Future Directions for Food and Agricultural Trade Policy

During the 1970s U.S. agriculture experienced an unprecedented export boom. This export boom produced an unusual, albeit short-lived, period of prosperity for agriculture. Land previously idled by government programs was brought back into production and new land cleared, with the result that by 1981 cropland in production was a record high 391 million acres. In constant value (1967 dollars) terms net farm income rose from $12.2 billion in 1971 to an unusual peak of $25.1 billion in 1973. The need for direct government support of agriculture declined. In the 1980s, this strong export performance of U.S. agriculture has been reversed. The physical volume of exports reached a peak in 1980, and the value of exports reached a peak in 1981. Both volume and value have steadily declined since those peaks. Total value of exports declined from $43.8 billion in 1981 to $34.8 billion for the 1983 fiscal year, a decline of 21%. This decline in foreign markets has contributed to a serious income problem in agriculture. Net farm income declined to an unprecedentedly low figure of $7.6 billion (in 1967 dollars) in 1982. It also contributed to a serious financial crisis in agriculture as expanded debt commitments based on an export-driven expectation of continued prosperity for agriculture was met with significantly reduced farm incomes, serious cash-flow problems, and reduced equity as land values declined. The decline in farm markets has also created a serious challenge to farm programs and policy makers. From negligible program costs in the 1970s--except for the dairy program-the costs of farm programs burgeoned out of control. By 1981 they were up to $3.2 billion; in 1982 they tripled to $10 billion; and for 1983 the regular program costs are expected to more than triple again, to $21.8 billion. Commodity stocks also burgeoned to very high levels as recordand near-record-breaking crops were met with slumping markets. The acre-equivalent of the decline in exports of corn, cotton, wheat, and soybeans from 1980 to 1983 was 22.6 million acres. U.S. agriculture obviously faced a serious adjustment problem. The administration's response to this crisis was the Payment-in-Kind (PIK) program, which removed close to 82 million acres of land from production in 1983. The PIK program is expected to add anywhere from $12 to $21 billion to this year's outlays for farm programs. That means that total program costs for 1983 may well be as large as $35 billion. But as important as program costs is the paid idling of some of this nation's most productive resources at the very time it is attempting to recover from the worst economic slump in the post-World War II period. It is no exaggeration to say that U.S. agriculture and agricultural policy are at a crossroads. If its export performance does not improve, it will be forced to deal with a sizable adjustment problem of transferring resources out of agriculture. It can do that by letting market forces do their job or by costly government programs in the form of paid diversion, large export subsidies, or some other means to bring supply in balance with demand, or some combination of the two. In this paper I want to address the export performance issues. The emphasis on export performance rather than trade policy is a considered one. I find it impossible to discuss trade policy without considering domestic commodity programs. The two are inextricably intertwined. Hence, I choose the generic concept of export performance, since I will discuss both domestic program issues and trade policy issues. The first part of this paper reviews the changes in the international economy over the last fifteen to twenty years. These changes are G. Edward Schuh is a professor and Head, Department of Agricultural and Applied Economics, University of Minnesota.