International Borrowing and Agricultural Export Markets: Discussion

Prices of agricultural commodities generally play an important role in the world market. However, it is important to know that the price and quantity relationship has been modified by other economic variables such as the recent accumulation of external debts and the sluggish growth of the world economy. This is especially true for heavily indebted developing countries. In general, import demand for agricultural commodities in both developing and developed countries is not sensitive to the prices of commodities (Sarris and Freebairn). Developed countries might import the quantity of agricultural products needed regardless of the price of the commodity for the following reasons (e.g., Japan): (a) most agricultural commodities (mainly grains) are a necessity; (b) the total value of agricultural imports is a small portion of the country's gross national product (GNP). On the other hand, developing countries tend to increase their imports of agricultural commodities for nutrition-based need when the prices are low and reduce their imports by substituting domestically produced commodities when prices are high. The price and quantity relationship, however, is influenced by the general economic conditions (e.g., external debt, balance of payments deficit, and growth rate of GNP) in developing countries. Interdependence between agricultural trade and macroeconomic variables such as debts, GNP growth, and the balance of payments is so complex that it is not easily modeled for empirically testing the hypotheses developed in the relevant economic theory. The topic of this section is, therefore, timely. The authors analyzed the complex trade issues related to foreign debt in developing countries, the origins of the recent external debt crisis, the implications of economic adjustments to service the debt, and impacts on agricultural trade. Grigsby and Pagoulatos focused on the recent accumulation of external debt in the Latin American countries and the implications of the debt on agricultural trade. Dutton, Grennes, and Johnson first eXamined direct and indirect effects of international capital flows on commodity trade and then discussed impacts of external debt on U.S. agricultural exports. Finally, Katz focused his presentation on the world bank's policy toward those countries with external debt problems. Their discussions were well grounded on relevant economic theory and provided valuable information in specifying empirical models in this subject area. Regarding the origins of the external debt in Latin American countries, Grigsby and Pagoulatos argue that the recent accumulation of external debts would be due mainly to (a) the sharp increase in oil prices, (b) high real interest rates, (c) overvalued exchange rates in high debt countries, and (d) aggressive lending policy of commercial banks in developed countries. The paper did not examine external debt caused by increased protectionism in developed countries. Some portion of developing countries' debt could be attributed, to some extent, to increased protectionism in developed countries that resulted in reductions in the quantities of agricultural and nonagricultural commodities traded in the world market. Sound economic growth based on foreign trade could generate enough capital to pay interest and principal of external debt (e.g., Korea). The opportunity to increase exports in some countries has been generally blocked by interventions in foreign trade markets. As an alternative, debtor countries have attempted to solve the problems by reducing imports and at the same time by exporting Won W. Koo is a professor of agricultural economics at North Dakota State University. North Dakota Agricultural Experiment Station Journal Article No. 1530.