Only if you'd like a 30 percent pay cut

By Sara Wyant

The impact of agricultural trade first hit home with me in the form of a Lincoln Continental. Our diversified grain and livestock farm was doing just fine in the early 1970s, but there wasn't a lot of margin to expand or buy extras for our family of six.

But during my high school years, we had the "Great Russian Grain Deal," and the average annual farm corn price per bushel tripled from $1.08 in 1971-1972 to $3.02 in 1974-1975. Mom and Dad paid off lots of bills, purchased another farm, and then splurged on a shiny silver Lincoln. We thought international trade had finally ushered in a new era of farm prosperity.

Nowadays, we can rarely link such high profile trade deals to on-farm prosperity. Sure, we know that Chinese demand can whip our markets into a spirited frenzy with large purchases or any type of trade prohibition. Exports to that Asian giant have been increasing at a dramatic pace: from $1.7 billion just five years ago to $5.5 billion last year. But for the most part, trade is more like the third leg on a three-legged marketing stool: providing stability, not sizzle.

Taken for granted

In some ways, it seems that we now take trade benefits for granted. Over the last three decades, new agreements have been inked and trade became increasingly integrated into our markets and baseline expectations. Farmers and ranchers face new challenges, including the emergence of new foreign competitors and trade tensions over technology and food safety.

U.S. farmers exported a record $62.3 billion in agricultural products last year, but consumers' demand for a wide variety of food products available 365 days per year also pumped imports up to $52.7 billion. Most headlines focused on the narrowing trade balance, rather than on the tremendous export success story.

Where would we be?

So where would we be if we did not enjoy significant access to international markets? When you consider that exports continue to account for 20 to 30 percent of U.S. farm income, or about one out of every three acres, it's easy to see that we can't take exports for granted.

"With the dynamics of international market growth, we would be leaving a huge opportunity on the table if we didn't embrace exports," says Robert Thompson, the Gardner Chair in Agricultural Policy at the University of Illinois. "You could start by slashing about 20 to 30 percent off of present farm sales. If export markets went away, I don't see any way we could grow the domestic market for corn and soybeans enough to take up the slack."

The entire farm and agribusiness sector would also be much smaller, he adds. "There'd be no way to sustain the present infrastructure, so the whole industry would need to downsize."

Yet, if you listen to some of the naysayers on the debate over the Central American Free Trade Agreement (CAFTA), you'd think that trade liberalization has harmed U.S. interests in the past and likely to cause more problems in the future. They suggest that past trade agreements have not lived up to promises and expectations.

Clearly, that's not the case, Thompson counters. "If you look at just the North American Free Trade Agreement (NAFTA) you can see how vastly beneficial the agreement has been." Since NAFTA's implementation in 1994, U.S. exports to Mexico, Canadian exports to the United States, and U.S. exports to Canada have all more than doubled.

U.S. exports to Mexico of feed grains, oilseeds, and related products are leading the way--doubling since 1993 as demand for livestock feed increased dramatically. That's despite the fact that Mexico suffered a severe financial crisis during the first couple of years after the NAFTA was implemented.

Fueled by this growth in livestock production, Mexico experienced a marked increase in per capita meat consumption. Broiler consumption rose 62 percent between 1993 and 2004, while pork consumption increased 41 percent. Imports accounted for about 27 percent of Mexican pork consumption last year, compared with 6 percent in 1996. The increased trade helps not only U.S. pork producers, but the farmers who produce feed grains for the U.S. industry. (See chart above).

BSE interrupts trend

Most trade analysts believe the integration between the U.S, Canada and Mexico would have continued to grow had it not been for the discovery of bovine spongiform encephalopathy in Canada and the U.S. in 2003 and 2004. In 2004, U.S. beef exports to Mexico approached 107,000 metric tons, compared with 39,000 metric tons in 2003--despite an interruption in trade due to the BSE discovery. Now, there is an almost complete worldwide ban on imports of U.S. and Canadian cattle, but NAFTA countries allow imports of U.S. and Canadian boneless beef from cattle less than 30 months of age.

Whenever the BSE issues are settled and trade resumes, U.S. livestock products are expected to continue to grow market share around the globe. As a result, we can expect more domestic demand for feed grains and protein meals and more domestic jobs for the laborers who process livestock products. The export share of U.S. livestock products rose from 3 percent in the 1980s to more than 10 percent in recent years, while the export share of crops and crop products fell from over 30 percent to 23 percent during the same period. (See chart below).

Thompson sees a doubling of global consumer demand for food by 2050, led by livestock products, feed grains and soybeans. He sees this demand outstripping production potential in areas where demand is growing, causing world trading patterns to continuously change. "The opportunity to participate in supplying this demand makes it even more important to have a global trading system that breaks down barriers and allows markets to work more efficiently," explains Thompson.

"The upcoming vote on CAFTA will be an important test to see how committed Congress is to a freer and more open trading system. After that, the DOHA Round of World Trade Organization (WTO) negotiations offers significant opportunities--if we give our negotiators enough authority to make the compromises necessary to reach an agreement."

Editor's note: Columnist Sara Wyant is president of Agri-Pulse Communications, Inc. and publishes a bi-weekly newsletter, Agri-Pulse, on food and farm policy. For more information, you can e-mail her at Agripulse@aol.com.

Date: 6/23/05

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