Despite Politics, Outlook’s Good for U.S. Farms

Is this more bad news? Japan refused to relax its trade barriers and buy U.S. rice last week. And the Soviet Union broke off talks on a new purchase agreement for U.S. grain two weeks ago.

Amid all our other trade worries, are agricultural export markets drying up, too?

Not at all. Not only does food remain one of the United States’ most successful and promising export products, but the outlook in global markets is strong.

Demand is rising for wheat, corn and soybeans--the grain crops that are a U.S. specialty--and the world is moving into a period of short supply, experts say. In terms of market excitement, next year could be a repeat of 1972, when the Russians first bought U.S. grain.

But you have to read between the lines to understand how such an optimistic outlook squares with recent disappointments and with reports of U.S. farmers racked by drought and seemingly living off more than $25 billion in subsidies. Politics is the key factor in both the Japanese rice and Russian wheat situations, and politics will either help or hinder U.S. agriculture in seizing new export opportunities.

Rice Land Overvalued

In Japan’s case, land prices are behind the barriers to imported rice. Yes, protests over rice’s special place in Japanese culture were used to answer complaints of U.S. rice farmers in recent weeks. But money--more than culture--is involved. The rice farms that the U.S. command placed in the hands of small farmers after World War II are now immensely valuable real estate, and their owners are major contributors to Japan’s ruling party--the Liberal Democrats. Also, some land still zoned for rice farming is in Tokyo, where land values are now astronomical.

Opening the country to U.S. rice--even for 10% of the market--would suddenly lower the price of farmland and discomfit politically influential people. That doesn’t mean a compromise won’t be reached. But movement will be slow, starting with negotiations at international trade talks in December. Meanwhile, Japan is U.S. agriculture’s biggest customer, buying $6.9 billion worth of corn, soybeans, meat, fish and cotton in 1988, up from $5.7 billion last year.

With the Soviet Union, the breakdown of talks is a tactical matter. Soviet negotiators were pushing for subsidies that the United States has allowed developing countries and also hoping that the Americans would make concessions to get an agreement before Election Day to benefit Vice President George Bush’s campaign.

Meanwhile, however, the Soviets are buying more U.S. corn and animal feed in 1988 than in recent years. And they’ll go on buying to build up livestock herds so that the government can give the Soviet people more meat and defuse the protests that may come in 1989 and 1990 when artificially low food prices will be raised as part of perestroika .

Those food prices help explain why the Soviet Union, once the world’s largest grain exporter, must now import so much. It followed a policy under Joseph Stalin of holding down payments to farmers--and of eliminating individual ownership of farms--so that urban workers would have cheap food. But after more than 50 years, the policy has resulted in less food.

So Mikhail Gorbachev has introduced a policy of leasing farms back to individuals in a bid to improve output. But for many years the Soviet Union will continue to be the world’s largest agricultural importer--and “they would very much like a new agreement for U.S. grain,” says Robert Paarlberg, of Harvard’s Center for International Affairs.

Meanwhile, U.S. agriculture--the world’s largest exporter with 51% of the market--faces renewed opportunity because world grain supplies are short, thanks to droughts this year in China and Canada as well as the United States. Also, “with the dollar way down, we should be able to export,” notes agricultural economist George Dahlman.

And a big payoff of better sales abroad is that they could dramatically reduce the U.S. subsidy problem. These subsidies stemmed from efforts at a time when world food markets were glutted to shore up farm income by limiting farm output. Continuing such efforts would not only waste money but would risk losing world markets.

Far wiser is the cooperative system of individual farmers, government support and university research that has helped U.S. agriculture develop for over a century. In 1862 the Morrill Act set up land grant colleges to do agricultural research. Then the Agricultural Extension Service was started in 1914 to communicate that research to farmers.

An important principle is that AES is more local than federal; 34% of its budget is funded by Washington, and the other 66% by states, counties and programs such as 4-H. And deans of land grant universities have as much say as the Department of Agriculture in the program.

The result: The United States is the world’s best fed nation at the lowest prices, and also the largest food exporter.

Maybe we should try to devise a similar program for industry.