0

0

1

27

0

0

3

5 107

1981-84

0

0

0

0

2

0

0

0

1

0

0

0

0

0

o

0

0

1

0

1

0

0

0

1

4

0

0

0

0

0

0

0

0

1

0

0

0

16

0

o

0

2

1

0

0

4

0

9

0

0

2

50

SOURCE Robert E Evenson, Jonathan Putnam, and Carl Pray, “The Potential for Trans;rof US Agricultural Technology” contract report prepared ;or the OffIce

of Technology Assessment, 1985
54

Table 4-2.—U.S. Patents Granted in Agricultural Technology Fields

Earthworking Planters, Harvesting- Threshing Animal – Postharvest

equipment diggers equipment equipment husbandry Fertilizers Biotechnology technology —

Patents granted

1975-79 . . 554

1980-84 . . . . . . . . . . . . . . . . 451

Ratio, 1980-84/1975-79 . . . . . . . 0.82

Percent U.S. corporation

1975 -79 . . . . . . . . . . . . . . . . . . . . . 38

1980-84 . . . . . . . . . . . . . . . . . . . . . 36

Percent U.S. Government

1975 -79 . . . . . . . . . . . . . . . . . . . . 00

1980-84 . . . . . . . . . . . . . . . . . . . . 01

Percent US individual

1975 -79 . . . . . . . . . . . . . . . . . . . . . 27

1980-84 . . . . . . . . . . . . . . . 30

Percent foreign origin

1975-79 . . . . . . . . . . . . . . . . . . . . . 35

1980-84 . . . . . . . . . . . . . . . . . . 34

339

418

1.23

83

96

1.16

807

786

0.97

1,251

1,085

0.87

493

527

1.06

2,866

2,340

0.82

128

120

0.94

25

33

50

48

55

35

24

24

58

52

40

42

52

49

02

02

00

00

00

01

01

01

01

02

03

02

03

01

36

28

26

24

12

18

58

51

03

02

03

04

12

13

24

28

32

46

17

24

38

44

54

52

32

27

SOURCERobert E. Evenson, Jonathan Putnam, and Cad Pray, “The Potential for Transferor US Agricultural Technology,” contract report prepared for the Office

of Technology Assessment, 1985

ing technologies, as opposed to 350 in this field

in the six other countries. U.S. inventors received

183 patents in Japan for mutation and genetic

engineering, more than at home.

Table 4-3 shows that the United States is a net

exporter to these other nations in each of the 13

technology fields, and is a net exporter to most

of the countries individually. U.S. patent activity abroad is most pronounced in the biotechnology fields, agricultural chemistry, and postharvest technologies.

Table 4-4 indicates what types of technology

are most readily transferred among these seven

countries. It shows the ratio of the total number

of patents granted in a field in all countries to the

patents granted in origin countries in the same

field. For example, the seven countries granted

23,814 patents in agricultural chemistry, which

was the largest number in any field; 13,397 of

these were obtained by inventors in their own

country. The ratio of total-to-origin patents was

1.78; a total of 78 agricultural chemical patents

were received in the six foreign nations for every

100 received in the home nation. Once again, biotechnology and agricultural chemicals represented

the fields with the greatest relative degree of transfer. For mutation and genetic engineering technologies, slightly more international patenting

activity occurred than patenting activity within

countries of origin, for a ratio of 2.12.

Further analysis of international patent data for

these countries reveals that:

The United States imports a significant

amount of agricultural chemistry and fertilizer technology from West Germany.

Canada and Brazil stand out as substantial

net importers of agricultural technology. The

Canadians produce a great many inventions,

but import even more from the United States.

The Brazilians patent relatively few inventions while maintaining significant imports,

primarily from the United States.

In most fields, U.S. patents are outnumbered

by those of Japan, which:

. . . is overall a net exporter although it imports in several fields [and] outproduces the

two traditional invention economies, France

and the U. K., in all fields except agricultural

chemicals. Japan is also an exporter of some

biotechnology and will probably become a

large exporter in the future.

Biotechnology inventions that enter the

United States could become a significant factor in the growth of domestic agricultural

productivity. Because this country represents

a large, relatively affluent market, in which

the adoption of new technologies proceeds

rapidly, it tends to attract emerging biotechnology. All other things being equal, lower

production costs that result from biotechnology will benefit U.S. farmers, and domestic

and foreign consumers.

●

●

●

●
—

1

c

L-

.

“]

.

.,

‘L

n.

3
56

Indirect Transfer of Agricultural

Technology

Because of its biological basis, agriculture—

more than most production processes—reacts to

local conditions. As a result, direct international

transfer of agricultural technologies is not a common occurrence. For example, foreign use of

wheat germplasm developed in the United States

demands a high degree of adaptation. Even within

the United States, technologies that have proven

successful in some areas require a measure of

adaptation to agro-climatic conditions in others.

As a result, a considerable amount of international

technology transfer takes on the form of scientific information, knowledge, and techniques.

This section addresses the process of scientific

transfer, for agricultural and postharvest technology.

Patent Citations

Patent applications in the United States contain

“citations” of scientific literature, which help to

distinguish an invention proposed for patent protection. Patent citations capture the process of

adaptive technology transfer, providing “a kind

of pedigree of the intellectual or technical parentage” for an invention.

Table 4-5 provides the number and origins of

patent citations in eight agricultural and postharvest technology (PHT) fields for two periods,

1975-79 and 1980-84. Over the 10-year timeframe,

the percentage of citations of foreign literature increased in every field:

In the early period, 29.1 percent of all patents

were granted to foreigners (foreign patents of U.S.

ownership are not included), while 17.5 percent

of all cites were to foreign patents. In the second

period, 32.2 percent of all patents were granted

to foreigners while 23.6 percent of all cites were

to foreigners. Thus the citation data are consistent with a growing foreign role in U.S. [agriculture and postharvest] invention and with the recognition that foreign invention is a growing part

of the intellectual structure of [those] inventions.

Scientific Publications

As noted earlier, many inventions relevant to

agriculture and postharvest technology are not

patented. However, another way to evaluate

adaptive transfer of agricultural science and technology, and the United States’ standing in that

process, is to examine scientific publications in

these fields. Among 24 major agricultural nations

and in 10 “traditional” agricultural technology

fields, the United States ranked first in scientific

publications between 1978 and 1982; U.S. publications totaled 289,061 over this period. The

United Kingdom, with 100,135 publications, and

India, with 89,750 publications, placed second and

third. Significantly, India ranked second in the

areas of plant breeding, plant pathology, crop science, and soil science.

Between the two periods examined, 1973-77 and

1978-82, the United States maintained its standing among these countries, although the total

number of U.S. publications dropped by 22 percent in animal nutrition and by 3 percent in plant

breeding. Publications grew significantly in four

scientific fields between the timeframes: veterinary

medicine, 59 percent; soil science, 40 percent;

entomology /hematology, 39 percent; and animal

breeding, 31 percent (see table 4-6).

The United States gained in the 24-nation share

of publications in 6 of the 10 fields—animal breeding, weed science, plant breeding, plant pathology, crop science, and soil science—lost share in

3—animal nutrition, entomology /hematology,

and veterinary medicine, and held steady in dairy

science (see table 46). India is the only other country to demonstrate significant gains in terms of

world literature share in the agricultural sciences.

Comparing U.S. distribution of publications by

field with that of other countries provides another

indication of technology transfer. Statistical correlation shows that the structure of U.S. literature

resembles that of 12 other countries, assuming a

correlation coefficient greater than 0.900: Canada, Australia, the United Kingdom, France, West

Germany, The Netherlands, Switzerland, East

Germany, Mexico, Argentina, Japan, and Israel,

The diffusion of technology, and of scientific

knowledge and methods in particular, appears to

occur most easily between the United States and

these nations. Correlations are also close with

New Zealand, Poland, and Egypt.
Table 4-5.– U.S.

Earth working

Equipment

Patents granted

1975-7 9 554

1980 -84,. .. : 451

Ratio, 1980-84/1975-79 0.82

Percent foreign orlgln

1975-79 35

1980-8 4 34

CltatIons/patent

1975-7 9 9 5 2

1980.8 4 1162

Percent foreign cttes (Indirect)

1975-7 9 17

1980-8 4 14

Percent foreign cites (direct)

1975-79 12

1980-8 4 15

Patents Granted in

Planters, Harvesting

diggers equlpment

128 339

120 418

0.94 1 23

35 24

38 28

1701 571

204 5 7 4 6

10 20

09 21

12 05

18 10

5 7

Agricultural Technology Fields

Threshin g Anima l

equipment husbandry Fertlllzers Biotechnology

83 807 1,251 493

96 786 1,085 527

1 16 097 087 106

32 17 38 54

46 24 44 52

1319 1567 7 5 3 1264

1354 1683 9 4 3 1311

08 03 20 15

11 06 20 18

03 01 05 02

05 03 11 03

Postharvest

technololgy

2,866

2340

082

32

27

708

968

13

17

05

08

SOURCE Robert E Evenson Jonathan Putnam and Carl Prav The Potential for Transfer of U S Aarlcultural Technolo~\ CGI t ract report pre parec! for t t) e Off ce

of Technology Assessment 1985

Table 4-6.—Total Publications in 24 Countries for 10 Applied Agricultural Science Fields

and U.S. Share, 1973-77 and 1978-82

Total publications Total publications Ratio

Scientific field 1978-82 U.S. share 1973-77 U S share 1978-82/1 973-77

Animal breeding .. . 39,680 + 0.216 30,435 0.182 1.31

Animal nutrition . . ., 30,616 – 0.240 39,164 0.255 078

Crop science ., . . ., . . . . . 47,424 +0.189 41,722 0.160 1,14

Dairy science ., ., ., . . 43,440 0.163 35,882 0.163 1 18

Entomology /hematolog y 46,113 –0.194 33,126 0.233 139

Plant breeding . ., . . . 48,786 +0, 178 50,204 0.161 097

Plant pathology ... . . ., 29,260 +o.168 28,030 0137 1,04

Soil science . . . 50,658 + 0.203 36,096 0,167 1.40

Veterinary medicine ., . . . . 191,965 – 0154 121,319 0.189 1 59

Weed science . . . 19,492 + 0.328 141361 0,303 1 0 9

Gain In ;hare s!;ce 1973-77 ‘

-

—

+

Loss In share since 197377

SOURCE Robert E Evenson Jonathan Putnam and Carl Pray The Potent (al for Tra)s’er o’ U S AQricult(lral Technology ~ontrart report ~re~aced for the Of fI ?e

of TeI; h nol ogy Assessment 1985

The Role of International Agricultural

Research Centers (IARCS)

An important recent development in international agriculture is the formation of International

Agricultural Research Centers (IARCS). Thirteen

IARCs now conduct a variety of agricultural research and development projects, specializing in

productivity gains in tropical agriculture. The

two most renowned centers, the International

Maize and Wheat Improvement Center in Mexico

(CIMMYT) and the International Rice Research

Institute in the Philippines, played central roles

in the development and dissemination of high

yielding varieties of wheat and rice—the cornerstone of the “green revolution. ” For these and

other agricultural commodities, IARCS train large

numbers of scientists of less developed countries

(LDCS), disseminate genetic materials like new

seed varieties, and release scientific information.

“The IARCS function partly as a transfer station

between work in the research centers in the developed countries and the LDCS. ”

A recent study examined the effects of IARC

activities on crop productivity for 10 crops in 25

developing countries, 2 and concluded that “IARC

programs contributed positively to crop productivity improvement in maize, millets, sorghum,

‘1-?t~bert E E\rcnson, The 1,%l<(-S E\idtnc~’ c~f Impact [ln h“.)tlon,il

I<twar{ h [;xten~ion ~nd I)r(duct]vlt), ‘ it UCI1’ paper pr(’pared t <)r t ht’

~t~nsultat ikrc ~I_OLIP of the \lr(}r]d Bank, (1’a>h]n~t(ln, 1)(” 1 ~80
58

wheat, rice, beans, groundnuts, cassava and potatoes. ” Moreover, the study reinforced the notion

that growing conditions influence technology transfer for most crops:

The IARC impact was higher in countries with

gee-climatic conditions similar to those of the

IARC host location. For cassava and rice little impact beyond the host countries was measured,

showing less transfer potential. Only wheat showed

high transferability outside the similar regions.3

Agricultural Research Capacity

Investment and personnel devoted to agricultural research indicate the dynamics of a nation’s

agricultural sector (see table 4-7). Between 1959

and 1980, worldwide expenditures for public agricultural research programs increased significantly,

by 360 percent after inflation. The number of

scientist-years committed to agricultural research

more than tripled during the same period. Dramatic growth occurred during the first decade of

this period; worldwide, research expenditures and

‘Ibid.

personnel rose more rapidly between 1959 and

1970 than between 1970 and 1980.

Striking differences exist between different parts

of the world in spending and employment patterns for agricultural research over the 20-year

period. All regions spent more and employed

more people in 1980 than they had in 1970 or

1959, but changes occurred in regional shares of

worldwide investment and personnel. Eastern Europe and the Soviet Union together fell from about

28 percent of world expenditures in 1959 to 20

percent in 1980, and from 38 percent of world personnel to 35 percent. North America and Oceania dropped from 37 percent of world expenditures to 23 percent, and their personnel share

declined from 18 to 9 percent. Western Europe

and Asia gained significantly in percentage share.

Africa held steady, although its proportion of research personnel did rise slightly. The largest expansion of research capacities occurred in developing countries:

Research spending increased by a multiple of

5.8 in developing countries in Latin America, 6.9

Table 4-7.—Agricultural Research Expenditures and Scientist-Years, by Region, 1959-80

— —

Expenditures Manpower

(000s constant 1980 U.S.$) (scientist-years)

Region/subregion 1959 1970 1980 1959 1970 1980

Western Europe . . . . . . . . . . . . . . . . . . . . . . . . . 274,984 918,634 1,480,588 6,251 12,547 19,540

Northern Europe . . . . . . . . . . . . . . . . . . . . . 94,718 230,135 409,527 1,818 4,409 8,027

Central Europe . . . . . . . . . . . . . . . . . . . . . 141,054 563,334 871,233 2,888 5,721 8,827

Southern Europe . . . . . . . . . . . . . . . . . . . . . . 39,212 125,165 208,828 1,545 2,417 2,636

Eastern Europe and U.S.S.R, . . . . . . . ... . 568,284 1,282,212 1,492,783 17,701 43,709 51,614

Eastern Europe . . . . . . . . . . . . . . . . . . . . . . . . 195,896 436,094 553,400 5,701 16,009 20,220

U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372,388 846,118 939,383 12,000 27,700 31,394

North America and Oceania . . . . . . . . . . . . . . . 760,466 1,485,043 1,722,390 8,449 11,688 13,607

North America . . . . . . . . . . . . . . . . . . . . . . . . . 668,889 1,221,006 1,335,584 6,690 8,575 10,305

Oceania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,577 264,037 386,806 1,759 3,113 3,302

Latin America . . . . . . . . . . . . . . . . ... ... . . . 79,556 216,018 462,631 1,425 4,880 8,534

Temperate South America . . . . . . . . . . . . . . . 31,088 57,119 80,247 364 1,022 1,527

Tropical South America . . . . . . . . . . . . . . . . . 34,792 128,958 269,443 570 2,698 4,840

Caribbean and Central America . . . . . . . . . 13,676 29,941 112,941 491 1,160 2,167

Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,149 251,572 424,757 1,919 3,849 8,088

North Africa . . . . . . . . . . . . . . . . . . . . . . . . 20,789 49,703 62,037 590 1,122 2,340

West Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . 44,333 91,899 205,737 412 952 2,466

East Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,740 49,218 75,156 221 684 1,632

Southern Africa . . . . . . . . . . . . . . . . . . . . . . 41,287 60,752 81,827 696 1,091 1,650

Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261,114 1,205,116 1,797,094 11,418 31,837 46,656

West Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,427 70,676 125,465 457 1,606 2,239

South Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,024 72,573 100,931 1,433 2,569 5,691

Southeast Asia. . . . . . . . . . . . . . . . . . . . . . . . . 141,469 521,971 734,694 7,837 13,720 17,262

China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,166 502,491 643,555 1,250 12,250 17,272

World total . . . . . . . . . . . . . . . . . . . . . .....2,063,553 5,358,595 7,390,043 47,163 108,510 - 138~39

SOURCE Robert E. Evenson, Jonathan Putnam, and Carl Pray, “The Potent!al for Transfer of U S Agricultural Technology, ” contract repor; prepared for ‘t he Off Ice

of Technology Assessment, 1985
59

—

in Asia and 3.6 in Africa. Scientist man-year multiples were 6.0 in Latin America, 4.1 in Asia and

4.2 in Africa. This is in contrast to spending and

personnel multiples for public sector agricultural

research in the U.S. of 1.9 and 1.4 respectively.

The major competitors, Canada, Australia, Argentina and Brazil, had spending multiples of 2.4,

4.o, 2.1 and 1.4, respectively.

Further analysis of world expenditures and personnel devoted to agricultural research shows that

between 1959 and 1980, research expenditures in

developing countries grew at a faster pace than

agricultural extension expenditures as a percentage of the value of agricultural products. As a result, the intensity of research and extension are

now approximately equal in developing countries.

This reorientation signifies a more sophisticated

and balanced capability for adaptive research

within the developing world than that which existed two decades ago.

technique in particular, has been the training of

scientists from developing countries in the United

States and other developed nations. Table 4-8 indicates the total number of U.S. doctoral degrees

awarded in agricultural and related fields between

1960-64 and 1975-79; during this period, over

7,5oo such degrees were awarded to foreign students. In most fields, foreign students represent

a growing share of degree recipients-over 40 percent in agronomy, which includes crop breeding

and soil science, veterinary medicine, agricultural

engineering, agricultural economics, and general

agriculture. In contrast, in the related and important field of genetics, the percentage of foreign

Ph.D. recipients over this period fell from 48 percent in 1960-64 to 25 percent in 1975-79. In the

1975-79 interval, approximately 16 percent of foreign students with temporary visas planned to remain in the United States for postdoctoral studies.

The majority of these planned to obtain employment in either education or government.

Capacity Transfer: Foreign Students

Trained in the United States

One of the most significant avenues for transfer of technology, and of scientific knowledge and

TECHNOLOGY TRANSFER AND MAJOR EXPORT CROPS

Important differences exist in the avenues of international technology transfer for three major

U.S. export crops: corn, wheat, and soybeans. In

some cases, as with hybrid corn seed, indirect

technology transfer takes place through multinational companies. For other crops and technologies, such as soybean varieties, direct transfer

from the United States to other countries has

occurred via public research entities or international research centers. For all three crops, an accelerated pace of agricultural technology transfer has resulted from worldwide improvements

in public and private research capacity over the

past few decades, especially in the developing

world. Moreover, the international exchange of

scientific knowledge and trained scientists are important routes for the diffusion of technology that

affects corn, wheat, and soybean productivity.

Technology transfer brings many benefits to

agricultural production and trade. U.S. farmers

gain from certain technology imports, although

transfer generally flows toward agricultural producers in other nations—including international

competitors. Because technology transfer tends to

lower the price of crops throughout the world,

it facilitates consumption. In a number of cases,

U.S.-based multinational firms have the lead in

a particular technology, and can profit through

technology exports, or through production and

sales via subsidiaries or joint ventures in other

countries. U.S. farmers may benefit from such

transactions indirectly, since many U.S. firms

reinvest profits in domestic research and development. Finally, agricultural technology transfer

that boosts income in other countries may translate into increased trade with the United States.
60

Table 4-8.—Total Number of Ph.D. Degrees Awarded in 20 Fields Associated With Agriculture and

Home Economics and the Proportion of Degrees Awarded to Non-U.S. Citizens With a Temporary Visaa

1960-64

Percent

Fields Total foreign

Agronomy, including soils and soil

science . . . . . . . . . . . . . . . . . . . . . . . . 711

Horticulture . . . . . . . . . . . . . . . . . . . . . . . 237

Forestry . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Entomology . . . . . . . . . . . . . . . . . . . . . 444

Phylopathology . . . . . . . . . . . . . . . . . . . . . 385

Physiology-plant . . . . . . . . . . . . . . . . . . . . 96

Physiology-plant and animalb . . . . . . . . . 160

Animal husbandry, animal science,

and nutrition . . . . . . . . . . . . . . . . . . . . . 573

Veterinary medicine . . . . . . . . . . . . . . . . . 96

Physiology-animal . . . . . . . . . . . . . . . . . . . 163

Agricultural engineering . . . . . . . . . . . . . 97

Agricultural economicsd 

. . . . . . . . . . . . . —

Food science and technology . . . . . . . . —

Agriculture and food chemistry . . . . . . . 160

Fish and wildlife . . . . . . . . . . . . . . . . . . . . 65

Agriculture (general and other) . . . . . . . . 116

Nutrition and/or dieteticsc . . . . . . . . . . . . —

(Other) home economics . . . . . . . . . . . . .

Subtotal . . . . . . . . . . . . . . . . . . . . . . . (3,497)

Biochemistry . . . . . . . . . . . . . . . . . . . . . . . 696

Genetics . . . . . . . . . . . . . . . . . . . . . . . . . . . 296

Totals . . . . . . . . . . . . . . . . . . . . . . . . . 4,489

28.0

27.8

9.1

25.2

30.4

27.1

13.1

15.7

26.0

8.6

21.6

—

—

40.0

13.8

27.6

—

22.7

(23.6)

17.8

48.0

23.3

1965-69 1970-74 1975-79

Percent Percent Percent

Total foreign Total foreign Total foreign —

873

334

172

651

561

262

—

649

184

509

181

92

—

223

90

314

—

150

(5,035)

1,099

418

6,662

36.8

33.5

15.1

21.8

29.6

29.4

27.6

23.9

14.3

19.9

30.4

27.4

7.8

33.1

—

21.3

(28.0)

19.4

35.2

26.5

1,150

321

249

823

468

287

651

196

732

309

794

373

160

204

519

133

(7,274)

1,140

444

8,858

38.1

34.9

19.3

20.8

29.3

25,5

26.5

37.3

12.8

31.1

33.4

30.8

20.6

10.3

31.3

.

16.5

(27.9)

15.5

30.5

26.4

1,060

321

304

685

410

183

—

667

152

590

235

742

510

42

255

383

283

269

(7,887)

1,019

372

8,478

43.5

34.0

26.1

25.1

31.9

28.4

28.4

44.1

12.6

45.5

42,7

35.1

33.3

11.4

40.2

7

?

?

25.3

29.4

aForeign ,~ defined as a ph D recipient of a US unlverSlty who has a temPorarY visa

bin fiscal year 1962, “Physiology” was broken out into ’’Animal Physiology’’ and “Plant Physiology”

C,,Antmal $jClence, was added as a field !n fis~a[ year 1973 Field was changed to ‘Animal Science and Animal Nutrition” In fiSCal year 197 7

dAdded asafleld in fiscal year 1~9.

‘“NutntionH dropped as afield in fiscal year 1960 “Nutrltlon and/or Dieteticsti added as a field In fiscal year 19

SOURCE Robert E Evenson, Jonathan Putnam, and Carl Prav, “The Potential for Transfer of US AanculturalTechnoloav, ” contract re~ort DreDared for the Off Ice

of Technology Assessment, 1985

International Transfer of

Corn Technology

As much as any other U.S. crop, technological change has altered postwar corn production.

Conventional plant breeding, more frequent and

more efficient use of nitrogen fertilizer, and assorted “production management technologies”

should continue to increase corn yields through

the end of the century. Even greater potential for

increasing corn yields may lie in biotechnologies

that will enter commercial markets by the mid1990s. Plant growth regulators for corn could

have the largest impact of any biotechnology, followed by photosynthetic enhancement, breeding

techniques like cell and tissue culture, and biological nitrogen fixation. Developments in pesticide and fertilizer technologies will play important roles as well.

How rapidly and by what routes might these

technologies be transferred to other nations, in-

-.

eluding U.S. competitors? As befits the U.S. position as the world’s top producer and trader of

corn, this country generally leads in corn technology. In particular, U.S. companies figure critically in the development and dissemination of

chemicals and biotechnology. U.S. and multinational firms either operate subsidiaries or participate in joint ventures in every major corn producing nation:

Pioneer Overseas Corporation, Cargill, and

DeKalb/Pfizer have subsidiaries or joint ventures

in all of our major competing countries. These

subsidiaries or joint ventures all have some research capacity. Northrup-King and Funk Seeds

have subsidiaries in all of these areas except Thailand where Funk is just starting a research program. All of the major seed companies are active

in Europe.

Moreover, U.S. companies play a crucial role

in the development of hybrid corn seed. Most corn

produced in the United States comes from hybrid
seed developed by these firms, although inbred

varieties that result from public sector research

often serve as one of the hybrid parents. To the

extent that productivity-boosting corn technology

will center around seed, U.S. and European multinationals will be the main channels for direct and

rapid transfer.

Genetic material, research methods, and basic

knowledge may be transferred rapidly and

directly by these companies. For example, a hybrid, high-yield corn seed that is rich in carbohydrates, resists certain diseases, or has other similar traits, could be transferred by a private

U.S.-based multinational to Argentina, Europe,

and South Africa, and could enter commercial use

within a relatively short time—perhaps several

years. These countries possess temperate climates

similar to that of the United States, and offer

large, accessible, and lucrative markets. Furthermore, governments often encourage and assist

such transfer, particularly those of developing

countries like Argentina and Brazil.

Hybrid corn seed developed for temperate climates would probably need to undergo biological adaptation before entering such tropical countries as Brazil and Thailand. As a result, new

knowledge in general, and new research methods

in particular, are critical forms of genetic technology transfer to these nations. Moreover, the

CIMMYT and State-sponsored research efforts

play a more important role than private companies in transferring genetic material to the tropics.

Even if new corn hybrids are not transferred

directly, many U.S. seed companies contribute to

plant breeding programs in competing nations,

which may lead to new, higher yielding, locally

developed corn hybrids within the next few years.

Programs of this type have already increased corn

yields in Argentina and Brazil over the past decade. Transfers may occur in the reverse direction

as well; germplasm collected in tropical countries

has been an important and controversial source

of genetic material for corn breeding programs in

the United States.

In addition, multinational companies could facilitate the transfer of chemical technologies for

corn production, and for pesticides and plant

growth regulators in particular. These firms conduct most of the important research and development for corn pesticides and corn hormones.

Two European chemical companies, Ciba-Geigy

and Shell, market corn herbicides in the United

States and maintain significant product development programs. These firms also “have extensive

sales, production and research programs in Latin

America and Asia. ” Similarly, U.S. companies

that dominate corn herbicides and insecticides

“have major sales programs in Europe and South

America, They also have applied research and development programs in many countries. ”

Market characteristics and the security of property rights influence the pace at which U.S. companies introduce new agrichemicals to agricultural

competitor nations; the cost of building a production plant or distribution network for a new product is weighed against the size of the market and

the availability, cost, and efficacy of competing

products. A number of large, lucrative markets

for agrichemicals, such as Australia, Canada, and

Europe, do possess mature chemical industries

that can replicate new technologies. However,

strong patent protection in these nations should

allow U.S. firms to market new products rapidly.

Patent protection is not as secure in other countries, but not all U.S. chemical companies perceive

the risk of infringement in the same way. For

example:

Argentina has a patent system but has not

signed the Paris convention on patents and so one

company, which is very concerned about patent

rights, stated their reluctance to introduce their

newest chemicals there. Most other companies did

not appear to have particular concerns about Argentina.

Similarly, Thailand’s new and as yet untested

patenting system could affect transfer of agrichemicals: “One major American company will not expand into Thailand or introduce new products

there because it feels that it recently had a new

product stolen by a Thai company. ” However,

“other companies are attracted to Thailand because the [pesticide] registration requirements are

almost nonexistent and so companies can introduce a new product very quickly. ”

Relatively lax registration requirements are

common in developing countries, which benefits
62

companies in developed nations that produce and

market chemicals and uses of chemicals that have

been banned or restricted in their home country.

Also, insecticides and disease control agents, or

“fungicides,” are not widely used for corn production in developing countries, and appear to

be prime candidates for technology transfer.

Broad spectrum herbicides represent another possibility for transfer to the developing world.

International Transfer of

Wheat Technology

International competitiveness in wheat production has become a sensitive issue to the United

States, in the wake of recent declines in the U.S.

share of the world wheat market. International

developments in wheat production technology

have an important effect on this market. Conventional plant breeding programs, which formed the

basis for the “green revolution” in wheat production during the past two decades, will continue

to produce high-yield wheat varieties—perhaps

the most important source of productivity improvement over the next 5 to 10 years. Improved

management techniques, combined with new

plant varieties, will facilitate the multiple-cropping

of wheat and other crops, effectively extending

wheat’s already wide geographic range. Wheat

growth regulators, which may enter the market

within the next decade, should boost yields

moderately, as may the development of hybrid

wheats. The United States occupies an important

position in the development and dissemination of

these technologies.

In contrast with corn, the breeding and transfer of wheat germplasm is dominated by the public

sector. Many programs are sponsored by national

governments and by CIMMYT, which played a

key role in the “green revolution. ” In the United

States, varieties developed by public research

comprise more than 90 percent of all wheat

acreage.

Direct regional and international transfer of

wheat varieties is rare, due to varying growing

conditions and, in some cases, different preferences for specific types of wheat. Even within the

United States, for example, wheat varieties remain

site-specific: soft white wheats are suited to some

areas, and hard red winter wheats are suited to

others. Moreover:

. . . each country has to produce its own varieties

using the characteristics of germplasm from

around the world. If the country does not have

local capacity to do research it cannot use the

qualities in the germplasm like disease resistance

or, in the future, biological nitrogen fixation.

Even where varieties are transferred to other

regions, preferences and grading standards for

specific types of wheat can cause delays. The “era”

variety of wheat produced yield increases of up

to 25 percent when released in Minnesota in 1970,

but Canada did not adopt this crop until recent

years because of stringent standards imposed by

that country’s wheat board. Release of a high

yielding, rust-resistant wheat variety developed

by CIMMYT was delayed in Australia because

its red grain was unacceptable to Australian

millers. Rather, Australian scientists employed the

CIMMYT germplasm to develop a white-grained

wheat, which spread rapidly; by 1978, about onethird of Australia’s wheat area was planted with

CIMMYT-based varieties. Argentine wheat production also benefited from CIMMYT research

and plant materials; approximately 60 percent

of Argentina’s wheat acreage is planted with

CIMMYT-based varieties.

As a result, although the transfer of wheat varieties and germplasm is indirect, promising biological traits may be utilized by experienced scientists. The rate of transfer depends on the nature

of the individual trait. Concerning the process of

transfer:

Breeders from government institutions in the

U.S. and other developed countries regularly exchange their genetic material. Breeders read about

a new development in an academic journal, they

write to the author for a sample of seeds and then

try the seed under their conditions. They then incorporate the useful characteristics into their own

commercial varieties.

Again, CIMMYT is a critical link in such exchanges. Other avenues of transfer include shipments of material from international wheat rust

research nurseries, and through training programs

that bring foreign scientists to the United States.

Significantly, this country has also benefited from

transfer of wheat germplasm and scientific information about wheat traits.
63

Apart from biotechnology breeding techniques,

growth regulators may become the first form of

biotechnology to be transferred among major

wheat producing nations. Current research aimed

at altering wheat’s genetic proclivity to aluminum

toxicity could lead to an important breakthrough

for tropical wheat production, particularly in Brazil and other Latin American countries. In contrast, the international diffusion of other agrichemicals and of mechanical technologies holds

a lower potential for increasing wheat yields, although wheat “fungicides’ ’—which are employed

by European and North American farmers, and

are developed and marketed by companies on

both continents—may have an impact.

International Transfer of

Soybean Technology

Through the turn of the century, conventional

plant breeding should continue to be the main avenue for improving the productivity of soybean

production throughout the world. In addition,

higher yields, further improvements in the efficiency of biological nitrogen fixation, and more

effective soybean pesticides are anticipated. On

the other hand, emerging biotechnologies—with

the possible exception of tissue cultures—and the

advent of hybrid soybeans are not likely to have

a direct impact on productivity in this century.

Public research remains the fountainhead of soybean breeding, although private companies have

developed and marketed their own varieties since

the late 1970s.

Historically, international transfer of soybean

varieties has been a salient feature of global production. The United States dominates production

and trade today, but this country imported its first

soybeans from China. Over the past two decades,

soybean varieties developed in the U.S. public sector formed the foundation of the soybean industry of our closest competitor, Brazil, and played

a key role in establishing the Argentine soybean

industry, In contrast to the adaptive and indirect

international transfers of corn and wheat varieties,

“some soybean varieties . . . developed by . . .

land grant universities in the Southern United

States were grown commercially with no modification in Argentina and Brazil. ” The Brazilian

soybean boom of the 1970s also benefited from

private sector transfers of soybean milling and

marketing technology, via U.S.-based multinational corporations. Brazil now exports large

amounts of soybean meal and oil, and has displaced some U.S. markets in Europe and Japan.

Within the past several years, the Brazilian research system has matured, and now develops its

own varieties—used in Argentina, Uraguay, and

Paraguay, along with U.S. varieties. Still, about

80 percent of Argentina’s soybean acreage is

planted with U.S.-produced varieties, and the

United States regularly exchanges soybean types

with Canada.

Future improvements in soybean varieties, or

desirable soybean characteristics, may be transferred or adapted directly and rapidly from the

United States to Brazil. Varieties or traits adapted

to the tropics will then be transferred to other

Latin American countries, and perhaps to Africa

and Asia. Important transfers could occur in the

opposite direction, but this has not yet occurred.

In addition, transfer of soybean pesticides is a

potential source of short-term productivity improvements to competitors. And, as is the case

with corn and wheat, plant growth regulators

combine considerable potential for productivity

gains and technology transfer. However, this technology is not expected to be available to the marketplace until the end of the century.

INTERNATIONAL TRANSFER OF EMERGING

AGRICULTURAL TECHNOLOGIES

An OTA document published in 19864 identi- tors used that information to assess the potential

fied technologies likely to be introduced to U.S. for transfer of these technologies to other nations,

agriculture over the next 20 years. OTA contrac- as discussed below,

‘U.S. Congress, Office of Techn~)logy Assessment, Technolog~’,

— ———

ture, OTA-F-285 ~ Y$’ashingt(}n, DC. L1. S. Government Prlnt]ng OI’ubllc I’(]lic>,, and the Changing Structure of American Agricul- fice, Nlarch 1Q86).
64

The technologies were grouped into 44 separate fields, and rated for their potential to increase

productivity, for the ease and direction of transfer, for impacts on competitors and importers,

and for other characteristics. The ratings were assigned based on a variety of factors, including patent information, research and development activity, and technology transfer data. Sources

included interviews with U.S. companies, publications, technology characteristics—a number

of which are in the form of scientific knowledge,

not specific products—and contractors’ experiences. This qualitative rating scheme does not attempt to specify the pace of transferor adoption;

as noted above, the actual transfer and adoption

in recipient countries depends on such considerations as costs and government policies.

Table 4-9 lists the technology fields that have

at least a medium (M) potential for producing productivity gains over the next 20 years and at least

a medium (M) potential for transfer to other countries. Of the 44 fields examined, 29 received such

a rating. The table also identifies leading research

nations for each field; the United States is among

the top four for all technologies. Eleven agricultural technology fields received a rating of “M+”

or greater for the potential for transfer from the

United States: entomology-nematology; general,

wheat, and soybean pesticides; regulation of animal growth and development; environment and

animal behavior; meat PHT; mutations and genetic engineering; micro-organisms/tissue culture

technologies; enzymes; and biotechnology equipment and apparatus. Of the 12 crop technologies,

Table 4-9.—Technology Fields With At Least Medium Productivity and Transfer Potential

Transfer potential

Leading field Leading centers

Crop Technologies:

1. Plant Breeding . . . . . . . . . . . . . . . . . . . . . . . .

2. Entomology -hematology . . . . . . . . . . . . . . . . .

3. Pesticides-general . . . . . . . . . . . . . . . . . . . . .

Corn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Wheat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Soybeans. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Rice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Genetic engineering . . . . . . . . . . . . . . . . . . . .

5. Enhance photosynthesis . . . . . . . . . . . . . . . .

6. Plant growth regulation . . . . . . . . . . . . . . . . .

7. Plant disease control . . . . . . . . . . . . . . . . . . .

8. Biological N Fix. . . . . . . . . . . . . . . . . . . . . . . .

U. S., India, U. S. S. R., U.K.

U. S., U. K., India, U.S.S.R.

U. S., W. Germany, Japan, France

U. S., IARC, U. S. S. R., Argen.

U. S., IARC, India, U.S.S.R.

U. S., Brazil, Argentina, India

IARC, India, Japan, U.S.

Japan, U. S., U. K., W. Germany

U. S., Japan

U. S., U. K., India, U.S.S.R.

General

L

M +

H –

L –

M –

M –

M –

H –

M

M

M –

M

Animal technologies:

1. Animal husbandry . . . . . . . . . . . . . . . . . . . . . . U. S., W. Germany, France, U.K. L-M

2. Animal breeding. . . . . . . . . . . . . . . . . . . . . . . . U. S., U. K., India, W, Germany M

3. Regulating animal growth

and development . . . . . . . . . . . . . . . . . . . . . . M

4. Animal disease control . . . . . . . . . . . . . . . . . . U. S., U. K., India, W. Germany M

5. Animal reproduction . . . . . . . . . . . . . . . . . . . . U. S., U. K., W. Germany, Austral M

6. Environment and animal behavior. . . . . . . . . M +

General mechanical and managerial technologies:

1. Communication/information. . . . . . . . . . . . . . U.S. M

2. Monitor/control plant . . . . . . . . . . . . . . . . . . . U.S. M

3. Monitor/control animals . . . . . . . . . . . . . . . . . U.S. M

Postharvest (PHT) and biotechnologies:

1. General PHT . . . . . . . . . . . . . . . . . . . . . . . . . . . Japan, U. S., W. Germany, France

2. Meat PHT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Japan, U. S., W. Germany, France M +

3. Fruit PHT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . France, U. S., Japan, W. Germany M

4. Grain PHT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U. S., W. Germany, Japan, U. K., France M

5. Mutations and genetic engineering . . . . . . . Japan, U. S., U. K., W. Germany H

6. Micro-organisms/tissue culture . . . . . . . . . . . Japan, U. S., W. Germany, France H –

7. Enzymes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Japan, U. S., W. Germany, France M +

8. Biotechnology equipment . . . . . . . . . . . . . . . Japan, U. S., W. Germany, France M +

NOTE Number of technology fields examined 44 Fields this table 29, Number of fields Where transfer from U.S M at least M + 11

From U.S.

L-M

M +

H –

M

M +

M +

L

M

M

M

M

M

M

M

M +

M

M

M +

M

M

M +

M

M

H

H –

H

H

SOURCE Robert E, Evenson, Jonathan Putnam, and Carl Pray, “The Potential for Transfer of U S Agricultural Technology,” contract report prepared for the Office

of Technology Assessment, 1985.
65 —

only 2—plant breeding and rice pesticides—were

assigned less than a medium (M) potential for

transfer from the United States to other countries,

It is important to note, however, that most products associated with conventional plant breeding

are not directly transferable, except in the case

of soybeans.

OTA contractors rated the potential impact of

the transfer of these technologies to U.S. export

CONCLUSIONS

Compared to many other industries—manufacturing, for example—technology transfer in

agriculture proceeds at a slow rate, in part because of its varied biological nature, and in part

because much agricultural production remains the

province of millions of small-scale farmers slow

to adopt new technologies, Over the past two to

three decades, however, the pace of international transfer of agricultural technology has increased. Developing countries have improved

their capabilities in conventional agricultural science; at the same time, developed countries, such

as West Germany, France, and Japan, have established sophisticated, competitive agricultural input industries. Substantial public investments

have been made in agricultural research and extension activities. It is not surprising that the

United States, a leader in most aspects of agricultural technology, occupies a central role in

technology transfer through direct trade, scientific research and training, and agricultural development programs.

competitors on a similar scheme, although the results do not appear in tabIe 4-9. Ten of the technology fields shown in the table have at least

medium (M) potential to increase productivity in

competitor nations. In this respect, crop technologies were the most sensitive: they comprised 8

of the 10 fields with medium (M) or greater potential productivity impacts for U.S. competitors.

Between now and the end of the century, the

rest of the world—including export competitors

—will match the United States in many aspects

of agricultural technology and development, and

will absorb a wide range of innovations and

knowledge more easily and rapidly. It is unlikely

that the United States will lose its preeminence

in all aspects of agricultural science and technology, or even in most. Still, many emerging agricultural technologies in the United States appear

to be transferable to other countries via private

companies and public agencies, including important biotechnologies that may provide the next

spurt in productivity for plant and animal agriculture. As a result, U.S. farmers may not enjoy

the fruits of early adoption of new technology for

as long as they have in the past; their absolute

advantage in the production of many agricultural

goods, which is rooted in technology, could diminish over the next 10 years, depending on how

much emphasis the United States places on agricultural research.
Chapter 5

U.S. Trade in High-Value

Agricultural Products
Chapter 5

U.S. Trade in High-Value

Agricultural Products

World trade in low value-per-unit commodities, such as grains and oilseeds, doubled during

the 1970s; the United States capitalized on this

trend by increasing corn, wheat, and soybean exports, However, the rapid rise in trade of processed and high-value agricultural products (HVPS)

represents another significant trend. In fact, the

value of HVP trade now surpasses that of the

lower value bulk commodities. The United States

has not performed impressively within this dynamic arena of world agriculture. In 1980, the

United States retained roughly the same 10 percent

share of world trade in HVPS that it had held in

1970. Other countries, particularly those of the

European Economic Community (EEC), have taken

greater advantage of the growing HVP market (see

table 5-I for a listing of the major HVP exporters,

their commodities, and their markets).

Increasing affluence and efforts to upgrade diets

fueled the expansion of HVP trade in the 1970s.

Despite the global recession of the early 1980s,

world trade in HVPS continues to be strong, while

a slowdown has occurred in trade of low-value

products. In theory, the United States could benefit from an expansion of HVP exports. According

to one U.S. Department of Agriculture (USDA)

analysis, the world HVP market may grow by $15

billion per year in the 1990s, and “expanding the

U.S. share of the world market in high value products by just 5 percentage points—a rise from 10

to 15 percent—could give the country up to a million new jobs, add $5o billion to the gross national

product (GNP), and increase government revenues by $10 billion per year by the early 1990s. “1

In addition, world HVP markets appear to be less

erratic, and may provide a more stable and diversified source of earnings for U.S. agriculture. z

Can the United States expand its share of the

HVP trade, as some policymakers propose? What

are the barriers to such expansion? Which highvalue products and markets show the greatest

promise? This chapter attempts to answer these

questions by reviewing overall trends in world

and U.S. HVP trade, and by examining recent

trends for leading U.S. high-value products that

accounted for over $8 billion in 1985 export sales.

The evidence suggests that opportunities exist for

expanded U, S. trade in a number of HVP markets, but that significant, sustained expansion will

not come easily.

FACTORS INFLUENCING HVP TRADE3

The Significance of HVP Exports era] y horticultural crops—and to semiprocessed

In this chapter, the term “high-value products” and highly processed products, which involve

refers to certain unprocessed commodities—gen- capital- or labor-intensive production relative to

raw agricultural commodities. HVPS have higher

‘Unless otherwise noted, the material in this section of chapter

5 was drawn from two sources: Michael Dwyer, et al., “Value-Added

U.S. Agricultural Exports, 1967- 1981: An Analysis of the Distribution and Structure of Exports by Commodity and Regional Destlnation, ” U.S. Department of Agriculture, Foreign Agriculture Serv. -

Ice, staff paper, 1983; and U.S. Department of Agriculture, Ec[>n{~mic

Research Service, “High-VaIue Agricultural Exports. U S. Opportunities in the 1 ~80s, ” Foreign Agricultural Economic Report N()

188, 1983

unit values than do such agricultural commodities as grain or soybeans. In comparison with raw

agricultural commodities, export of HVPS is associated with high levels of employment, gross economic output, personal income, and government

tax revenues, It is clear that when the United

States exports highly processed products, it reaps

6 9
70

Table 5.1.— Major HVP Exporters: Leading Commodities and Major Markets, 1980

Exporter Leading commodities

EEC-9 . . . .“. . . . . . . . . . . . . Dairy products

Meats

Beverages

Fruits and vegetables

Grain products

Sugar products

United States . . . . . . . . .Vegetable oils and meals

Tobacco and cigarettes

Meats and livestock products

Fruits and vegetables

Processed grains and feeds

Brazil . . . . . . . . . . . Coffee

Soybean oil and meal

Cocoa

Processed fruits

Meats

Fresh fruits

Spain . . . . . . . . . . . Fresh fruits, especially citrus

Vegetable oils

Beverages

Australia ... . . Meats and livestock products

Dairy products

Grain products

Fruits and vegetables

New Zealand . . . . . . . . . . Meats and livestock products

Dairy products

Canada. . . . . . . . . . . . . . Meats

Beverages

Fresh vegetables

Argentina. ., . . . . . . . Meats

Fruits and vegetables

Vegetable oils

Mexico ... . . . . . . . . . . . Coffee

Fresh vegetables

Preserved fruit

Greece . . . . . . . . . . . . . Fresh fruit

Dried fruit

Preserved vegetables

Value

(1980, $ billions)

$53.5

(total)

$19.9

(extra-EEC)

$11.4

$ 5.8

$ 3.3

$ 2.8

$ 2.3

$ 1.9

$ 1.8

$ 1,05

$ 1.04

Major markets

EEC (internal trade)

Middle East

Western Europe

U.S.S.R.

Japan

EEC-9

United States

Western Europe

Far East

Middle East

EEC-9

United States

Western Europe

Far East

Middle East

EEC-9

Middle East

United States

United States

Japan

Middle East

EEC-9

United States

Middle East

Japan

United States

EEC-9

Japan

EEC-9

Middle East

Western Europe

United States

Japan

United States

EEC-9

EEC-9

Middle East

SOURCE U S Department of Agriculture, Economic Research Service, ‘High Value Agricultural Exports” U S OpportunltlesIn the 1980s, Foreign Agricultural Eco

nomlc Report No 188, 1983

the benefits of added employment, economic out- the 1970s doubled, they failed to keep pace with

put, and government revenue that are associated inflation; postinflation prices for “low-value” agriwith processing.4 cultural products actually declined by 1 to 2 perHigher unit prices of HVPS, relative to bulk

commodities, imply that modest increases in HVP

export volume would have a greater economic effect than would corn, wheat, or other bulk commodities. Also, this price structure makes HVP

prices less likely to have an unfavorable relationship with the overall inflation rate. While average nominal prices for U.S. farm exports during

cent per year during the 1970s. In contrast, HVP

prices showed an inflation-adjusted annual increase of 2 to 3 percent over that period. Since

1980, LVP trade prices have fallen in current as

well as real terms, further widening the imbalance

between LVP volume-dominated growth and

HVP price-dominated gains. ’
71

In terms of volume, the United States attained

a 39 percent share of world agricultural trade between 1979 and 1981, compared to a 23 percent

share between 1969 and 1971. In terms of value,

however, the average 14 percent share for the

earlier period rose to only 18 percent from 1979

to 1981,6 due to the predominance of low-value

products in U.S. exports. Furthermore, the average value of world agricultural exports rose from

$520 to $530 per ton between 1979 and 1984,

while falling prices for raw commodities over the

same period caused the average price of U.S. agricultural exports to decline by almost 12 percent—

from $260 to $230 per ton. As a result, the United

States accounted for one-third of world agricultural trade volume by 1984, and 13 percent of

trade value. Both figures are below the 1979 to

1981 average.7

Another advantage of HVP exports is the relatively steady growth of HVP markets over the

past decade. Even during the world recession of

the early 1980s, growth of HVP trade did not decrease as severely as trade in raw commodities.

As a result, the bulk-dominated agricultural trade

of the United States has been subject to substantial year-to-year swings in value; the value of U.S.

trade fluctuated 14 percent between 1979 and

1981, compared to an average 8 percent fluctuation in HVP-dominated world trade. The instability of international agricultural trade has become more pronounced than that of the 1960s,

when average annual world market prices fluctuated by 5 percent, and U.S. prices by 9 percent.

International trade in HVPS holds other benefits as well. Saturation in some domestic markets

could make the export market more attractive for

some U.S. processors. Processing industries can

adjust production more easily than farmers; exporting processed goods may hold fewer risks for

U.S. agricultural trade. Also, many agricultural

processing activities, particularly those up to the

semiprocessed stage, occur close to the site of raw

commodity production. In the future, rising

energy costs may encourage even greater onsite

processing, in order to reduce product weight

prior to shipment, Since many farm communities

are associated with processing industries, these

areas could benefit from an expansion of HVP

trade.

Barriers to Expanding U.S.

Trade in HVPS

Although international HVP trade may appear

attractive, it will be difficult for the United States

to sustain a rapid expansion in many HVP markets. Many of the macroeconomic forces working against U.S. trade in raw agricultural commodities, including both the relative strength of

the U.S. dollar in the early 1980s and debt repayment problems in developing countries, have

dampened near-term prospects in HVP markets

as well.

Another set of barriers concerns the role of food

processing industries in international economic development, especially within the Third World. As

was the case in the United States, food processing industries are important in the early phases

of industrial growth, Many developing and middle-income countries seek to expand or protect

their own processing sectors, to generate employment and to achieve a greater measure of food

security. In fact, developing countries may have

stronger incentives to establish their own processing industries than to import HVPS. This trend

is encouraged through import barriers in South

Korea, Taiwan, Hong Kong, Western Europe, and

Brazil, and more recently in the Middle East and

in newly industrializing and oil exporting countries. National goals of self-reliance in food supply may create a market for raw or semiprocessed

U.S. exports, but not necessarily for highly processed products. Some developing countries discourage food imports, viewing them as luxury

goods that siphon scarce foreign exchange away

from more important investments.

These long-term trends give an ephemeral character to international markets for processed agricultural products. As demand may change over

time, expansion of U.S. exports of high-value

products may not have lasting effects. Soybean

meal is a case in point. In conjunction with its nascent poultry industry in the 1970s, the EEC was

a major importer of soybean meal. While the EEC
72

remains a large regional consumer, it has developed a domestic processing capacity. Current

growth markets for soybean meal lie in the industrializing countries of the Far East and Latin

America, but these markets will change as production capacity develops. Other commodities likely

to be affected by similar trends include unrefined

vegetable oils and fresh meats, particularly poultry. In some cases, U.S. environmental controls

encourage processing overseas. Leather tanning,

for example, produces toxic chromium wastes that

are strictly regulated in this country.

Import barriers are especially formidable in the

EEC, which would otherwise represent a logical

market for U.S. HVPS. The EEC’S Common Agricultural Policy (CAP) imposes tariffs and levies

that “severely restrict many U.S. food exports,

including most meat, dairy products, poultry,

flour, baked goods, lard, sugar, and many fruits

and vegetables. “8 Food and agricultural products

are traded within the EEC without price penalties,

giving these countries “a decisive price advantage

over U.S. products. Food from Mediterranean and

developing countries outside the EEC also frequently

benefit from preferential tariff treatment.’” Since

the United States imposes fewer tariffs or levies

on food imports, this country possesses few direct bargaining chips in HVP trade negotiations;

efforts to liberalize EEC-U. S. trade in HVPS would

probably invite European demands to liberalize

many other U.S. import policies.

Despite the EEC import barriers and the Community’s favorable balance of HVP trade with the

United States, heavy EEC imports of raw and

semiprocessed agricultural commodities have

given the United States a positive agricultural

trade balance with Europe. A similar situation exists in Japan. Although the Japanese make widespread use of both quotas and insect/disease

quarantines to prevent entry of a number of U.S.

HVPs—especially fruits and vegetables—Japan

stands as another large importer of overall U.S.

agricultural products.

Another force that negates the potential for

U.S. HVP exports is the subsidizing of HVP proc-

“Harold A. McNitt, “U.S. Food Exports to the United Kingdom:

Opportunities and Obstacles, ” National Food Review, summer 1985.

‘Ibid,

essing and exports by such competitors as the EEC

and Brazil. Among the principle HVP traders, the

EEC maintains the most complete range of export

support policies for the broadest spectrum of

products. Within the Community, variable levies

maintain price competitiveness, while export subsidies are designed to remove HVP surpluses that

result from high price supports. EEC actions have

contributed to the U.S. withdrawal from the Middle Eastern whole-broiler trade, the erosion of the

U.S. share of world wheat flour markets, and the

reduction the U.S. presence in markets for oilseed

meals and oils, processed fruit, vegetables, and

cereal products. Brazil, the third largest HVP

exporter—after the EEC and the United States—

subsidizes the processing and export of soybean

products, poultry, and orange juice; Brazilian policies have crippled U.S. performance in several

world markets.

Attributes of certain HVPS, such as perishability, pose other trade barriers. High perishability

of particular fruits, vegetables, and meats may

raise freight costs significantly, as with the case

of U.S. vegetables in the Far East. In this market, stiff competition is posed by nearby producers and by Australia and New Zealand, as these

nations can airfreight their produce. Because of

its proximity to the United States, Canada has represented the traditional market for U.S. produce,

but saturation of Canadian markets suggests a

need for more aggressive U.S. efforts in the Far

East. Technological advances in packaging and

food preservation may enhance export competitiveness for perishable U.S. products.

Many of the difficulties that the United States

encounters in HVP markets are attributable to a

lack of acumen or interest in international trade

on the part of domestic companies. Also, U. S.-

based multinational companies may choose to

penetrate foreign markets through acquisition or

development of foreign production and distribution facilities, instead of through exports. Eventually, foreign subsidiaries or joint ventures with

foreign firms actually may benefit from import

barriers, as well as from low-cost overseas labor

and materials. As U.S. companies increase the

number of their overseas ventures, however, benefits to this country become more difficult to as-
73

sess, depending on the extent of profit repatriation.

While U.S. grain and soybean production has

been geared to world markets for decades—due

largely to government programs and subsidies—

U.S. HVP producers must acclimate themselves

to international trade. In contrast to EEC firms,

whose food manufacturing and marketing operations are oriented toward export, U.S. HVP producers primarily serve homogeneous domestic

markets, placing these firms at a marketing disadvantage. High-value products demand careful

attention to labeling, health certification, advertising, packaging, and other service activities that

involve additional costs. Many aspects of the current U.S. transportation system center around

bulk commodities; costs of refrigeration, security,

and other transport modifications will need to be

factored into the HVP export decision as well. In

addition to tailoring U.S. products to foreign market niches, U.S. exporters must give more consideration to smaller HVP markets, rather than

to larger markets for bulk commodities.

World and U.S. Trends in HVPS

In recent years, world trade in semiprocessed

agricultural products has not grown as quickly

as trade in highly processed goods. In contrast

with global trends, the United States’ HVP exports

are dominated by semiprocessed products. Of a

total of $11 billion in U.S. HVP exports in 1980,

over one-half, or $6.1 billion, were semiprocessed

goods; 28 percent, or $3,1 billion, were highly

processed; and 17 percent, or $2.2 billion, were

unprocessed products. By contrast, highly processed products dominated the $19.9 billion of 1980

EEC exports in HVPS—59 percent, or $11.7 billion, were highly processed; 35 percent, or $7 billion, were semiprocessed; and 6 percent, or $1.3

billion, were unprocessed.’”

Along with fresh fruits, semiprocessed oilseed

meals were the fastest growing U.S. HVP exports

during the 1970s. Other semiprocessed items

among the top U.S. HVP exports have included

cattle hides, corn gluten feed, beef, tallow, wheat

flour, soybean oil, and brown rice. Further processing for leather goods, high-quality greases,

pastas, bakery products, and fully refined and

hydrogenated oils has generally occurred overseas with foreign government support. Also, of

the top U.S. semiprocessed export items, several—

such as cattle hides, corn gluten feed, and tallow—

are byproducts of primary industries.

In certain cases, U.S. market characteristics

have encouraged the export of highly processed

goods. The low U.S. demand for dark poultry,

for example, coupled with subsidized competition

from the EEC and Brazil in the whole-broiler

trade, has resulted in increased exports of cut

chicken pieces to the Far East and the Caribbean.

This contrasts with beef, since retail beef cuts are

taken after export, from subprimal boxed beef.

The United States exports only a small fraction

of its fully processed meat. Still, while value gains

from processing are negligible, weight reduction

remains an important concern, and processing

operations may take place within the United

States; transportation costs have encouraged preexport tobacco stemming, almond shelling, and

rice milling. For reasons of technical capability,

the parboiling of rice also occurs in the United

States. Finally, perishable high-value products,

like vegetables, have created the need to export

larger processed product shares relative to HVPS,

like fresh fruit.

International HVP Markets

Historically, international trade in HVPS has

been carried out among both developed and fastgrowing, middle-income countries. The United

States and the EEC are the leading importers of

HVPS, followed by Japan and Canada. Although

the relatively high value of the U.S. dollar between 1981 and 1985 stimulated growth in U.S.

HVP imports, the general trend over the past decade has been one of slow growth in U. S., EEC,

and Canadian markets; newly industrializing

nations have assumed greater importance as

growth markets. Over the next 10 to 15 years,

developed and middle income countries are likely

to remain large importers, but—with the exception of Japan—these nations should continue to

be slow-growth markets for the United States.

Market saturation in the developed regions and

emphasis on local processing in the middle income
74

areas is expected to decrease overall growth in

HVP trade.

Currently, the Middle East and the Pacific Rim

represent the fastest-growing regional HVP importers, and the United Arab Emirates, Singapore,

and Hong Kong are the largest per capita importers. During the 1970s, dramatic expansion of

HVP imports occurred in the OPEC countries,

where growth in population and income was complimented by a preference for Western food. Annual HVP imports rose by 30 percent, particularly

for meats, vegetable oils, and beverages. Debt

problems and falling OPEC oil revenues have reduced overall imports in the 1980s; declining expatriate labor forces have closed some HVP markets altogether. Japan, Hong Kong, Singapore,

Malaysia, and Taiwan stand out as prospective

markets in the Pacific Rim, with exceptional

growth potential in meats and fresh fruits. Japan’s

HVP imports, for example, have grown at an

average rate of 20 percent per year since 1970,

mainly for meats, coffees, and fresh fruits.

In fact, the fastest growing markets for the

majority of top U.S. HVP export items lie in the

Far East. The movement of U.S. agricultural attaches from Europe to the Far East reflects the importance of that region to future U.S. success in

HVP and overall agricultural trade. As noted previously, long-term U.S. export success will depend

on aggressive marketing efforts. Competition

from established Far Eastern producers is growing, and the potential emergence of China as a

major HVP exporter may diminish U.S. opportunities in the Pacific Rim.

Marketing Programs

An effective marketing program for HVPS

could include two basic elements: product promotion, and trade servicing. U.S. promotional efforts for HVPS have decreased over the last 10

years. While foreign exporters typically spend 1

to 5 percent of HVP trade value on promotion,

U.S. promotional expenditures have decreased

from 0.4 percent of HVP export value in 1970 to

0.2 percent in 1980.

11

In 1985, USDA established a Processed Products Division, devoted to statistics and market

analysis for processed products. In addition, the

agency has increased its trade servicing activities

through the development of its Agricultural Information and Marketing Service (AIMS). AIMS

serves as a liaison between domestic producers

and foreign importers of agricultural products,

particularly for HVPS. The AIMS database includes current information on domestic prices and

product availability, as well as foreign market information provided by overseas attaches. Program managers have reported significant increases

in sales of HVPS by U.S firms that participate in

AIMS.

Of course, without an increase in overall marketing funds, greater promotion of HVP exports

may diminish the funding available to promote

bulk commodities. Promoting HVPS also entails

a shift in benefits; manufacturing and processing

interests outside the farm sector generally receive

70 to 80 percent of the returns on HVP exports .12

Accordingly, increased support of HVP promotion should be measured against the concurrent

interest in marketing bulk commodity exports.

“U.S. Department of Agriculture, “New Uses for Farm Products, ”

Challenge Forum< oct. 11-12, 1984.

]ZLipton and O’Brien, Op. cit.
75

LEADING U.S. HVP EXPORT COMMODITIES’3

This section of the study examines leading highvalue export commodities in the United States (see

table 5-2). Trends in world and U.S. trade, competitors, and policy issues are presented for each

high-value product.

Oilseed Products

Background

Oilseed products include soybean meals and

cakes used for livestock feeds, refined oils for industrial purposes, and further-processed refined

and hydrogenated oils for cooking. The processing of soybeans and other oilseeds is a sizable U.S.

industry, and exports grew in both volume and

value during the 1970s and early 1980s. Over the

same time period, however, the U.S. share of the

world market declined, the result of a slowdown

in demand, increased competition, and the availability of substitute products. The U.S. Government and U.S. trade associations are now turning

away from stagnating markets in the developed

countries, and toward higher-income developing

countries in Latin America, the Middle East, and

South Asia.

Trends in the processed oilseed trade reflect the

ephemeral nature of value-added product markets. Processed oilseed products are imported

when countries wish to upgrade diets or expand

] ‘The material in thl< w>cti[>n of chapter 5 is based on l(~ur sourcw.

C(lmparlw~n\ t~f w(}rld and U.S. trade in variou~ commodities between 1 Q70 and I Q84 were drawn fr~]m the Fotxl and Agriculture

Organlzati(~n (Jt the LJnlted Nations, FAO Trade }’earbook. vols.

3Z-38, R(~me, ]t~]}: cornparis(>ns [>f IJ. S. production and U.S. export~ of tariou~ c(~mm(~ditles were drawn from Fcwd and Agriculture Organlzat ion (~t the United Nations, 1984 F:4C) Trade Ye~rLKK)A and 1Q84 FAO Production Yearbook, Fot)d and Agriculture

Organlzatlon ot the United Nations, Rome, Italy, 1985; updated

~1 S export figures [or 1Q85 were drawn from U,S Department ot

Agriculture, Foreign Agricultural Service, “U.S. Agricultural Exports

Oct 1980 -Sept, 1985, ” W’ashingt[)n, DC, August 1986, and intormat Ion on the de~t I na t ion of U S. export commoclltles was drau’n

trom U, S, Department of Commerce, Bureau ot the Census, “U. S

Exp(lrts Schedule E C[)mmodlt}r Gr(}uplngs, Comm(}dlty b}’ Country, ” FT--I 10 rep(~rts, \4’ashlngton, DC, 1Q84.

Table 5-2.—U.S. Leading HVP Export Commodities,

1985

Volume “ Value

(MT thousands) ($ millions)

‘1, Tobacco ... . . 257 1,587.9

2. Cigarettes . . . . . . . . 47a1.180.0

3. Cattle hides , 673a

1,035.0

4. Soybean meal ... . 4,460 833.6

5. Rice . . ... . . . 1,972 677,1

6. Soybean oil . ... . . 752 558,0

7. Tallow ... ... . . . 1,129 542.9

8

9

10

11

12

13

14

15,

16,

17,

1,

2,

3.

4.

5

6:

7,

8.

9.

10.

11.

12.

13.

14,

Beef . . . . . . . .

Corn gluten fee d

Shelled almonds .

Poultry meat ... ...

Oranges . ...

Wheat flour . ,

Cottonseed oil .. .

Apples . ... .

Grapefruit ., . .

Pork . . . ...

112

3,383

125

234

385

727

196

205

199

43

Unit dollars, 1985

(dollars/MT)

Cigarettes . . . . 25,1 06,4a

Tobacco . . . . . . ... 6,175,0

Beef ... ... . 4,263.4

Shelled almonds. . . 2,533.6

Pork . . . . . . . 1,700,0

Cattle hides, .. . 1,538,2a

Poultry meat . . . ., 1,098,3

Soybean oil . . . . . 742.0

Cottonseed oil . . . . . 701.5

Oranges . . . . 597.4

Apples . . ... ... ., . 530,2

Tallow . . 480,9

Grapefruit . ... . 435,7

Rice . . . . . . . . . . . . 343.7

477.5

458,8

316,7

257,0

230.0

155,1

137.5

108.7

86.7

73,1

15, Wheat flour ., ... . 213.3

16. Soybean meal ... . . 186,7

17. Corn gluten feed . . 135.6

aFlgures are approximate Commodity Information provided by Foreign Agrlcul

——

ture Service, U S Department of Agriculture

SOURCE U S Department of Agriculture Foreign Agricultural Service, U S

Agricultural Exports Oct 1980.Sept 1985 “ August 1986

livestock industries; when demand rises to a certain level, however, domestic processing facilities

are developed. Imports shift toward new commodities.

During the 1970s, world vegetable oil prices

doubled. With $8 billion in world exports in 1980,

trade in vegetable oils nearly matched that in beef.
76

World trade in soybean meal reached over $5.5

billion in 1980; growth in meal prices, coupled

with volume increases during the 1970s, resulted

in an almost sixfold increase in world trade value.

Since 1980, the world level has hovered about $5

billion.

U.S. Trade

Although U.S. soybean oilcake, and meal exports fell from $1.65 billion in 1980 to $833 million in 1985, the United States remains second to

Brazil as an international supplier of this commodity. The United States follows Malaysia in

world vegetable oil exports; leading U.S. vegetable oil export commodities for 1985 include soybean oil at $558 million and sunflowerseed oil at

$301 million. Sunflowerseed oil and linseed oil,

while small in volume compared to other vegetable oils, have been the fastest growing U.S. oilseed export products in recent years.

In terms of volume, U.S. soybean cake and

meal exports nearly doubled between 1970 and

1980 (see figure 5-l), but have since fallen by approximately 40 percent. Similarly, soybean oil exports rose by about one-third during the 1970s,

but have since fluctuated considerably while decreasing overall. However, even the actual U.S.

increases of the 1970s did not match the rapid

growth of world exports. Between 1970 and 1984,

the U.S. world soybean meal volume market

share fell from 68 to 21 percent, while the U.S.

share of the soybean oil market decreased by 33

percent. Foreign processing, import barriers, and

export subsidies combined to bring down the total value-added proportion of U.S. oilseed exports

from 35 percent of all oilseed products in 1972

to 17 percent in 1981.

Western Europe stands as the world’s largest

importer of U.S. oilseed products, purchasing 64.3

percent of U.S. soybean meal exports in 1983 (see

Figure 5.1 .—World and U.S. Soybean Meal Exports

21i

1970 1972 1974

Years

1978

SOURCE FAO Trade Yearbook, Food and Agrlcul!ureOrgmlzatlon of the United Nations, Vols. 32-38, 1970-1984, Rome, Italy
—

Figure 5-2.— U.S. Soybean Meal Exports by

Destination, 1983

Canada (6.1 0/0)

Latin America (14.0°/0)

Eastern Europ e

\

Far East (3.0°/0)

\ ~ Other (1 .6°/0)

SOURCE “U S Exports Schedule E. Commodity Groupings, Commodity by

Country, ” Bureau of the Census, Department of Commerce, FT-41O

reports, 1984

figure 5-2). The Community, however, is not a

growth market. Oil imports are regulated, and

policies are directed toward increased importation of raw soybeans. For soybean meal, top U.S.

export country markets in 1983 were The Netherlands, West Germany, Venezuela, Canada, Italy,

the Philippines, Poland, and Iraq. In general, exports of value-added oilseed products to the developed world, such as the EEC, Canada, and

Japan, are slowing, the result of reduced population and income growth. Eastern Europe and the

U.S.S.R. represent potential markets, contingent

on balance of trade and development considerations, and on political relations with the United

States. China may develop into a large potential

market as it modernizes its livestock industry,

which would increase per capita vegetable oil consumption.

The fastest growth markets for U.S. oilseed

products are likely to lie in the higher income industrializing countries of the Middle East, the Far

East, and Latin America; currently, Latin America and South Asia dominate U.S. export markets (see figure 5-3). Many of these nations lack

the capital, infrastructure, and technical capability

to process oilseeds. Five countries—India, Pakistan, Iran, Morocco, and Turkey—accounted for

55 percent of world soybean oil import growth

between 1976 and 1984,

77

Figure 5-3.— U.S. Soybean Oil Exports by

Destination, 1983

Africa (9.7°/0) Latin America (35.7°\o)

E

Far

Other (1.1 0

/0)

astern Europe (18.1 0

/0)

East/Oceania (3.4°/0)

South Asia (31 .9°/0)

SOURCE. “U S Exports Schedule E Commod!ty Groupings, Commodity by

Country, ” Bureau of the Census, Department of Commerce, FT-41O

reports, 1984

Competitors

Brazil, the United States, and Argentina are the

world’s largest exporters of soybean meal, followed by The Netherlands and West Germany.

Of course, Brazil’s high-protein, pelletized form

of meal is somewhat different than the U.S. product; nevertheless, the rapid decline in the U.S.

processed oilseed market share during the 1970s

can be attributed to aggressive competition from

Argentina and Brazil in world meal and oil trade,

and from Spain in the Mediterranean oil markets.

Also, a dramatic increase in production of Malaysian palm oil has displaced some of the demand

for soybean and cottonseed oil.

Issues

Several factors have slowed the growth of U.S.

oilseed exports in recent years:

● As with most other high-value and value-

-added commodities, policies of other nations

have been a major impediment. In fact, the

U.S. soybean processing industry has filed

two pending petitions under Section 301 of

the Trade Act of 1974: one that charges Brazil, Argentina, Spain, Portugal, Malaysia,

and Canada with subsidization of soybean

crushing industries and soybean exports; and
78

one that charges Argentina with imposing a

differential soybean export tax.

The premiums associated with U.S. products,

especially oils, are prohibitive for some importing countries. Developing nations can

buy cheaper palm oil, lard, or tallow from

Asia.

Demand slowed during the early 1980s, due

to worldwide recession. Although this factor has abated, growth is not projected to

reach the level of soybean meal demand seen

in Europe during the 1970s, where infrastructure for livestock production and transport

was already in place.

To date, U.S. promotional efforts have focused

on exports of raw soybeans, rather than meals and

oils. The $6.5 million allocated annually to USDA

has been directed primarily to trade servicing—

support for current trade—and to technical assistance for foreign processing industries. Recently,

however, domestic interest groups have become

more active in promotion of processed products.

For example, while its efforts have not yet been

reflected in trade performance, the Export Processing Industy Coalition (EPIC), an industry-labor

alliance, has articulated processors’ concerns.

EPIC hopes to double the size of Public Law 480

grant-in-aid programs, in order to include more

semiprocessed and processed goods.

Tobacco and Cigarettes

Background

U.S. tobacco export volume has declined slightly

in recent years, the result of a strong dollar

through early 1985, relatively high U.S. prices,

the availability of competitive overseas supplies,

and stagnant world cigarette demand. Former

growth markets for cigarettes in the developed

countries have declined due to health concerns

and large cigarette tax increases. Analysts expect

greater export growth for cigarettes relative to leaf

tobacco. American blended cigarettes are unique

in taste and are considered status items overseas,

particularly in newly industrializing countries.

A steady increase in world tobacco exports between 1964 and 1984 can be attributed to the rapid

income and population growth in developing

countries during this period. In 1984, world trade

in tobacco stood at 1.4 million metric tons (MT)

(see figure 5-4), and was valued at $4.2 billion.

Future long-term trends in U.S. tobacco and cigarette exports are difficult to predict, and the degree of optimism varies among analysts. Still, the

reduction of price supports for U.S. tobacco in

1985, along with the weakening of the U.S. dollar, is likely to increase the international competitiveness of U.S. tobacco in the near term.

U.S. Trade

The United States is the world’s leading tobacco

exporter, shipping over 256,000 MT in 1985, valued at $1.59 billion. Flue-cured tobacco is the leading export commodity, valued at $1.06 billion and

comprising two-thirds of 1985 exports. Burley

tobacco, the next most-traded commodity, held

a 21 percent export share. U.S. cigarette exports

stood at 58.9 billion pieces, or approximately

47,000 MT, in 1985, for a value of $1.1 billion;

in terms of unit value, cigarettes are easily the

highest value commodity mentioned in this study

(see table 5-2)–approximately four times the

value of tobacco as a whole, the second highest

item.

In contrast to tobacco production, six major

firms dominate U.S. cigarette manufacturing, including the multinationals Phillip Morris and R.J.

Reynolds. Since a large percentage of U.S. production occurs overseas, only 9 percent of domestically produced cigarettes were exported in 1983.

In the same year, total exports of U.S. tobacco

represented 36 percent of domestic production.

Although price increases drove the value of

U.S. tobacco exports up by an average of 13 percent per year, export volume showed little change;

at 256,000 MT, the 1985 volume was only 10 percent greater than the 234,000 total of 1970. Total

world trade, on the other hand, grew from

986,000 MT in 1970 to 1.4 million MT in 1984,

an increase of 43 percent. During this period, the

U.S. share of the world market fell from 23 to 17

percent (see figure 5-4). Twenty years ago, the

United States held a 30 percent share.

Since 1960, the use of cheaper foreign tobaccos

in U.S. cigarettes has increased, particularly in

flue-cured and burley tobacco. In 1982, imports
79

Figure 5-4.—World and U.S. Exports of Tobacco

(unmanufactured)

1.5 . -

1.4

1.3

I

1970 1972 1974 1976 1978 1980 1982 1984

Years

_ World 1=1 U.S.

SOURCE” FAO Trade Yearbobk, Food and Agriculture Organization of the United Nations, Vols 32-38, 197c-19&l, Rome, Italy

of flue-cured tobacco from Brazil, Zimbabwe, and

Korea represented 18 percent of total U.S. fluecured use. These escalated imports have complemented the established trend of importing aircured “Oriental” tobaccos from Mediterranean

areas like Greece and Turkey. In addition, longer

filters, reduced cigarette circumference, and the

increased use of sheet tobacco, stems, and puffed

tobacco, have all contributed to a decline in the

volume of tobacco per cigarette.

Although demand continues to fall, Western

Europe remains the world’s largest regional market for tobacco, followed by Japan. West Germany took 11 percent of U.S. tobacco exports in

1983, followed by Spain, Italy, The Netherlands,

and the United Kingdom (see figure 5-5).

U.S. cigarettes have enjoyed faster export

growth than tobacco. Increased cigarette consumption is directly related to rising incomes in

developing countries. Between 1970 and 1980,

average annual U.S. cigarette exports grew 10 percent in volume, and 20 percent in value; however,

the United States’ market share held relatively

steady (see figure 5-6). Subsequently, exports fell;

the United States held 17 percent of the world

market in 1983,

The fastest growing markets for cigarettes are

the middle-income, oil-exporting, and newly industrializing countries of the Middle East, the Far

East, and parts of Latin America. North Africa

is also a growth region, and West Africa is expected to grow with future petroleum development. Belgium receives the largest shipments of

U.S. cigarettes, but this nation is a transshipment

point, not a major market. Hong Kong is the

largest importer of U.S. cigarettes, followed by

Saudi Arabia, Japan, Lebanon, and Singapore (see

figure 5-7).
80

Figure 5-5.—U.S. Unmanufactured Tobacco Exports

by Destination, 1983

ny (1 1.1 0/0)

/

Netherlands (5.4°/0)

United Kingdom (5.3°/0)

SOURCE: “U.S. ExIJorts: Schedule E. CommodllYGrou~inm, Commodltv bv

Figure 5-7.—U.S. Cigarette Exports by

Destination, 1983

Belgium (21 .4°/0)

Panama a (10.30/. )

Singapore (4.3°/0) Japan (9.0°/0)

SOURCE. “U. S Exports: Schedule E. Commodity Groupings, Commodity by

Country, ” Bureau of the Census, Department of Commerce, FT.41O

reports”, 1984.

Country, ” Bureau of the Census, Department of ~ommerce, FT_-410

reports, 1984.

Figure 5-6.—World and U.S. Exports of Cigarettes

1980 1982 1984

SOURCE: FAO Trada Yearbook, Food and Agriculture Organization of the United Nations, Vols. 32-38, 1970-1984, Rome, Italy
81

Competitors Cattle Hides

The United States is the world’s largest exporter

of tobacco, followed by Brazil, Italy, Greece, and

Zimbabwe. Brazil, Zimbabwe, Malawi, Korea,

Italy, and Greece are the top competitors with the

United States in major markets. As U.S. exports

fell during the last decade, quality improvements

by foreign exporters allowed these countries to

become increasingly competitive, and at lower

prices. In the cigarette trade, the United States

faces export competition from the United Kingdom and West Germany. Bulgaria supplies the

U. S. S. R., and is expected to capture the growth

markets of Eastern Europe.

Issues

Although the United States produces a highquality tobacco, high U.S. prices have reduced

the country’s international competitiveness. Because tobacco exports constitute a large percentage of total production, domestic price supports

for tobacco have both domestic and international

ramifications. Since 1982, U.S. price support

levels have been frozen in an attempt to make U.S.

tobacco more competitive. The “no net cost” Tobacco Fund reduced the cost of farm sector supports by requiring contributions from tobacco

manufacturers and exporters to supplement farmers’ contributions. The Tobacco Program Improvements of 1985, attached to the 1985 Budget

Reconciliation Act, have reduced price supports

by 25 percent. 14 These lower price supports, combined with a declining U.S. dollar, should enhance

U.S. competitiveness. In addition, the USDA’s

GSM-102 Export Credit Guarantee Program boosted

exports, from $30.4 million in 1983 to $82.5 million in 1984. Iraq, Egypt, and Jamaica participated

in this program.

Finally, many countries maintain government

control over tobacco and cigarette production,

and collect major revenues from cigarette taxes.

Promotional efforts by U.S. trade associations in

these nations have focused on advertising campaigns, especially in the Far East.

‘“Dan Stevens, Foreign Agricultural Service, U.S. Department of

Agriculture, personal communication, 1986.

Background

U.S. cattle hides are considered to be of superior

quality to those of foreign producers. U.S. cattle

hide exports have grown steadily in volume and

spectacularly in value since 1970, and continued

growth is expected. However, while cattle hides

represent one of the most dependable U.S. value-

-added livestock exports, this country annually imports over three times their value in finished

leather products.

The world market for hides and skins grew at

an average of 10 percent per year between 1975

and 1982, reaching a record high of $4 billion in

1982. Although most U.S. value-added commodities are subject to foreign import restrictions designed to protect local industries, cattle hides are

an exception. Importing nations generally convert

these hides to fully processed leather goods.

U.S. Trade

The United States is the world’s leading exporter

of hides and skins, followed by the EEC, Canada,

Australia, New Zealand, and South Africa. The

United States supplies over one-third of the

world’s hide and skin products, and—excluding

inter-EEC trade, which is cloistered from the international market—approximately 60 percent of

the world hide trade. Cattle hides, which brought

the United States $1.035 billion in export revenue in 1985, constitute over 90 percent of all U.S.

hides and skins exports, followed by calf skins and

sheep skins.

Italy, Japan, and South Korea are the world’s

largest importers of hides and skins. The Far East

and Eastern Europe represent the largest regional

markets for U.S. cattle hides (see figure 5-8); Japan, Korea, and Taiwan accounted for over 60

percent of U.S. cattle hide exports in 1983. Other

significant country markets include Romania,

Mexico, Italy, Canada, Spain, West Germany,

France, Czechoslovakia, Yugoslavia, the United

Kingdom, and the U.S.S.R.

Competitors

Australia, New Zealand, and the EEC are the

principal competitors in the hides trade, par-
82

Figure 5-8.—U.S. Cattle Hide Exports by

Destination, 1983

Eastern Europe (1 1.8°/0)

(5.1 “A)

America (6.1 O\O)

SOURCE: “U.S. Exports: Schedule E. Commodity Groupings, Commodity by

Country,”’ Bureau of the Census, Department of Commerce, FT-41O

reports, 1984.

ticularily in Far Eastern markets. Within competitive markets, submarkets for foreign range-fed

hides and more expensive U.S. hides remain segmented.

Issues

In recent years, several developing countries

that had been exporters of raw hides have become

net importers, processing these into leather goods

for export. Licenses, taxes, and quotas restricting hide exports have been complemented by rebates, grants, and subsidies that encourage processing and leather goods exports. Argentina,

Uruguay, Paraguay, Brazil, Colombia, India,

Pakistan, and Morocco have all implemented such

policies.

Aside from USDA activities, there are no commercially sponsored promotional programs for

U.S. cattle hide exports. Trade analysts believe

that if exports are maintained at the current level

of two-thirds of domestic production, sufficient

hides will remain to satisfy domestic demand.

However, domestic leather industry trade associations support the upgrading of hides to semifinished and finished leather products. Increased

foreign imports, especially of shoes, have accentuated declines in the tanning and shoemaking industries of the Northeast and Midwest. Negotiations are underway between the Leather Industry

of America and the Footwear Industry of America on the one hand, and Japan, Korea, and Taiwan on the other, to decrease imports of furtherprocessed leather products. Although a Section

201 Trade Act case filed by the Footwear Industry of America in early 1984-calling for restricted

imports of shoes from Korea, Taiwan, and Brazil —was later rejected by the Reagan Administration, the Textile and Apparel Trade and Enforcement Act of 1986 (HR 1562) includes import

quotas on footwear.

On the other hand, there are significant environmental costs associated with leather production. The net expenditure of increased leather production and tanning in the United States includes

the cost of managing or eliminating toxic chromium wastes and other pollutants.

Rice

Background

U.S. rice exports increased in volume and value

throughout the 1970s, but have declined since

1981 except for a slight rise between 1983 and

1984. Although the United States maintains a top

quality rice product, upgraded quality from competing nations has diminished overseas interest in

paying the premiums associated with U.S. rice.

Furthermore, decreasing oil revenues in oilexporting markets have slowed the growth of

global rice imports.

The four major rice commodities, in order of

processing stage, include rough wild rice, brown

rice, milled white rice, and parboiled rice. The

parboiling process involves a sealing of nutrients,

and can be applied to rough, brown, or milled

rice. White rice is the end product of complete

milling, If exports in parboiled, milled, and brown

rice decrease in the future, increased attention may

be given to “luxury” submarkets for instant and

wild rice.

Recent domestic policy developments may

brighten prospects for U.S. rice exports. The

“marketing loan rate” system, introduced in the

1985 Farm Bill, allows U.S. rice farmers to repay

government loans at international market prices,

which are often substantially lower than domestic loan rates. As a result, farmers can sell rice

at reduced prices in order to compete in international markets. USDA reports that this program
83

has begun to improve U.S. export performance,

but that such changes may not appear statistically

until 1987.15

Due to an expansion of harvested area, coupled with the “green revolution” that has produced

large yield increases, world rice production has

nearly doubled since 1970. The global crop of

1984 amounted to approximately 470 million MT

of rough rice, over 90 percent of which was

produced in Asia. World rice exports constitute

only 3 percent of total production. As only onehalf of Asian acreage is irrigated, Asian production depends on the timing of the monsoon, and

is subject to wide variations. This makes the international rice market highly volatile, which is

aggravated by government controls on imports

in many countries, and a by limited number of

exporters.

U.S. Trade

Thailand and the United States supply about

one-half of the world rice trade. In 1985, the

United States exported 1.97 million MT of rice,

valued at $677,1 million, down considerably from

the 1981 peak level of over 3 million MT and over

$1.5 million. This has resulted from noncompetitive U.S. prices, which—coupled with quality upgrading of the Thai commodity—have led to a

loss in market share to Thailand. With laborintensive Thai harvesting and production methods, rough rice can be produced at $75 per ton,

well below the U.S. cost of production. Unlike

Thai rice, however, the U.S. crop is irrigated, allowing for stable production; also, integration of

U.S. harvesting, processing, and marketing permits more efficient quality control.

Parboiled and milled white rice have been the

two major U.S. export items, with 42 and 37 percent of the 1983 export share, respectively. Brown

rice follows with 10 to 19 percent, and rough wild

rice constitutes about 2 percent. U.S. overseas

sales of parboiled rice have made the largest gains

of any rice commodity in the past 10 years, particularly in value.

‘<U.S. Department of Agriculture, Economic I<esearch Service,

unpubli~hed data.

Compared to 1.7 million MT of rice exports in

1970, the 1985 level represents an increase of 16

percent. Exports comprised about 34 percent of

1984 domestic production. World rice exports totaled 12.5 million MT in 1984, compared to 8.8

million MT in 1970, for an increase of 42 percent;

U.S. world market share fell slightly during this

period, from 20 to 17 percent (see figure 5-9). In

terms of value, this country has increased exports

by 121 percent, from $306.2 million in 1970 to

$677.1 million in 1985, despite the post-1981 decline. About 20 percent of U.S. exports consisted

of food aid to developing countries; Public Law

480 grants accounted for approximately threefourths of these shipments, and GSM 102 extended

credit for the remainder.

The Middle East, Africa, and Western Europe

are the largest markets for U.S. rice exports (see

figure 5-10). Other growth markets may develop

for U.S. specialty products, such as instant rice

and wild rice mixtures. While the United States

dominates production of these commodities, neither instant nor wild rice stands as a significant

export item.

Competitors

Thailand, the United States, Pakistan, China,

and Burma supply three-quarters of the world rice

trade. Thailand outcompetes the United States in

most Asian

Europe and

most of the

U.S. aid to

Issues

markets, competes aggressively in

the Middle East, and has captured

South American market, excluding

Peru and some exports to Bolivia.

High domestic producer prices have been the

primary obstacle to U.S. export growth, and the

principal cause of large domestic surpluses. Price

support levels for rice, established in the 1981

Farm Bill, created a wide differential between domestic and international prices. The 1985 Farm

Bill includes provisions that may reduce this problem, such as the new “marketing loan rate, ” described previously. However, this program has

received extensive criticism from competitors, particularly from Thailand.
84

Figure 5-9.—World and U.S. Rice Exports

1970 1972 1974 1976 1978 1980 1982 1984

Years

SOURCE: FAO Trade Yearbook, Food and Agriculture Organization of the United Nations, Vols. 32-38, 1970-19S4, Rome, Italy.

Figure 5-10.—U.S. Rice Exports by

Destination, 1983

SOURCE: “U.S. Exports. Schedule E. Commodity Groupings, Commodity by

Country, ” Bureau of the Census, Department of Commerce, FT-41O

reports, 1984,

Corn Gluten Feed

Background

The rising world demand for meat products and

meat processing has led to increased imports of

coarse grains for feed. Highly processed feeds have

enjoyed dramatic export growth in the last decade, under liberal trade conditions. Corn gluten

feed, a byproduct of the wet milling process used

to produce alcohol fuel, cornstarch, corn syrup,

dextrose, and high-fructose syrup, is the most successful U.S. grain-derived export feed. Although

the United States has no competitors in the world

corn gluten feed market, this product faces competition from other types of high-protein feeds,
85

The United States is the world’s leading exporter

of high protein feeds excluding soybean meal, receiving $909 million for sales in 1985. The most

heavily exported U.S. processed feed commodities are corn gluten feed and meal, other corn

products and byproducts, citrus pulp pellets, dried

beet pulp, livestock feed preparations, alfalfa hay

cubes, and poultry feeds. U.S. feedstuff exports

have increased in volume and value over the last

decade, and constituted approximately 13 percent

of 1985 U.S. coarse grain exports.

The expansion of the EEC’S high-yield dairy industry during the 1970s, coupled with high EEC

grain support prices, caused dairy producers to

look overseas for inexpensive high-protein feeds.

This development was synchronous with the

growth of the U.S. high-fructose corn sweetener

industry; corn gluten feed has entered duty-free

into the EEC since the 1960s. However, shipments

to the EEC are expected to decrease throughout

the current decade, due to a recent decision to deemphasize high-yield dairy production, and to a

new EEC proposal to place a tariff quota on imported gluten feed.

Because corn gluten feed is a byproduct, some

analysts argue that a plateau and possible slowdown in the high-fructose corn sweetener industry would cause an overall decline in wet milling, and a concurrent decrease in corn gluten feed

production. Others believe that a plateau in the

high-fructose industry will be offset by growth in

other industries that require wet milling and produce corn gluten feed as a byproduct. The recent

EPA ban on leaded gasoline is expected to foster

growth in alcohol fuel use, which should lead to

an increase in wet milling. In addition, production of corn syrup and cornstarch is expected to

remain healthy. Finally, while high-fructose corn

sweetener production has reached a natural peak,

it has done so at a high level.

U.S. Trade

In 1985, the United States exported 3.4 million

MT of corn gluten feed, valued at $458.8 million.

Between 1972 and 1985, exports of corn gluten

feed grew nearly 400 percent in volume, or an

average annual rate of approximately 30 percent.

In 1983, the United States produced 3,7 million

MT of corn gluten feed; exports, which stood at

3.5 million MT, represented over 90 percent of

total production. Prices were strongest for this

commodity between 1976 and 1981, when competitive bidding by the EEC increased its value.

Since then, prices have plummeted as a result of

reduced EEC demand and price declines in other

feeds.

Most U.S. corn gluten feed exports go to the

European Community; a small percentage goes

to the Caribbean, U.S. producers have begun to

seek new markets in Eastern Europe, the U. S. S. R.,

and the Far East, but no substantial sales to these

areas have been made to date. There has also been

discussion of sending corn gluten in the form of

food aid, to encourage livestock production overseas. The benefits of such efforts should be

weighed against potential setbacks to the U.S.

livestock export industry.

Issues

The EEC has recently proposed to cancel the

no-tariff GATT agreement regarding corn gluten

feed, requesting a “tariff -quota,” or a restrictive

tariff on annual imports of over 3.4 million metric tons. The quota and tariff-free status of corn

gluten feed were agreed on under confessional

terms during GATT negotiations during the

1960s. The EEC has not met with success in its

proposal, and the situation is unlikely to change

without major renegotiations.

Tallow

Background

The United States is the leading exporter of tallow, holding at least one-half of the world market share for the past 15 years, although the 1980s

have witnessed slight declines (see figure 5-11).

However, while U.S. exports have increased in

volume with the growth of soap industries in the

developing countries of Asia and the Middle East,

tallow prices have plummeted. This is primarily

a function of substitutability by vegetable oils and

petroleum products. U.S. exporters must explore

new agricultural and industrial uses for tallow and

its derivatives to offset recent declines in export

volume.
86

2.2

2

0.6

0.4

0.2

0

Figure 5-11 .—World and U.S. Exports of Animal Fats

(including oils, excluding lard)

1972 1974 1976

Years

1978 1980 1982 14

Supply of world tallow, a byproduct of beef

and other meat industries, depends on trends in

world meat production. Trade in animal fats and

oils is vulnerable to competition from both natural and synthetic substitutes. Substitution of Malaysian palm oil for soap, and a gradual trend

from tallow-based bar soaps to petroleum-based

detergents, have combined to depress international tallow and oil prices. Average world prices

for tallow, currently 10,5 to 12.5 cents per pound,

are the lowest in 10 years.

Huge stocks of palm oil, primarily from Malaysia, represent the driving force behind the international price drop. Competition from palm oil

is strongest in the developing countries, where foreign exchange considerations encourage the importation of lower cost oils. Moreover, soybean

oil competes with tallow in its use as an animal

feed enhancer.

U.S. Trade

U.S. exports of tallow, the second most important U. S.- livestock export product after cattle

hides, were valued at $542.9 million for 61 million MT in 1985. As noted above, volume increases during the 1970s were associated with expansion of soap industries in developing and

newly industrialized countries. Limited overseas

supplies have resulted in minimal import restrictions for tallow. Since 1980, however, U.S. volume exports have decreased.

The largest markets for U.S. exports of tallow

are found in the newly industrialized countries;

top country markets in 1983 included Egypt, Mexico, Pakistan, Korea, Japan, and Colombia. Other

markets with high-volume imports include the

U. S. S. R., India, Spain, Taiwan, Nigeria, West

Germany, Algeria, and El Salvador. As a region,
8 7

Figure 5-12.— U.S. Inedible Tallow Exports by

Destination, 1983

Africa

South

Far East (1 3.8°/0) Western Europe (19.8°/0)

SOURCE “U S Exports Schedule E Commodity Groupings, Commodity by

Country, ’ Bureau of the Census, Department of Commerce, FT-41O

reports, 1984

the Far East is the fastest growing market for U.S.

feed tallow (see figure 5-12 for 1983 regional export shares),

Competitors

West Germany, Australia, and Canada follow

the United States in the tallow trade, but these

and other competitors hold relatively small world

market shares,

Issues

Cattle hides and tallow have enjoyed free access to world markets, with some exceptions.

There have been problems in India and Pakistan,

where Muslim religious practices mandate the

omission of lard from tallow; the EEC has imposed a 2-year quota on tallow, in retaliation for

U.S. steel import quotas; and certain countries

with fishmeal and other significant protein feed

industries have restricted tallow imports.

Only a small amount of tallow is included in

U.S. food aid. Programs in 40 countries are currently underway to reduce barriers to U.S. tallow exports, and to promote the diverse uses of

tallow. As with cattle hides, the possibilities of

further processing of tallow for export are being

explored; further-processed products include refined greases and fatty acids. Though some fatty

acids are exported from the United States, the

majority of developed and newly industrialized

countries already possess a domestic production

capacity. Tallow as a detergent ingredient may

be attractive to developing countries who wish

to make the transition from bar to detergent

soaps; China has shown some interest in this type

of product. A research foundation supported by

National Renderers Federation is currently testing new uses of tallow, including the development

of emulsions which will reduce evaporation from

seed crops and soil.

Beef

Background

The United States produces a corn-fed, highquality, marbled beef that is popular in the Far

East, and is sought by hotel and restaurant industries in other regions. However, most countries

prefer the range-fed, lean beef produced in Australia, New Zealand, the EEC, and South America; this product is gaining popularity in the

United States as well. While U.S. exports of beef

have risen dramatically over the last decade, the

U.S. world market share has remained small. Declining growth in GNP in the developed countries

has encouraged imports of poultry and leaner, less

expensive beef.

World trade in red meats grew more slowly

than that of poultry or feeds during the 1970s,

and this trend is expected to continue due to the

efficiency and mobility of poultry production.

Beef packing is labor-intensive, relative to poultry, although both products are highly perishable.

U.S. Trade

The United States is the sixth largest exporter

of beef, following the EEC, Australia, New Zealand, Argentina, and Brazil. In 1985, the United

States exported 111,500 MT of beef and veal, valued at $477.5 million. Interestingly, while this

country is the leading exporter of high-quality,

high-priced, grain-fed beef, it remains the top importer of less-expensive range-fed beef. In 1985,

the United States imported $1.3 billion in foreign

beef, three times the value of U.S. exports, although the trade balance for beef and veal has

improved in recent years,
88

Figure 5-13.—World and U.S. Beef Exports

1970 1972 1974 1976 1978 1980 1982 1984

Years

SOURCE: FAO Trade Yearbook, Food and Agriculture Organization of the United Nations, Vols. 32-38, 1970-1984, Rome, Italy,

In 1970, the United States exported 8,500 MT

of beef, including veal, valued at $20 million (see

figure 5-13), As evidenced by the 1985 figures, exports have risen dramatically. In terms of market share, U.S. exports constituted 2.9 percent of

1984 world beef trade, compared to 0.4 percent

in 1970, representing a 625 percent gain in world

market share.

The Far East is the most important regional

market for U.S. beef exports, taking 74 percent

of the total in 1983 (see figure 5-14). Fifty-seven

percent of U.S. exports went to Japan alone in

1983, followed by France at 10 percent, and Canada at 7 percent.

Competitors

The world’s major beef producers hold relatively small market shares, although Argentina

and New Zealand have more than doubled their

beef exports over the last 20 years, These countries, along with Australia and-Brazil, are the principal competitors in the major U.S. export

markets.

Issues

Cordwooding—the export of lower value items,

rather than more highly processed ones—is an important issue in beef trade. ” U.S. exports of feed

grains, and even of high-value feeds, support livestock production and processing industries in

other countries; the United States receives much

smaller benefits in economic activity by exporting feed products than would be gained through

greater exports of animal products, including beef.

Unlike poultry, where successful U.S. exports are

l~Kenneth C. Clayton and Gerald Schluter, “CordwoodingWhatfs It Costing Us?” paper prepared for the Southern Regional

Association Science Meetings, Knoxville, TN, 1982.
89

Figure 5-14.—U.S. Beef Exports by Destination, 1983

SOURCE “U S Exports Schedule E Commodity Groupings, Commodity by

Country. ” Bureau of the Census, Department of Commerce, FT-410

reports, 1984

typically in retail cut parts, most U.S. beef is exported at lower stages of processing. Both Japanese and Western European importers prefer to

pay the added freight rates associated with unfinished cuts, so as to break the subprimal pieces

into retail or “portion control” cuts domestically.

Indeed, job protection and the capturing of the

resultant value added is an issue for importing

countries; beef value nearly doubles between the

subprimal and retail stage. Several nations maintain 3.3 kilogram minimums on their imported

cuts of beef, to maintain domestic jobs and to capture the economic benefits of retail meat-cutting.

Some nations without substantial beef industries, such as Saudi Arabia and several Caribbean

countries, import larger shares of retail cuts. Retail cuts are also marketed to restaurants in Canada, Europe, and the Far East.

The EEC’S CAP for beef and veal involves price

supports and subsidies, as well as import protection in the form of health and sanitation regulations. In Japan, prices are stabilized and beef imports are controlled through quotas established

by the Livestock Industry Promotion Corp.; Japanese import quotas have expanded since 1978.

The next round of formal beef trade negotiations

between the United States and Japan are not

scheduled to begin until 1988.

Pork

Of the 6.7 million MT of pork produced in the

United States in 1984, exports represented less

than 1 percent of total production. The potential

for future growth appears to be weak; in 1985,

exports dropped even more, from 60,100 MT valued at 137.8 million to 42,600 MT valued at $73.1

million. Japan, Canada, and Mexico represent the

top foreign markets for U.S. pork. The United

States imported $847 million in pork in 1985, over

10 times the value of exports.

Poultry

Background

The U S. export picture for poultry in the 1980s

bears little similarity to that of the 1970s. In the

past few years, the United States has lost much

of its share of the Middle Eastern market for whole

broilers, which had been the largest market for

U.S. poultry exports as recently as 1981. Two factors have contributed to this development: competition from the EEC and Brazil, and increased

poultry production in the Middle East. If U.S.

overseas sales are to return to former levels, marketing efforts could be directed toward export of

chicken parts to the Far East and the Caribbean,

where transport advantages can be maintained

over the EEC. In 1983, 50 percent of U.S. poultry exports were sent to the Far East, 28 percent

to Japan alone (see figure 5-15). However, producers in Brazil, the EEC, and Asia are rapidly

increasing shares in the parts trade.

Figure 5-15. —U.S. Poultry Meat Exports by

Destination, 1983

Western Europe (6.70/~)

Other (3.5°/0) I

Middle East (3.0°/0)

,

(5.20/o)

ada (7

ca (24,

.4 “/0)

4“/0)

Far East/Oceania (49.8°/0)

SOURCE “U S Exports Schedule E Commodity Groupings, Commodity by

Country, ” Bureau of the Census, Department of Commerce, FT.410

reports, 1984
90

Poultry is the third most traded meat in the

world, after beef and pork. In 1984, world trade

in poultry stood at 1.57 million MT, valued at

$1.94 billion. Four-fifths of the 1983 world poultry trade was supplied by five countries: France,

Brazil, the United States, Hungary, and T h e

Netherlands. Finally, although the value of the

world beef trade is about four times that of poultry, the growth rate of poultry trade has outpaced

that of any other meat.

U.S. Trade

The U.S. poultry production process is highly

efficient; technological competence in feed production and feed conversion make this industry,

in the absence of foreign subsidies, competitive

with that of France or Brazil. Still, exports represented only 3 percent of total U.S. poultry production in 1984, which was estimated at 7.5 million MT. Due to the volatile international poultry

market, no processing facilities have been built

solely for export purposes.

In 1985, the United States exported 234,000 MT

of poultry meat, valued at $257.1 million. Cut

chickens accounted for 71 percent of export value,

followed by whole chickens at 10 percent, cut turkeys at 4 percent, and whole turkeys at 2.5 percent. The United States is the third largest poultry exporter, after France and Brazil. Current

statistics may be misleading, however, because

the U.S. market share is declining. Poultry exports

by U.S. competitors increased at high rates during

the late 1970s and early 1980s, while in recent

years the entire world market has contracted. Future U.S. export success will depend on its ability to influence policies of other countries, or to

develop more successful marketing strategies.

As can be seen in figure 5-16, U.S. poultry exports grew slowly in the early 1970s, but then increased rapidly-by 135 percent between 1974 and

1970 1972 1974 1976 1978 1980

Years

1982 1984

SOURCE: FAO Trade Yearbook, Food and Agriculture Organization of the United NatIons, Vols. 32-38, 1970-1984, Rome, Italy.
1976, and by 73 percent between 1978 and 1980. exports had jumped to 297,000 MT, although this

Between 1970 and 1981, total U.S. export volume figure fell to 281,000 in 1985. Still, between 1979

increased by over 400 percent. However, export and 1983, Brazil’s exports grew at an average anvolume dropped considerably after 1981, from nual rate of 88 percent in value. The Brazilian in395,500 MT to 233,900 MT in 1985. And even dustry was parented by the United States during

during the high-growth years of the 1970s, the the 1970s, through exports of both breeding stock

U.S. world market share declined. This can be at- and processing technology.

tributed to the rapid rise of Brazil and France to France and Brazil dominate the Middle Eastern major world export status. market, having taken over the whole-broiler trade

The huge poultry export gains made by this

country in the late 1970s resulted primarily from

exports of whole broilers to the Middle East; particularly high volume sales to Egypt occurred in

1981, Although a decrease in exports to the Middle East is projected for the latter part of the 1980s,

almost one-half of current world poultry exports

are directed to this region. Since 1981, however,

the EEC and Brazil have penetrated the Middle

Eastern market, virtually excluding American opportunities. As can be seen in figure 5-15, only

3 percent of U.S. poultry exports were sent to the

Middle East in 1983.

The best prospects for future growth lie in exports of cut parts to the Far East, where large market size and fast growth exist in tandem. Between

1972 and 1983, the Far Eastern share of the U.S.

poultry export market jumped from 27 to almost

50 percent. Although growth is expected to continue, rates will slow, largely as a result of persistent export competition from Thailand, China,

and Brazil.

The United States exports cheaper parts, including backs, tails, and necks, to developing countries. Caribbean countries represent the largest

markets for U.S. chicken parts, while 24 percent

of all 1983 poultry exports were destined for Latin

America.

Competitors

During the 1970s, Brazil grew from a poultry

importer to the world’s second leading exporter

after France. The Brazilian drive toward the production and export of HVPS was one facet of an

attempt to reduce its balance of payments problems; subsidies for shipping and production have

allowed Brazil to become increasingly competitive in the Far East and Middle East, In 1973, Brazil exported only 30 MT of poultry meat; by 1982,

in Iraq, Egypt, and the Arabian Gulf. Principal

competitors in Far Eastern markets include Denmark, China, and Thailand, with Brazil gaining

strength. Thai poultry exports to the Far East are

growing at a rate of 94 percent per year, and Brazilian sales of chicken legs to this region are already having an impact on U.S. sales.

Issues

Foreign subsidization is the primary cause of

the U.S. market losses during the late 1970s. Most

of France’s poultry subsidies under CAP have

taken the form of capital investments, which

amortize over a long period and cannot be easily

retracted through policy initiatives. These investments have been enhanced by capital grants to

governments in the Middle East for whole-broiler

imports.

Many regions of the world have become selfsufficient in poultry production in recent years.

High feed conversion ratios, relative to beef or

pork, make poultry one of the most efficient

sources of livestock protein. Generally speaking,

poultry production is the first livestock-producing

enterprise that a newly industrialized country will

undertake; many former importers developed into

exporters during the preceding decade.

In 1981, the National Broiler Council filed a

Section 301 petition with the U.S. Trade Representative, who consequently filed a complaint

with GATT under the subsidies code, alleging that

subsidized EEC exports of whole broilers preempted the United States from participating in

important markets. Subsequently, Brazil was

charged by the petition as well. The United States

maintained that poultry producers in the EEC and

Brazil benefited from preferential credit terms, exemptions from income taxes, rural credit loans at

reduced rates, and subsidized feed corn for poul-
92

try produced for export. Furthermore, the EEC

and Brazil employed export subsidies to occupy

a “more than equitable share” of the market. By

1983, Brazilian exporters were underbidding U.S.

exporters in the Middle East, particularly in Egypt,

by $35o to $4OO per metric ton, although the

United States contends that costs of production

are comparable in the two countries. Today, the

Section 301 trade petition is still pending.

Both the EEC and Brazil maintain that their policies are necessary to maintain domestic production through managing surpluses, and as a result

do not fall under GATT’s purview. USDA analysts do not expect a favorable resolution of the

case, due to weaknesses in the GATT process regarding the gathering of sufficient litigation data.

The USA Poultry and Egg Export Council is

currently matching funds with the USDA for market development, market maintenance, and trade

servicing for poultry parts exports. Three out of

the five overseas cooperator offices are located

in the Far East, reflecting the importance of these

markets.

Wheat Flour

Background

Wheat flour is unique in that it is a bag commodity and yet is not produced at port; as a result, the economic benefits of flour exports are

particularly high. In 1961, the United States supplied 50 percent of the world’s wheat flour exports. The U.S. market share has since fallen, due

to subsidized EEC competition and to increased

flour production capability in developing and

newly industrialized countries. In 1984, the United

States held only 15 percent of the world market

share, with the EEC capturing nearly 60 percent.

While the United States benefits from efficient

wheat flour production, a significant proportion

of current U.S. wheat flour exports are shipped

as relief, under Titles I and 11 of Public Law 480.

Global wheat flour exports are not expected to

increase, since most purchasers have the milling

capacity to convert wheat to flour themselves.

Still, world trade has remained steady over the

past 20 years, as production capacity has generally kept pace with population growth.

U.S. Trade

U.S. wheat flour exports have decreased in volume and in world market share over the past 15

years. The United States exported 727,000 MT of

wheat flour in 1985, valued at $155.1 million. This

represented approximately 3.4 percent of the value

of total U.S. exports of raw wheat. In 1970, the

United States exported 1.2 million MT of wheat

flour (see figure 5-17). Compared to the 1985 figure, exports have decreased by 39 percent over

the last 15 years, an average annual decrease of

over 2 percent. World trade in wheat flour, on the

other hand, increased from 5 million MT in 1970

to 6.7 million MT in 1984, an increase of 26 percent (see figure 5-17). The United States lost over

one-half of its world market share between 1970

and 1984, holding 11 percent in 1984, compared

to 24 percent in 1970.

The largest growth markets for wheat flour are

developing countries with growing populations

that have not yet established milling capacity. The

excess capacity available in the developed countries has worked to keep the return on milling

small, and in some cases negative; as a result,

many developing countries have chosen not to

mill. In 1983, 88 percent of U.S. wheat flour exports were destined for Africa, primarily Egypt

(see figure 5-18).

North Africa and India are expected to be the

major growth markets for U.S. flour exports in

the future. In addition, China promises to be a

major wheat flour importer, with growing instant

noodle and cookie industries in South China and

no regional mills to serve them. Japan, however,

has gained early entry into this market.

Competitors

The United States, Canada, France, and Australia are the major exporters of wheat flour, followed by Argentina, West Germany, and the

United Kingdom. Processing subsidies along with

CAP have allowed the EEC to penetrate most of

the world market, although the Egyptian market

is a battleground for U.S. and EEC exporters; both

countries have employed subsidies to gain shares

in Egypt. Also, Japan, which holds only 3 percent of the global flour trade, subsidizes exports

and is increasing shares in Far Eastern markets.
93

7

Figure 5-17.—World and U.S. Wheat Flour Exports

6

5

0

1970 1972 1974 1976 1978

‘ears

1980

1

1982 198‘4

Figure 5-18.—U.S. Wheat Flour Exports by

Destination, 1983

Middle East (5.1 0/0)

Africa

SOURCE “U S Exports Schedule E Commodity Groupings, Commodity by

Country, ” Bureau of the Census, Department of Commerce, FT.41O

reports, 1984

Issues

Except for trade servicing, U.S. promotional efforts for wheat flour are limited. Blended credit

incentives have been rendered inoperative by recent cargo preference rules, which add approximately $60 per ton to agricultural products

financed with government support; effectively,

this leaves only Public Law 480 programs intact.

Export subsidies-in-kind, or “export PIKs” were

applied to flour exports to Egypt for 8 months in

1983, during which time U.S. producers were

competitive with the EEC. The Export Enhancement Program (EEP), formalized in the 1985 Farm

Bill, has continued this policy, although to a lesser

degree; U.S. performance now matches that of
94

most other competitors in world markets, with

the prominent exception of France.

Horticultural Products

This section summarizes trade information on

major horticultural products, including wine. U.S.

exports of horticultural products reached approximately $2.8 billion in 1983, representing a fourfold increase over sales levels of 1972; by 1985,

however, horticultural product exports fell to $2.6

billion (see table 5-2). Markets for most horticultural products reflect the diminishing dominance

of the developed economies, and the growing importance of the oil-exporting and newly industrialized economies.

Fresh fruits represent the major U.S. horticultural export products, accounting for 28 percent

of total horticultural export value in 1985. These

were followed by tree nuts at 20 percent, fresh

vegetables at 9 percent, fruit juice at 8 percent,

dried fruits at 6 percent, and canned vegetables

at 4 percent (see table s-3).

Foreign buyers rarely buy fresh horticultural

products with the intent of further processing, due

to the high premium involved in maintaining

product integrity during transport. Horticultural

products are considered to be “quality goods,” and

can only be imported by nations with comparaTable 5-3.—U.S. Horticultural Exports, 1985

(thousands of dollars)

Total horticultural products. . .................2,606,668

Total fruits and prepared, excluding juice . ...1,002,858

Fresh fruits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725,191

Fresh citrus . . . . . . . . . . . . . . . . . . . . . . . . . . 425,679

Fresh noncitrus (including melon) . . . . . . . 299,512

Dried fruits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,146

Other prepared fruit . . . . . . . . . . . . . . . . . . . . . 113,521

Fruit juice, including frozen . . . . . . . . . . . . . . . . 199,590

Nuts and prep . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511,999

Almonds, shelled . . . . . . . . . . . . . . . . . . . . . . . 316,742

Other nuts . . . . . . . . . . . . . . . . . . . . ., . . . . . . . 195,257

Vegetables and prep, total . . . . . . . . . . . . . . . . . 710,721

Fresh vegetables. . . . . . . . . . . . . . . . . . . . . . . . 231,694

Frozen vegetables. . . . . . . . . . . . . . . . . . . . . . . 91,984

Canned vegetables . . . . . . . . . . . . . . . . . . . . . . 99,054

Other, including dried . . . . . . . . . . . . . . . . . . . 287,989

Alcoholic beverages . . . . . . . . . . . . . . . . . . . . . . . 70,445

Wine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,407

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,055

SOURCE U.S Department of Agriculture, Foreign Agricultural Service, ‘(U S

Agricultural Exports, Oct 1980-Sept 1985, ” August 1988

tively high GNPs and sufficient discretionary incomes. However, as incomes and marketing infrastructure develop in some of the oil-exporting

nations and in the newly industrialized countries

of the Far East, these nations have become markets of high growth as well.

Fresh Citrus Fruit

Background.—While oranges dominate U.S.

fresh citrus fruit exports, the U.S. share of the

world orange market has not grown in the past

15 years. The Far East is the largest and fastest

growing regional market for U.S. fresh citrus (see

figure 5-19); Japan alone received 67 percent of

U.S. exports in 1983. Extensive citrus production

by Mediterranean growers has reduced the Western European market for U.S. citrus fruit to the

status of a low-volume, seasonal importer. Mediterranean production also blocks the United

States from Middle Eastern markets.

U.S. Trade.—The U.S. share of total world citrus exports has held steady over the past decade,

at approximately 12 percent. In 1985, this country exported 768,000 MT of fresh citrus fruits, valued at $426 million; in terms of value, citrus fruit

exports represented 59 percent of total fresh fruit

exports. Fresh oranges are the leading U.S. citrus

export commodity, with 385,000 MT exported in

1985, valued at $230 million. Fresh oranges acFigure 5-19.—U.S. Citrus Fruit Exports by

Destination, 1983

Other (2.4°/0)

Western Europe (14.5°/0)

Far East (58.3°/0)

SOURCE: “U S. Exports. Schedule E. Commodity Groupings, Commodity by

Country, ” Bureau of the Census, Department of Commerce, FT-41O

reports, 1984
95

counted for 54 percent of the U.S. citrus export

volume trade. Lemons and limes accounted for

21 percent of U.S. export sales in 1985. Grapefruit is also an important export commodity, with

$87 million in 1985 exports, or 20 percent of the

value of the U.S. citrus trade; however, grapefruit export share has dropped from its 1983 peak

of 26 percent. It is important to note that citrus

exports comprise only a small percentage of total domestic production,

In 1983, 58 percent of U.S. fresh citrus exports

were destined for the Far East, compared to 44

percent in 1972 (see figure 5-19). Today, the Far

East receives about two-thirds of U.S. citrus exports. Japan is the top market for U.S. fresh citrus products, receiving almost 40 percent of total U.S. fresh citrus exports. Canada is currently

the second major country market, holding 25 percent percent of total U.S. exports in 1983. Trade

to the EEC is hampered by the proximity of Mediterranean producers, and by preferential tariffs

granted by the EEC to these suppliers. Spain,

Italy, South Africa, and Morocco are the principal suppliers of fresh citrus to the EEC.

Competitors.—Spain, Morocco, Israel, and the

United States are the world’s principal orange suppliers, followed by South Africa, Cuba, Egypt,

Italy, and Cyprus. The above countries supply

approximately three-quarters of world orange and

tangerine exports. The United States is the world’s

leading exporter of grapefruit, followed by Israel;

these two countries supply over 80 percent of the

world grapefruit trade. Other significant exporters

include South Africa, Cuba, and Cyprus, The

United States is the second largest lemon exporter,

after Spain.

Issues. —Current U.S. promotional efforts for

citrus fruit are concentrated in the Far East, where

restrictive trade practices still prevail. Japan and

Korea maintain quotas on fresh oranges, and high

duties are applied to citrus fruit in Japan, Korea,

and Taiwan. In fact, Japanese orange quotas have

increased over time. Japanese imports primarily

occur during the summer, which creates inventory problems for U.S. exporters—cold treatment

and fumigation procedures are required for several categories of citrus fruit exports, which are

controlled in the Far East through insect and disease quarantines.

Fresh Noncitrus Fruit

Background .—U. S. noncitrus fruit exports

comprise almost one-half of total fresh fruit exports; apples and table grapes are the major export commodities (see table 5-4). In 1985, the

United States exported 408,000 MT of fresh noncitrus fruit, valued at $319 million.

After Canada, the Far East is the major regional

growth market for U.S. noncitrus horticultural

products (see figure 5-20). Exports to the Far East

have almost tripled between 1972 and 1981. Latin

America, once a major market for U.S. apples,

has fallen off as a result of import restrictions to

reduce foreign debt problems. The remaining

Latin American importers have turned to SouthTable 5-4. —U.S. Fresh Noncitrus Fruit Exports,

1985 Value (in millions of dollars)

Industry total . . . . . . .

Apples ... . . . . . . . . . . . . . . . . . . . . . . . . . .

Grapes ... . . . . . . . . . . .

Strawberries . .

Prunes and plums . . . . . . . . . . . . . . . . . . . . .

Pears . . . . . . . . . ... ... . . . . . .,

Peaches ., . . ... ... . . . . . . . ., .,

Kiwi fruit. . . . . . .

Cherries . . . . . . . . . . . . . . . . .

Melons (not including watermelons,

cantaloupes) . . . . . . . . . . .

Avocados ... . . . . . . . . . . . . . .

Other ., ., . . . . . . . . . . . . . .

$319.0

108.7

73.2

18,5

17.1

15.4

14,4

13,6

13,3

10,3

8.9

25.6

SOURCE U S Department of Agriculture, Foreign Agricultural Servtce U S

Agricultural Exports, Oct 1980 -Sept 1985, August 1986

Figure 5-20.— U.S. Fresh Noncitrus Fruit Exports

by Destination, 1983

Latin America (6.4°/0)

SOURCE “U S Exports Schedule E Commodity Groupings, Commodity by

Country, ” Bureau of the Census, Department of Commerce FT-410

reports, 1984
ern Hemisphere exporters for inexpensive apples.

U.S. apple exports to the EEC, while facing increased competition from the Southern Hemisphere as well, have held steady due to increased

U.S. promotional programs.

Competitors.—The United States faces heavy

competition in the Far Eastern fruit markets from

Australia, New Zealand, Israel, Chile, and the

EEC, in addition to Far Eastern producers which

include Thailand, Taiwan, and China. Grape exports to Canada have faced increased competition from Chile.

Issues.—Import barriers constitute the major

obstacles facing entry of U.S. fresh noncitrus horticultural products to the Far East. A high import

duty structure constrains the expansion of the

Taiwanese market for U.S. products, although

duties have been reduced in recent years. Japan

uses insect and disease quarantines to limit U.S.

fruit imports, particularly of apples and pears.

Cherries are permitted limited entry, subject to

fumigation requirements. While Korea still imposes heavy restraints, this market is opening

slowly. Hong Kong is one of the largest markets

for U.S. apples and table grapes. Finally, future

technological advances in China may stimulate

increased exports, expanding competition in fresh

fruit markets in the Far East.

Shelled Almonds

Background.—Shelled almonds are the top U.S.

tree nut export, and are among the four highest

unit value items described in this study. The

United States is the world’s top almond producer,

followed by Spain; future export growth looks

promising, The Far East, though a fast-growth region, holds only a small share of the U.S. export

market. In contrast to developments in other U.S.

horticultural product markets, the EEC has remained the most significant market for U.S.

shelled almonds over the past decade. Spain’s entry into the Community, however, may offset

U.S. dominance in Europe, forcing the United

States to look for new markets in the Far East,

the Middle East, and the Caribbean. In terms of

value, shelled almonds are the world’s leading

horticultural export commodity.

U.S. Trade .—Since entering the tree nut export

trade in 1971, the United States has become the

world’s largest exporter, followed by Turkey, Brazil, Italy, and Spain; Brazil and the United States

are the fastest growing suppliers. Between 1972

and 1981, U.S. tree nut exports increased annually on average by 20 percent in value and 13 percent in volume. After a brief decline between 1981

and 1983, new peaks were reached in 1985, when

the United States exported 222,000 MT of tree

nuts, valued at $512 million. Exports of tree nuts

have increased faster than any other horticultural

export product. Shelled almonds enjoyed continuous export growth between 1970 and 1980, from

27,000 to 81,000 MT—an increase of 200 percent,

or average annual volume increase of over 16 percent. Sales fell off to 56,000 MT in 1983, a decrease of 41 percent, but since then this commodity has rebounded to an all-time export high

of 185,000 MT in 1985.

The majority of U.S. tree nut exports are destined

for developed economies, and Western Europe is

the largest regional market (see figure 5-21). The

leading country markets for U.S. shelled almond

exports are West Germany, Japan, the United

Kingdom, Canada, France, and The Netherlands.

Competitors.—Spain is the second largest exporter of shelled almonds, followed by Italy, Portugal, Morocco, and Turkey. Turkey and Spain

Figure 5-21 .—U.S. Shelled Almond Exports by

Destination, 1983

Middle East (5.9°/0) Canada (5.6°/0)

Western Europe (61.2°/0)

SOURCE: “U.S. Exports: Schedule E. Commodity Groupings, Commodity by

Country,” Bureau of the Census, Department of Commerce, FT-41O

reports, 1984.
9 7

are the principal competitors for U.S. almond

markets in France and West Germany.

Issues.—The Western European market for

U.S. tree nuts is expected to decline with the inclusion of Spain, the world’s second largest

almond producer, into the EEC. Assuming that

Spanish almonds will be included in CAP, tariff

protection may bring about increased almond

acreage and more intensive, higher yielding production. The Spanish presence could also hurt

U.S. almond exports to non-EEC Europe, the

United States’ third largest regional market; surpluses generated from expanded EEC production

may enter these countries at reduced prices. In

light of these possibilities, the United States has

commenced serious efforts to maintain its European almond export market. A recently concluded

U.S.-Italian trade agreement, for example, calls

for relaxed import duties on almonds, pending approval from the governments of both countries.

The potential decline of the EEC market has

directed U.S. promotional efforts to the Far East,

and to other smaller growth markets in the Middle East and the Caribbean. U.S. attempts to develop a market for almonds in the Far East have

been successful. The United States is the only supplier of almonds to Japan, and the outlook is good

for markets in Hong Kong, Singapore, and Taiwan.

Vegetables

While total U.S. fresh and processed vegetable

exports approached 1985 fruit export levels in

value, there are no single vegetable commodities

which match the importance of the leading fruit

and nut items. Total U.S. fresh and processed

vegetable exports reached $710 million in 1985,

compared to $1.1 billion for fruit; the two leading vegetable export commodities, canned corn

and frozen french-fried potatoes, were valued at

$44.8 million and $40.5 million, respectively (see

table 5-5).

Certain vegetable commodities show export

promise. For several reasons, however, U.S .

vegetables and vegetable products have less po -

tential than do other HVPS. Fresh vegetables, considered luxury foods, are shipped almost entirely

to developed countries. These countries are genTable 5-5.— Leading Vegetable Exports, 1985 Value

(in millions of dollars)

Fresh vegetables:

Lettuce ., . . . . . . . . . . . . . . . . . . . . . . .

Tomatoes . . . . . . . . . . . . . . . . . . . . . . .

Onions . . . . . . . . . . . . . . . . . . . . . . . .

Celery ., ., . . . . . . . . . . . . . . . . . . . . . . .

Potatoes . . . . . . . . . . . . . . . . . .

Broccoli . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Asparagus . . . . ... . . . . . . . . . .

Carrots. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$36.2

36.0

27,7

15.0

13,7

13,6

13.5

10.9

Processed vegetables:

Canned corn . . . . . . . . . . . . . . . . . . . . . . . . . . . $44.8

French-fried potatoes . . . . . . . . . . . . . . . . . . . . 40,5

Dehydrated onions . . . . . . . . . . . . . . . . . . . . . . 32.7

Frozen corn . . . . . . ... . . . . . . . . . . . . . . . . . . 21,9

Potato flakes . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2

SOURCE U S Department of Agriculture, Foreign Agricultural Servtce “’U S

Agricultural Exports, Oct 1980 Sept 1985, August 1986

erally located in the Northern Hemisphere, where

the climate is comparable to that of the United

States. As a result, competition from local or

nearby producers is intense, increasing the importance of marketing. In contrast, there are many

fruits that cannot be produced in or near major

markets.

The development of fast food industries, particularly in the Far East, has stimulated some

growth in U.S. exports of processed vegetables.

U.S. frozen french-fried potatoes show more

promise for export growth than any other U.S.

vegetable or vegetable product.

Wine

U.S. exports of wine comprise less than 2 percent of total production. Nevertheless, U.S. wines

have attained a foothold in the world market over

the past decade. Assuming continued success for

promotional programs, wine may become an increasingly important agricultural export commodit y.

U.S. exports grew exponentially during the

1970s, but have slowed since 1981. Several factors

contributed to this development. For example, the

high value of the U.S. dollar was synchronous

with the introduction of new, inexpensive wines

from Italy and France. U.S. wines are not price

competitive with these new labels.

Although several forces continue to impede

U.S. wine exports, positive developments are oc-
98

curring as well. Large crushes in the United States

have raised industry concerns about high import

percentages, and have increased pressures to export. These concerns have translated into government policy directives; promotional programs

have been instituted in high potential growth markets. The Wine Equity Act, which mandates a

Presidential investigation of foreign tariffs, was

recently incorporated into the Trade Bill and

passed by Congress. EEC barriers to imports of

U.S. wines were reduced through an agreement

signed by the United States and the European

Commission in July 1985. The recent Provincial

government of Quebec has also reduced barriers.

Canada accounts for one-half of U.S. wine exports. The United Kingdom is the second major

market, with a 15 percent share that grew

throughout the 1970s, but has since remained constant. The third major market, Japan, promises

to be the most significant growth market for U.S.

wines. Exports to Japan have grown steadily since

1974, with no slowdowns since 1981; 1983 exports

totaled 1.5 million liters, or $2.4 million. Singapore and Hong Kong are among the fastest growing countries for world wine imports.
Appendix

Contributions
-

Appendix

Contributions

This technical memorandum is the product of several contributing authors. Kenneth A. Cook,

OTA, wrote chapters 1-4 and the initial draft of the introduction, drawing chapter 4 from The Potential for Technology Transfer of U.S. Agricultural Technology, an OTA contract report prepared by

Robert E. Evenson, Jonathan Putnam, and Carl Pray, Yale University, 1985. Jamie Grodsky wrote

chapter 5, drawing from her 98-page OTA working paper, U.S. Trade in High Value Agricultural

Products. Daniel Chenok, OTA, conducted final research, revision, and editing of the technical

memorandum, and worked with Henry Kelly, OTA, and Andrew Wyckoff, OTA, to rewrite and

expand the introduction.

101