Toward a U.S. Agricultural Export Policy for the 1980s: Discussion

Sarris and Schmitz suggest that increases in exports are not likely to benefit U.S. agriculture, and that "production may have to be curtailed-at least in the short run-for optimal pricing to be achieved ... ." Their argument has three principal components. First, agricultural growth is likely to depend heavily on research and development, and further expenditures in this area are asserted to have a deleterious impact on producer incomes. Second, U.S. agricultural trade is dominated by cartels, and increased production leads only to increased purchasing power for importing nations. Finally, increased participation in world markets creates increased price instability, and further reduces producer welfare. This discussion argues that none of the authors' conclusions in these areas are justified, and that continued growth in exports is likely to offer substantial benefits for the U.S. agricultural sector. Research and development (R&D) expenditures are asserted to have a deleterious impact on producer incomes if such expenditures cause the supply curve to shift outward and become more elastic in the face of a fixed world demand schedule. Even if these supply-demand conditions were accurate, the conclusion suffers from a myopic view of the impact of R&D expenditure. Technological change frees resources to produce goods in other sectors of the economy, and can thus be regarded as a complement to capital accumulation in the process of economic growth. Indeed, some authors suggest that R&D is no more than a special form of capital accumulation (Jorgensen and Griliches). The key point is that the induced shifts in the industry supply curve give no indication of the changes in returns to individual factors of production. The reason is that technological change implies new input combinations, and declines in total industry revenues do not necessarily imply declines in the returns to individual factors or to the total factors employed in an industry. Admittedly, technical change can cause difficulties. Unemployment may result if aggregate demand is not increasing, and adjustment difficulties occur for resources committed to now inefficient technologies. These problems are short run rather than chronic in nature, however, and do not require an economy to restrain R&D and forego the benefits of economic growth. Market power of importers is a second reason for U.S. policy makers to avoid expansion of U.S. exports. Tariff policies, implemented in wheat importing countries, for example, are asserted to benefit importers because "(domestic) producer gains plus the tariff revenue more than offset the consumption losses" of a tariff. Such evidence cannot justify the above conclusion. Tariff revenues are intracountry transfers from consumers to the government, and welfare increases from such transfers are dependent on empirically undefinable social welfare functions. The gains of domestic wheat producers are not gains at all when viewed in a general equilibrium context, as wheat tariffs attract resources which were more profitable when world prices prevailed for all commodities. When a country cannot influence world terms of trade, production income is maximized at world prices and can only decrease when resources are diverted into different production activities via tariffs. Increases in importing country welfare thus depend on the ability to influence the terms of trade with the U.S. and other exporters. Since each importing country buys only a small share of world imports, establishment of the optimum tariff (the reciprocal of the price elasticity of export supply) requires a cartel in which individual country objectives are subjugated to group cooperation. Grains would appear as one of the least attractive commodities The author is an assistant professor, Department of Agricultural Economics, University of Arizona.