Current Macroeconomic Policies and U.S. Agriculture: Discussion

A decade ago American grain became an international commodity, its price no longer determined by its value within the United States or by federal price support programs. American buyers, accustomed to stable prices and unlimited supplies of grain, faced new realities: the competition of powerful foreign buyers, uncertain supplies, and unstable prices. For some American buyers, the stress of having American grain "internationalized" was almost too much. The American baking industry, for example, forecast dollar a loaf bread in the spring of 1973 in an attempt to pressure the government to limit the outflow of grain from the United States. In a perverse turn of events, the threat worked but not for wheat: exports of soybeans were temporarily limited until the supply picture came into better focus, much to the consternation of American farmers and the Japanese government. Now, a decade later, the commodity over which the nation anguishes is not wheat or corn or soybeans but rather money, or more specifically the dollar. As happened a decade earlier with agricultural commodities, the dollar has taken on and maintains a price that, in the past, reflected more its value in less developed countries, or in countries with unstable governments, or in rapidly developing countries with high rates of return to additional quantities of capital. And, like the bakers of a decade earlier, dollar users are anguished at the uncertain supply and far higher price they must pay. This national anguish, and our national inability to understand why high interest rates continue despite lower inflation, is the issue that draws us together today. We come together for good reason: high interest rates are stifling American agriculture, along with the auto industry, the housing industry, and the rest of the U.S. economy. All need the assistance of the nation's trained economists. We are fortunate this morning to have the benefit of the insights of two of these economists. There is much information in their two papers. One might question whether they explain the central issue of the day, which is high interest rates, in case anyone needs to be reminded. But the information in the two papers lays a good foundation to carry on such an inquiry. Starleaf illustrates with a few equations why American farmers have been over-occupied with farm commodity prices. As he states the case, "almost all of the year-to-year variability in nominal farm output has been due to changes in the farm output price level, rather than changes in real farm output." Stated in more straightforward language, farm prices are more important than farm output in determining the level of farm income. It is reassuring to have my distinguished former colleague illustrate that the fifty-year effort by American farmers to use government to improve the prices they receive was not a misguided effort. One might question, however, whether more export-oriented policies at an earlier period might not have been at least as beneficial to American farmers. Starleaf also illustrates to his and my satisfaction that, as agricultural economists have long maintained, the nominal value of farm outputs is more variable than nonfarm output, a fact that has also been used to justify federal farm programs. He further shows, as we have also maintained, that general economic policies of the nation are important to American farmers. For this reason, some of us have long maintained that there should be a farm representative on the Federal Reserve Board. We have been unable, however, to convince farm organizations that this was a high priority use of their limited political capital. He concludes by noting that "macroeconomic developments and exchange ratechanges have had a substantive influence upThe author is Associate Administrator, Foreign Agricultural Service, U.S. Department of Agriculture. He expresses appreciation to George E. Rossmiller for his comments.