PAGE 1 A Review of U.S. Competitiveness in Agricultural Trade October 1986 NTIS order #PB87-140760 PAGE 2 Recommended Citation: Library of Congress Catalog Card Number 86-600586 For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, DC 20402 PAGE 3 Foreword Americas ability to compete in international agricultural markets has come into question during the past several years. Several factors have contributed to recent declines in the volume and value of U.S. agricultural exports. The global recession of the early 1980s, along with expanded production among the major exporting nations, accentuated competition for world markets. Many countries, especially those in the developing world, began to develop sophisticated domestic production capacities, and cut back on imports wherever possible. Technology transfer from the United States has become increasingly rapid. This OTA technical memorandum reviews key factors that influence U.S. trade in agriculture. It is part of a larger OTA project that analyzes the effects of technological change on both international trade and the structure of the domestic economy. Despite basic structural changes in the economy of the United States in recent years, agriculture and food production remain important parts of this countrys economic framework. Agricultures importance to U.S. trade grew during the 1970s, when an agricultural trade surplus helped to offset damaging trade losses in other areas. With the Nations trade deficit reaching record levels, recent declines in the volume and value of agricultural exports pose formidable questions concerning the U.S. position in an increasingly complex system of international trade. We trust that Congress will find this OTA review an informative and useful tool in addressing these questions. Director Iii PAGE 4 List of Reviewers Charles Benbrook Executive Director, Board on Agriculture National Research Council Washington, DC Richard Crowder Senior Vice-President, Strategic Planning Pillsbury Co. Minneapolis, MN The Econornlc l{ewar~h %rvlce at USDA grouped exterwve review by, several dltterent anal},sts under lohn E Lee s ausp]ces John E. Lee Jr. Administrator, Economic Research Service U.S. Department of Agriculture Washington, DC Michael J. Phillips Senior Associate, Food and Renewable Resources Program Office of Technology Assessment Washington, DC NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the reviewers. The reviewers do not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and the accuracy of its contents. iv PAGE 5 A Review of U.S. Competitiveness in Agricultural Trade OTA Project Staff l Lionel S, Johns, Assistant Director, OTA Energy, Materials, and International Securities Division Henry Kelly, Project Director, Technology and the American Economic Transition Kenneth A. Cook, Analyst 2 Jamie Daniel Linda Grodsky, Research Analyst Chenok, Research Assistant Administrative Staff Long Phyllis Brumfield Contributors Robert E. Evenson Carl Pray Jonathan Putnam PAGE 6 Contents Chapter Page Introduction . . . . . . . . . . . . . . . . 3 Factors Behind the Decline of U.S. Agricultural Exports,.. . . . . . . 4 The Role of Technology Transfer. . . . . . . . . . . .5 Relative Costs of Production . . . . . . . . . . . 5 U.S. Competitiveness in High-Value Agricultural Products . . . . . 6 Questions for the Future . . . . . . . . . . . . 6 Consequences for the American Workplace . . . . . . . . . 7 Areas for Policy Analysis . . . . . . . . . . . . . 9 Trade Negotiations . . . . . . . . . . . . . 9 Trade Promotion . . . . . . . . . . . . . . 10 Addressing the Third World Debt Problem . . . . . . . . 10 Research and Development . . . . . . . . . . . 10 Modification of U.S. Domestic Farm Policies . . . . . . . 11 1. Influences on International and U.S. Trade in Agriculture. . . . . . . 15 Agricultural Trade and the World Recession . . . . . . . . . 15 The Value of the U.S. Dollar . . . . . . . . . . . . 16 U.S. Agricultural Policies. . . . . . . . . . . . . . 17 Policies of Other Nations . . . . . . . . . . . . 18 Government Support for Agriculture.. . . . . . . . . . . 19 2. World Trends in Agricultural Production and Trade . . . . . . . 23 Crop Production Trends . . . . . . . . . . . . . 23 Harvested Area ..., . . . . . . . . . . . . . 23 Yields . . . . . . . . . . . . . . . . 25 Production . . . . . . . . . . . . . . . 27 Extensive v. Intensive Agricultural Production ., . . . . . . 29 U.S. Market Shares. . . . . . . . . . . . . . . 31 The Long-Term Outlook for International Trade . . . . . . . . 33 World Trade in Wheat, Corn, and Soybeans . . . . . . . . 34 3. Cost-Competitiveness of U.S. Agriculture . . . . . . . . . 39 International Comparisons of Production Costs . . . . . . . . 39 Trends in Prices Paid and Received by Farmers . . . . . ., . . . 41 U.S. Costs of Production. . . . . . . . . . . . 41 Regional Production Costs and Agricultural Structure. . . . . ., ..., . 45 4. Technology Transfer and the Competitiveness of U.S. Agriculture . . . . 51 Agricultural Technology Transfer. . . . . . . . . . . 51 Patent Information . . . . . . . . . . . . 51 Indirect Transfer of Agricultural Technology. . . . . . . . 56 The Role of International Agricultural Research Centers. ., . . . . 57 Agricultural Research Capacity. . . . . . . . . . . 58 Capacity Transfer: Foreign Students Trained in the United States . . . 59 Technology Transfer and Major Export Crops . . . . . . . . 59 International Transfer of Corn Technology . . . . . . . 60 International Transfer of Wheat Technology . . . . . . . . 62 International Transfer of Soybean Technology . . . . . ., . 63 International Transfer of Emerging Agricultural Technologies . . . . . 63 Conclusions, . . . ..., . . . . . . . . . 65 5. U.S. Trade in High-Value Agricultural Products . . . . . . . . 69 Factors Influencing HVP Trade.. . . . . . . . . . . . 69 The Significance of HVP Exports . . . . . . . . . . 69 Barriers to Expanding U.S. Trade in HVPS . . . . . . . . 71 World and U.S. Trends in HVPS . . . . . . . . . . 73 International HVP Markets . . . . . . . . . . . . 73 PAGE 7 Contentscontinued Page Marketing Programs . . . 74 Leading U.S. HVP Export Commmodities 75 Oilseed Products . . . . . . 75 Tobacco and Cigarettes . . . 78 Cattle Hides . . . . . . . . 81 Rice . . . . . . . . . 82 Corn Gluten Feed . . . . . . . . 84 Tallow . . . . . . . 85 Beef . . . 87 Pork . . . . . . . . 89 Poultry, . . . . 89 Wheat Flour . . . . 92 Horticultural Products . . . . . . 94 Appendix: Contributions . . 101 List of Tables Table No Page I-1. I-2. I-3. 1-1. 1-2. 1-3. 1-4. 2-1. 2-2. 2-3. 2-4. 2-5. 2-6. 2-7. 2-8. 2-9. 2-1o. 2-11. 2-12. 2-13. 2-14. 2-15. 2-16. Projected Growth Rates in Crop Yields . . . . 5 If U.S. Trade in Agriculture and Other Products Increases by a Dollar, Which Business Sectors Benefit From This Gain? . . . . . 8 Jobs Produced by a Million Dollar< Worth of Exports (or Jobs Lost by a Million Dollars Worth of Imports) in the Categories Indicated 9 Agricultural Trade-Weighted Indices of the Foreign Exchange Value of the U.S. Dollar . . . . . . . . 16 Simulated Impacts of a 10-Percent Appreciation in the Value of the Dollar 17 Price Support and Export Policies of Major U.S. Wheat, Corn and Feed Grains, and Soybeans and Products . . . . . . . . . . . 19 Direct Government Assistance to Agriculture, Selected Countries, 1978-80 . . 20 Wheat: Harvested Area, Selected Countries, 1969-84 . . . . . . 23 Corn: Harvested Area, Selected Countries, 1969-84 . . . . . . 24 Soybeans: Harvested Area, Selected Countries, 1969-84 . . 24 Rates of Change in Harvested Area of Cereal Grains, Cereal Yields and Production, By Region, 1969-71 to 1979-81 and Projected, 2000 ....,.., .., ,,.., 24 Rates of Change in Harvested Area of Oilseeds, Oilseed Yields and Production, By Region, 1969-71 to 1979-81 and Projected, 2000, . . . . 25 Wheat Yields, Selected Countries, 1969-84 . . . . . 25 Corn Yields, Selected Countries, 1969-84 . . . . . 26 Soybean Yields, Selected Countries, 1969-84 . . . . . . 26 OTA Projections of Crop Yields, Crop Production, and Average Annual Growth Rates for Yields and Production . . . . . . . . . . . 27 World and U.S. Production of Corn, Wheat, and Soybeans r Selected Periods,,, 28 World Production and U.S. Share for Wheat, Corn, and Soybeans, 1970-85 . 28 Sources of Change in Cereal Grain Production, by Region, 1969-71 to 1979-81 and Projected to 2000: Average Annual Changes in Area and Yield as a Percent of Change in Production . . 29 Sources of Change in Oilseed Production, by Region, 1969-71 to 1979-81 and Projected to 2000: Average Annual Changes in Area and Yield as a Percent of Change in Production . . . . . . . . . . . . 30 U.S. Ending Stocks and Stock-to-Use Ratios for Wheat, Corn, and Soybeans, 1970-84 . . . . . . . . . . . . . . . . 31 World Exports and U.S. Market Share for Wheat, Corn, and Soybeans, 1970-85, 32 World Coarse Grain Exports, 1979-86 Crop Years,.. . . . . . ,,.. 33 vii PAGE 8 Contentscontinued Table No. Page 2-17, 2-18, 2-19, 2-20. 2-21. 3-1. 3-2. 3-3. 3-4. 3-5. 3-6. 4-1. 4-2, 4-3. 4-4 4-5 4-6 4-7 4-8 Production and Consumption of Cereal Grains, 1978-80 and Projected to 2000, by Region . . . . . . . . . . . . . . 34 Production and Consumption of Oilseeds, 1978-80 and Projected to 2000, by Region . . . . . . . . . . . . . . . 34 World Exports as a Share of World Production, 1970-83 . . . . 35 Trade Patterns Implied By Projected Balance of Production and Consumption of Cereal Grains and Oilseeds, 1978-80 and Projected for 2000, by Region. . 36 Projected Shifts in Shares of World Trade in Cereal Grains and Oilseeds, 1978-80 to 2000 . . . . . . . . . . . . . . 36 Average Variable Costs of Production for Wheat, Corn and Soybeans, Selected Countries and Regions, 1980-82 . . . . . . . . . . . 40 Indexes of Price Received by Farmers for Crops and Prices Paid for Production Inputs, Selected Countries, 1976-82 . . . . . . . . . . 42 Average Variable Cost of Production for Wheat, Corn and Soybeans, U.S. and Selected Regions, 1980-82. . . . . . . . . . . . . 43 Percent of Wheat Crop Produced at Less Than Specified Variable Cost of Production, 1974 and 1981 . . . . . . . . . . . 44 Percent of Corn Crop Produced at Less Than Specified Variable Cost of Production, 1974 and 1981 . . . . . . . . . . . 44 Production Costs, Farm Size, and Yields for Corn, Wheat and Soybean Enterprises in Selected Crop Production Areas, 1983 . . . . . . 46 Plant Patents in the United States, 1970-84 . . . . . . . . 53 U.S. Patents Granted in Agricultural Technology Fields . . . . . . 54 Indices of International Trade in 13 Agricultural Technology Fields, 1978-84: Trade Index for Patents by Country; U.S. Trade Index for Patenting Activity With United States . . . . . . . . . . . . . . 55 Total Origin Patents and Patents Granted in 13 Agricultural Technology Fields, 1978-84 . . . . . . . . . . . . . . . . 55 U.S. Patents Granted in Agricultural Technology Fields . . . . . 57 Total Publications in 24 Countries for 10 Applied Agricultural Science Fields and U.S. Share, 1973-77 and 1978-82 . . . . . . . . . . 57 Agricultural Research Expenditures and Scientist-Years, by Region, 1959-80 . 58 Total Number of Ph.D. Degrees Awarded in 20 Fields Associated With Agriculture and Home Economics and the Proportion of Degrees Awarded to Non-U.S. Citizens With a Temporary Visa . . . . . . . . 60 Technology Fields With At Least Medium Productivity and Transfer Potential 64 Major HVP Exporters: Leading Commodities and Major Markets, 1980 . . 70 U.S. Leading HVP Export Commodities, 1985 . . . . . . 75 U.S. Horticultural Exports, 1985 . . . . . . . . . 94 U.S. Fresh Noncitrus Fruit Exports, 1985 Value . . . . 95 Leading Ve~etable Exports, 1985 Value . . . . . . . . . 97 4-9. 5-1. 5-2. 5-3. 5-4. 5-5. g Vlll PAGE 9 Contentscontinued Figure I-1 I-2. 3-1. 3-2. 5-1. 5-2. 5-3. 5-4. 5-5. 5-6. 5-7. 5-8. 5-9. 5-1o. 5-11. 5-12. 5-13. 5-14. 5-15. 5-16. 5-17. 5-18. 5-19. 5-20. 5-21. List of Figures No Page U. S. Trade in Food, Feeds, and Beverages 3 U.S. Merchandise Trade Balance . ., .,,., 4 Wheat Produced at Less Than the Specified Variable Cost per Bushel, 1981 43 Corn Produced at Less Than the Specified Variable Cost per Bushel, 1981 44 World and U.S. Soybean Meal Exports ,. 76 U.S. Soybean Meal Exports by Destination, 1983,. 77 U.S. Soybean Oil Exports by Destination, 1983 77 World and U.S. Exports of Tobacco. ,..,.. 79 U.S. Unmanufactured Tobacco Exports by Destination; 1983 .. 8 0 World and U.S. Exports of Cigarettes .. .,... 80 U.S. Cigarette Exports by Destination, 1983 80 U.S. Cattle Hide Exports by Destination, 198 3 82 World and U.S. Rice Exports ,, .,, .,..,.., 84 U.S. Rice Exports by Destination, 1983 ., 84 World and U.S. Exports of Animal Fats. ,.. ,., ,. 86 U.S. Inedible Tallow Exports by Destination, 1983 87 World and U.S. Beef Exports ..,. 88 U.S. Beef Exports by Destination, 198 3 89 U.S. Poultry Meat Exports by Destination, 1983 89 World and U.S. Poultry Meat Export s 9 0 World and U.S. Wheat Flour Exports 93 U.S. Wheat Flour Exports by Destination, 1983 ,. 93 U.S. Citrus Fruit Exports by Destination, 1983. 94 U.S. Fresh Noncitrus Fruit Exports by Destination, 1983 95 U.S. Shelled Almond Exports by Destination, 1983 96 PAGE 10 Introduction PAGE 11 Introduction Are farmers in the United States losing their ability to compete in international markets? The question would have seemed absurd during the 1970s, when each year brought enormous increases in the value and volume of U.S. grain and oilseed exports. The U.S. share of burgeoning world markets seemed secure; agricultural exports were considered a bright spot in the United States generally poor trade performance, In 1981, however, exports of wheat, corn, soybeans, and other key U.S. crops fell sharply, while slow but consistent growth in imports of a large variety of agricultural products continued unabated (see figure 1-1). U.S. farmers confronted the possibility that lems that have plagued steel, automobiles, and other major U.S. production enterprises. Despite numerous theories about post industrial societies, agriculture remains a crucial part of the U.S. economy. Declining agricultural exports confront this country with the prospect of losing an important counter to trade deficits in other areas. Agriculture is among the Nations most capitaland research-intensive enterprises. It has become a high-technology enterprise which, combined with this countrys vast wealth of resources, could remain a critical element in they might begin to face the kinds of trade probthe U.S. trade balance. 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 Figure l-1 .U.S. Trade in Food, Feeds, and Beverages 1968 1972 1976 1980 1984 Export s -Imports SOURCE U S Department o f Commerce Bureau of Economic Analys!s National Income and Product Accounts table 43, March 1986 3 PAGE 12 4 This technical memorandum reviews the debate over the future competitiveness of U.S. agricultureinfluences on world agricultural trade; trends in production, consumption, and trade of key commodities, including high-value products; and the cost competitiveness of U.S. agriculture. The technical memorandum places special emphasis on the relationship between technology and the United States competitive agricultural position. New technologies have led to increased yields in virtually every aspect of agriculture and food processing, and there is every indication that such progress will continue. However, the United States faces increasing technological competition from all parts of the world. The rapid pace of technology transfer suggests that unless domestic research and development efforts are continued and strengthened, foreign competitors may develop production capacities that match those of the United States. FACTORS BEHIND THE DECLINE OF U.S. AGRICULTURAL EXPORTS The export boom of the 1970s was made possible by a number of factors, including Third World economic growth, Chinas entry into world agricultural markets, and the Soviet Unions decision to import grain in order to increase livestock output. U.S. grain and oilseed producers expanded output rapidly, aided by a favorable exchange rate and by U.S. Government programs like agricultural price and income supports, liberal credit, and a favorable tax code. Other nations increased output to meet growing world demand, but U.S. producers captured a large share of this growth, using the United States large stockpiles and enormous, underused areas of arable land to expand production. During the early 1970s, U.S. harvested wheat acreage rose by an amount greater than the total wheat acreage harvested by Canada, and between 1979 and 1981 the United States commanded 39 percent of the volume of all world trade in agricultureup from 23 percent between 1969 and 1971.1 In addition, the United States captured 71 percent of world volume trade in coarse grains in 1980, well over 10 times the share of the nearest competitor, Argentina (see table 2-16 of this technical memorandum). Conditions changed after 1981, when global recession slowed rates of growth in demand. World corn and wheat production, for example, grew nearly 4 percent annually during the 1970s, but slowed to 3 percent per year between 1980 and 1985. 2 Approximately one-third of U.S. exports during the preceding decade were purchased by developing nations, who were forced to reduce imports after 1981, because their economies were weakened by the global recession. This problem was compounded by debt burdens. Moreover, many developed nations began to subsidize exports while imposing tariffs and quotas on imports. The variable levy of the European Economic Community (EEC), for example, has been cited as the single most important barrier to U.S. agricultural exports by the Office of the U.S. Trade Representative 3 The EEC also began to subsidize food exports heavily, through the Common Agriculture Policy (CAP). Other factors have worked against U.S. exporters. Many developing nations have cut back on imports, relying instead on the growth of domestic production capacity. Others have attempted to boost agricultural exports, in order to meet the crushing burden of foreign loans. In fact, both the U.S. Government and the World Bank have encouraged Latin American nations to increase exports as a method of raising revenue. At the same time, production capacity in the developed world continued to climb, creating massive surpluses in key export commodities. As a result, prices fell sharply in the early 1980s; exporting nations struggled to maintain market U. S. Department of Agriculture, Economic Research Service, unpublished data. See table 2-11 of this technical memorandum. 3-Jpcoming World Trade Talks: Whats at Stake for U.S. Agriculture, Congressional Research Service Review, Washington, DC, vol. 7, N-o. 8, September 1986. PAGE 13 5 share. U.S. producers were hurt by the additional factor of an overvalued dollar. While the recent decline of the dollar may help U.S. producers to compete for Japanese and European markets, the dollar has not changed significantly with respect to Canadian and Australian currencies. Also, many Latin American nations tie their currencies directly to that of the United States. Despite shrinking world markets, U.S. agricultural production continued to increase in the early 1980s. Profit margins for crop producers narrowed; for some producers, profits disappeared entirely. Government transfer payments, in the form of U.S. Department of Agriculture (USDA) price support loans and direct cash advances, rose sharply, compensating for some of the lost farm income. But the costs of these programs spiraled while stocks of wheat and feed grainsmuch of it owned by the governmentaccumulated. The price of maintaining U.S. exports, even at 1985 levels, has been high; the 1985 Farm Bill, which included plans for a 3-year, $52 billion series of programs to help U.S. farmers, will likely cost nearly $30 billion for fiscal year 1986 alone and should top the initial ceiling after 1987, according to USDA. A separate issue, and another potential factor behind the decline of agricultural competitiveness in the United States, is the comparatively low quality of U.S. grain. Recently, there has been a sharp increase in foreign complaints concerning the quality of U.S. grain stocks. This issue deserves comprehensive analysis, and OTA will soon commence a study that focuses on U.S. grain quality. The Role of Technology Transfer International trade in agriculture has also been affected by significant improvements in farm production technologies achieved over the past 15 years. Innovations in such areas as biotechnology, fertilizers, weed control, and animal reproduction and nutrition have led to spectacular gains, and this trend should continue. Table I-1 shows net gains in the productivity of wheat, corn, and soybean production. Similar kinds of efficiency improvements occurred and will continue to occur in dairy and livestock production. While the United States once enjoyed an unchallenged lead in agricultural technology, foreign innovations have grown rapidly. The most significant development has been the upgrading of agricultural research capacity in developing countries, aided by technology transfer from the United States. The U.S. Government has encouraged this development, through a variety of bilateral and multilateral agreements designed to promote economic growth in developing nations and to coordinate scientific research. The establishment of International Agricultural Research Centers has also facilitated technology transfer to the developing world. Other avenues of transfer exist. Much technological information is freely available in publications. Many foreign students study at U.S. schools. Perhaps most importantly, multinational corporations move technology to foreign subsidiaries with increasing speed, and sometimesdue to domestic regulationsintroduce new technologies abroad before they are introduced in the United States. Relative Costs of Production The relative impact of new agricultural technology on production costs throughout the world is difficult to document, given the inconsistencies in international statistics, differing patterns of agricultural subsidies, enormous differences in patterns of land ownership and land values, and changing exchange rates. Still, the green revolution has clearly allowed countries such as India to increase production and change from net food importers to net food exporters. Many technologies permit significant increases in yields per acre, diminishing the comparative advantage of Table l-l .Projected Growth Rates in Crop Yields Actual Projected 1970-84 1984-2000 Wheat . . ----. . 1.5 1,2 Corn . . . . . 2.1 1.2 Soybeans . 0.2 1.2 SOURCE For past growth rates, see tables 24.2-7, =nd 2-8 of th!s report Prolec [Ions come from U S Congress, Of ftce of Technology Assessment Technology, Pub/Ic Po/Icy, and the Chang/ng Structure of Arr?er/can Agr/cu/fure OTA.F285 (Washington, DC U S Government Prtnttng Off Ice, March 1986), table 3-4 Projections are for most Ilkely environment PAGE 14 6 large U.S. land areas in a period of surplus production capacity. The surpluses do not, however, mean that technology has eliminated hunger; production increases trailed population growth in Third World nations least able to afford food imports. Technical advances can allow foreign producers to grow many important crops below average U.S. costs. However, comparisons with average U.S. costs may be misleading. Unlike most manufactured products, U.S. farm production costs vary widely depending on region and farm size. While statistically precise statements cannot be made, it appears that a large percentage of U.S. farms are competitive with the most efficient producing areas in the world. These areas form the basis of U.S. strength in international agricultural markets. On the other hand, it appears that some U.S. farmers are operating at costs above world prices. Of course, many foreign producers may also be operating with costs above world prices. For example, 1984 soybean yields in Argentina were 37 percent higher than those of the United States, and wheat yields in France were 250 percent higher. It is likely that this resulted from national programs designed to encourage exports, rather than from any advantage in resources or production technology. U.S. Competitiveness in High-Value Agricultural Products As total U.S. agricultural exports have declined, U.S. imports have grown at a slow but consistent rate, especially in a variety of high-value products (HVPS). HVPS include products that have been processed to some degree before export, as well as certain unprocessed commodities like horticultural crops. World trade value in HVPS now exceeds world trade value in bulk agricultural commodities. USDA estimates that the world high-value product market could rise by 9 to 12 percent per year until 1990, an increase of up to $2o billion. 4 Leading U.S. HVP exports include soybean meal, tobacco, cigarettes, cattle hides, and corn gluten feed. While many European nations have moved aggressively to profit from the growth of HVP trade, the United States has not performed well in these markets. In fact, while the United States had captured 39 percent of world trade volume in agricultural products between 1979 and 1981, its relatively small share of high-value products meant that it held only an 18 percent share of the value of world agricultural trade. The U.S. share of the HVP market remained at about 10 percent during the 1970s; the United States has experienced a negative balance of trade in processed food since 1983. 5 Many HVP export markets are highly volatile. Countries which at first import processed products often develop their own processing capabilities, and shift to imports of unprocessed products. In the 1970s, for example, the EEC was a major importer of soybean meal. As it developed its own processing capacity, its import emphasis shifted to raw soybeans, allowing it to reap the economic benefits associated with processing a raw commodity, Questions for the Future While it is likely that world demand for food exports will grow in the future, slow growth may occur for traditionally strong U.S. export commodities. For example, recent projections made by Resources For the Future (a Washington, DC, based research institute) point to vigorous growth in Third World economies and diets, but suggest that world demand for cereal grains will grow at about 2 percent per year for the remainder of the centurybelow the average rates of the past 5 years. In addition, North American exports of cereals will command a shrinking share of total trade because of growing competition from other producers. 7 The unfavorable conditions that faced U.S. producers in the early 1980s gave a number of other nations the opportunity to gain export market U.S. Department of Agriculture, Economic Research Service, High Value Agricultural Exports: U.S. Opportunities in the 1980s, U.S. Department of Agriculture, Economic Research Service, Foreign Agncultura/ Economic Report No. 188, Washington, DC, 1983. Upcoming World Trade Talks, op. cit. See table 2-17 of this technical memorandum. 7See table 2-21 in this technical memorandum. PAGE 15 shares, which they will give up only reluctantly. In the case of the EEC, for example, expanded exports are a part of a larger strategy to protect European agriculture. Other nations have borrowed funds to make significant investments in such areas as land preparation, purchases of agricultural equipment, and construction of port facilities and roads. These activities encourage exports, which will likely be increased in order to repay the initial loan. U.S. markets could be further eroded by developing nations that continue to absorb agricultural innovations and transfer them to local producers. Crop productivity in these nations may 7 grow more rapidly, aided by U.S. technologies many of which boost the productivity of both U.S. agricultural exports and those of our export competitors. It is important to note that the measure of U.S. agricultures international competitiveness may not necessarily be whether the peak market shares of the late 1970s can be regained. Rather, the focus for the future may revolve around whether U.S. producers can profit from their exports. If this does not occur, trade may actually decrease the total income available to U.S. farmers, which would tend to have a negative effect on the total number of agricultural jobs. CONSEQUENCES FOR THE AMERICAN WORKPLACE Why should the United States be concerned about balance of trade in agriculture and agricultural products? The most obvious answer is agricultures historical contribution to net balance of trade. Figure I-2 illustrates the disastrous performance of U.S. merchandise trade during the past 5 years, a situation that would have been worse without the decline of petroleum prices. Agricultural exports constituted one of the few areas where the United States enjoyed positive trade balances that offset deficits occurring in Figure 1-2. U.S. Merchandise Trade Balance (exports minus imports) 100 110 \ 1968 1972 1976 1980 1984 SOURCE U S Department of Commerce Bureau of Economic Analysls Na tl~nal Income and Product Accounts table 43 March 1986 other areas. However, USDA forecasts a U.S. agricultural trade surplus for 1986 of $7.5 billion, the lowest such level since 1973. Loss of agricultural exports translates into direct and indirect affects throughout the U.S. economy. Table I-2 summarizes how a decrease in agricultural trade could ripple through the economy, in comparison with trade in other areas. While agricultural trade could generate a significant amount of employment outside the farm sector, links to the rest of the economy may not be as great as those that result from trade in manufactured products. The table estimates that about 60 percent of the dollars gained or lost in livestock trade and 45 percent of the dollars gained or lost in other agricultural products occur in businesses outside the traditional farming sectors. By comparison, about 60 percent of the income lost from automobile imports would be lost by firms outside the automobile industry. g Table I-3 suggests what kinds of jobs might be gained or lost through agricultural trade. It can be seen that the total number of jobs gained or lost through a given volume of trade in grain products or food processing is roughly equivalent PAGE 16 8 Table l-2.lf U.S. Trade in Agriculture and Other Products Increases (or Decreases) by a Dollar, Which Business Sectors Benefit From This Gain (or Suffer the Loss)? $1 of trade in livestock and livestock products Other agricultural products . . . $0.21 Livestock and livestock products. ... . $0.2 0 Food and kindred products . . . . $0.09 Wholesale and retail trade. . . . . $0.08 Real estate and rental . . . . . $0.07 Transportation and warehousing . . . $0.03 Crude petroleum and natural gas. . . . $0.03 Business services . . . . . . $0.03 Agricultural, forestry, and fishery services, $0.03 Finance and insurance. . . . . $0.03 Other . . . . . . . . $0.19 Total . . . . . . . . . $1.00 $1 of trade in other agricultural products (mostly grains) Other agricultural products . . . . $0.55 Real estate and rental . ... . $0.09 Wholesale and retail trade. . . . . $0.05 Crude petroleum and natural gas. . . . $0.04 Chemicals and selected chemical products . $0.04 Business services. . . . . . . $0.03 Agricultural, forestry, and fishery services ., $0.02 Transportation and warehousing . . . $0.02 Finance and insurance. . . . . $0.02 Electric, gas, water, and sanitary services $0.02 Other . . . . . . . . . $0.12 Total . . . . . . . . $1.00 $1 of trade in food and kindred products (mostly food processing) Food and kindred products . ... . $0.35 Other agricultural products . . . . $0.11 Wholesale and retail trade. . . . . $0.09 Livestock and livestock products, . . . $0.05 Business services. . . ... . $0.04 Real estate and rental . . . . . $0.04 Transportation and warehousing . . . $0.04 Crude petroleum and natural gas. . . . $0.03 Electric, gas, water, and sanitary services $0.02 Chemicals and selected chemical products $0,02 Other . . . . . . . $0.22 Total . . . . . . . . $1.00 $1 of trade in motor vehicles and equipment Motor vehicles and equipment . . . $0.39 Wholesale and retail trade. . . . . $0.07 Primary iron and steel manufacturing . . $0.07 Screw machine products and stampings . $0.04 Business services . . . . . . $0.04 Rubber and miscellaneous plastic products . $0.03 Transportation and warehousing . . . $0.03 Primary nonferrous metals manufacturing $0.02 Other fabricated metal products . . . $0.02 Crude petroleum and natural gas. . . . $0,02 Other . . . . . . . . . $0.27 Total . . . . . . . . . $1.00 SOURCE U S Department of Commerce, Bureau of Economic Analysts, Input Output Model, Survey of Currenf Elus/rtess, VOI 64, No 5, May 1984 with that of automobile manufacturing. All three enterprises could generate about 25 jobs per $1 million of output. Livestock products appear to be more labor-intensive, mainly because of the large number of individuals who classify themselves as self -employed. Of course, all of these estimates must be considered as approximations since statistics on agricultural employment, particularly on part-time and self-employed persons, are notoriously inaccurate. 9 And while more detailed analysis of-agricultural trades impact on the economy as a whole would be a valuable contribution, such depth is beyond the scope of this technical memorandum. In looking to the future, however, it is also important to recognize that the labor productivity of agriculture and related businesses have been growing at rates significantly faster than the rest of the economy. The kinds of technical progress suggested in table 1-1 will also reduce the number of jobs generated per dollar of output. In fact, if the labor productivity of agricultural sectors grows at the average rate of the last 10 years, total agricultural employment per dollar of output will fall by 22 percent. These trends, however, may be misleading; labor productivity in the food and feed grains category grew 6.8 percent per year during the boom years of 1973 to 1979, but fell 0,2 percent per year between 1979 and 1984. 0 Figures were calculated using $1 million of demand for the commodit y indicated expressed in 1984 do] lars, Estimates of the way this demand translates into business output are made using the 1977 input-output table (see table I-2 ). Estimates of employment by occupation are made by using estimates of jobs per unit output in each industry prepared by the Bureau of Labor Statistics for the year 1982, Conversions have been made using deflator series appropriate for each industry. The BLS series providing occupation by industry and standard BLS estimates of total national employment do not use the same definition of farmers, farm workers, and laborers, The estimates shown above are prepared by scaling jobs in these categories to make them consistent with employment data maintained in series published in the Monthly Labor Review, U.S. Department of Commerce, Bureau of Labor Statistics, unpublished data (Employment Requirements ), Washington, DC, June 1985. PAGE 17 . Table 1-3Jobs Produced by a Million Dollars Worth of Exports (or Jobs Lost by a Million Dollars Worth of Imports) in the Categories Indicated $1 million of livestock and livestock products $1 million of other agricultural productsSelf employed ., : . . . 13 Self employed . . . . . 10 Farmers and farm workers . ... . . 8 Farmers and farm workers . . . Clerical workers ., . . . ... . 3 Clerical workers . . . . . Laborers, except farm . . . . 2 Laborers, except farm ... . . . Managers, officials, proprietors ., .....,, .. .,.., 1 Managers, officials, proprietors ., ... . Salesworkers . . . . . . . 1 Salesworkers . . . . . . All other operatives ., ., ., ., .,,..,. 1 Other craft and related workers ., . . . Transport equipment operatives . . 1 All other operatives . . . . . Other craft and related workers .,, .,, . . . 1 Transport equipment operatives ., Mechanics, repairers, installers . . . . 1 Mechanics, repairers, installers . . Other, . . . . . . . . . 4 Other. ...,..,. . . . . . . . Total . . . . . . 36 Total . . . ..., . . . . $1 million of-food and kindred products $1 million motor vehicles and equipment Self employed.;..,,. . . . . . 5 Clerical workers ~, .;. ..., . . Clerical workers . . . . . 3 Laborers, except farm . . . . Laborers, except farm . . . . 3 All other operatives ..., . Farmers and farmworkers . . . 3 All other operatives . . . . . 2 Transport equipment operatives . . . 2 Managers, officials, proprietors ..,.....,.. . 1 Salesworkers ...,... . . . . 1 Other craft and related workers . . . . 1 Mechanics, repairers, installers, . . . 1 Other, . . . . . . . 5 Metalworking operatives . . Other craft and related workers. ., . . Assembler occupations . ..., Managers, officials, proprietors Mechanics, repairers, installers . Metalworking craft workers a . ,. Salesworkers. ..., ., ..., Other. ..., ..., . ..., ., Total . . . . . 27 Total . . ., aExceot mechan{cs -. 9 10 7 2 1 1 1 1 1 1 1 3 28 3 2 2 2 2 2 2 1 1 1 7 25 NOTES Calculated using one mllltondoltars ofdemand for the commodity Indicated expressed In 1984 dollars Estimates of the waythls demand translates Into busl ness output are made using the 1977 Input output table (see table I-2) Estimates of employment by occupation IS made by using estimates of jobs per unit output In each industry prepared by the Bureau of Labor Statlsttcs for the year 1982 Conversions have been made using deflator series appropriate for each Industry The BLS series providing occupation by Industry and standard BLS estimates of total national employment do not use the same deflnltlon of farmers farmworkers and laborers The esf!mates shown above are prepared byscallng jobs In these categor!esto make them consistent with employment data ma!n !atned In serlespubl[shed In (he Monthly Labor Revtew Estimates have been rounded to the nearest whole job Including jobs that are both full and part ttme SOURCE OffIce of Technology Assessment 1986 AREAS FOR POLICY ANALYSIS It is clear that U.S. farmers are facing serious difficulties in international markets. What can be done, however, is subject to debate. While a comprehensive review of policy strategies is not the subject of this technical memorandum, OTA can outline broad areas where changes in policy might lead to improvements in U.S. agricultural competitiveness, and in the ability of U.S. producers to profit from their exports. These categories should be viewed not as specific alternatives, but as starting points for analysis. Trade Negotiations World competition for agricultural markets has begun to increase tensions between the United States and its allies, and may soon threaten programs designed to stimulate economic development in developing nations. Intensified competition in export subsidies, import tariffs, and other nontariff barriers cannot benefit international trade in agriculture. However, persuading nations to change their strategies regarding agricultural exports is a difficult task, since man y policies are tied to domestic programs. Also, success in achieving an improved world position for U.S. agriculture may depend heavily on other areas of trade negotiations. Some possible strategies include: Using the General Agreement on Tariffs and Trade (GATT) to organize an international consensus network on issues related to agricultural trade. Goals might include the relaxation of domestic price supports, export subsidies, import quotas, and nontariff barriers PAGE 18 10 like variable levies, as well as the establishment of voluntary export restraints; in fact, trade ministers from the 92 nations that participate in GATT have placed agricultural trade as a priority item in the next round of GATT talks, scheduled to begin in 1987. This will, of course, require the United States to grant other concessions in programs that are particularly critical for products like peanuts, cotton, milk, and other dairy products. 1 1 l Developing a consensus on reporting production costs and domestic policies. Negotiations about unfair trading practices are extremely difficult, given the complex nature of statistics on production costs and subsidies. l Establishing binding, bilateral trade agreements with partners like the EEC, Japan, and Canada, and developing a bilateral mechanism for communication and dispute resolution. Trade Promotion A variety of techniques can be used to support U.S. agricultural exports. These range from direct subsidies to exporters through marketing loans to assistance available through consulates and agricultural attaches in U.S. embassies throughout the world. Many U.S. producers, especially those of high-value products, are not sophisticated in world trade, and need help both in identifying potential markets for their products and in satisfying the often complex procedures required by importing nations. USDAs Agricultural Information and Marketing Service (AIMS), which serves as a liaison between U.S. producers and potential importers of U.S. goods, represents one model for promoting U.S. exports. AIMS maintains a computer database that includes current information on such factors as domestic prices and product availability and foreign market potential. Addressing the Third World Debt Problem U.S. strategies for encouraging Third World nationsand Latin American countries in particUpcoming World Trade Talks, op. cit ularto reduce their debt by expanding agricultural exports can have the effect of eroding U.S. exports both directly and indirectly, as can those for encouraging Japan to purchase more products from Third World producers. These nations then compete with U.S. producers for markets and drive international prices well below U.S. price support levels, placing tremendous economic pressures on U.S. farm programs. The United States has a clear interest in helping developing nations to expand their domestic economies in a way that would make them better markets for U.S. agricultural exports. Moreover, a policy that allows these nations to manage their debt problems without being forced to compete in tight world agricultural markets would assist all producers. Research and Development U.S. producers may find it increasingly difficult to benefit from agricultural research and development for long periods of time, due to the rapid diffusion of agricultural technology. This increases the need for government encouragement of research in agriculture and related biological sciences. Research spending on agriculture is high throughout the world; indeed, the fraction of nondefense research spent on agriculture in Japan, France, and several other nations exceeds that of the United States. z Many new technologies, particularly biotechnologies, raise unique problems that require a balance between the benefits of research, development, and fielding of new technologies on the one hand, and the interests of public health and safety on the other. A mechanism for dealing with these issues in a fair and expeditious way would facilitate agricultural research and development. Given the growing importance of high-value agricultural products, it may also be necessary to increase research in areas not directly related to bulk cereal and soybean production, including technologies for value-added processing. 3 Technologies that could allow profitable production IZNationa] science Board, Science Indicators 1982 (Washington, DC: U.S. Government Printing Office, 1983). U.S. Congress, Office of Technology Assessment, Agricultural Postharvest Technology and Marketing Economics Research, OTATM-F-21 (Washington, DC: U.S. Government Printing Office, April 1983). PAGE 19 of high-value crops in areas with relatively high production costs for bulk commodities would be particularly valuable. In addition to emphasizing the role of agricultural research in the developed world, it is important to note that despite the transfer of technical innovations, many nations now produce less food per person than they did a generation ago. Per capita grain production in at least 13 African nations is at least 20 percent lower than it was 30 years ago; per capita production in Algeria and Mozambique fell by more than 60 percent during the same period. 4 Research done by sophisticated agricultural programs has little impact on subsistence farmers working small plots of poor soil. U.S. Department ot Agriculture, Economic Research Set-v]ce, 11or)cf ]ndlces O} Agricultural and Fod Production, 1 Q.50JQ84 (\\a\hlngton, DC: 1Q851 Modification of U.S. Domestic Farm Policies While there is little doubt that domestic farm programs influence the competitiveness of U.S. products on world markets, there is little agreement about what changes in these programs, if any, could stimulate U.S. exports. There may be an unavoidable tension between the objective of domestic equitymaintaining the profitability of domestic farmers in different production cost categoriesand the goal of creating a farm industry that could compete successfully in an international market free of foreign export subsidies. A program designed to achieve both objectives is likely to be expensive. Of course, most agricultural exporters face similar dilemmas. Domestic programs designed to preserve traditional farm enterprises, both here and abroad, are viewed by other countries as unfair intervention in free trade. Given the many distortions in agricultural trade, there can be no easy resolution of this issue. PAGE 20 Chapter 1 Influences on International and U.S. Trade in Agriculture PAGE 21 Chapter 1 Influences on International and U.S. Trade in Agriculture AGRICULTURAL TRADE AND THE For U.S. agriculture policy, the most important development in world agricultural trade in the early 1980s was a slowdown in the rapid rates of growth of key commodity markets that had characterized the preceding decade. International trade in coarse grains, wheat, soybeans, and soybean meal increased fairly steadily during the 1970s, but exhibited varying rates of decline in the early 1980s. The most serious reversal was in coarse grainsall grains but wheat and ricewhich are used primarily for livestock feed. Coarse grain trade rose throughout the 1970s, and jumped abruptly in 1981 to 109 million metric tons (MT). Thereafter, exports for this commodity declined for three consecutive years, producing a 17-percent decrease by 1984. U.S. corn farmers, who dominate world coarse grain trade, were hit especially hard. U.S. corn export volume has declined every year since 1980, from 61,4 million MT to 46.3 million MT in 1985a 24,5-percent decrease. The decline and stagnation of many world agricultural markets resulted from the global recession of the early 1980s. Characterized by slower growth in incomes, rapidl y increasing interest rates, andespecially in developing countries serious repayment problems on external debts, the recession constricted trade in a broad range of commodities and manufactured goods. Generally, the change in a countrys agricultural exports as a function of a given change in export pricethe elasticity of excess supply depends on domestic demand and supply elasticities, the importance of trade, and effects of domestic agricultural programs on producer and consumer behavior.] Smaller export levels relate to domestic supply and use, while larger levels respond to price changes. The U.S. (-ornpetitive Position in World Commodity Trade, Agricultural-Food Policy fh]n~t(ln, 1)( 1 ~80 PAGE 61 58 wheat, rice, beans, groundnuts, cassava and potatoes. Moreover, the study reinforced the notion that growing conditions influence technolog y transfer for most crops: The IARC impact was higher in countries with gee-climatic conditions similar to those of the IARC host location. For cassava and rice little impact beyond the host countries was measured, showing less transfer potential. Only wheat showed high transferabilit y outside the similar regions. 3 Agricultural Research Capacity Investment and personnel devoted to agricultural research indicate the dynamics of a nations agricultural sector (see table 4-7). Between 1959 and 1980, worldwide expenditures for public agricultural research programs increased significantly, by 360 percent after inflation. The number of scientist-years committed to agricultural research more than tripled during the same period. Dramatic growth occurred during the first decade of this period; worldwide, research expenditures and Ibid. personnel rose more rapidly between 1959 and 1970 than between 1970 and 1980. Striking differences exist between different parts of the world in spending and employment patterns for agricultural research over the 20-year period. All regions spent more and employed more people in 1980 than they had in 1970 or 1959, but changes occurred in regional shares of worldwide investment and personnel. Eastern Europe and the Soviet Union together fell from about 28 percent of world expenditures in 1959 to 20 percent in 1980, and from 38 percent of world personnel to 35 percent. North America and Oceania dropped from 37 percent of world expenditures to 23 percent, and their personnel share declined from 18 to 9 percent. Western Europe and Asia gained significantly in percentage share. Africa held steady, although its proportion of research personnel did rise slightly. The largest expansion of research capacities occurred in developing countries: Research spending increased by a multiple of 5.8 in developing countries in Latin America, 6.9 Table 4-7.Agricultural Research Expenditures and Scientist-Years, by Region, 1959-80 Expenditures Manpower (000s constant 1980 U.S.$) (scientist-years) Region/subregion 1959 1970 1980 1959 1970 1980 Western Europe . . . . . . 274,984 918,634 1,480,588 6,251 12,547 19,540 Northern Europe . . . . . 94,718 230,135 409,527 1,818 4,409 8,027 Central Europe . . . . . 141,054 563,334 871,233 2,888 5,721 8,827 Southern Europe . . . . . 39,212 125,165 208,828 1,545 2,417 2,636 Eastern Europe and U.S.S.R, . ... 568,284 1,282,212 1,492,783 17,701 43,709 51,614 Eastern Europe . . . . . . 195,896 436,094 553,400 5,701 16,009 20,220 U.S.S.R. . . . . . . . 372,388 846,118 939,383 12,000 27,700 31,394 North America and Oceania . . . 760,466 1,485,043 1,722,390 8,449 11,688 13,607 North America . . . . . . 668,889 1,221,006 1,335,584 6,690 8,575 10,305 Oceania . . . . . . . 91,577 264,037 386,806 1,759 3,113 3,302 Latin America . . . . ... ... 79,556 216,018 462,631 1,425 4,880 8,534 Temperate South America . . . 31,088 57,119 80,247 364 1,022 1,527 Tropical South America . . . . 34,792 128,958 269,443 570 2,698 4,840 Caribbean and Central America . . 13,676 29,941 112,941 491 1,160 2,167 Africa . . . . . . . . 119,149 251,572 424,757 1,919 3,849 8,088 North Africa . . . . . . 20,789 49,703 62,037 590 1,122 2,340 West Africa. . . . . . . 44,333 91,899 205,737 412 952 2,466 East Africa . . . . . . 12,740 49,218 75,156 221 684 1,632 Southern Africa . . . . . 41,287 60,752 81,827 696 1,091 1,650 Asia . . . . . . . . . 261,114 1,205,116 1,797,094 11,418 31,837 46,656 West Asia . . . . . . 24,427 70,676 125,465 457 1,606 2,239 South Asia . . . . . . . 32,024 72,573 100,931 1,433 2,569 5,691 Southeast Asia. . . . . . . 141,469 521,971 734,694 7,837 13,720 17,262 China . . . . . . . 54,166 502,491 643,555 1,250 12,250 17,272 World total . . . . . .....2,063,553 5,358,595 7,390,043 47,163 108,510 138~39 SOURCE Robert E. Evenson, Jonathan Putnam, and Carl Pray, The Potent!al for Transfer of U S Agricultural Technology, contract repor; prepared for t he Off Ice of Technology Assessment, 1985 PAGE 62 59 in Asia and 3.6 in Africa. Scientist man-year multiples were 6.0 in Latin America, 4.1 in Asia and 4.2 in Africa. This is in contrast to spending and personnel multiples for public sector agricultural research in the U.S. of 1 .9 and 1.4 respectively. The major competitors, Canada, Australia, Argentina and Brazil, had spending multiples of 2.4, 4.o, 2.1 and 1 .4, respectively. Further analysis of world expenditures and personnel devoted to agricultural research shows that between 1959 and 1980, research expenditures in developing countries grew at a faster pace than agricultural extension expenditures as a percentage of the value of agricultural products. As a result, the intensity of research and extension are now approximatel y equal in developing countries. This reorientation signifies a more sophisticated and balanced capability for adaptive research within the developing world than that which existed two decades ago. technique in particular, has been the training of scientists from developing countries in the United States and other developed nations. Table 4-8 indicates the total number of U.S. doctoral degrees awarded in agricultural and related fields between 1960-64 and 1975-79; during this period, over 7,5oo such degrees were awarded to foreign students. In most fields, foreign students represent a growing share of degree recipients-over 40 percent in agronomy, which includes crop breeding and soil science, veterinary medicine, agricultural engineering, agricultural economics, and general agriculture. In contrast, in the related and important field of genetics, the percentage of foreign Ph.D. recipients over this period fell from 48 percent in 1960-64 to 25 percent in 1975-79. In the 1975-79 interval, approximately 16 percent of foreign students with temporary visas planned to remain in the United States for postdoctoral studies. The majority of these planned to obtain employment in either education or government. Capacity Transfer: Foreign Students Trained in the United States One of the most significant avenues for transfer of technology, and of scientific knowledge and TECHNOLOGY TRANSFER AND MAJOR EXPORT CROPS Important differences exist in the avenues of international technology transfer for three major U.S. export crops: corn, wheat, and soybeans. In some cases, as with hybrid corn seed, indirect technology transfer takes place through multinational companies. For other crops and technologies, such as soybean varieties, direct transfer from the United States to other countries has occurred via public research entities or international research centers. For all three crops, an accelerated pace of agricultural technology transfer has resulted from worldwide improvements in public and private research capacity over the past few decades, especially in the developing world. Moreover, the international exchange of scientific knowledge and trained scientists are important routes for the diffusion of technology that affects corn, wheat, and soybean productivity. Technology transfer brings many benefits to agricultural production and trade. U.S. farmers gain from certain technology imports, although transfer generally flows toward agricultural producers in other nationsincludin g international competitors. Because technology transfer tends to lower the price of crops throughout the world, it facilitates consumption. In a number of cases, U.S.-based multinational firms have the lead in a particular technology, and can profit through technology exports, or through production and sales via subsidiaries or joint ventures in other countries. U.S. farmers may benefit from such transactions indirectly, since many U.S. firms reinvest profits in domestic research and development. Finally, agricultural technology transfer that boosts income in other countries may translate into increased trade with the United States. PAGE 63 60 Table 4-8.Total Number of Ph.D. Degrees Awarded in 20 Fields Associated With Agriculture and Home Economics and the Proportion of Degrees Awarded to Non-U.S. Citizens With a Temporary Visa a 1960-64 Percent Fields Total foreign Agronomy, including soils and soil science . . . . . . 711 Horticulture . . . . . 237 Forestry . . . . . . 66 Entomology . . . . . 444 Phylopathology . . . . . 385 Physiology-plant . . . . . 96 Physiology-plant and animal b . . 160 Animal husbandry, animal science, and nutrition . . . . . 573 Veterinary medicine . . . . 96 Physiology-animal . . . . 163 Agricultural engineering . . . 97 Agricultural economics d . . . Food science and technology . . Agriculture and food chemistry . 160 Fish and wildlife . . . . . 65 Agriculture (general and other) . . 116 Nutrition and/or dietetics c . . . (Other) home economics . . . Subtotal . . . . . (3,497) Biochemistry . . . . . 696 Genetics . . . . . . 296 Totals . . . . . . 4,489 28.0 27.8 9.1 25.2 30.4 27.1 13.1 15.7 26.0 8.6 21.6 40.0 13.8 27.6 22.7 (23.6) 17.8 48.0 23.3 1965-69 1970-74 1975-79 Percent Percent Percent Total foreign Total foreign Total foreign 873 334 172 651 561 262 649 184 509 181 92 223 90 314 150 (5,035) 1,099 418 6,662 36.8 33.5 15.1 21.8 29.6 29.4 27.6 23.9 14.3 19.9 30.4 27.4 7.8 33.1 21.3 (28.0) 19.4 35.2 26.5 1,150 321 249 823 468 287 651 196 732 309 794 373 160 204 519 133 (7,274) 1,140 444 8,858 38.1 34.9 19.3 20.8 29.3 25,5 26.5 37.3 12.8 31.1 33.4 30.8 20.6 10.3 31.3 16.5 (27.9) 15.5 30.5 26.4 1,060 321 304 685 410 183 667 152 590 235 742 510 42 255 383 283 269 (7,887) 1,019 372 8,478 43.5 34.0 26.1 25.1 31.9 28.4 28.4 44.1 12.6 45.5 42,7 35.1 33.3 11.4 40.2 7 ? ? 25.3 29.4 aForeign ,~ defined as a ph D recipient of a US unlverSlty who has a temPorarY visa bin fiscal year 1962, Physiology was broken out into Animal Physiology and Plant Physiology C,,Antmal $jClence, was added as a field !n fis~a[ year 1973 Field was changed to Animal Science and Animal Nutrition In fiSCal year 197 7 dAdded asafleld in fiscal year 1~9. NutntionH dropped as afield in fiscal year 1960 Nutrltlon and/or Dietetics ti added as a field In fiscal year 19 SOURCE Robert E Evenson, Jonathan Putnam, and Carl Prav, The Potential for Transfer of US Aancultural Technoloav, contract re~ort DreDared for the Off Ice of Technology Assessment, 1985 International Transfer of Corn Technology As much as any other U.S. crop, technological change has altered postwar corn production. Conventional plant breeding, more frequent and more efficient use of nitrogen fertilizer, and assorted production management technologies should continue to increase corn yields through the end of the century. Even greater potential for increasing corn yields may lie in biotechnologies that will enter commercial markets by the mid1990s. Plant growth regulators for corn could have the largest impact of any biotechnology, followed by photosynthetic enhancement, breeding techniques like cell and tissue culture, and biological nitrogen fixation. Developments in pesticide and fertilizer technologies will play important roles as well. How rapidly and by what routes might these technologies be transferred to other nations, in-. eluding U.S. competitors? As befits the U.S. position as the worlds top producer and trader of corn, this country generally leads in corn technology. In particular, U.S. companies figure critically in the development and dissemination of chemicals and biotechnology. U.S. and multinational firms either operate subsidiaries or participate in joint ventures in every major corn producing nation: Pioneer Overseas Corporation, Cargill, and DeKalb/Pfizer have subsidiaries or joint ventures in all of our major competing countries. These subsidiaries or joint ventures all have some research capacity. Northrup-King and Funk Seeds have subsidiaries in all of these areas except Thailand where Funk is just starting a research program. All of the major seed companies are active in Europe. Moreover, U.S. companies play a crucial role in the development of hybrid corn seed. Most corn produced in the United States comes from hybrid PAGE 64 seed developed by these firms, although inbred varieties that result from public sector research often serve as one of the hybrid parents. To the extent that productivity-boosting corn technology will center around seed, U.S. and European multinationals will be the main channels for direct and rapid transfer. Genetic material, research methods, and basic knowledge may be transferred rapidly and directly by these companies. For example, a hybrid, high-yield corn seed that is rich in carbohydrates, resists certain diseases, or has other similar traits, could be transferred by a private U.S.-based multinational to Argentina, Europe, and South Africa, and could enter commercial use within a relatively short timeperhaps several years. These countries possess temperate climates similar to that of the United States, and offer large, accessible, and lucrative markets. Furthermore, governments often encourage and assist such transfer, particularly those of developing countries like Argentina and Brazil. Hybrid corn seed developed for temperate climates would probably need to undergo biological adaptation before entering such tropical countries as Brazil and Thailand. As a result, new knowledge in general, and new research methods in particular, are critical forms of genetic technology transfer to these nations. Moreover, the CIMMYT and State-sponsored research efforts play a more important role than private companies in transferring genetic material to the tropics. Even if new corn hybrids are not transferred directly, many U.S. seed companies contribute to plant breeding programs in competing nations, which may lead to new, higher yielding, locally developed corn hybrids within the next few years. Programs of this type have already increased corn yields in Argentina and Brazil over the past decade. Transfers may occur in the reverse direction as well; germplasm collected in tropical countries has been an important and controversial source of genetic material for corn breeding programs in the United States. In addition, multinational companies could facilitate the transfer of chemical technologies for corn production, and for pesticides and plant growth regulators in particular. These firms conduct most of the important research and development for corn pesticides and corn hormones. Two European chemical companies, Ciba-Geigy and Shell, market corn herbicides in the United States and maintain significant product development programs. These firms also have extensive sales, production and research programs in Latin America and Asia. Similarly, U.S. companies that dominate corn herbicides and insecticides have major sales programs in Europe and South America, They also have applied research and development programs in many countries. Market characteristics and the security of property rights influence the pace at which U.S. companies introduce new agrichemicals to agricultural competitor nations; the cost of building a production plant or distribution network for a new product is weighed against the size of the market and the availability, cost, and efficacy of competing products. A number of large, lucrative markets for agrichemicals, such as Australia, Canada, and Europe, do possess mature chemical industries that can replicate new technologies. However, strong patent protection in these nations should allow U.S. firms to market new products rapidly. Patent protection is not as secure in other countries, but not all U.S. chemical companies perceive the risk of infringement in the same way. For example: Argentina has a patent system but has not signed the Paris convention on patents and so one company, which is very concerned about patent rights, stated their reluctance to introduce their newest chemicals there. Most other companies did not appear to have particular concerns about Argentina. Similarly, Thailands new and as yet untested patenting system could affect transfer of agrichemicals: One major American company will not expand into Thailand or introduce new products there because it feels that it recently had a new product stolen by a Thai company. However, other companies are attracted to Thailand because the [pesticide] registration requirements are almost nonexistent and so companies can introduce a new product very quickly. Relatively lax registration requirements are common in developing countries, which benefits PAGE 65 62 companies in developed nations that produce and market chemicals and uses of chemicals that have been banned or restricted in their home country. Also, insecticides and disease control agents, or fungicides, are not widely used for corn production in developing countries, and appear to be prime candidates for technology transfer. Broad spectrum herbicides represent another possibility for transfer to the developing world. International Transfer of Wheat Technology International competitiveness in wheat production has become a sensitive issue to the United States, in the wake of recent declines in the U.S. share of the world wheat market. International developments in wheat production technology have an important effect on this market. Conventional plant breeding programs, which formed the basis for the green revolution in wheat production during the past two decades, will continue to produce high-yield wheat varietiesperhaps the most important source of productivity improvement over the next 5 to 10 years. Improved management techniques, combined with new plant varieties, will facilitate the multiple-cropping of wheat and other crops, effectively extending wheats already wide geographic range. Wheat growth regulators, which may enter the market within the next decade, should boost yields moderately, as may the development of hybrid wheats. The United States occupies an important position in the development and dissemination of these technologies. In contrast with corn, the breeding and transfer of wheat germplasm is dominated by the public sector. Many programs are sponsored by national governments and by CIMMYT, which played a key role in the green revolution. In the United States, varieties developed by public research comprise more than 90 percent of all wheat acreage. Direct regional and international transfer of wheat varieties is rare, due to varying growing conditions and, in some cases, different preferences for specific types of wheat. Even within the United States, for example, wheat varieties remain site-specific: soft white wheats are suited to some areas, and hard red winter wheats are suited to others. Moreover: each country has to produce its own varieties using the characteristics of germplasm from around the world. If the country does not have local capacity to do research it cannot use the qualities in the germplasm like disease resistance or, in the future, biological nitrogen fixation. Even where varieties are transferred to other regions, preferences and grading standards for specific types of wheat can cause delays. The era variety of wheat produced yield increases of up to 25 percent when released in Minnesota in 1970, but Canada did not adopt this crop until recent years because of stringent standards imposed by that countrys wheat board. Release of a high yielding, rust-resistant wheat variety developed by CIMMYT was delayed in Australia because its red grain was unacceptable to Australian millers. Rather, Australian scientists employed the CIMMYT germplasm to develop a white-grained wheat, which spread rapidly; by 1978, about onethird of Australias wheat area was planted with CIMMYT-based varieties. Argentine wheat production also benefited from CIMMYT research and plant materials; approximately 60 percent of Argentinas wheat acreage is planted with CIMMYT-based varieties. As a result, although the transfer of wheat varieties and germplasm is indirect, promising biological traits may be utilized by experienced scientists. The rate of transfer depends on the nature of the individual trait. Concerning the process of transfer: Breeders from government institutions in the U.S. and other developed countries regularly exchange their genetic material. Breeders read about a new development in an academic journal, they write to the author for a sample of seeds and then try the seed under their conditions. They then incorporate the useful characteristics into their own commercial varieties. Again, CIMMYT is a critical link in such exchanges. Other avenues of transfer include shipments of material from international wheat rust research nurseries, and through training programs that bring foreign scientists to the United States. Significantly, this country has also benefited from transfer of wheat germplasm and scientific information about wheat traits. PAGE 66 63 Apart from biotechnology breeding techniques, growth regulators may become the first form of biotechnology to be transferred among major wheat producing nations. Current research aimed at altering wheats genetic proclivity to aluminum toxicity could lead to an important breakthrough for tropical wheat production, particularly in Brazil and other Latin American countries. In contrast, the international diffusion of other agrichemicals and of mechanical technologies holds a lower potential for increasing wheat yields, although wheat fungicides which are employed by European and North American farmers, and are developed and marketed by companies on both continentsmay have an impact. International Transfer of Soybean Technology Through the turn of the century, conventional plant breeding should continue to be the main avenue for improving the productivity of soybean production throughout the world. In addition, higher yields, further improvements in the efficiency of biological nitrogen fixation, and more effective soybean pesticides are anticipated. On the other hand, emerging biotechnologieswith the possible exception of tissue culturesand the advent of hybrid soybeans are not likely to have a direct impact on productivity in this century. Public research remains the fountainhead of soybean breeding, although private companies have developed and marketed their own varieties since the late 1970s. Historically, international transfer of soybean varieties has been a salient feature of global production. The United States dominates production and trade today, but this country imported its first soybeans from China. Over the past two decades, soybean varieties developed in the U.S. public sector formed the foundation of the soybean industry of our closest competitor, Brazil, and played a key role in establishing the Argentine soybean industry, In contrast to the adaptive and indirect international transfers of corn and wheat varieties, some soybean varieties developed by land grant universities in the Southern United States were grown commercially with no modification in Argentina and Brazil. The Brazilian soybean boom of the 1970s also benefited from private sector transfers of soybean milling and marketing technology, via U.S.-based multinational corporations. Brazil now exports large amounts of soybean meal and oil, and has displaced some U.S. markets in Europe and Japan. Within the past several years, the Brazilian research system has matured, and now develops its own varietiesused in Argentina, Uraguay, and Paraguay, along with U.S. varieties. Still, about 80 percent of Argentinas soybean acreage is planted with U.S.-produced varieties, and the United States regularly exchanges soybean types with Canada. Future improvements in soybean varieties, or desirable soybean characteristics, may be transferred or adapted directly and rapidly from the United States to Brazil. Varieties or traits adapted to the tropics will then be transferred to other Latin American countries, and perhaps to Africa and Asia. Important transfers could occur in the opposite direction, but this has not yet occurred. In addition, transfer of soybean pesticides is a potential source of short-term productivity improvements to competitors. And, as is the case with corn and wheat, plant growth regulators combine considerable potential for productivity gains and technology transfer. However, this technology is not expected to be available to the marketplace until the end of the century. INTERNATIONAL TRANSFER OF EMERGING AGRICULTURAL TECHNOLOGIES An OTA document published in 1986 4 identitors used that information to assess the potential fied technologies likely to be introduced to U.S. for transfer of these technologies to other nations, agriculture over the next 20 years. OTA contracas discussed below, U.S. Congress, Office of Techn~)logy Assessment, Technolog~, ture, OTA-F-285 ~ Y$ashingt(}n, DC. L1. S. Government Prlnt]ng OIubllc I(]lic>,, and the Changing Structure of American Agriculfice, Nlarch 1Q86). PAGE 67 64 The technologies were grouped into 44 separate fields, and rated for their potential to increase productivity, for the ease and direction of transfer, for impacts on competitors and importers, and for other characteristics. The ratings were assigned based on a variety of factors, including patent information, research and development activity, and technology transfer data. Sources included interviews with U.S. companies, publications, technology characteristicsa number of which are in the form of scientific knowledge, not specific productsand contractors experiences. This qualitative rating scheme does not attempt to specify the pace of transferor adoption; as noted above, the actual transfer and adoption in recipient countries depends on such considerations as costs and government policies. Table 4-9 lists the technology fields that have at least a medium (M) potential for producing productivity gains over the next 20 years and at least a medium (M) potential for transfer to other countries. Of the 44 fields examined, 29 received such a rating. The table also identifies leading research nations for each field; the United States is among the top four for all technologies. Eleven agricultural technology fields received a rating of M+ or greater for the potential for transfer from the United States: entomology-nematology; general, wheat, and soybean pesticides; regulation of animal growth and development; environment and animal behavior; meat PHT; mutations and genetic engineering; micro-organisms/tissue culture technologies; enzymes; and biotechnolog y equipment and apparatus. Of the 12 crop technologies, Table 4-9.Technology Fields With At Least Medium Productivity and Transfer Potential Transfer potential Leading field Leading centers Crop Technologies: 1. Plant Breeding . . . . . . 2. Entomology -hematology . . . . 3. Pesticides-general . . . . . Corn . . . . . . . . Wheat . . . . . . . Soybeans. . . . . . . Rice . . . . . . . . 4. Genetic engineering . . . . . 5. Enhance photosynthesis . . . . 6. Plant growth regulation . . . . 7. Plant disease control . . . . 8. Biological N Fix. . . . . . U. S., India, U. S. S. R., U.K. U. S., U. K., India, U.S.S.R. U. S., W. Germany, Japan, France U. S., IARC, U. S. S. R., Argen. U. S., IARC, India, U.S.S.R. U. S., Brazil, Argentina, India IARC, India, Japan, U.S. Japan, U. S., U. K., W. Germany U. S., Japan U. S., U. K., India, U.S.S.R. General L M + H L M M M H M M M M Animal technologies: 1. Animal husbandry . . . . . U. S., W. Germany, France, U.K. L-M 2. Animal breeding. . . . . . U. S., U. K., India, W, Germany M 3. Regulating animal growth and development . . . . . M 4. Animal disease control . . . . U. S., U. K., India, W. Germany M 5. Animal reproduction . . . . . U. S., U. K., W. Germany, Austral M 6. Environment and animal behavior. . . M + General mechanical and managerial technologies: 1. Communication/information. . . . U.S. M 2. Monitor/control plant . . . . U.S. M 3. Monitor/control animals . . . . U.S. M Postharvest (PHT) and biotechnologies: 1. General PHT . . . . . . Japan, U. S., W. Germany, France 2. Meat PHT . . . . . . . Japan, U. S., W. Germany, France M + 3. Fruit PHT . . . . . . . France, U. S., Japan, W. Germany M 4. Grain PHT . . . . . . . U. S., W. Germany, Japan, U. K., France M 5. Mutations and genetic engineering . Japan, U. S., U. K., W. Germany H 6. Micro-organisms/tissue culture . . Japan, U. S., W. Germany, France H 7. Enzymes . . . . . . . Japan, U. S., W. Germany, France M + 8. Biotechnology equipment . . . Japan, U. S., W. Germany, France M + NOTE Number of technology fields examined 44 Fields this table 29, Number of fields Where transfer from U.S M at least M + 11 From U.S. L-M M + H M M + M + L M M M M M M M M + M M M + M M M + M M H H H H SOURCE Robert E, Evenson, Jonathan Putnam, and Carl Pray, The Potential for Transfer of U S Agricultural Technology, contract report prepared for the Office of Technology Assessment, 1985. PAGE 68 65 only 2plant breeding and rice pesticideswere assigned less than a medium (M) potential for transfer from the United States to other countries, It is important to note, however, that most products associated with conventional plant breeding are not directly transferable, except in the case of soybeans. OTA contractors rated the potential impact of the transfer of these technologies to U.S. export CONCLUSIONS Compared to many other industriesmanufacturing, for exampletechnology transfer in agriculture proceeds at a slow rate, in part because of its varied biological nature, and in part because much agricultural production remains the province of millions of small-scale farmers slow to adopt new technologies, Over the past two to three decades, however, the pace of international transfer of agricultural technology has increased. Developing countries have improved their capabilities in conventional agricultural science; at the same time, developed countries, such as West Germany, France, and Japan, have established sophisticated, competitive agricultural input industries. Substantial public investments have been made in agricultural research and extension activities. It is not surprising that the United States, a leader in most aspects of agricultural technology, occupies a central role in technolog y transfer through direct trade, scientific research and training, and agricultural development programs. competitors on a similar scheme, although the results do not appear in tabIe 4-9. Ten of the technology fields shown in the table have at least medium (M) potential to increase productivity in competitor nations. In this respect, crop technologies were the most sensitive: they comprised 8 of the 10 fields with medium (M) or greater potential productivity impacts for U.S. competitors. Between now and the end of the century, the rest of the worldincludin g export competitors will match the United States in many aspects of agricultural technology and development, and will absorb a wide range of innovations and knowledge more easily and rapidly. It is unlikely that the United States will lose its preeminence in all aspects of agricultural science and technology, or even in most. Still, many emerging agricultural technologies in the United States appear to be transferable to other countries via private companies and public agencies, including important biotechnologies that may provide the next spurt in productivit y for plant and animal agriculture. As a result, U.S. farmers may not enjoy the fruits of early adoption of new technology for as long as they have in the past; their absolute advantage in the production of many agricultural goods, which is rooted in technology, could diminish over the next 10 years, depending on how much emphasis the United States places on agricultural research. PAGE 69 Chapter 5 U.S. Trade in High-Value Agricultural Products PAGE 70 Chapter 5 U.S. Trade in High-Value Agricultural Products World trade in low value-per-unit commodities, such as grains and oilseeds, doubled during the 1970s; the United States capitalized on this trend by increasing corn, wheat, and soybean exports, However, the rapid rise in trade of processed and high-value agricultural products (HVPS) represents another significant trend. In fact, the value of HVP trade now surpasses that of the lower value bulk commodities. The United States has not performed impressivel y within this dynamic arena of world agriculture. In 1980, the United States retained roughly the same 10 percent share of world trade in HVPS that it had held in 1970. Other countries, particularly those of the European Economic Communit y (EEC), have taken greater advantage of the growing HVP market (see table 5-I for a listing of the major HVP exporters, their commodities, and their markets). Increasing affluence and efforts to upgrade diets fueled the expansion of HVP trade in the 1970s. Despite the global recession of the early 1980s, world trade in HVPS continues to be strong, while a slowdown has occurred in trade of low-value products. In theory, the United States could benefit from an expansion of HVP exports. According to one U.S. Department of Agriculture (USDA) analysis, the world HVP market may grow by $15 billion per year in the 1990s, and expanding the U.S. share of the world market in high value products by just 5 percentage pointsa rise from 10 to 15 percentcould give the country up to a million new jobs, add $5o billion to the gross national product (GNP), and increase government revenues by $10 billion per year by the early 1990s. 1 In addition, world HVP markets appear to be less erratic, and may provide a more stable and diversified source of earnings for U.S. agriculture. z Can the United States expand its share of the HVP trade, as some policymakers propose? What are the barriers to such expansion? Which highvalue products and markets show the greatest promise? This chapter attempts to answer these questions by reviewing overall trends in world and U.S. HVP trade, and by examining recent trends for leading U.S. high-value products that accounted for over $8 billion in 1985 export sales. The evidence suggests that opportunities exist for expanded U, S. trade in a number of HVP markets, but that significant, sustained expansion will not come easily. FACTORS INFLUENCING HVP TRADE 3 The Significance of HVP Exports era] y horticultural cropsand to semiprocessed In this chapter, the term high-value products and highly processed products, which involve refers to certain unprocessed commoditiesgencapitalor labor-intensive production relative to raw agricultural commodities. HVPS have higher Unless otherwise noted, the material in this section of chapter 5 was drawn from two sources: Michael Dwyer, et al., Value-Added U.S. Agricultural Exports, 19671981: An Analysis of the Distribution and Structure of Exports by Commodity and Regional Destlnation, U.S. Department of Agriculture, Foreign Agriculture Serv. Ice, staff paper, 1983; and U.S. Department of Agriculture, Ec[>n{~mic Research Service, High-VaIue Agricultural Exports. U S. Opportunities in the 1 ~80s, Foreign Agricultural Economic Report N() 188, 1983 unit values than do such agricultural commodities as grain or soybeans. In comparison with raw agricultural commodities, export of HVPS is associated with high levels of employment, gross economic output, personal income, and government tax revenues, It is clear that when the United States exports highly processed products, it reaps 6 9 PAGE 71 70 Table 5.1. Major HVP Exporters: Leading Commodities and Major Markets, 1980 Exporter Leading commodities EEC-9 .. . . . Dairy products Meats Beverages Fruits and vegetables Grain products Sugar products United States . . .Vegetable oils and meals Tobacco and cigarettes Meats and livestock products Fruits and vegetables Processed grains and feeds Brazil . . Coffee Soybean oil and meal Cocoa Processed fruits Meats Fresh fruits Spain . . Fresh fruits, especially citrus Vegetable oils Beverages Australia ... Meats and livestock products Dairy products Grain products Fruits and vegetables New Zealand . . Meats and livestock products Dairy products Canada. . . . Meats Beverages Fresh vegetables Argentina. ., . Meats Fruits and vegetables Vegetable oils Mexico ... . . Coffee Fresh vegetables Preserved fruit Greece . . . Fresh fruit Dried fruit Preserved vegetables Value (1980, $ billions) $53.5 (total) $19.9 (extra-EEC) $11.4 $ 5.8 $ 3.3 $ 2.8 $ 2.3 $ 1.9 $ 1.8 $ 1,05 $ 1.04 Major markets EEC (internal trade) Middle East Western Europe U.S.S.R. Japan EEC-9 United States Western Europe Far East Middle East EEC-9 United States Western Europe Far East Middle East EEC-9 Middle East United States United States Japan Middle East EEC-9 United States Middle East Japan United States EEC-9 Japan EEC-9 Middle East Western Europe United States Japan United States EEC-9 EEC-9 Middle East SOURCE U S Department of Agriculture, Economic Research Service, High Value Agricultural Exports U S Opportunltles In the 1980s, Foreign Agricultural Eco nomlc Report No 188, 1983 the benefits of added employment, economic outthe 1970s doubled, they failed to keep pace with put, and government revenue that are associated inflation; postinflation prices for low-value agriwith processing. 4 cultural products actually declined by 1 to 2 perHigher unit prices of HVPS, relative to bulk commodities, imply that modest increases in HVP export volume would have a greater economic effect than would corn, wheat, or other bulk commodities. Also, this price structure makes HVP prices less likely to have an unfavorable relationship with the overall inflation rate. While average nominal prices for U.S. farm exports during cent per year during the 1970s. In contrast, HVP prices showed an inflation-adjusted annual increase of 2 to 3 percent over that period. Since 1980, LVP trade prices have fallen in current as well as real terms, further widening the imbalance between LVP volume-dominated growth and HVP price-dominated gains. PAGE 72 71 In terms of volume, the United States attained a 39 percent share of world agricultural trade between 1979 and 1981, compared to a 23 percent share between 1969 and 1971. In terms of value, however, the average 14 percent share for the earlier period rose to only 18 percent from 1979 to 1981, 6 due to the predominance of low-value products in U.S. exports. Furthermore, the average value of world agricultural exports rose from $520 to $530 per ton between 1979 and 1984, while falling prices for raw commodities over the same period caused the average price of U.S. agricultural exports to decline by almost 12 percent from $260 to $230 per ton. As a result, the United States accounted for one-third of world agricultural trade volume by 1984, and 13 percent of trade value. Both figures are below the 1979 to 1981 average. 7 Another advantage of HVP exports is the relatively steady growth of HVP markets over the past decade. Even during the world recession of the early 1980s, growth of HVP trade did not decrease as severely as trade in raw commodities. As a result, the bulk-dominated agricultural trade of the United States has been subject to substantial year-to-year swings in value; the value of U.S. trade fluctuated 14 percent between 1979 and 1981, compared to an average 8 percent fluctuation in HVP-dominated world trade. The instability of international agricultural trade has become more pronounced than that of the 1960s, when average annual world market prices fluctuated by 5 percent, and U.S. prices by 9 percent. International trade in HVPS holds other benefits as well. Saturation in some domestic markets could make the export market more attractive for some U.S. processors. Processing industries can adjust production more easily than farmers; exporting processed goods may hold fewer risks for U.S. agricultural trade. Also, many agricultural processing activities, particularly those up to the semiprocessed stage, occur close to the site of raw commodity production. In the future, rising energy costs may encourage even greater onsite processing, in order to reduce product weight prior to shipment, Since many farm communities are associated with processing industries, these areas could benefit from an expansion of HVP trade. Barriers to Expanding U.S. Trade in HVPS Although international HVP trade may appear attractive, it will be difficult for the United States to sustain a rapid expansion in many HVP markets. Many of the macroeconomic forces working against U.S. trade in raw agricultural commodities, including both the relative strength of the U.S. dollar in the early 1980s and debt repayment problems in developing countries, have dampened near-term prospects in HVP markets as well. Another set of barriers concerns the role of food processing industries in international economic development, especially within the Third World. As was the case in the United States, food processing industries are important in the early phases of industrial growth, Many developing and middle-income countries seek to expand or protect their own processing sectors, to generate employment and to achieve a greater measure of food security. In fact, developing countries may have stronger incentives to establish their own processing industries than to import HVPS. This trend is encouraged through import barriers in South Korea, Taiwan, Hong Kong, Western Europe, and Brazil, and more recently in the Middle East and in newly industrializing and oil exporting countries. National goals of self-reliance in food supply may create a market for raw or semiprocessed U.S. exports, but not necessarily for highly processed products. Some developing countries discourage food imports, viewing them as luxur y goods that siphon scarce foreign exchange away from more important investments. These long-term trends give an ephemeral character to international markets for processed agricultural products. As demand may change over time, expansion of U.S. exports of high-value products ma y not have lasting effects. Soybean meal is a case in point. In conjunction with its nascent poultry industry in the 1970s, the EEC was a major importer of soybean meal. While the EEC PAGE 73 72 remains a large regional consumer, it has developed a domestic processing capacity. Current growth markets for soybean meal lie in the industrializing countries of the Far East and Latin America, but these markets will change as production capacity develops. Other commodities likely to be affected by similar trends include unrefined vegetable oils and fresh meats, particularly poultry. In some cases, U.S. environmental controls encourage processing overseas. Leather tanning, for example, produces toxic chromium wastes that are strictly regulated in this country. Import barriers are especially formidable in the EEC, which would otherwise represent a logical market for U.S. HVPS. The EECS Common Agricultural Policy (CAP) imposes tariffs and levies that severely restrict many U.S. food exports, including most meat, dairy products, poultry, flour, baked goods, lard, sugar, and many fruits and vegetables. Food and agricultural products are traded within the EEC without price penalties, giving these countries a decisive price advantage over U.S. products. Food from Mediterranean and developing countries outside the EEC also frequently benefit from preferential tariff treatment. Since the United States imposes fewer tariffs or levies on food imports, this country possesses few direct bargaining chips in HVP trade negotiations; efforts to liberalize EEC-U. S. trade in HVPS would probably invite European demands to liberalize many other U.S. import policies. Despite the EEC import barriers and the Communitys favorable balance of HVP trade with the United States, heavy EEC imports of raw and semiprocessed agricultural commodities have given the United States a positive agricultural trade balance with Europe. A similar situation exists in Japan. Although the Japanese make widespread use of both quotas and insect/disease quarantines to prevent entry of a number of U.S. HVPsespecially fruits and vegetablesJapan stands as another large importer of overall U.S. agricultural products. Another force that negates the potential for U.S. HVP exports is the subsidizing of HVP procHarold A. McNitt, U.S. Food Exports to the United Kingdom: Opportunities and Obstacles, National Food Review, summer 1985. Ibid, essing and exports by such competitors as the EEC and Brazil. Among the principle HVP traders, the EEC maintains the most complete range of export support policies for the broadest spectrum of products. Within the Community, variable levies maintain price competitiveness, while export subsidies are designed to remove HVP surpluses that result from high price supports. EEC actions have contributed to the U.S. withdrawal from the Middle Eastern whole-broiler trade, the erosion of the U.S. share of world wheat flour markets, and the reduction the U.S. presence in markets for oilseed meals and oils, processed fruit, vegetables, and cereal products. Brazil, the third largest HVP exporterafter the EEC and the United States subsidizes the processing and export of soybean products, poultry, and orange juice; Brazilian policies have crippled U.S. performance in several world markets. Attributes of certain HVPS, such as perishability, pose other trade barriers. High perishability of particular fruits, vegetables, and meats may raise freight costs significantly, as with the case of U.S. vegetables in the Far East. In this market, stiff competition is posed by nearby producers and by Australia and New Zealand, as these nations can airfreight their produce. Because of its proximity to the United States, Canada has represented the traditional market for U.S. produce, but saturation of Canadian markets suggests a need for more aggressive U.S. efforts in the Far East. Technological advances in packaging and food preservation may enhance export competitiveness for perishable U.S. products. Many of the difficulties that the United States encounters in HVP markets are attributable to a lack of acumen or interest in international trade on the part of domestic companies. Also, U. S.based multinational companies may choose to penetrate foreign markets through acquisition or development of foreign production and distribution facilities, instead of through exports. Eventually, foreign subsidiaries or joint ventures with foreign firms actually may benefit from import barriers, as well as from low-cost overseas labor and materials. As U.S. companies increase the number of their overseas ventures, however, benefits to this country become more difficult to as- PAGE 74 73 sess, depending on the extent of profit repatriation. While U.S. grain and soybean production has been geared to world markets for decadesdue largely to government programs and subsidies U.S. HVP producers must acclimate themselves to international trade. In contrast to EEC firms, whose food manufacturing and marketing operations are oriented toward export, U.S. HVP producers primarily serve homogeneous domestic markets, placing these firms at a marketing disadvantage. High-value products demand careful attention to labeling, health certification, advertising, packaging, and other service activities that involve additional costs. Many aspects of the current U.S. transportation system center around bulk commodities; costs of refrigeration, security, and other transport modifications will need to be factored into the HVP export decision as well. In addition to tailoring U.S. products to foreign market niches, U.S. exporters must give more consideration to smaller HVP markets, rather than to larger markets for bulk commodities. World and U.S. Trends in HVPS In recent years, world trade in semiprocessed agricultural products has not grown as quickly as trade in highly processed goods. In contrast with global trends, the United States HVP exports are dominated by semiprocessed products. Of a total of $11 billion in U.S. HVP exports in 1980, over one-half, or $6.1 billion, were semiprocessed goods; 28 percent, or $3,1 billion, were highly processed; and 17 percent, or $2.2 billion, were unprocessed products. By contrast, highly processed products dominated the $19.9 billion of 1980 EEC exports in HVPS percent, or $11.7 billion, were highly processed; 35 percent, or $7 billion, were semiprocessed; and 6 percent, or $1.3 billion, were unprocessed. Along with fresh fruits, semiprocessed oilseed meals were the fastest growing U.S. HVP exports during the 1970s. Other semiprocessed items among the top U.S. HVP exports have included cattle hides, corn gluten feed, beef, tallow, wheat flour, soybean oil, and brown rice. Further processing for leather goods, high-quality greases, pastas, bakery products, and fully refined and hydrogenated oils has generally occurred overseas with foreign government support. Also, of the top U.S. semiprocessed export items, several such as cattle hides, corn gluten feed, and tallow are byproducts of primary industries. In certain cases, U.S. market characteristics have encouraged the export of highly processed goods. The low U.S. demand for dark poultry, for example, coupled with subsidized competition from the EEC and Brazil in the whole-broiler trade, has resulted in increased exports of cut chicken pieces to the Far East and the Caribbean. This contrasts with beef, since retail beef cuts are taken after export, from subprimal boxed beef. The United States exports only a small fraction of its fully processed meat. Still, while value gains from processing are negligible, weight reduction remains an important concern, and processing operations may take place within the United States; transportation costs have encouraged preexport tobacco stemming, almond shelling, and rice milling. For reasons of technical capability, the parboiling of rice also occurs in the United States. Finally, perishable high-value products, like vegetables, have created the need to export larger processed product shares relative to HVPS, like fresh fruit. International HVP Markets Historically, international trade in HVPS has been carried out among both developed and fastgrowing, middle-income countries. The United States and the EEC are the leading importers of HVPS, followed by Japan and Canada. Although the relatively high value of the U.S. dollar between 1981 and 1985 stimulated growth in U.S. HVP imports, the general trend over the past decade has been one of slow growth in U. S., EEC, and Canadian markets; newly industrializing nations have assumed greater importance as growth markets. Over the next 10 to 15 years, developed and middle income countries are likely to remain large importers, butwith the exception of Japanthese nations should continue to be slow-growth markets for the United States. Market saturation in the developed regions and emphasis on local processing in the middle income PAGE 75 74 areas is expected to decrease overall growth in HVP trade. Currently, the Middle East and the Pacific Rim represent the fastest-growing regional HVP importers, and the United Arab Emirates, Singapore, and Hong Kong are the largest per capita importers. During the 1970s, dramatic expansion of HVP imports occurred in the OPEC countries, where growth in population and income was complimented by a preference for Western food. Annual HVP imports rose by 30 percent, particularly for meats, vegetable oils, and beverages. Debt problems and falling OPEC oil revenues have reduced overall imports in the 1980s; declining expatriate labor forces have closed some HVP markets altogether. Japan, Hong Kong, Singapore, Malaysia, and Taiwan stand out as prospective markets in the Pacific Rim, with exceptional growth potential in meats and fresh fruits. Japans HVP imports, for example, have grown at an average rate of 20 percent per year since 1970, mainly for meats, coffees, and fresh fruits. In fact, the fastest growing markets for the majority of top U.S. HVP export items lie in the Far East. The movement of U.S. agricultural attaches from Europe to the Far East reflects the importance of that region to future U.S. success in HVP and overall agricultural trade. As noted previously, long-term U.S. export success will depend on aggressive marketing efforts. Competition from established Far Eastern producers is growing, and the potential emergence of China as a major HVP exporter may diminish U.S. opportunities in the Pacific Rim. Marketing Programs An effective marketing program for HVPS could include two basic elements: product promotion, and trade servicing. U.S. promotional efforts for HVPS have decreased over the last 10 years. While foreign exporters typically spend 1 to 5 percent of HVP trade value on promotion, U.S. promotional expenditures have decreased from 0.4 percent of HVP export value in 1970 to 0.2 percent in 1980 11 In 1985, USDA established a Processed Products Division, devoted to statistics and market analysis for processed products. In addition, the agency has increased its trade servicing activities through the development of its Agricultural Information and Marketing Service (AIMS). AIMS serves as a liaison between domestic producers and foreign importers of agricultural products, particularly for HVPS. The AIMS database includes current information on domestic prices and product availability, as well as foreign market information provided by overseas attaches. Program managers have reported significant increases in sales of HVPS by U.S firms that participate in AIMS. Of course, without an increase in overall marketing funds, greater promotion of HVP exports may diminish the funding available to promote bulk commodities. Promoting HVPS also entails a shift in benefits; manufacturing and processing interests outside the farm sector generally receive 70 to 80 percent of the returns on HVP exports .12 Accordingly, increased support of HVP promotion should be measured against the concurrent interest in marketing bulk commodity exports. U.S. Department of Agriculture, New Uses for Farm Products, Challenge Forum< oct. 11-12, 1984. ]ZLipton and OBrien, Op. cit. PAGE 76 75 LEADING U.S. HVP EXPORT COMMODITIES 3 This section of the study examines leading highvalue export commodities in the United States (see table 5-2). Trends in world and U.S. trade, competitors, and policy issues are presented for each high-value product. Oilseed Products Background Oilseed products include soybean meals and cakes used for livestock feeds, refined oils for industrial purposes, and further-processed refined and hydrogenated oils for cooking. The processing of soybeans and other oilseeds is a sizable U.S. industry, and exports grew in both volume and value during the 1970s and early 1980s. Over the same time period, however, the U.S. share of the world market declined, the result of a slowdown in demand, increased competition, and the availability of substitute products. The U.S. Government and U.S. trade associations are now turning away from stagnating markets in the developed countries, and toward higher-income developin g countries in Latin America, the Middle East, and South Asia. Trends in the processed oilseed trade reflect the ephemeral nature of value-added product markets. Processed oilseed products are imported when countries wish to upgrade diets or expand ] The material in thl< w>cti[>n of chapter 5 is based on l(~ur sourcw. C(lmparlw~n\ t~f w(}rld and U.S. trade in variou~ commodities between 1 Q70 and I Q84 were drawn fr~]m the Fotxl and Agriculture Organlzati(~n (Jt the LJnlted Nations, FAO Trade }earbook. vols. 3Z-38, R(~me, ]t~]}: cornparis(>ns [>f IJ. S. production and U.S. export~ of tariou~ c(~mm(~ditles were drawn from Fcwd and Agriculture Organlzat ion (~t the United Nations, 1984 F:4C) Trade Ye~rLKK)A and 1Q84 FAO Production Yearbook, Fot)d and Agriculture Organlzatlon ot the United Nations, Rome, Italy, 1985; updated ~1 S export figures [or 1Q85 were drawn from U,S Department ot Agriculture, Foreign Agricultural Service, U.S. Agricultural Exports Oct 1980 -Sept, 1985, Washingt[)n, DC, August 1986, and intormat I on on the de~t I na t ion of U S. export commoclltles was draun trom U, S, Department of Commerce, Bureau ot the Census, U. S Exp(lrts Schedule E C[)mmodlt}r Gr(}uplngs, Comm(}dlty b} Country, FT--I 10 rep(~rts, \4ashlngton, DC, 1Q84. Table 5-2.U.S. Leading HVP Export Commodities, 1985 Volume Value (MT thousands) ($ millions) Tobacco ... 257 1,587.9 2. Cigarettes . . 47 a 1.180.0 3. Cattle hides 673 a 1,035.0 4. Soybean meal ... 4,460 833.6 5. Rice ... 1,972 677,1 6. Soybean oil ... 752 558,0 7. Tallow ... ... 1,129 542.9 8 9 10 11 12 13 14 15, 16, 17, 1, 2, 3. 4. 5 6: 7, 8. 9. 10. 11. 12. 13. 14, Beef . . Corn gluten fee d Shelled almonds Poultry meat ... ... Oranges ... Wheat flour Cottonseed oil .. Apples ... Grapefruit ., Pork ... 112 3,383 125 234 385 727 196 205 199 43 Unit dollars, 1985 (dollars/MT) Cigarettes . 25,1 06,4 a Tobacco . ... 6,175,0 Beef ... ... 4,263.4 Shelled almonds. 2,533.6 Pork . 1,700,0 Cattle hides, .. 1,538,2a Poultry meat ., 1,098,3 Soybean oil . 742.0 Cottonseed oil . 701.5 Oranges . 597.4 Apples ... ... ., 530,2 Tallow 480,9 Grapefruit ... 435,7 Rice . . . 343.7 477.5 458,8 316,7 257,0 230.0 155,1 137.5 108.7 86.7 73,1 15, Wheat flour ., ... 213.3 16. Soybean meal ... 186,7 17. Corn gluten feed 135.6 aFlgures are approximate Commodity Information provided by Foreign Agrlcul ture Service, U S Department of Agriculture SOURCE U S Department of Agriculture Foreign Agricultural Service, U S Agricultural Exports Oct 1980.Sept 1985 August 1986 livestock industries; when demand rises to a certain level, however, domestic processing facilities are developed. Imports shift toward new commodities. During the 1970s, world vegetable oil prices doubled. With $8 billion in world exports in 1980, trade in vegetable oils nearly matched that in beef. PAGE 77 76 World trade in soybean meal reached over $5.5 billion in 1980; growth in meal prices, coupled with volume increases during the 1970s, resulted in an almost sixfold increase in world trade value. Since 1980, the world level has hovered about $5 billion. U.S. Trade Although U.S. soybean oilcake, and meal exports fell from $1.65 billion in 1980 to $833 million in 1985, the United States remains second to Brazil as an international supplier of this commodity. The United States follows Malaysia in world vegetable oil exports; leading U.S. vegetable oil export commodities for 1985 include soybean oil at $558 million and sunflowerseed oil at $301 million. Sunflowerseed oil and linseed oil, while small in volume compared to other vegetable oils, have been the fastest growing U.S. oilseed export products in recent years. In terms of volume, U.S. soybean cake and meal exports nearly doubled between 1970 and 1980 (see figure 5-l), but have since fallen by approximately 40 percent. Similarly, soybean oil exports rose by about one-third during the 1970s, but have since fluctuated considerably while decreasing overall. However, even the actual U.S. increases of the 1970s did not match the rapid growth of world exports. Between 1970 and 1984, the U.S. world soybean meal volume market share fell from 68 to 21 percent, while the U.S. share of the soybean oil market decreased by 33 percent. Foreign processing, import barriers, and export subsidies combined to bring down the total value-added proportion of U.S. oilseed exports from 35 percent of all oilseed products in 1972 to 17 percent in 1981. Western Europe stands as the worlds largest importer of U.S. oilseed products, purchasing 64.3 percent of U.S. soybean meal exports in 1983 (see Figure 5.1 .World and U.S. Soybean Meal Exports 21i 1970 1972 1974 Years 1978 SOURCE FAO Trade Yearbook, Food and Agrlcul!ure Orgmlzatlon of the United Nations, Vols. 32-38, 1970-1984, Rome, Italy PAGE 78 Figure 5-2. U.S. Soybean Meal Exports by Destination, 1983 Canada (6.1 0 / 0 ) Latin America (14.0/0) Eastern Europ e \ Far East (3.0/0) \ ~ Other (1 .6/0) SOURCE U S Exports Schedule E. Commodity Groupings, Commodity by Country, Bureau of the Census, Department of Commerce, FT-41O reports, 1984 figure 5-2). The Community, however, is not a growth market. Oil imports are regulated, and policies are directed toward increased importation of raw soybeans. For soybean meal, top U.S. export country markets in 1983 were The Netherlands, West Germany, Venezuela, Canada, Italy, the Philippines, Poland, and Iraq. In general, exports of value-added oilseed products to the developed world, such as the EEC, Canada, and Japan, are slowing, the result of reduced population and income growth. Eastern Europe and the U.S.S.R. represent potential markets, contingent on balance of trade and development considerations, and on political relations with the United States. China may develop into a large potential market as it modernizes its livestock industry, which would increase per capita vegetable oil consumption. The fastest growth markets for U.S. oilseed products are likely to lie in the higher income industrializing countries of the Middle East, the Far East, and Latin America; currently, Latin America and South Asia dominate U.S. export markets (see figure 5-3). Many of these nations lack the capital, infrastructure, and technical capability to process oilseeds. Five countriesIndia, Pakistan, Iran, Morocco, and Turkeyaccounted for 55 percent of world soybean oil import growth between 1976 and 1984, 77 Figure 5-3. U.S. Soybean Oil Exports by Destination, 1983 Africa (9.7/0) Latin America (35.7\o) E Far Other (1.1 0 / 0 ) astern Europe (18.1 0 / 0 ) East/Oceania (3.4/0) South Asia (31 .9/0) SOURCE. U S Exports Schedule E Commod!ty Groupings, Commodity by Country, Bureau of the Census, Department of Commerce, FT-41O reports, 1984 Competitors Brazil, the United States, and Argentina are the worlds largest exporters of soybean meal, followed by The Netherlands and West Germany. Of course, Brazils high-protein, pelletized form of meal is somewhat different than the U.S. product; nevertheless, the rapid decline in the U.S. processed oilseed market share during the 1970s can be attributed to aggressive competition from Argentina and Brazil in world meal and oil trade, and from Spain in the Mediterranean oil markets. Also, a dramatic increase in production of Ma laysian palm oil has displaced some of the demand for soybean and cottonseed oil. Issues Several factors have slowed the growth of U.S. oilseed exports in recent years: l As with most other high-value and value-added commodities, policies of other nations have been a major impediment. In fact, the U.S. soybean processing industry has filed two pending petitions under Section 301 of the Trade Act of 1974: one that charges Brazil, Argentina, Spain, Portugal, Malaysia, and Canada with subsidization of soybean crushing industries and soybean exports; and PAGE 79 78 one that charges Argentina with imposing a differential soybean export tax. The premiums associated with U.S. products, especially oils, are prohibitive for some importing countries. Developing nations can buy cheaper palm oil, lard, or tallow from Asia. Demand slowed during the early 1980s, due to worldwide recession. Although this factor has abated, growth is not projected to reach the level of soybean meal demand seen in Europe during the 1970s, where infrastructure for livestock production and transport was already in place. To date, U.S. promotional efforts have focused on exports of raw soybeans, rather than meals and oils. The $6.5 million allocated annually to USDA has been directed primarily to trade servicing support for current tradeand to technical assistance for foreign processing industries. Recently, however, domestic interest groups have become more active in promotion of processed products. For example, while its efforts have not yet been reflected in trade performance, the Export Processing Industy Coalition (EPIC), an industry-labor alliance, has articulated processors concerns. EPIC hopes to double the size of Public Law 480 grant-in-aid programs, in order to include more semiprocessed and processed goods. Tobacco and Cigarettes Background U.S. tobacco export volume has declined slightly in recent years, the result of a strong dollar through early 1985, relatively high U.S. prices, the availability of competitive overseas supplies, and stagnant world cigarette demand. Former growth markets for cigarettes in the developed countries have declined due to health concerns and large cigarette tax increases. Analysts expect greater export growth for cigarettes relative to leaf tobacco. American blended cigarettes are unique in taste and are considered status items overseas, particularly in newly industrializing countries. A steady increase in world tobacco exports between 1964 and 1984 can be attributed to the rapid income and population growth in developing countries during this period. In 1984, world trade in tobacco stood at 1.4 million metric tons (MT) (see figure 5-4), and was valued at $4.2 billion. Future long-term trends in U.S. tobacco and cigarette exports are difficult to predict, and the degree of optimism varies among analysts. Still, the reduction of price supports for U.S. tobacco in 1985, along with the weakening of the U.S. dollar, is likely to increase the international competitiveness of U.S. tobacco in the near term. U.S. Trade The United States is the worlds leading tobacco exporter, shipping over 256,000 MT in 1985, valued at $1.59 billion. Flue-cured tobacco is the leading export commodity, valued at $1.06 billion and comprising two-thirds of 1985 exports. Burley tobacco, the next most-traded commodity, held a 21 percent export share. U.S. cigarette exports stood at 58.9 billion pieces, or approximately 47,000 MT, in 1985, for a value of $1.1 billion; in terms of unit value, cigarettes are easily the highest value commodity mentioned in this study (see table 5-2)approximately four times the value of tobacco as a whole, the second highest item. In contrast to tobacco production, six major firms dominate U.S. cigarette manufacturing, including the multinationals Phillip Morris and R.J. Reynolds. Since a large percentage of U.S. production occurs overseas, only 9 percent of domestically produced cigarettes were exported in 1983. In the same year, total exports of U.S. tobacco represented 36 percent of domestic production. Although price increases drove the value of U.S. tobacco exports up by an average of 13 percent per year, export volume showed little change; at 256,000 MT, the 1985 volume was only 10 percent greater than the 234,000 total of 1970. Total world trade, on the other hand, grew from 986,000 MT in 1970 to 1.4 million MT in 1984, an increase of 43 percent. During this period, the U.S. share of the world market fell from 23 to 17 percent (see figure 5-4). Twenty years ago, the United States held a 30 percent share. Since 1960, the use of cheaper foreign tobaccos in U.S. cigarettes has increased, particularly in flue-cured and burley tobacco. In 1982, imports PAGE 80 79 Figure 5-4.World and U.S. Exports of Tobacco (unmanufactured) 1.5 1.4 1.3 I 1970 1972 1974 1976 1978 1980 1982 1984 Years World 1=1 U.S. SOURCE FAO Trade Yearbobk, Food and Agriculture Organization of the United Nations, Vols 32-38, 197c-19&l, Rome, Italy of flue-cured tobacco from Brazil, Zimbabwe, and Korea represented 18 percent of total U.S. fluecured use. These escalated imports have complemented the established trend of importing aircured Oriental tobaccos from Mediterranean areas like Greece and Turkey. In addition, longer filters, reduced cigarette circumference, and the increased use of sheet tobacco, stems, and puffed tobacco, have all contributed to a decline in the volume of tobacco per cigarette. Although demand continues to fall, Western Europe remains the worlds largest regional market for tobacco, followed by Japan. West Germany took 11 percent of U.S. tobacco exports in 1983, followed by Spain, Italy, The Netherlands, and the United Kingdom (see figure 5-5). U.S. cigarettes have enjoyed faster export growth than tobacco. Increased cigarette consumption is directly related to rising incomes in developing countries. Between 1970 and 1980, average annual U.S. cigarette exports grew 10 percent in volume, and 20 percent in value; however, the United States market share held relatively steady (see figure 5-6). Subsequently, exports fell; the United States held 17 percent of the world market in 1983, The fastest growing markets for cigarettes are the middle-income, oil-exporting, and newly industrializing countries of the Middle East, the Far East, and parts of Latin America. North Africa is also a growth region, and West Africa is expected to grow with future petroleum development. Belgium receives the largest shipments of U.S. cigarettes, but this nation is a transshipment point, not a major market. Hong Kong is the largest importer of U.S. cigarettes, followed by Saudi Arabia, Japan, Lebanon, and Singapore (see figure 5-7). PAGE 81 80 Figure 5-5.U.S. Unmanufactured Tobacco Exports by Destination, 1983 ny (1 1.1 0 /0) / Netherlands (5.4/0) United Kingdom (5.3/0) SOURCE: U.S. ExIJorts: Schedule E. CommodllY Grou~inm, Commodltv bv Figure 5-7.U.S. Cigarette Exports by Destination, 1983 Belgium (21 .4/0) Panama a (10.30/. ) Singapore (4.3/0) Japan (9.0/0) SOURCE. U. S Exports: Schedule E. Commodity Groupings, Commodity by Country, Bureau of the Census, Department of Commerce, FT.41O reports, 1984. Country, Bureau of the Census, Department of ~ommerce, FT_-410 reports, 1984. Figure 5-6.World and U.S. Exports of Cigarettes 1980 1982 1984 SOURCE: FAO Trada Yearbook, Food and Agriculture Organization of the United Nations, Vols. 32-38, 1970-1984, Rome, Italy PAGE 82 81 Competitors Cattle Hides The United States is the worlds largest exporter of tobacco, followed by Brazil, Italy, Greece, and Zimbabwe. Brazil, Zimbabwe, Malawi, Korea, Italy, and Greece are the top competitors with the United States in major markets. As U.S. exports fell during the last decade, quality improvements by foreign exporters allowed these countries to become increasingly competitive, and at lower prices. In the cigarette trade, the United States faces export competition from the United Kingdom and West Germany. Bulgaria supplies the U. S. S. R., and is expected to capture the growth markets of Eastern Europe. Issues Although the United States produces a highquality tobacco, high U.S. prices have reduced the countrys international competitiveness. Because tobacco exports constitute a large percentage of total production, domestic price supports for tobacco have both domestic and international ramifications. Since 1982, U.S. price support levels have been frozen in an attempt to make U.S. tobacco more competitive. The no net cost Tobacco Fund reduced the cost of farm sector supports by requiring contributions from tobacco manufacturers and exporters to supplement farmers contributions. The Tobacco Program Improvements of 1985, attached to the 1985 Budget Reconciliation Act, have reduced price supports by 25 percent. 14 These lower price supports, combined with a declining U.S. dollar, should enhance U.S. competitiveness. In addition, the USDAs GSM-102 Export Credit Guarantee Program boosted exports, from $30.4 million in 1983 to $82.5 million in 1984. Iraq, Egypt, and Jamaica participated in this program. Finally, many countries maintain government control over tobacco and cigarette production, and collect major revenues from cigarette taxes. Promotional efforts by U.S. trade associations in these nations have focused on advertising campaigns, especially in the Far East. Dan Stevens, Foreign Agricultural Service, U.S. Department of Agriculture, personal communication, 1986. Background U.S. cattle hides are considered to be of superior quality to those of foreign producers. U.S. cattle hide exports have grown steadily in volume and spectacularly in value since 1970, and continued growth is expected. However, while cattle hides represent one of the most dependable U.S. value-added livestock exports, this country annually imports over three times their value in finished leather products. The world market for hides and skins grew at an average of 10 percent per year between 1975 and 1982, reaching a record high of $4 billion in 1982. Although most U.S. value-added commodities are subject to foreign import restrictions designed to protect local industries, cattle hides are an exception. Importing nations generally convert these hides to fully processed leather goods. U.S. Trade The United States is the worlds leading exporter of hides and skins, followed by the EEC, Canada, Australia, New Zealand, and South Africa. The United States supplies over one-third of the worlds hide and skin products, andexcluding inter-EEC trade, which is cloistered from the international marketapproximately 60 percent of the world hide trade. Cattle hides, which brought the United States $1.035 billion in export revenue in 1985, constitute over 90 percent of all U.S. hides and skins exports, followed by calf skins and sheep skins. Italy, Japan, and South Korea are the worlds largest importers of hides and skins. The Far East and Eastern Europe represent the largest regional markets for U.S. cattle hides (see figure 5-8); Japan, Korea, and Taiwan accounted for over 60 percent of U.S. cattle hide exports in 1983. Other significant country markets include Romania, Mexico, Italy, Canada, Spain, West Germany, France, Czechoslovakia, Yugoslavia, the United Kingdom, and the U.S.S.R. Competitors Australia, New Zealand, and the EEC are the principal competitors in the hides trade, par- PAGE 83 82 Figure 5-8.U.S. Cattle Hide Exports by Destination, 1983 Eastern Europe (1 1.8/0) (5.1 A) America (6.1 O\ O ) SOURCE: U.S. Exports: Schedule E. Commodity Groupings, Commodity by Country, Bureau of the Census, Department of Commerce, FT-41O reports, 1984. ticularily in Far Eastern markets. Within competitive markets, submarkets for foreign range-fed hides and more expensive U.S. hides remain segmented. Issues In recent years, several developing countries that had been exporters of raw hides have become net importers, processing these into leather goods for export. Licenses, taxes, and quotas restricting hide exports have been complemented by rebates, grants, and subsidies that encourage processing and leather goods exports. Argentina, Uruguay, Paraguay, Brazil, Colombia, India, Pakistan, and Morocco have all implemented such policies. Aside from USDA activities, there are no commercially sponsored promotional programs for U.S. cattle hide exports. Trade analysts believe that if exports are maintained at the current level of two-thirds of domestic production, sufficient hides will remain to satisfy domestic demand. However, domestic leather industry trade associations support the upgrading of hides to semifinished and finished leather products. Increased foreign imports, especially of shoes, have accentuated declines in the tanning and shoemaking industries of the Northeast and Midwest. Negotiations are underway between the Leather Industry of America and the Footwear Industry of America on the one hand, and Japan, Korea, and Taiwan on the other, to decrease imports of furtherprocessed leather products. Although a Section 201 Trade Act case filed by the Footwear Industry of America in early 1984-calling for restricted imports of shoes from Korea, Taiwan, and Brazil was later rejected by the Reagan Administration, the Textile and Apparel Trade and Enforcement Act of 1986 (HR 1562) includes import quotas on footwear. On the other hand, there are significant environmental costs associated with leather production. The net expenditure of increased leather production and tanning in the United States includes the cost of managing or eliminating toxic chromium wastes and other pollutants. Rice Background U.S. rice exports increased in volume and value throughout the 1970s, but have declined since 1981 except for a slight rise between 1983 and 1984. Although the United States maintains a top quality rice product, upgraded quality from competing nations has diminished overseas interest in paying the premiums associated with U.S. rice. Furthermore, decreasing oil revenues in oilexporting markets have slowed the growth of global rice imports. The four major rice commodities, in order of processing stage, include rough wild rice, brown rice, milled white rice, and parboiled rice. The parboiling process involves a sealing of nutrients, and can be applied to rough, brown, or milled rice. White rice is the end product of complete milling, If exports in parboiled, milled, and brown rice decrease in the future, increased attention may be given to luxury submarkets for instant and wild rice. Recent domestic policy developments may brighten prospects for U.S. rice exports. The marketing loan rate system, introduced in the 1985 Farm Bill, allows U.S. rice farmers to repay government loans at international market prices, which are often substantially lower than domestic loan rates. As a result, farmers can sell rice at reduced prices in order to compete in international markets. USDA reports that this program PAGE 84 83 has begun to improve U.S. export performance, but that such changes may not appear statistically until 1987. 15 Due to an expansion of harvested area, coupled with the green revolution that has produced large yield increases, world rice production has nearly doubled since 1970. The global crop of 1984 amounted to approximately 470 million MT of rough rice, over 90 percent of which was produced in Asia. World rice exports constitute only 3 percent of total production. As only onehalf of Asian acreage is irrigated, Asian production depends on the timing of the monsoon, and is subject to wide variations. This makes the international rice market highly volatile, which is aggravated by government controls on imports in many countries, and a by limited number of exporters. U.S. Trade Thailand and the United States supply about one-half of the world rice trade. In 1985, the United States exported 1.97 million MT of rice, valued at $677,1 million, down considerably from the 1981 peak level of over 3 million MT and over $1.5 million. This has resulted from noncompetitive U.S. prices, whichcoupled with quality upgrading of the Thai commodityhave led to a loss in market share to Thailand. With laborintensive Thai harvesting and production methods, rough rice can be produced at $75 per ton, well below the U.S. cost of production. Unlike Thai rice, however, the U.S. crop is irrigated, allowing for stable production; also, integration of U.S. harvesting, processing, and marketing permits more efficient quality control. Parboiled and milled white rice have been the two major U.S. export items, with 42 and 37 percent of the 1983 export share, respectively. Brown rice follows with 10 to 19 percent, and rough wild rice constitutes about 2 percent. U.S. overseas sales of parboiled rice have made the largest gains of any rice commodity in the past 10 years, particularly in value.