9a' US AGRICULTURAL TRADE ROLE

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9a.US AGRICULTURAL TRADE ROLE BACKGROUND

• Larry D. Sanders
• Fall 2005

Dept. of Ag Economics Oklahoma State
University
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BASIC PROPOSITIONS OF TRADE

• 1. SCARCITY--Trade based on relative scarcity of
  factors of production
• 2. PRICES--Relative scarcities lead to different
  relative prices within countries if no trade
  (autarky)
• 3. PROFIT--Different relative prices lead to
  opportunities for profit with trade
• 4. SPECIALIZATION--Flow of trade leads to longrun
  adjustment within domestic economies, leading to
  increases in export specialization

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BASIC PROPOSITIONS (cont.)

• 5. PROFIT--Specialization leads to increased
  profit
• 6. INCOME--Fundamental Proposition
• Increasing trade leads to increased income
• 7. ECONOMIC GROWTH--Increased income provides
  additional capital for domestic investment
• 8. STANDARD OF LIVING--Increased domestic
  investment leads to more economic growth, thus,
  higher standard of living

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AG EXPORT BOOM OF THE 1970s US AGRICULTURAL
TRADE BALANCE (mil/FY ag product only)

• EXPORTS INCREASE

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AG EXPORT BOOM OF THE 1970s SOURCES

• HIGH OIL PRICES FOREIGN ECONOMIC GROWTH
• EASY CREDIT
• SOVIET UNION IMPORTS
• CROP SHORTAGES
• U.S. DOMINANCE
• WEAK U.S.

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AG EXPORT BOOM OF THE 1970s CONSEQUENCES

• INCREASED FARM INCOME
• HIGHER COMMODITY FARM LAND PRICES
• NEW INVESTMENT INCREASED PRODUCTIVITY
• AGRICULTURAL TRADE SURPLUS

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AG EXPORT BUST OF THE 1980s US AGRICULTURAL
TRADE BALANCE (mil/FY ag product only)

• EXPORTS GENERALLY DECLINE

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AG EXPORT BUST OF THE 1980s CAUSES

• STRONG
• WEAK WORLD ECONOMY
• WORLD DEBT PROBLEMS
• EXPORT COMPETITION
• TRADE BARRIERS

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AG EXPORT BUST OF THE 1980s CONSEQUENCES

• GLOBAL RECESSION LOWER OIL PRICES
• DECLINING MARKET GROWTH
• PROTECTIONISM
• STRONG U.S. ROLE OF FARM PROGRAMS
• EMERGENCE OF EC AS MAJOR EXPORTER
• REDUCED FARM INCOME

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AG EXPORT BUST OF THE 1980s CONSEQUENCES (cont.)

• U.S. GRAIN SURPLUS
• LOWER COMMODITY PRICES
• REDUCED FARM LAND VALUES
• FARM FINANCIAL STRESS

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AG EXPORT BOOM OF THE 1990sUS AGRICULTURAL TRADE
BALANCE (mil/FY ag product only)
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AG EXPORT RECOVERY OF THE 1990s

• MULTILATERAL AGREEMENTS
• DOMESTIC INTERVENTION
• ECONOMIC GROWTH
• SELF-SUFFICIENCY UNCERTAINTY
• MATURING DEVELOPED MARKETS
• DEVELOPING NEWLY EMERGING MARKETS
• POTENTIAL FOR INSTABILITY

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Value-Added Exports

• More Employment/Income than bulk commodities
• Job/Economic Activity Retention
• Economic Growth Contribution Greater than Non-Ag
  Sectors
• 1960-1990 9X increase
• US share less than 10
• Half of US ag exports are value-added
• Trend increasing

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AG EXPORT BOOM-BUST CYCLE? US AGRICULTURAL TRADE
BALANCE (mil/FY ag product only 5-yr data)

• EXPORTS INCREASE--cyclically

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SUMMARY

• Export boom-bust cycle
• Exists over past 30 years
• Export trend remains up
• More market-oriented
• Competitiveness important
• Protective response
• Trade future uncertain
• Trade agreements seem to moderate cycle
• Trade talks uncertain
• Lessons for agricultural producers, agribusiness
  rural communities

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READING/SOURCES

• Ahearn, R.J. An Overview of the International
  Trading Environment, Managing Trade Relations in
  the 1980s. Rubin Graham, eds. Allanheld Pub.,
  1983.
• Drabenstott, M. et al. The Latin American Debt
  Problem U.S. Agriculture, Economic Review,
  Federal Reserve Bank of Kansas City, July/Aug
  1988.

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READING/SOURCES (cont.)

• Henneberry, D. et al. A Weaker Dollar U.S.
  Farm Exports Coming Rebound or Empty Promise?,
  Economic Review, Federal Reserve Bank of Kansas
  City, May 1987.
• Jackson, J.H. The World Trading System.
  Cambridge MIT Press, 1989.
• Rosson, P. International Marketing for
  Agribusiness Concepts Applications. GEMS, TAMU
  Press, 1994.
• Southern Extension International Trade Task
  Force. Southern Agriculture in a World Economy.
  Department of Agricultural Economics, Oklahoma
  State University.
• USDA, FATUS Series (annual data).