U.S. Farm Exports Increase, but Jury Is Still Out on Subsidies
Agricultural exports, an important slice of the American farmer’s bread and butter, have begun to rise slowly from the 1980s doldrums, although it is not clear how much help they have had from costly new U.S. subsidy policies.
Congress and the Reagan Administration set a new course in 1985 with a farm bill that attempted to stem falling exports and mounting federal crop-support costs in two ways: Prices would be driven down to competitive levels and foreign subsidies would be fought with U.S. subsidies.
The farm bill’s trade section provided for approximately $8 billion per year in government assistance--outright subsidy, special credits, food aid and promotional aid--to stimulate exports.
The first results are coming in and, while there are positive signs, it is uncertain that the subsidy program has had its intended effect. A declining dollar that helps exports, bad weather and smaller crops in many areas have played significant roles--rather than the subsidy program--in the slight turnaround.
Agriculture Secretary Richard E. Lyng said that while he was encouraged by the upturn, he could not determine the impact of the subsidy schemes designed to move more U.S. products into world markets. But he said it has had more effect on wheat exports than on any other commodity.
First Volume Increase
“We now have an aggressive trade policy--don’t call it ‘predatory’; I allow our competitors to call it predatory,” Lyng said. “But it is not easy to quantify the economic questions. . . . An important part is due to the Export Enhancement Program, our most aggressive program. It has had more apparent effect in wheat than any other commodity.”
Beyond dollars and cents, there are signs that U.S. competitors are taking the subsidy policies seriously. Lyng said the European Economic Community--a principal target of the U.S. subsidies--is sending signals that it is ready to talk seriously about change. In some countries that took advantage in the past of higher U.S. prices that set world price levels, crop plantings are down.
The good news on the U.S. balance sheet is that exports last year showed their first volume increase since 1980 and their first value increase since 1984. Dollar value went up $1.6 billion to $27.9 billion, and volume rose 20% to 129.5 million tons, according to Agriculture Department statistics.
Foreseeing smaller world output and more consumption, USDA economists predict that U.S. farm exports will increase $4 billion in 1988. Volume gainers are expected to be wheat and flour, up 25%; cotton, up 20%, and coarse grains, up 10%.
In different terms, export sales in fiscal 1987 represented roughly 18% of farmers’ cash receipts, up 1% from a year earlier. In contrast, when overseas sales hit a high in 1981, about 30% of farmers’ receipts were from exports.
The reality, however, is that most of last year’s value gains were in cotton and in high-value horticultural and livestock products. Livestock was up $638 million, and horticulture products such as fruits and vegetables were up $466 million. Among the three categories, only cotton is propped up by federal price supports and the direct income subsidies to farmers that the new export policy seeks to reduce.
EC Targeted
Before the new programs were adopted, critics such as Sen. Tom Harkin (D-Iowa), David Senter of the American Agriculture Movement and Minnesota Agriculture Commissioner Jim Nichols contended that lower market prices might benefit buyers but would hasten the demise of farmers strapped by economic factors beyond their control.
And, they argued, the multibillion-dollar income supports that Congress promised farmers to offset their lower market prices would continue to keep government spending high and stir more public resentment against farm programs.
The main new export subsidy programs are:
Export Enhancement. Congress authorized up to $1.5 billion worth of federally owned commodities for sale in markets lost to American farmers because of foreign subsidies or unfair trading practices. The main target is the EC. Major beneficiaries of the program have turned out to be the Soviet Union and China, with huge purchases of wheat at cut rates, although dozens of sales have been made to other countries.
Targeted Export Assistance. For products without government price supports or income subsidies, ranging from fruits to nuts, aid is provided for overseas promotion programs aimed at expanding markets. USDA attributes some of last year’s gains in high-value sales to these promotions.
Marketing Loans. This program for cotton, rice and honey has drawn strong criticism abroad for its unveiled intention to dump surpluses and drive foreign competitors into the ground by lowering prices. The farmer’s subsidy is the difference between the market price and a higher government-fixed support rate.
Surpluses of all three commodities were drawn down drastically last year, and exports rose substantially, although poor weather in major Asian growing regions contributed strongly to U.S. market gains in cotton and rice. Weather-induced shortages are cited by most experts as the chief reasons for price spikes in those two commodities.
