More bad news on trade. The deficit rose in May as imports grew faster than exports. And agricultural exports, once a star performer in U.S. trade, slipped a little--continuing a downward trend.
Agricultural exports so far this year trail those of 1986, and last year saw the worst showing in a decade for trade in farm produce. The trend is doubly disappointing because it persists despite a 2-year-old program of U.S. government subsidies designed to spur exports. Subsidies to U.S. agriculture totaled $26 billion last year, yet the farm economy is still hurting and exports are lagging.
What's the problem? All the other countries pay subsidies to their farmers, too. The European Common Market, in fact, is held together by agricultural subsidies, which last year totaled around $24 billion in direct payments, and a whole lot more indirectly. Food, especially meat, is expensive in Europe because trade barriers hold out cheaper foreign feed for livestock. Repeat that pattern of production subsidies and import barriers in Japan and India, China and Brazil, and you get enormous overproduction of food in many countries of the world.
Yet alongside such oversupply in the agriculturally productive countries lie vast regions of undernourishment and pockets of outright starvation. Why? Because farming in developing countries--when it isn't hobbled by Third World politics--is stunted by depressed world prices and lack of export markets.
The result: World markets that U.S. agriculture used to count on are now unwilling or unable to buy from us.
Must Do Something
Can anything be done about this? Possibly, yes. The United States has made a strong proposal at trade talks in Geneva to eliminate all subsidies for agricultural production and exports over the next 10 years. And others, too, recognize the need to do something. At the close of the Venice economic summit in June, all seven nations (Britain, Canada, France, Italy, Japan, the United States and West Germany) pledged to work toward an end to subsidies and barriers to trade.
An idealistic pledge perhaps, but promising. Because if distortions are eliminated in world agriculture, the developing countries might improve their farm output. And U.S. exports would grow--especially in wheat and the livestock feed grains such as corn and soybeans.
"We have the technology, climate and infrastructure for feed grains," says economist Robbin Johnson, of Cargill Inc., the big grain trading firm. Therefore, if the world puts more meat in its diet, U.S. farmers will do well supplying feed for expanding herds. That's talking real money: $30 billion a year in feed grain exports, not to mention the saving to taxpayers from an elimination of subsidies.
But there's a price as well. Elimination of agricultural subsidies would mean a further shrinkage of rural America, says George Dahlman, agricultural economist for the Minneapolis brokerage firm Piper, Jaffray & Hopwood. About 500,000 to 600,000 farms are large and efficient enough to survive, says Dahlman, but total farms may be close to 2 million--meaning a horrendous number would disappear.
Competitors Filled Gap
The threat of that might make you think subsidies aren't so bad, after all. We pay them now, and food is not expensive in this country. No, but neither is the farm economy strong, and subsidies are much to blame for that. Four years ago, for example, the U.S. government paid subsidies to take 20 million acres of feed grains out of production, hoping to boost prices for the rest of the crop. But what happened? Foreign competitors simply added 30 million acres to production, and U.S. farmers suffered collapsing prices.
That's why this time U.S. policy-makers are determined to get the rest of the world to go along.
Truth is, there's more cause for hope than fear. Improvement will be gradual. Some subsidies, but not all, will disappear. And U.S. rice won't threaten Japanese farmers any more than Argentine beef will worry U.S. ranchers. But the day should come when U.S. corn and soybeans feed foreign cattle--and many of the world's people eat better and cheaper.