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B' l V
wIAugust 1983
Economics Report 107
U. S. Agriculture as a Strategic
Resource in the International Arena:
Departmental Seminar
Proceedings, 1981-82
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TABLE OF CONTENTS
Page
ACKNOWLEDGEMENTS ................... .............................. i
PREFACE ............. ....................................... ..... ii
DISTINGUISHED SEMINAR LECTURERS: BIOGRAPHICAL SKETCHES .......... iii
John Mellor ................................................... iii
Daniel E. Shaughnessy .................................... v
R. J. Hildreth ...I......................................... vi
Timothy E. Josling .......................................... vii
Lawrence E. Witt ............................................. viii
SEMINAR PROCEEDINGS (In chronological order)
John Mellor
"GROWTH IN THIRD WORLD DEMAND FOR FOOD AND IMPLICATIONS
FOR THE UNITED STATES ...................................... 1
Daniel E. Shaughnessy
"UNITED STATES FOOD POLICIES--A SPECIAL PLACE IN
WORLD SECURITY" .............. ............................. 24
R. J. Hildreth'
"THE REBIRTH OF AGRICULTURAL ECONOMICS IN CHINA -
IMPLICATIONS FOR U.S. CHINA AGRICULTURAL TRADE .............. 38
Timothy E. Josling
"THE IMPACT OF DEVELOPED COUNTRY AGRICULTURAL POLICIES ON
WORLD MARKETS ................... ................ ............. 53
Lawrence W. Witt
"DIPLOMACY AND FOOD: THE RULES OF THE U.S. STATE
DEPARTMENT" ............................................. 70
ACKNOWLEDGEMENTS
In addition to thie seminar lecturers, special recognition is due
Emilio Pagoulatos and Jon van Blokland for helping transcribe several
seminars. Appreciation is also due Lois Schoen and Bobbie Stewart for
typing the manuscript.
PREFACE
In our ever-shrinking world, economic interdependencies among
countries are growing stronger and more complex. For many decades the
United States has fostered increased international trade and has played
an integral role in programs designed to assist less developed countries
(LDC's).
The University of Florida has also served an important role in
developing and implementing international assistance programs in many
countries. Approximately half of the graduate students enrolled in the
Food and Resource Economics Department come from abroad.
Our goal in planning this seminar series was to provide faculty and
students at the University of Florida with an up-to-date assessment of
present and emerging developments in international trade, development,
and food policy. The consensus of the committee is that the invited
seminar lecturers performed admirably in achieving our goal.
However, the views expressed by the seminar participants do not
necessarily reflect those of the Food and Resource Economics Department
or the Institute of Food and Agricultural Sciences. Papers or tran-
scripts were not subjected to formal review processes, but were simply
examined for typographical errors by the seminar committee.
1981-82 Seminar Committee
Roy R. Carriker J. Kamal Dow
Charles D. Covey J. Walter Milon
Carlton G. Davis James R. Simpson
Robert L. Degner, Chairman Emil-o Pagoulatos
DISTINGUISHED SEMINAR LECTURERS: BIOGRAPHICAL SKETCHES
The seminar lecturers listed below, in chronological order of their
lectures, are among the most knowledgeable and respected professionals
in the fields of international development and food policy. The Food
and Resource Economics faculty, staff, and graduate students of the
University of Florida feel extremely fortunate to have hosted this
impressive array of experts.
Dr. John W. Mellor, Director
International Food Policy Research Institute
Washington, D.C.
John W. Mellor is Director of the International Food Policy
Research Institute. He has served previously as Chief Economist of the
U.S. Agency for International Development and at Cornell University
where he was Professor of Economics with joint appointments in the
Departments of Agricultural Economics, Asian Studies, and Economics.
Born in France, he is now an American citizen; he received B.Sc., M.Sc.,
and Ph.D. degrees from Cornell University and a Diploma (with
distinction) in Agricultural Economics from Oxford University as a
Fulbright Scholar. Mellor has served as a consultant to various
agencies, including the International Bank for Reconstruction and
Development, the Food and Agricultural Organization of the United
Nations, the Rockefeller Foundation, and the United States Agency for
International Development. He has also been director of research
projects in India, Bangladesh, Pakistan, Nepal, Thailand, the
Philippines, Indonesia, Taiwan, and Chile. He was a resident and
visiting researcher and scholar in India for a total of nearly five
years.
Dr. Mellor is author of The New Economics of Growth--A Strategy for
India and the Developing World, Cornell University Press, Ithaca, N.Y.,
1976; The Economics of Agricultural Development, Cornell University
Press, Ithaca, N.Y., 1966 (winner of award in 1978 by the American
Agricultural Economics Association for "his publication of enduring
quality") and co-author of Developing Rural India: Plan and Practice,
(with Thomas F. Weaver, Uma J. Lele and Sheldon R. Simon), Cornell
University Press, Ithaca, N.Y., 1968; and was editor of India: A RisiLn
Middle Power, Westview Press, Boulder, Colorado, 1979. In addition, he
has written and published some 75 shorter scholarly papers including
"Towards a Theory of Agricultural Development," in Herman M. Southworth
and Bruce F. Johnston (eds.), Agricultural Development and3 Economic
Growth, Cornell University Press, Ithaca, N.Y., 1967, pp. 21-61.
(Winner of award in 1967 for Best Published Research given by the Ameri-
can Agricultural Economics Association); "The Role of Agriculture in
Economic Development," (with Bruce F. Johnston), The American Economic
Review, 51:4 (Sept. 1961), pp. 556-593; and "Food Price Policy and
Income Distribution in Low-Income Countries," Economic Development and
Cultural Change, 27:1 (October 1978).
Mr. Daniel E. Shaughnessy
Deputy Assistant Administrator
Foreign Agricultural Service
United States Department of Agriculture
Washington, D.C.
Daniel E. Shaughnessy was appointed Deputy Assistant Administrator,
Foreign Agricultural Service, USDA in 1980. He is responsible for
assisting in the management and supervision of credit guarantee programs
for U.S. export sales and management of Public Law 480 food aid activi-
ties. Mr. Shaughnessy previously served as Executive Director of the
Presidential Commission on World.Hunger, Deputy Coordinator of the Food
for Peace Program, and Deputy Director, U.S. Government Preparations for
the World Food Confer&nce, Office of the Secretary of State. He also
served as an International Food Policy Specialist on the personal staff
of Senator Hubert H. Humphrey and also Director, Food for Development,
AID, and Director of the Food for Peace Branch and Food and Nutrition
Division, U.S. Embassy, New Delhi, India.
Mr. Shaughnessy received a B.S. degree from John Carroll University
(Cleveland, Ohio), attended law school at Boston College, and received
an M.S. degree in Government Administration from George Washington
University. He is the recipient of the Senior Executive Service
Outstanding Performance Awand, the Disti!iguished Honor Award (the
highest award given by the Foreign Aid Program), and numerous other
awards for outstanding performance. He directed the preparation of
Overcoming World Hunger: The Challenge Ahead, the report of the
Presidential omissionn on World Hunger, and has auth1iod numerous
reports and articles dealing with food policy.
Dr. R.J. Hildreth, Managing Director
Farm Foundation
Oak Brook, Illinois
Jim Hildreth has been the Managing Director of the Farm Foundation
since 1970. He served as Associate Managing Director from 1962 to
1970. From 1954 to 1962 he was associated with Texas A&M University in
several capacities. He began as an Assistant Professor of Agricultural
Economics and later served as Research Coordinator for West Texas and as
an Assistant Director of the Texas Agricultural Experiment Station.
He received his B.S. and M.S. degrees from Iowa State University in
Industrial Economics. He earned his Ph.D. in economics, also at Iowa
State University. He is a member of many professional organizations and
honorary societies.
Dr. Hildreth served as President of the American Agricultural
Economics Association in 1977-78 and served on the Board of Directors
from 1960-72. He is currently Secretary-Treasurer of the International
Association of Agricultural Economists, a post he has held since 1973.
He has served and continues to serve on numerous national and inter-
national advisory committees in government and industry. He has
recently returned from an extended visit to the People's Republic of
China.
Dr. Timothy E. Josling, Professor
Food Research Institute
Stanford University
Stanford, California
Timothy Josling, a native of London, England, received his B.Sc.
degree from the University of London, M.Sc. from the University of
Guelph, and Ph.D. degree from Michigan State University. He has served
as a Professor in the Food Research Institute since 1978. From late
1968 until mid-1977, he held successive positions of Assistant Lecturer,
Lecturer, and Reader in Economics at the London School of Economics and
Political Science. From July 1974 through 1977 he was Professor of
Agricultural Economics at the University of Reading, Reading, England.
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He has also served as a Visiting Associate Professor at Michigan State
University and as a Visiting Professor at the University of Guelph.
Dr. Josling has held numerous advisory positions, including Agri-
cultural Advisor, Trade Policy Research Center, London, Economic Advisor
to the Secretary of State for Prices and Consumer Protection, London,
and Advisor, House of Lords Select Committee on the European Communi-
ties, London. He has also served on the editorial councils of the
American Journal of Agricultural Economics and the Food Policy Journal.
Dr. Josling received the Canadian Agricultural Economics Society
M.Sc. Thesis Award and the American Agricultural Economics Association
Ph.D. Dissertation Award. He is currently affiliated with many profes-
sional societies, including the Royal Economic Society, the American
Agricultural Economics Society, the American Economic Association, and
the Agricultural Economics Society. Dr. Josling has been a very pro-
lific writer, authoring over 160 articles on international trade and
food policy.
Dr. Lawrence W. Witt
Professor Emeritus
Michigan State University
Lawrence W. Witt has had a long and distinguished career as a
teacher, researcher, and advisor in the areas of agricultural policy,
international trade, and agricultural development. He was born in
Wisconsin and educated at the B.S. level at the University of Wis-
consin. He obtained M.S. and Ph.D. degrees from Iowa State University,
where he was a student of T.W.,Schultz. He joined the faculty of Michi-
gan State University in 1947, where he played a major role in the growth
of the Department of Agricultural Economics over a 27 year period. In
1967 Professor Witt was honored with a Distinguished Faculty Award in
recognition of his outstanding performance as a teacher and researcher
at Michigan State University.
Lawrence Witt has been an active leader and contributor to the
activities of the American Agricultural Economics Association. He
served as book editor from 1949 to 1951, and editor of the Journal of
Farm Economics from 1952 to 1954. He was elected Vice-president of the
association in 1956, President in 1966, and Fellow in 1978.
Professor Witt has authored many bulletins and articles and has
made significant contributions to six books on trade, economic develop-
ment, and marketing.
He has been a frequent consultant to government agencies, both
foreign and domestic, and to international development organizations,
including FAO, the InterAmerican Development Bank, the U.S. Agency for
International Development, the National Research Council, the National
Planning Association, the Ford Foundation, and the Kellogg Foundation.
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He elected to take early retirement from MSU to accept a high-level
staff position with the U.S. Department of State, where he served until
1978. He received the Distinguished Honor Award in 1976.
Dr. Witt has had major program involvement in Colombia, Brazil,
Turkey, Italy, Indonesia, Pakistan, and Venezuela, and has traveled
extensively in many other countries. He currently serves as an Adjunct
Professor of Agricultural Economics at the University of Arizona.
F--
SEMINAR PROCEEDINGS
GROWTH IN THIRD WORLD DEMAND FOR FOOD AND IMPLICATIONS
FOR THE UNITED STATES
John Mellor
Director
International Food Policy Research Institute
Washington, D.C.
Preamble
My topic for today deals with the global food situation. However,
I know many of you are vitally interested in a related topic on which I
claim a special interest. That is the topic of the processes of devel-
opment and the role that the agricultural sector plays in those pro-
cesses. In some deference to that topic and in view of my position as
director of a very new research institute, I would like to comment
briefly on the research program at the International Food Policy
Research Institute (IFPRI). I hope through that to give an indication
of what I see as the pressing economic issues in developing countries at
the present time. I will then move quickly from that to the assigned
topic.
Just a word of background on my institute since it is a very new
institution. It is an international institution. We are a member of
the Consultative Group on International Agricultural Research which
encompasses 13 international institutions. All but the one I am con-
nected with are concerned with biological and physical science problems
of agricultural production. At IFPRI we are concerned primarily with
policy issues. Our financing comes from a multitude of countries and
Edited transcript of a seminar given at the University of Florida,
September 15, 1981.
international and national organizations. Thirty percent of our budget
comes from U.S. sources. Both the Philippines and India are among
developing countries that contribute to IFPRI. Half of our Board of
Trustees is from developed countries, and half from Third World coun-
tries. The chairman of the Board is from a Third World country. The
senior research staff is about two-thirds from Third World countries and
one-third from OECD countries. We have a heavy representation on our
staff of people who have not only been distinguished in research but
have also pursued distinguished careers in the policy arena, giving
thereby a practical orientation to our research program. The issues
that we are concentrating on represent our view as to the pressing food
policy issues in the world at the present time.
We are a very small institution, with only 21 senior research
staff. We are in the process of building up to what I think is our
maximum size, about 25 senior researchers. We presently have a budget
of only $3.5 million, so that by global standards this is a very small
institution. We think there is a place for a small group of people that
can work imaginatively in an unbureaucratic atmosphere to tackle some of
the very pressing new issues facing the world.
Our outlook work at IFPRI suggests that we are entering a period,
for the first time in recent human history, of secular increase in
agricultural prices. Of course, rising real food prices have been
predicted regularly by economists since the first economist, and it has
rarely happened. However, there are very peculiar circumstances in the
world at the present time that suggest that we are about to enter such a
period. I will deal with the causes later in my presentation.
In a situation of rising real food prices it is, of course, the
low-income people who have to make the adjustments. People in high
income classes do not allow their food consumption to fluctuate signifi-
cantly in the face of food shortages. Those people who do are low-
income people generally, and low-income people in Third World countries
in particular. We have a substantial research program looking at how
suitable national and international policies can be developed to deal
with the situation. In the global environment, we see clearly that over
the next few decades poor people are not going to eat very well unless
we have greatly accelerated technological change in the agricultural
sector, particularly in Third World countries. How are those new tech-
nologies going to be developed? How are the vastly greater input quan-
tities to be acquired, which are essential to the success of the kinds
of technologies which are the only ones we see in the offing for the
next 10, 20, or 30 years? How are the transport systems going to be
developed for moving those inputs into use? Thus, we have a large
program concerned with these issues of technology generation and utili-
zation.
Within this very dynamic agricultural situation that we see in the
world over the next few decades with increasing food scarcity, sharp
shifts in relative wealth of nations, and with rapid increase in trade
of agricultural commodities, what kind of production patterns should
Third World countries be following? This is a very pressing issue in a
large number of Third World countries.
Nigeria, for example, has a national policy of food self-
sufficiency. But clearly there is no chance of Nigeria becoming food
self-sufficient over the next five, 10, 15, 20, or perhaps 30 years. If
it is to become food self-sufficient, the production pattern is very
easily arrived at. They should figure out what is going to be their
demand for each commodity and produce it. It is a fairly straight-
forward kind of calculation. But since they are not soon going to
become food self-sufficient, they will have rather rapidly increasing
imports of food for a considerable period of time. What should be the
production mix in that context? Should they be a net exporter of vege-
table oils? Probably yes. But that probably means even more imports of
other foods. But if Nigeria' increases agricultural imports, what are
the items to be imported? This' is a very complicated question, and it
is important to determining their domestic production mix.
One can raise the same issues about Egypt. Should they be using
land such as one has in the Imperial Valley of California for growing
grain for human consumption or should they be importing that grain and
exporting vegetables, fruits, and various other commodities, cotton and
so on? This raises complex trade and domestic production questions.
There is a related set of questions for India. India has a rapidly
growing domestic fertilizer industry. However, there is no way that
their fertilizer industry is going to meet the rapid growth in domestic
demand for fertilizer. Concurrently, we are having a situation now in
which the dominance of the OECD countries in export of nitrogenous
fertilizer to the Third World is disappearing. The OECD countries are
going to cease over the next decade or so being a supplier of fertilizer
to Third World countries and that supply function will be taken over in
part by surplus-producing Third World countries such as the OPEC coun-
tries in the Middle East, but in a much more substantial part by the
Soviet Union. The Soviet Union will become the world's big exporter of
nitrogenous fertilizers over the next few decades. The Soviet Union
obviously is going to remain deficient in cereals. Should a country
like India be increasing its total agricultural production through
rapidly increasing use of fertilizer and paying for some of that fertil-
izer through the export of cerals in bartered trade with the Soviet
Union over the next few decades? There are all sorts of reasons why
they shouldn't do that. Obviously, there are people with very substan-
tial caloric deficiencies in India, and it doesn't seem very sensible to
be exporting cereals to the Soviet Union for livestock feed or to dis-
place other grains which would'go to livestock feed when you have a
caloric deficiency of your own population. On the other hand, how are
you going to pay for nitrogenous fertilizer imports, given the basic
trade relationships that are likely to exist in the world? So, there
are some very complex questions of production mix going on there.
At IFPRI we also have a substantial range of projects dealing with
price policy. I think that is an area which is much over-emphasized in
importance, but governments do determine price policy and it does have
an important impact on agriculture.
Our research is very much concerned with the issue as to how growth
in agriculture can attract the vast quantity of resources which are
required for its development. How can you get a minister of finance to
allocate vast sets of resources to the agricultural sector when the
basic objective is overall development? He may well think of agricul-
ture as producing a consumer good which is of not much importance from
the growth point of view. That is, of course, a wide-spread image not
only in developing countries but amongst a lot of economists in devel-
oped countries. We at IFPRI think that agriculture can contribute very
substantially to accelerated overall growth, and investment of resources
in agriculture is a very efficient way to pursue much broader objectives
which governments and the people who comprise governments have in
mind. We are very much concerned that income which is generated from
increased agriculture production will not, in its direct effects, gener-
ate enough demand for those commodities to maintain their prices and
perhaps not even to maintain them sufficiently to maintain production
even in the face of cost decreasing technological change. In other
words, we are concerned very much with the indirect effects of agricul-
tural growth. How, as agricultural production increases and farm income
increases through that process, can expenditure of those incomes stimu-
late growth in other' sectors of the economy which are essential to
employment for low-income people in the rural sector, who can never
raise their income very substantially through the direct process of
agricultural growth? And further, how can employment be increased and
income increased so that demand for agricultural commodities will be
sustained, and low-income people benefit from agricultural growth?
You perhaps know that the set of Third World countries that have
had the fastest growth rates in the basic food staples sector over the
last 20 years nearly doubled their net imports of agricultural commodi-
ties. Why is that? It is because of the kind of linkage effects that I
am describing.
We feel that probably the single most unexplored area in the
economics of development in the world is the linkage relationships
between growth in agriculture and stimulation of growth in other sectors
of the economy, We know very little about it. As a result, we find it
difficult to get finance ministers and planning ministers to put
necessary resources into the agricultural sector. We think there is a
need for a good deal of research on those issues.
Within the applied research topics indicated there are important
conceptual issues. The linkage issue one could think of as a modeling
question or as an aggregate input-output analysis question, but we see
it as a very complex conceptualizing problem. The other conceptualizing
problem that we are very much concerned with is the whole question of
the labor markets in developing countries and how they work. It is an
extremely important and difficult set of issues, perhaps at its most
interesting and most pressing i'n Africa. I would hypothesize that a
good deal of the micro-level problems in Africa in agricultural develop-
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ment traces back to the very strong peculiarities of the labor market in
African countries that arise, I might say, not from peculiarities of
people in Africa but from peculiarities of capital availability and
capital flow, on one hand, and the nature of the agricultural production
function, on the other hand.
Third World Growth and the Demand for Food
In my view we are in, and have been for a decade or so, a very
peculiar period inhuman history, a period in which an increasingly and
soon to become very substantial proportion of the world's population is
moving through a period of very rapid income growth. In the past, it's
always been some small subset of the world's people who have moved
through the period of rapid income growth at a particular point in
time. When England or more broadly, Western Europe, or a little later
the United States, or much later Japan, or considerably later Taiwan and
South Korea, went through the period when they may have had per capital
income growth of something in excess of 4 percent per year, they were
minority groups in the world representing small areas for whom solution
to internal problems of growth could very often be found externally with
no external impact. In contrast, the external world was relatively
large compared to that area experiencing rapid economic growth. I would
put much less emphasis on rank exploitation of what we now refer to as
the Third World by the colonial powers as an explanation of colonial
power growth and simply think of it in terms of the colonial powers
being small proportions of the world at that time, and therefore any
problems that were large to them were still fairly small compared to the
remaining residual. In any case, it would be very depressing to think
that economic development in the imperial powers came from exploitation,
because there isn't much left for the present Third World countries to
exploit in an imperial way.
But, to go back to my point, we are in a period now in which rather
large proportions of the world's population are beginning to move
through periods of accelerated growth. Let me give you a few numbers in
case you don't have these in mind. There are roughly 700 million people
in the world at the present time living in countries in which the rate
of growth of per capital income is roughly 4 percent or higher. That's a
rate of growth that is faster than was achieved by Western Europe for
more than a single year during the post-war recovery period. So, by
historical standards, these are phenomenal rates of growth of per capital
income for incredibly large numbers of people.
Now, let me tell you a little about the breakdown of those 700
million people. Half of them (you'll say of course) are in the coun-
tries for which oil exports are a major proportion of their GNP.
Obviously that's a price phenomenon. But most people don't think very
often about the fact that there are 350 million people in those major
oil exporting countries that are achieving very rapid rates of per
capital income growth and in consumption of agricultural commodities.
The major influences are not Kuwaits and Saudi Arabias and so on; they
are the Indonesias, Nigerias, and Mexicos that have a large weight in
terms of population. These are countries in which the demand for food
is growing at about 6 percent per year. That is a rate which no country
is able to achieve over a period of years in its domestic agricultural
production. They inevitably have to become major importers of agricul-
tural commodities while they have that kind of income growth and have
low per capital income. Eventually, of course, per capital income rises
to the point at which income elasticities become highly inelastic and
further growth in income doesn't affect food consumption very much. But
now they are in a stage in which marginal propensities to consume of the
bottom half of their population would be .7 or .8, perhaps somewhat
higher. On the average, the marginal propensities to consume for their
populations as a whole would be on the order of .5.
The other half of that 700 million--350 million people--is in Third
World countries which are suffering from the rapid increase in oil
prices and nevertheless are maintaining growth rates in per capital
income of over 4 percent per year. Why? Because they have started to
develop. Very simply, they have developed the large numbers of highly
trained people and the institutional structures necessary to maintain
high rates of growth in productivity of resources, particularly of
labor, over a considerable period of time. Presumably, that's what
development is all about.
Development is a process of starting with very low productivity
resources and organizing yourself in such a way that you begin to raise
the productivity of those resources very rapidly. That is happening for
people in countries totalling about 350 million people.
Food consumption is growing at about 6 percent a year in both these
sets of countries--the major oil exporters and the others--and that
suggests, obviously, a rather broad distribution of economic benefits by
the standards of income distribution in the OECD countries of which we
are a part. What are the prospects of additions to its fast-growth
countries? India has a population of about 700 million, a number about
equal to the first group I was talking about. India obviously at this
point has the trained people and the basic institutional structures for
accelerated rates of growth in their economy. They have achieved rather
rapid rates of growth in their agricultural sector. They have gone from
2.5 to 2.8 percent rate of growth in cereals or food grains production
to about 3 1/2 percent, which for the agricultural sector is a very
major acceleration in the growth rate. They have moved from being a
modest, marginal, importer of food grains, 4 to 6 million tons per year,
to being self-sufficient or, a year or so ago, a slight food aid pro-
vider. That latter however is not only unimportant but misleading.
A.K. Sen put it very dramatically the other day at some meetings in
Washington when somebody talked about the success of Indian agriculture,
as indicated by large food reserves and no loiigei importing cereals. He
said "that's not success in agrlcultu-'e, that's failure in the indus-
trial sector." And that is correct. India has ceased to import food
grains, basically because their industrial sector has been growing at a
very slow rate. hen you achieve something like 3 1/2 percent in the
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rate of growth in the agricultural sector you should be achieving 9 to
11 percent rates of growth in the industrial sector, averaged over
several years. India has not achieved that because of rather major
failings in the planning process. Hopefully, those errors are now real-
ized and are being rectified and presumably the return of India to the
grain import market, which happened this summer, is a harbinger of
India's becoming an increasingly large importer of cereals over the next
several years, going, in my estimation, up to 10 million tons a year
over the next several years. That will represent maintaining or improv-
ing on its existing rather substantial success in agriculture, but
falling behind rapid growth in domestic food consumption, as industrial
growth causes employment to increase rapidly and to distribute the
benefit of the growth process down to the relatively lower income
people. They, of course, cannot, benefit directly from growth in the
agricultural sector except through lower prices which themselves are
likely to choke off the agricultural growth. So, I see the distinct
possibility of India over the next several years moving into this cate-
gory of countries with substantially accelerated growth.
China is a little more difficult case because it has developed such
a narrow base of economic development over the last few decades. In a
sense the old second plan of India is their strategy to the ultimate.
It is a heavy industry strategy that has not had much employment content
in it, that has not drawn the bulk of the rural people into the growth
process. Whether they are going to be able to pull out of that kind of
a development strategy over the next decade or not is by no means
clear. They are obviously attempting a lot of changes in their poli-
cies. One has to remember that they are starting from a position with
very little emphasis on agriculture except as a self-sufficient subsis-
tence sector, a very poor transport system, which they inherited, and
that all makes a very difficult base because their growth in agriculture
has been so regionalized, so much on a self-sufficiency basis. They
don't have much of the institutional structure for the rates of growth
in the agricultural sector which you would have in India or in other
developing countries. So it is going to be a long, tough struggle for
the Chinese. And, of course, they made a huge hole in their educational
structure during the cultural revolution, which undoubtedly has set them
back very substantially. Nevertheless, it is perfectly obvious that the
Chinese have a substantial set of institutions for development, large
t
numbers of trained people. It would be very imprudent to suggest that
they aren't going to develop sometime in the next decade or two. That
adds something over another billion people to the process at such time
that the Chinese come on stream. Thus, one can envision that sometime
in the next 5 to 20 years something on the order of 2 1/2 billion people
going through a period, such as Western Europe, or the United States, or
South Korea, or Taiwan or Japan went through in preceding decades or
half-centuries, undoubtedly with more rapid income growth than any of
those other countries achieved in their periods of rapid growth simply
because we have a more advanced world at the present time and the tech-
nical basis is there for more rapid growth than we have had in the past.
One or two side comments here. Throughout my discusa.ons of this
process of accelerated growth and takeoff, I assume, and I think it is a
reasonable assumption looki-ig back historically, that these countries
will, almost without exception, end up with fairly rational agricultural
development policies which will move their agricultural sectors along
rather rapidly, at least compared with their own history. To put it in
a little less conservative language, these countries are almost always
going to end up the successes in agricultural development. But there is
no way that as a group they will be able to shift agricultural produc-
tion as rapidly as their consumption goes up. There may be an odd
exception here and there, but those would be very few and far between in
my view. So we are seeing a situation in which you are going to see
very rapid growth in food import demand from the Third World. This is
all laid out in a conceptual framework, but one could arrive at it much
more easily by simply projecting trends. The Third World has been
increasing its food imports very rapidly over the last decade. That has
f
come rather substantially from the countries which are doing well in
agricultural production and that is fully consistent with the conceptual
framework which I have laid out.
Now, a word about what we might at this point call the least devel-
oped countries which are primarily in Africa and dominate Africa south
of the Sahara but include a few Asian countries and a very small number
of Latin American countries. These are mostly countries which for one
reason or other did not achieve political Independence until much later
than the countries which I talked about as underway at the present
time. In addition, the African countries came into independence at a
time when the fashions in the aid donor community, which has played an
extremely important role in the development processes over the post-war
period, had turned away from enlarging the supply of highly trained
people in developing countries towards working mostly at the local level
with people with no education or nonformal education. The result is
that Africa lacked the push which one saw in Asia in the '50s and early
'60s which resulted in building and giving a tremendous growth in higher
educational institutions in training of people overseas and in insti-
tution building to facilitate trained people in running their own
economies. No economy can be run effectively from the outside for any
significant period of time, in my view, not from a development point of
view. Asian countries developed a capacity very quickly to run their
own affairs. That process started from a lower base and was pursued
much less vigorously in the African countries and the other currently
least developed countries. And, therefore, it is going to be a long
time before they have the trained personnel and institutional base for
any kind of sustained economic development.
In my view, those countries are going to become large importers of
food also, not because they can pay for it on a commercial basis, as
will happen with the first group, of countries, but because the geo-
politics of the world are going to bring the higher income countries, in
a sense, to their rescue when they get into very severe economic diffi-
culties, as a result of either poor income distribution and the priva-
tion that goes with that or because they do something about their income
distribution and run into a food problem which they can't meet through
increased domestic production. It is not going to be a very large
burden on the world movement of food, the international movement of
food, for this least developed set of countries because they now repre-
sent a rather modest proportion of the world.
Another background point. The Soviet Union is obviously going to
become an increasingly larger importer of agricultural commodities with,
of course, very great instability. In some of our work we project an
average level of imports over the next few years of 20 million tons a
year to the Soviet Union, with 60 percent probability of 30 million tons
a year, and a somewhat lower probability for 40 million tons. In con-
trast, the EEC is going to generate larger exportable surpluses of
cereals because of their domestic policies.
Now I want to make a series of comments about the supply side and
the relationship between supply and demand of agricultural commodities
in the development process. Clearly, when a country is at a very early
stage of economic development, supply and demand for agricultural com-
modities is more or less in balance without much trade in agricultural
commodities. If there is a colonial exploiter, naturally there will be
some exports of agricultural commodities under those circumstances. So,
you would get a domestic equilibrium which is also in equilibrium with
extraction of a surplus by the colonial powers. So we shouldn't be
surprised to see that the Third World countries, as we now call them,
were net exporters of agricultural commodities during the colonial
period. Now, with initiation of economic growth, one has then for most
countries the phenomenon I have been talking about of much more rapid
growth of demand than supply. This is because of a situation of at
least moderately rapid population growth, more rapid than you have in
high income countries, more rapid than will be occurring in those coun-
tries themselves after the passage of two more decades; and low incomes
have a very high income elasticity of demand for agricultural commodi-
ties. If you put on top of that a high rate of growth in per capital
income, obviously demand is going to grow very rapidly and you may have,
in a period of most rapid growth in income and consumption of agricul-
tural commodities, a shift in the demand schedule of 5 percent or 6
percnet per year. We have very few cases of countries increasing their
production of agricultural commodities more rapidly than 3 1/2 percent
per year.
We did a study at IFPRI a year or so ago in which we chose the 16
Third World countries with the highest growth rate in their basic food
staple sector, largely cereals and root crops. They averaged a 3.9
percent growth rate. In order to get 16 countries, we had to drop down
to a 3 1/4 percent rate of growth. It is that kind of arithmetic that
leads me to see these large demands on imports, something that is very
easily taken care of as long as only a small group of countries are
going through this phase at a given point of time. I might say, in
passing, that the 16 fast agricultural growth countries that we studied
nearly doubled their imports of basic food staples during that period.
I might point out to you that most people think that Taiwan is
really one of the great success stories in agricultural development, and
I think justifiably so. Their policies have, I think, for a very long
period of time been very good from the point of view of accelerating
agricultural growth. They have had very broad participation in that
process; small farms which most everybody knows are the most efficient
farms--very small farms in the case of Taiwan, averaging less than a
couple of acres in size; a good institutional structure by the standards
of the rest of the world; and very rapid rates of growth in agricultural
production. Between 1950 and now, they moved from being a net exporter
of the basic food staples, they exported some rice back in the 1950s, to
the point at which they are importing over 40 percent of their basic
food staples at the present time. It is very simple to explain by rapid
growth of income, rapid growth in livestock consumption and import of
grain, particularly corn, for livestock feed. That's the agricultural
import record for probably the best success story we have in agricul-
tural development.
Now, obviously there is another phase that comes after what I'm
talking about here, in which you have institutionalized fairly rapid
rates of growth in the agricultural sector, and you seem to be ready to
keep that up more or less indefinitely, but in which the income elas-
ticities of demand begin to drop off fairly sharply, and in which income
growth rates drop off. The kind of income growth that we are getting
with 700 million people in fast-growth countries now isn't going to go
on forever at those rates of growth. At least I assume not, looking at
the historical records. So the income growth rates begin to decline
somewhat, population growth rates, of course, come down very substan-
tially, and so we find that, with further development, growth rates in
agriculture accelerate somewhat but growth rates in demand or shifts in
demand schedules come down very substantially and you get into a surplus
generation period. So the rosy picture I'm painting for agricultural
producers for the next decade or so will of course be disastrous in
about five decades' time.
Now, what are the implications to prices of agricultural commodi-
ties? I don't know. And I don't know because I don't know what the
production response is going to be in the more developed parts of the
world. It's perfectly clear to me that the imports of the Third World
are going to continue to increase rapidly on an increasingly large scale
over the next few decades. There are one or two Third World countries
that may increase their exports very substantially. One is Argentina.
From a technical point of view, you wonder why they aren't adding
another 30 million tons a year of grain exports. The physical potential
1
would appear to be there. Won't they do something to realize that
potential? I don't know. They haven't done it for the last 30 or 40
years. Why should we think they are going to do it in the next 20 to 30
years? And on the other hand they may.
What Argentina does will make a very significant difference to the
global food supply situation. It's conceivable that Brazil, despite the
very rapid rate of growth of domestic income, could increase its agri-
cultural exports. The model that Wouter Tims and Hans Linneman put
together in the Netherlands sees not much upward pressure on agricul-
tural prices, not because they look at the demand position any differ-
ently than I look at it, but because they project the kind of agricul-
tural growth that you got in Brazilian soybeans over the last decade or
so, more generally to the Brazilian agricultural economy. One can
generate technical arguments to support that position. I frankly doubt
it, because I think Brazil has too large a population relative to its
agricultural base to allow it, in a decade or two of very rapid economic
growth, to increase its exports very much. But one could make a case.
EEC may generate additional incremental cereal exports of one-half
a million to a million tons a year in the next several years. That will
be significant in easing the pressures I'm talking about. But that's
very much subject to what their domestic price policy will be and to
what extent the low cost producers are willing to subsidize exports by
the high cost producers.
Then, the United States is the great unknown in this whole busi-
ness. If you look at the USDA's land assessment for the U.S., it would
look as though the U.S. could increase agricultural production very
substantially in response to rather modest relative increases in
prices. One of the problems about prices is that they flop around so
much you never know what one means by a modest increase in prices. Do
we mean modest increase in real prices from where they are now or from
where they were two or three years ago which was, of course, quite a lot
higher than where they are now in real terms? There are agricultural
economists in this country who have looked at the issue very carefully
and think that the supply elasticities are somewhere around one in the
agricultural sector. If you project something like a 10 percent
increase in the real price of agricultural commodities you will see a
potential for a very substantial increase in exportable surpluses from
the U.S. over the next decade. So, I slip over the line occasionally,
but I try to be careful not to predict substantial increases in real
agricultural prices over the next decade. Although when I size it all
up myself, I think it is going to be very difficult to meet these demand
increases with the kind of production increases which are necessary.
Now I'll make two comments on implications to Third World countries
and then some quick closing comments on U.S. policy. In Third World
countries the implications of my expectations I think are quite clear.
First of all, optimal development policy for Third World countries is
going to put a lot more emphasis on development of the agricultural
sector than optimal development policy would have done in the 1950s and
1960s. When India, perhaps correctly, in the late '50s made a big push
in the heavy industry sector in order to build a base, which it inevi-
tably was going to want to have, it was doing it at a time when the
United States had domestic policies and domestic supply demand balances
such that we were falling all over ourselves to export agricultural
commodities at greatly subsidized prices, extremely low real prices. If
by emphasizing industry at that time, and who can emphasize both indus-
try and agriculture simultaneously, they were doing it when, if they got
into agricultural trouble, the global situation was such that there were
many people ready to bail them out of it. We Americans like to think we
did a charitable act in helping India out of some of its food policy
problems in the middle 1960s. It probably was a charitable act, but
meant at least as much to American farmers as to Indian consumers. That
charitable act will not happen again in the next decade or two as far as
I can see. So that any countries who get themselves in trouble on the
food front are going to have to pay much more, either in financial terms
or political terms, in order to get bailed out.
Thus, development policy is going to have to look much more at the
agricultural sector if it is going to proceed reasonably effectively.
It is a good time for that because most countries are already looking
more carefully at their agriculture.
In most situations, there is going to have to be a great deal more
thought to how to reduce the impact of a tighter food situation on low-
income people. That's going to turn us toward much more concern for
food subsidies and various types of employment subsidies than we have
had in the past. That is one reason our research program at IFPRI puts
so much emphasis in that direction.
Now, some comments about U.S. policy. First of all, the United
States is doing itself and low-income people in the world a great favor
insofar as it pushes agricultural production over the next few
decades. I think if you have humanitarian concerns in the world, look-
ing at the situation in the next decade or so, you should be very inter-
ested in seeing U.S. agriculture getting moving once again. In my view,
in the surplus situation, the low price, subsidy situation of the middle
'60s, we had a substantial tooling down of the technological capacity in
American agriculture. We cut back on funds for agricultural research in
the period following the middle 1960s very substantially. We are going
to have to think about that very much as we look at the ensuing global
situation. I would argue that U.S. agricultural production and incre-
ments to production as a proportion of the world total are and will
continue to be sufficiently small so that a policy of pushing agricul-
tural production is probably not a wrong policy even from a narrow U.S.
agricultural self-interest point- of view, although I certainly under-
stand the debatability of that point. But in any case let me say that,
from the global point *of view, it obviously is very important that the
U.S. push on the agricultural production side.
Now, I want to say a word on U.S. foreign assistance in this con-
text. And here again, I would like to emphasize that U.S. foreign
assistance to develop agriculture in developing countries is not only
helpful to those countries, but is particularly helpful to the low-
income people in those countries because of the implications of the food
situation to low-income people. It is also helpful, a desirable policy
from the point of view of U.S. agricultural interests. That may seem
rather peculiar to you. Let me remind you that agricultural production
growth has at least a potential for very powerful linkages stimulating
growth in the other sectors of the economy. I think we can show reason-
ably well already, and we will be able to show soon that in Taiwan, for
example, using agriculture as the engine of growth, created a net
increase in demand for agricultural commodities. In other words, you
move agriculture ahead, you generate a growth in the agricultural sector
of a certain amount, the indirect result of that total process generates
a demand for agricultural commodities larger than the increase in agri-
cultural production that started the process moving. It is not some-
thing for nothing. It has to do with the relative demand elasticities,
the nature of underemployed resources in the developing economy and so
on. What you are doing is using growth in agriculture, the stimulus
from that to mobilize underemployed resources and get a multiplier
effect on income and that multiplier effect then spills out into
increased import demand. So you get this phenomenon I talked about of
Third World countries which are successful in agriculture increasing
their agricultural imports. Now, don't for a moment think this is bad
for low-income people'. Exactly to the contrary, whenever you see
demands for agricultural commodities rising rapidly there must be,
behind that, substantial distribution of income to low-income people,
because they are the ones that have a high marginal propensity to spend
on food, not high-income people. Obviously in Taiwan and in many other
cases you're dealing with a very broad development process.
Thus if the United States provides technical assistance to help
develop agriculture in other countries, you first of all accelerate
agricultural growth in those countries. That means larger domestic
supplies of food. That means you can pursue a more employment-oriented
strategy of growth in those countries, and have broader participation in
the growth process, since food is the basic wage good. Thus, there is a
process of stimulus to growth in the non-agricultural sector and that
coming back to increase import demand providing a more favorable market
for U.S. agricultural commodities. There are, of course, some partic-
ular commodities which are losers by this process. But if you look at
the question from an overall agricultural point of view, assisting
agriculture to get going in developing countries is good for American
agriculture as well as to the low-income people in those countries.
So I would say that the U.S. policy implications from the whole
exposition of what is happening in the Third World is to push production
in the United States. Push it by getting at the underlying well springs
of growth in American agriculture, tooling up for this growth of demand
and, to push foreign assistance particularly in the agricultural sector
and within that foreign assistance obviously pushing into things which
Americans are very good at, namely technology, and helping these coun-
tries tool up on the technological side in order to relieve the pressure
on land and all the other things that go along with this kind of high-
yielding technology which we are talking about with respect to the Third
World.
UNITED STATES FOOD POLICIES--A SPECIAL PLACE IN WORLD SECURITY*
Daniel E. Shaughnessy**
Deputy Assistant Administrator
Foreign Agricultural Service
U.S. Department of Agriculture
This year, as in every year, the Congress is acting upon legisla-
tion dealing with the U.S. role in international affairs and world
security. Many of these laws come easily to mind--authorizations and
appropriations for the military, services, support for other Defense-
related agencies, the Central Intelligence Agency, the State Department
and even the beleaguered foreign aid program. What does not come to
mind so readily, in this context, is the "Farm Bill,"1 a quadrennially
reviewed series of laws dealing with everything from beekeeper programs
to multibillion dollar agricultural exports. But the provisions of
American agricultural legislation--and in a broader sense, all U.S. food
and agricultural policies, are largely unnoticed, but vital elements of
national and international security.2
Arms and military preparedness, of course, are a major component of
any modern nation's defense planning. Similarly, a nation which bases
too much of its security planning upon military strength, and neglects
to give adequate weight to food supply, and equitable access to food,
risks confrontation with events that have no military sense. A
*Seminar presentation to the Food and Resource Economics
Department, University of Florida, Gainesville, Florida, 1982.
**The views expressed in this article are those of the author
alone, and do not represent official views or policy of the Foreign
Agricultural Service or the Department of Agriculture.
desperate Bangladesh between the nuclear capabilities of China and India
is a major threat to world stability; a doubled Mexican population, much
of it living in abject poverty, within the next 20-30 years is a direct
concern for most Americans; millions of African refugees in search of
food and security are not awed by military threats--they are beyond
that. In short, it must be understood that peace, security, and inter-
national economic stability are all factors related to the most basic
human need--the acquisition and consumption of food.
For economic resiliency--especially food security--is the corner-
stone of effective national strength and world leadership. Americans
today are more aware of this hard truth than five or ten years ago, when
few recognized the degree to which the United States and other indus-
trialized countries had become dependent upon imports--in our case,
imports of oil. Now, however, the interdependence of nations and the
issues that divide them takes on far greater meaning. But of greater
significance than simply recognizing divisive issues, is the identifi-
cation of those goals which can lead to broader understanding of
national and international security, and thus, to hope, order and
progress. It may well be that U.S. action on its food and agricultural
policies, leading to world action to improve equitable access to food,
are among the most important and viable opportunities.3
There are hundreds of millions of people in the world today, who
suffer extreme poverty, who are badly malnourished, and who do not
receive enough food. Many do not survive, particularly young children,
and die of hunger or hunger-related diseases.4 This growing mass of
humanity, with little or no voice in the policies and decisions that
affect their acquisition of basic necessities, is a direct threat to
American security.
Obviously, this is not to suggest that the hungry of the world are
about to attack the United States. But a lack of food is among the most
destabilizing forces on the world today. Widespread hunger and poverty
breeds a despair which makes any risk seem worth taking if it promises
some hope for a better future. As a result, it is certainly more than
coincidental that hungry nations turn up so often on the lists of the
world's political flash points.5,
Thus, the United States may well be a reluctant hero in a drama of
world survival where economic stability and international security
become dependent on access to food. This situation arises when the
United States is governed by a new Administration and a split Congress;
when its people are frustrated by inflation and energy concerns; and
when an inward view of United States and its national actions is
stronger than it has been in recent memory.6 But even in this setting,
the United States cannot escape its role as a leading contributor to
global economic policy. The role of food and agriculture in national
strategic planning, including the assessment of future economic rela-
tionships, is such that the nation that is the world's leader in food
production and trade must be the leader in efforts to relate food and
agriculture to economic strength and international security.
In recent years, the development of U.S. food policy and related
economic activities have characterized more by reaction than anticipa-
tion.7 Such major U.S. food policy developments as the 1980 Soviet
grain embargo, the trend toward bilateral trade arrangements, the use of
food aid and economic foreign assistance funds to remedy political
situations, and an on-again, off-again policy of food reserves, are
examples of the development of policy by reacting to specific circum-
stances, rather than through careful or logical planning. This form of
food and agriculture policy development tends to maximize consideration
of short-term gains--usually expressed in domestic terms--and minimize
longer term effects--which are often of a global nature.8 For example,
U.S. domestic farm policy decisions such as those affecting acreage set-
asides, price supports, producer'loan levels, and regulation of commod-
ity markets go well beyond the U.S. domestic scene in their impact due
to the magnitude of U.S. trade and exports in food products, totaling
$45 billion in 1981.9
As a result, the United States today has an opportunity--as well as
an obligation--to lead the world toward a secure food policy. But we
must begin with our own policies and laws. The preeminent role played
by this nation in food production and trade is closely linked to the
general state of the world's economy. The inevitability of the world-
wide importance of U.S. food policy and legislation--whether domestic or
international--becomes more obvious with each passing year. Further,
the growing critical links between global economic security, military
security, and access to food, carry with them a deeper meaning: food
and agriculture strategies may well be the blueprint as well as the
foundation for world economic order and stability--and even world
peace.1
A Year of Reports--and a Deaf Ear
There has been no lack of warnings about the world food situation
and the role of the United States. Concerns over the world's economy,
security, and food supply were certainly reinforced in 1980, which wit-
nessed a series of major reports on these subjects. The internationally
prestigious Brandt Commission called for A Programme for Survival with
its chairman noting that "there certainly is no military solution to the
problems of energy or commodities" and "When the nations of the world
join in an enterprise to enhance the chances of world survival and pro-
mote global prosperity, the most powerful and wealthy nation cannot be
content to play a marginal role, and no one else would want it to."11
The U.S. Presidential Commission on World Hunger warned that "A
major crisis of global food supply--of even more serious dimensions than
the present energy crisis--appears likely within the next 20 years ...".
"Such a crisis would have grave implications for all nations, including
the United States ...". The Commission also stated that, "Of all the
challenges facing the world today, agreement by the nations of the world
on the actions required of all countries to eliminate hunger may be the
most important, and may also provide the most promising basis for other
international actions to assure world peace.12
The Global 2000 Report, the result of 2 1/2years of U.S. Government
analysis of future expectations, found that, "For hundreds of millions
of the desperately poor, the outlook for food and other necessities of
life will be no better. For many it will be worse. Barring
revolutionary advances in technology, life for most people on earth will
be more precarious in 2000 than it is now--unless the nations of the
world act decisively to alter current trends." But the authors of
Global 2000 also found that "The United States, possessing the world's
largest economy, can expect its policies to have a significant influence
on global trends. An equally important priority for the United States
is to cooperate generously and justly with other nations--particularly
in the areas of trade, investment, and assistance--in seeking solutions
to the many problems that extend beyond our national boundaries. There
are many unfulfilled opportunities to cooperate with other nations in
efforts to relieve poverty and hunger, stabilize population, and enhance
economic and environmental productivity."13
These reports andtothers on similar subjects convey a common series
of conclusions--access to food is a critical part of global security;
policies, strategies, and laws affecting food access are as much
international in their impact as domestic; and the United States has a
special place in world food and agricultural matters. But, how many
people, particularly in the United States, are listening?
A dangerous apathy about the world's economic and security situa-
tion abounds,14 and ironically, it appears to have been caused by those
who profess to care the most. The world has muddled through the '70s
and into the '80s despite the warnings and rhetoric of major interna-
tional meetings on food, population, housing, and a new international
economic order; despite a worldwide energy situation that is already
taking its toll in reduced investment, growth, and real personal income;
despite a serious lack of resources from developed to developing coun-
tries; and despite the reports of 1980 and the warnings of experts on
every subject from disarmament to a lack of firewood.15
The Future Will Be More Difficult
However, the 1980's and the years following may not be so readily
accommodated. Over the next several years, the prospects for food
supply and equitable distribution are difficult at best. The 1980s
portend a period of uncertainty in supply and demand for basic foods, at
least for the first five years of the decade. The price of food will
continue to rise, supplies will be limited in many areas of the world
and access to food will become more difficult. The 1981 crop shortfall
in the Soviet Union, an earlier drought in Australia, and falling Indian
reserves indicate that the worldwide food supply situation is already
tighter than it has been in the past.16
The United States, as a major food supplier throughout the world,
exports more than half of its grain crop every year. The export total
of $43 billion in agricultural products in 1981 has caused increasing
concern in the United States on the part of consumers, leading to ques-
tions of how much should the United States export of its own supplies
and whether or not limits should be imposed. But the hardest hit are
the developing countries. Their economic growth rates are down, their
population growth rates are up or steady, and their dependence on
imported energy has increased.17
This situation facing the 1980s has not occurred overnight. Energy
price increases and the world drought that occurred in the 1972-73
production year, emphasized particularly by severe food shortages in the
Sahel region of Africa, were compounded by major purchases of North
American grain by the Soviet Union. These events of 1972-73 caused the
1974 World Food Conference and later negotiations on food reserves and
I
related activities.18 As a conclusion to the '70s, the "reports of
1980" reinforced the need for stability in economic growth and food
supply and the importance of political action in such activities.
But what must be done to heed these warnings and take the decisions
and actions that will be necessary?
The answer to this question may well be that "the haves" are tired
of hearing about the needs and problems of "the have nots." It is not a
loss of empathy or concern; it is not a lessening of humanitarian or
altruistic instincts; it is simply a changed attitude that seems to say,
"I have to care for myself while I care for others, so what is in it for
me if I help someone else?"
For the United States, there is no choice. It must listen to the
warnings that have been sounded and its people must care. We know we
cannot feed the world on our own and we know that we cannot completely
transfer our culture and practices to those in need. But, it may be
that continuing concerns about our self-interest, and the need to assist
others under conditions of self-interest, may be the guide to the lead-
ership role the United States can and must assume. The components of
this leadership are a perception of security in a different light beyond
that of armed prowess, a recognition of the need for real economic
stability, and enlightened United States trade and agriculture poli-
cies. For the United States, assuring resolution of the problem of food
supply throughout the world may well be the key to solving the other
related issues of economic stability and national and international
security.19
First, the United States must realize that, in the context of
international security and economic stability, its food and agricultural
policies are no longer its own. As a result, it will be necessary to
apply international criteria to every decision affecting American farm
policy and agricultural production. Congressional review of U.S. farm
legislation is the starting point.20 In past years, the review of this
legislation has been characterized by major concerns over domestic
agriculture policies ranging from the plight of small family farms and
acreage set-asides to price supports and farmer-held reserves. The
Congress must understand that decisions on these traditional domestic
f
concerns have major international implications.
Second, a unique and critical part of U.S. agricultural policy must
be a leadership role in implementing a world food reserve. However, it
is obvious from efforts over the past 25-30 years and in particular, the
past five years, that the establishment of an internationally coordinated
food reserve consisting of national stocks in the major producing coun-
tries, which are loosely tied together under agreements relating to size
and release mechanisms, is not only difficult, but perhaps impossible in
the world of the 1980s. Consequently, the United States, on its own,
with or without the support of other producing nations, should shift its
support toward the establishment of individual food reserves in devel-
oping countries with the potential to assist other countries in times of
need. This means a change in longstanding U.S. policy emphasizing
producer-held reserves and will require serious consultations with other
major grain producers. However, the record of the past six years is one
of futile efforts to implement an international system of reserves.21 A
revised U.S. policy assisting in the establishment of food reserves in
developing countries may be the only way to insure protection against
disaster and total loss of food supply.
Third, the concept that trade is aid--within reasonable limits--
must be reinforced in U.S. trade and agriculture policies. The recom-
mendations of the Brandt Commission and the Presidential Commission on
World Hunger called for a number of major changes in trading arrange-
ments.22 These obviously will 'take time and, in some cases, face con-
siderable controversy and opposition. However, the concept of assis-
tance with a strong self interest motive is clearly identifiable and
appropriate in expanded trading relationships. The enormous export
potential of the United States, particularly in agricultural products,
is of major significance in this regard. It must be strongly supported
by legislative action which recognizes the value of such exports to the
U.S. economy and, at the same time, permits the flexible approach to
imports so important to the growth and economy of the developing coun-
tries.
Finally, there is an obligation--that must be stated in law--to
ourselves and to our children to become more aware of the intricacies of
the international situation and the special relationship between the
United States and the rest of the world. If morality may in some sense
be defined as the serious consideration of long-term effects of present
action, then this is a moral as well as a pragmatic issue. The United
States is already a major provider of basic requirements to much of the
world--a situation that could change significantly in the future. With
a world facing our children in which the gap between those who think
they live a secure life, and those who know they do not, steadily widen-
ing, the only alternative is an informed, aware society. We and our
children must realize that the decisions we make about our own food
supply will inevitably affect the rest of the world. We must also
realize that our decisions must be correct, for there will be no margin
for error.
Epilogue--A Lesson from the Past
With the vivid memories of World War I losses still fresh in their
minds, post-war French governments were determined to secure their
eastern borders against any future German invasions. Defense Minister
Andre Maginot, himself crippled in the First War, pressed for a defini-
tive solution. After much effort, Maginot's proposal was adopted. Un-
fortunately, it proved to be useless in protecting France against the
new German invasion a generation later, but it did succeed in perma-
nently linking Maginot's name to one of the great strategic blunders of
this century.
The "Maginot Line" was an extravagently expensive--and, for its
time, technologically advanced--system of defense works along the
Franco-German border. The Line was formidable enough, but when the
attack materialized, it came along another route than the one Maginot
had so carefully protected. The German armies, in a classical strategic
maneuver, sidestepped the Line by first invading Belgium, and then
sweeping into France along an essentially unprotected route.
Since that time, the expression "Maginot Line thinking" has come to
signify an approach to security which exaggerates some threats, while
overlooking others entirely.
We are at a time in history when the United States--in the face of
serious Soviet military threat--may be moving in the direction of
adopting a Maginot approach to the economic and security needs of its
own people and the world at large. An enlightened U.S. food policy may
be the way to avoid that danger.
Footnotes
Public Law 95-113; "The Food and Agricultural Act of 1977;" 7 USC
1281.
In addition to the authority and policies for dealing with the
negotiations on reserves, promotion of U.S. exports and relation-
ships with international organizations, the legislation also
includes authority for Public Law 480. This is a $1.8 billion
international food aid program, often used as a negotiating
instrument with foreign governments with whom the United States
has significant security interests. Large food shipments under
this authority to Egypt over the past several years have been a
key component of U.S. Middle East policy. In earlier years, the
use of PL 480 concessional sales in Indochina supported U.S.
Vietnam policies. The farm legislation also includes provisions
for special credits to foreign governments from the Commodity
Credit Corporation for commercial sales of U.S. agricultural
products. Credits exceeding $670 million are a part of current
U.S. agreements with Poland, for example.
See Hunger, Politics and Security, by Thomas W. Wilson, Jr.,
prepared for the Presidential Commission on World Hunger, Spring,
1980. Wilson discusses the relationship between food issues and
security and the opportunities afforded by these relationships for
broader international progress.
Due to the difficulty of obtaining accurate base data, estimates
of the numbers of people who lack food or who are severely mal-
nourished vary widely, even among reputable sources such as the
World Bank or the Food and Agriculture Organization of the United
Nations. However, the Bank, in its 1980 World Development Report,
estimates that 780 million people live in absolute poverty (p.33),
defined as "a condition of life so characterized by malnutrition,
illiteracy and disease as to be beneath any reasonable definition
of human decency" (p.32). The Bank Report also notes that 500
million people are anemic; goiter affects 200 million and Vitamin
A deficiency affects half the children in developing countries
(p,60).
5 Examples from the 1970s: India, Pakistan and Bangladesh in South
Asia; Chad, Zaire and Uganda in Africa; and Cambodia and Vietnam
in Southeast Asia.
6 See Watts, William, "American Attitudes on Global Hunger Issues,"
Potomac Associates and the Gallup Organization, May 24, 1979 and
"The American Public Views World Hunger and the U.S. Role in Its
Elimination," Market Option Research, December 1979. Both polls,
conducted for the Presidential Commission on World Hunger, reveal
strong concerns by the general public over personal and national
issues such as living costs and U.S. Government domestic programs,
and a corresponding lack of concern or ignorance about inter-
national problems of poverty, food supply, and economic devel-
opment.
For a further discussion of U.S. food policy development and its
international implications, see Shaughnessy, Daniel E., "Orienta-
tion of Domestic and International Food and Nutrition Policies,"
Annals of the Ne4 York Academy of Sciences; 300(Nov. 1977), p.92.
8 See "The United States and World Development," Agenda 1980, pub-
lished by Praeger Press for the Overseas Development Council,
1980. In the first chapter of this annual assessment of world
development by the Overseas Development Council, the authors
examine the setting for policy development in food, economic
development and security, noting the heavy emphasis on domestic
economic problems and military security .
Outlook for U.S. Agricultural Exports, U.S. Department of Agri-
culture. For a detailed description of U.S. agricultural exports
in 1980, see Milmac, Stephen R., "U.S. Farm Exports Hit Record,"
Foreign Agriculture, December 1980, p.10.
10 See Wilson, supra, p.18.
11 "North-South, A Programme for Survival," Report of the Independent
Commission On International Development Issues, The MIT Press,
Cambridge, Massachusetts, 1980, p. 27.
1 "Overcoming World Hunger: The Challenge Ahead" Report of the
Presidential Commission on World Hunger, Washington, D.C., March
1980, pp. 181 and 183.
13 "Entering The Twenty-First Century," The Global 2000 Report to the
President, Volume I, Council on Environmental Quality and the
Department of State, Washington, D.C., 1980, pp. 1 and 4.
14 See Watts and Market Opinion Research, supra.
15 One organization, the Worldwatch Institute, of Washington, D.C.,
focuses on global problems and has published over 40 "Worldwatch
1
Papers" on such subjects as world population trends, desertifi-
cation, nuclear power, firewood, basic human needs, energy, and
political responsibility.
16 For a detailed analysis of world food suppliers and projections by
commodity, major countries and regions, see World Agricultural
Situation, (WAS-24), U.S. Department of Agriculture, December
1980.
17 "World Development Report," World Bank, supra, pp. 3 and 4. See
also Part I, Chapter 2, "The Outlook for Developing Countries."
18 For a review of the follow-up activities, particularly on the part
of the United States; see "World Hunger and Malnutrition
Continue: Slow Progress In Carrying Out World Food Conference
Objectives," U.S. General* Accounting Office, Washington, D.C.,
January 1980.
19 See Report of the Presidential Commission on World Hunger, spray,
Section One, pp. 3-11 for a rationale for U.S. action in this
regard.
20 An obvious target for application of international criteria are
those activities directed towards assuring U.S. farmers and pro-
ducers equitable marketing opportunities and returns on their
investment. With the export market now accounting for over 30
percent of U.S. farm income, Congressional attention to the pos-
sible elimination of such government interventions as target
prices or acreage set-asides could help to stimulate marketing
opportunities and increased supply movement in the international
market.
21 Despite repeated meetings under the aegis of the International
Wheat Council, it has been impossible for conferees to agree upon
a full "package" including agreements on a total worldwide reserve
level; how much each producing country would hold of that reserve;
and, most difficult of all, criteria on releases of reserve
stocks.
22 The Presidential Commission's trade recommendations focused on
liberalized trade arrangements with developing countries through
commodity agreements, an extension of Generalized System of Pre-
ferences privileges and an easing of quantitative restrictions
imposed upon both U.S. and developing country exports. For a full
presentation of the Commission's treatment of trade, see pp.53-74
of its Report. The Brandt Commission concentrated many of its
recommendations on worldwide commodity agreements, improved
financing facilities for developing country trade, and reduced
tariff barriers (pp. 158 and 186).
THE REBIRTH OF AGRICULTURAL ECONOMICS IN CHINA--
IMPLICATIONS FOR U.S.-CHINA AGRICULTURAL TRADE*
R.J. Hildreth
Farm Foundation
Agricultural economics in China is undergoing a rebirth in an
atmosphere that is now promoting decentralized decision making, profits,
accounting, specialization and trade. Developments are most rapid with
respect to training programs in agricultural economics. There is a
growing amount of contact between agricultural economists in China and
the United States. A number of university, scientific exchange, and
government teams have visited China in the last two years. Groups of
Chinese educators and government officials have visited the U.S. Agri-
cultural economists from mainland China participated in the 1979 meeting
of the International Association of Agricultural Economists, the first
participation since 1955.
Some History
From a U.S. perspective, interesting and important agricultural
economics work was-done in China before 1949. It centered at the Uni-
versity of Nanking in the 1920s and 1930s. Under the guidance of Dr. J.
Lossing Buck of Cornell University, broad surveys of the Chinese rural
economy were produced, as well as a number of specialized studies.
These studies are now the best sources of information on the Chinese
*These notes draw heavily from Hertford and Traver's paper, "On the
Rebirth of Agricultural Economics in China," prepared for a Symposium on
Agricultural Economics in China held at the Annual Meeting of the
American Agricultural Economics Association, July 1981, Clemson, South
Carolina.
economy between the First and Second World Wars. The Chinese government
and various foreign and private aid efforts supported overseas training
(largely in the U.S. and Germany) of Chinese agricultural economists
through the end of the 1940s.
The important intellectual resources in agricultural economics
departments at major agricultural colleges now come from these people.
Education in agricultural economics resumed after liberation in
1949. The major interest was what was going on in the Soviet Union
although English and German language literature continued to arrive in
China. Russian was the principal foreign language and models of agri-
cultural development were socialist rather than capitalist. With the
advent of the Great Proletarian Cultural Revolution, all teaching in
agricultural economics ceased, research efforts were abandoned, and
subscriptions to English language journals lapsed.
Agriculture became one of the four so-called modernizationss" after
the death of Mao Tsetung and the overthrow of the "Gang of Four" in
1976. This represented a major policy shift; China had previously
tended to extract as much as possible from agriculture to develop other
sectors. The agricultural economics profession was revived to assist
with the task of economic rationality in decision making in agricul-
ture. An emphasis has been placed on the use of microeconomic tools for
effective management. Also, a substantial exchange has developed in
intellectual relationships between China and the West. Current inter-
ests of the Chinese appear to be centered on farm management and produc-
tion economics and other micro-level themes.
Hertford and Travers state: "There are probably no more than 5,000
trained and practicing agricultural economists in China today, about 10
percent of whom are women." The Chinese Society for Agricultural Eco-
nomics has a membership of about 1,300. This may also be a good esti-
mate of the number of senior practitioners. Hertford and Travers
reported a 1980 SSRC economics delegation was told there were 10,000
general economists in China.
The Chinese Society for Agricultural Economics' members are drawn
from researchers, teachers, and administrative workers in government at
the local, provincial, and central government levels. It publishes a
journal monthly. There are no membership fees. It has branches in nine
provinces with branches being organized in five additional provinces. A
national conference is held once a year, two held since the cultural
revolution. As contrasted to the American Agricultural Economic Associ-
ation or the International Association of Agricultural Economists,
studies are made under the auspices of the Society for Government. Its
support comes from the central government. It is under an "umbrella"
organization, the Chinese Association of Agricultural Societies in the
Ministry of Agriculture. The Association provides administrative sup-
port for a number of agricultural societies.
The cultural revolution took its toll among students and professors
in China. The last class to graduate was in 1965, which means that the
youngest university trained agricultural economists are in their late
thirties. Student enrollments have increased rapidly in the past few
years, but 1981 is the first year to have a full fourth-year class in
most universities. Thus there are relatively few graduate students.
No teaching or research occurred during the cultural revolution.
For example, Nanking Agricultural College suffered greatly during the
cultural revolution. The facilities were turned over to a production
unit. Recovery began in 1979. The first year back in the college
facilities was in 1980. Nanking now has 1,100 students of whom 100 are
graduate students. They plan to have 1,500 undergraduate students and
500 graduate students in a few years.
It appears the demand for agricultural economists is large. The
People's Commune is the basic unit of of rural administration. There
are over 50,000 with an average of about 15,000 members each. Almost
none has staff members with agricultural economics training. All coun-
ties (over 2,000) have agricultural bureaus responsible for integrating
the communes into an input supply and output marketing system. The
system partially runs on a planned flow of commodities basis and par-
tially on a price determined market basis. Provinces have similar
bureaus and nationally the Agricultural Commission controls several
ministries, all of which need agricultural economists. The State Plan-
ning Commission, the research institutes, and other government agencies
also need agricultural economists.
About 6,000 Chinese have been sent since 1978 to U.S. universities
as scholars and students and about 5 percent of them are in the social
sciences and humanities. The natural sciences and engineering have been
accorded highest priority, in part because they can be more readily
absorbed in a socialist society than the social sciences of the West.
Though agricultural economists are but a handful of the latter group,
the discipline of agricultural economics does not appear to have been
slighted.
Undergraduate Training in Agricultural Economics
Agricultural economics is offered as an undergraduate major by 23
of the 45 agricultural colleges and universities in China. It is the
only rural social science now being taught in the country. Agricultural
economics is also a major in the People's University (a general univer-
sity) in Beijing. Hertford and Travers estimate total undergraduate
enrollment for the 1980-81 school year to be about 2,600. Plans
reported indicate a doubling by 1985 of the 1980-81 figure. Hertford
and Travers report a sample of five agriculture colleges indicates that
the percentage of female students ranges from 15 to 30 percent.
Seven of the agricultural colleges and universities have been
designated keypoint schools. Keypoint colleges are Beijing Agricultural
University (Beijing), Nanjing Agricultural College (Nanjing, Jiangsu),
South China Agricultural College (Guangzhou, Guangdong), Northwest China
Agricultural College (Wugong, Chaanxi), Shenyang Agricultural College
(Shenyang, Liaoning), Central China Agricultural College (Wuchang,
Hubei), and Southwest China Agricultural College (Chong-quing,
Sichuan). These schools have priority in teaching staff, teaching
materials, and students. All have departments of agricultural
economics, enrolling almost 40 percent of the students in the field.
The Chinese have had university entrance examinations for hundreds
of years. The students that enter the agricultural college are selected
from applicants who sit for a natural science exam. The students for
the general universities are selected from the applicants who sit for a
social science exam. I was informed that 4 to 5 percent of the secon-
dary school graduates enter universities in China.
I
The courses for each semester for undergraduate students in agri-
cultural economics at the Nanking Agricultural College are presented in
Table 1. Rather than credit hours, the total teaching hours are pre-
sented. A total of 2,800 teaching hours constitutes the undergraduate
course. Table 2 presents the elective courses which are chosen during
the third and fourth year. Apparently the agricultural economics cur-
riculum in most of the agricultural universities are quite similar.
This occurred as a result of a meeting of agricultural economists to
design a common curriculum. However, differences that exist in curricu-
lum reflect regional concerns.
f
A unified text for the basic agricultural economics course --
Socialist Agricultural Economics edited by Shenyang Agricultural Col-
lege and published last year by People's University Press -- gives some
clues into the content of agricultural economics training. Hertford and
Travers describe the text:
It presents the history of development of Chinese
agriculture over the past 30 years in a fairly evenhanded
way. It admits to past policy errors, and shows their
results. It warns students that data have been falsified in
the past. Its major chapters are on agricultural mechaniza-
tion, agricultural labor, land use and land use planning,
crop production, the planning and accounting systems, the
marketing system, agricultural finance, and rural income
distribution. Notably absent is a theoretical framework for
analysis. The book presents conclusions which must be the
result of analysis (e.g., the mechanization should be land
saving, given the relative supply of land and labor in
China), but provides students no means to generalize these
conclusions. One lonps for a production function, asso-
ciated prices, and a set of decision rules.
-- -
Table 1. The courses in each semester for undergraduate students, Agricultural Economics, Ranking Agricultural College
Teaching hours distributed in the semesters involved
Total teaching 1st Year 2nd Year 3rd Year 4th Year
hours in a
Order Course semester Fall Spring Fall Spring Fall Spring Fall Spring
1 Philosophy 120 80
2 The History of the Chinese Communist Party 80 80
3 Political Economics 180 100 80
4 Foreign Language 240 75 75 50 40
5 Athletics 140 35 35 35 35
6 Advanced Mathematics (Calculus) 160 40 70
7 Chinese Writing 60 60
8 Crop Production 130 80 50
9 Animal Husbandry 80 80
10 Farm Machinery 100 100
11 Soil and Fertilizer 80- 80
12 Surveying 50 50
13 Calculating Techniques 40 40
14 Computer Programming 60 60
15 Methods of Mathematical Statistics 60 60
16 Regional Planning and Identification 60 60
17 Foreign Agricultural Economics 70 70
18 Land Design 80 40 40
19 Agricultural Economics 130 60 70
20 Management of People's Communes and Public Farms 100 50
21 Principles of Statistics & Statistics in Agriculture 140 80 60
22 Principles of Accounting & Accounting in Agriculture 160 100 60
23 Principles of Planning of National Economy & the 80 80
Planning of Agriculture
24 Economics in Agricultural Techniques 70 70
25 Free Electives 280 80 50 50 100
Table 2. Elective Courses, Agricultural Economics, Ranking Agricultural College
Allocated
Teaching Section giving
Order Name of course semester of t
hours the course
the course
1 The Modern Agricultural Economic 50 Spring-4th year Agricultural Economics
History of China
2 Classic Papers 50 Fall-4th year Political Science
3 Agricultural Law and Regulations 50 Fall-4th year Agricultural Economics
4 The History of Economic Thought 50 Spring-4th year Agricultural Economics
5 Economics of Agricultural Resources 50 Spring-4th year Agricultural Economics
6 Marketing of Agricultural Products 50 Spring-4th year Agricultural Economics
7 Agricultural Finance and Loans 50 Spring-4th year Accounting and Statistics
8 Land Management 50 Spring-4th year Management
9 Agricultural Economics Seminar 50 Spring-4th year Agricultural Economics
10 Fruit and Vegetable Production 80 Spring-3rd year Horticulture
11 Second foreign language 50 Spring-4th year Foreign Language
TOTAL 580
Graduate Training in Agricultural Economics
The number of graduate students is very small. Only the seven
keypoint schools have graduate students in agricultural economics. The
total number in the keypoint schools, according to Hertford and Travers,
is 17. They also report that the People's University, with 12 graduate
students, has the largest number. In addition, graduate students in
general economics programs may select a research topic in agricultural
economics and the national and provincial agricultural and social
science academies are permitted to run graduate programs. Hertford and
Travers estimate the total number of graduate students in the field is
probably no more than 50, and about 20 percent are women.
The graduate programs are three years in length at the M.S. level,
and are tutorial. Graduate students spend about 10 hours a week in
class during the first two years; the third year is reserved for disser-
tation work.
Hertford and Travers report graduate training generally includes
two years of a foreign language, and mathematics and statistics if the
student's background is weak in those areas. Other courses include
dialectical materialism, political economy, and philosophy in the first
year, and agricultural economics in the second year. Students write
theses on that topic during the third year. Fieldwork may or may not be
required for a thesis.
Hertford and Travers evaluate the quality of graduate training in
the following statement: "It is our impression that graduate education
puts more emphasis on analysis, and graduate students are exposed to a
broader range of both domestic and foreign theory and research than are
undergraduates."
The small number of students is the result of accepting only one
student per senior agricultural economist and having a very limited
supply of such instructors. A less labor intensive mode of training
graduate students will probably have to be adopted if the pool of well
trained people is to grow at the rate the economy needs, unless oppor-
tunities for training overseas grow sharply.
Research
Agricultural economics research is undertaken at the "key" agri-
cultural colleges and the People's University. General funds for
research are available from the Ministries of Agriculture and Educa-
tion. In addition, special studies are done for local, provincial, and
central governments. At the central government level there is an Insti-
tute of Agricultural Economics in the Chinese Academy for Social
Sciences as well as an Institute of Agricultural Economics in the Minis-
try of Agriculture.
Some Observations
I was invited by the Chinese Society of Agricultural Economists to
visit China along with other members of the Executive Committee of the
International Association of Agricultural Economists in October of
1980. The other members of the group were Professor Theodor Dams of the
University of Freiburg, Germany (President, IAAE) and Kazushi Ohkawa of
the International Development Center of Japan (Vice President-Program,
IAAE).
The attitude of agricultural and agricultural economics profes-
sionals seems to be cautiously optimistic. Many of them are pleased to
___1
be back in a professional setting; they have received back pay for the
years they went without pay. They are immensely interested in develop-
ments in other countries since they have been isolated for many years.
While in Shanghai I participated in a seminar to about 200 agricultural
economists who were meeting under the auspices of the Chinese Society
for Agricultural Economics on the interrelationships between agricul-
ture, industry, and commerce.
My final point in this section is an insight brought to my atten-
tion by Professor Ohkawa of Japan, Vice President-Program, IAAE. He
pointed out that over the years there had been a number of times when
relationships between western countries and China were reopened. How-
ever, in the past these contacts were always initiated by the western
countries and often forced upon the Chinese people. This is the first
time the Chinese people themselves had initiated the contact and were
seeking to develop the contacts in the long history of the "on again-off
again" relationship. It would appear to follow that the results of the
present contract will be significantly different than in the past.
Implication for U.S, China Agricultural Trade
The organizers of this Seminar Series requested I attempt to bring
out some implications of the rebirth of agricultural economics in China
for U.S. China agricultural trade. The linkage between these two
topics is weak, but the attempt yielded some ideas that I hope might
interest you.
China imported 13.5 million metric tons of grain in calendar year
1980. (USDA, ESS, Agricultural Situation: People's Republic of China--
Review of 1980 and Outlook for 1981, Supplement 6 to WAS 24, June
1981). Wheat constituted 87 percent of the grain import. Other imports
included soybean oil, sugar, and cotton. China exported a million
metric tons of rice and 125 thousand tons of soybeans. The total value
of agricultural imports by China for calendar year 1980 as $5 billion
(U.S.) compared to 3.75 billion in 1979 and 2.6 billion in 1978.
The value of China's imports of agricultural products from the U.S.
in 1980 was $2.3 billion (U.S.) and the value of U.S. agricultural
imports from China in 1980 was $133 million (U.S.). China's imports of
grain from the U.S. in 1980 were 8 million metric tons, of which 6.4
million metric tons were wheat and 1.7 million metric tons were corn.
Soybean imports from the U.S. amounted to 665,000 metric tons in 1980.
What will be the effect of an increase in the quantity and quality
of agricultural economics knowledge in China on U.S.-China trade? In an
attempt to answer that question it is useful to try to explain the
substantial increase in U.S.-China trade. D. Gale Johnson states in a
1981 paper that the major source of increased demand for grain has not
been shortfalls in production, but the growth of real and money incomes
in both rural and urban areas of China are a result of policies adopted
in 1977 and 1978 (Johnson, D. Gale. "Food and Agriculture of the Cen-
tral Planned Economies: Implications for the World Food System," Paper
No. 81.13, Office of Agricultural Economics, The University of
Chicago. June 22, 1981). He points out that the growth rate of grain
production in recent years in China appears to be approximately 3
percent. These policy changes "provided for significant increases in
prices paid to farms by the state, a reduction in the grain tax for poor
farms, the introduction of food price subsidies that prevented an
increase in urban retail prices for the grain and vegetable oil, a
significant increase in wages in the state sector, and a subsidy to
urban workers to compensate them for the retail price increases per-
mitted for farm products other than the grains and vegetable oil."
Johnson argues that the rapid increase of grain imports was in large
part due to these policies which both increased the demand for grain and
held its price at a relatively low level in urban areas. In fact, the
size of subsidy to consumers creates a negative marketing margin.
Peter Timmer summarizes China's food policy dilemma as follows:
How can food prices be kept low for consumers, while farm prices are
kept high enough to maintain incentive for rapid growth in food output
and longer-run investment in agricultural infrastructure? (Timmer, C.
Peter. "China and the World Grain Market," Challenge 24:4 (Sept./Oct.
1981), pp. 13-31). Timmer points out that many developing countries
have dealt with this issue and most have resorted to the international
grain market for sufficient supplies at the cost of subsidies to grain
users.
If the above analyses are reasonably accurate, it is possible to
speculate on the impact of increases in the quantity and quality of
agricultural economics knowledge. The usual supply/demand taxonomy is
used in an attempt to deal with the issue. An increase in agricultural
economics knowledge should lead to more efficient use of resources.
Micro-analysis of the production brigades and communes should increase
their production efficiency and thus lessen the demand for imports,
other things equal. Peter Calkins of Iowa State University spent some
time in China earlier this year. He lectured on the use of micro-
computers in brigade and commune planning. He found much interest in
these ideas. There appears to be a good linkage between provincial,
county, and commune officials and the key agricultural economics univer-
sities which should aid in the diffusion on new microeconomics knowl-
edge. However, in China as in other developing countries, the action
for intellectuals has seldom been in the countryside. It is in the
large cities where political and economic power exists. How much of an
increase in trained agricultural economists will be required before the
perceived marginal value product' of work in the countryside will equal
the perceived marginal value product of work in the central government
or provincial government for the individual agricultural economist?
Johnson's analysis suggests that the demand for agricultural
imports from the U.S. has been influenced by a subsidized food policy,
especially for the urban population. All of the centrally planned
economies appear to have policies that encourage the growth of demand
for food. With an increase in the quantity and quality of agricultural
economic knowledge available in China, will they continue this policy to
increase the demand for food? Unless the increase in demand for food is
accompanied by policies to increase the supply of food, more trade will
be required, at least up to the point where the cost in foreign exchange
becomes so great that the country cannot support the policy. One scen-
ario could suggest that, with an increased quantity and quality of agri-
cultural economic knowledge, the food subsidies policy would be modified
or accompanied by strong policies to increase production. This could
lead to less trade. An alternative scenario would have this increased
quantity and quality of agricultural economics knowledge to be used to
"buy smarter," i.e., pull off a "Chinese grain deal," leading to less
profitable trade for the U.S. Still another scenario would have China
exploit its comparative advantage and, if this did not lie in agricul-
ture, they would export other things and continue a high level of U.S.-
China agricultural trade.
Other scenarios can be developed. However, it is most likely that
the political situation withinChina, the world political situation, and
the political realities within the United States will have more impact
on U.S.-China trade than an increase in quantity and quality of agricul-
tural economics in either China or the United States. An increase in
quantity and quality of agricultural economics knowledge is a necessary,
but not sufficient, condition for wise policy in any country. The
profession has the opportunity to do what it can to enlighten the polit-
ical system as to the consequences of good and bad policies.
THE IMPACT OF DEVELOPED COUNTRY AGRICULTURAL
POLICIES ON WORLD MARKETS*
Timothy E. Josling, Professor
Food Research Institute
Stanford University
It's very pleasant for me to visit Gainesville at last. I have
been looking forward to this for some time, and I'm very happy that it
could be arranged under the sponsorship of the seminar program. On the
other hand, I was expecting rather warmer weather in this part of the
world.
The topic that I am going to talk on today is "developed country
agricultural policies and their impact on world markets." To further
narrow down a large topic, I want to concentrate on those aspects of
developed country policies which have importance for developing coun-
tries, and in particular on three types of policy influences that are of
general interest in this context.
The first type of influence is on the location of production, the
second is on the stability of international markets, and third is an
indirect influence through the interdependence of markets due to substi-
tution among commodities. The remarks which follow draw mostly on
current EC and U.S. policy in the feed and food grain markets.
Location of Production
Developed country agricultural policies represent the largest
transfer of funds in world agriculture. The U.S. and the E.C. spend
Seminar presentation to the Food and Resource Economics Depart-
ment, University of Florida, Gainesville, Florida, January 12, 1982.
each over $10 billion a year on federal programs, and a lot more on
state and local programs. By comparison, overseas development assis-
tance to agriculture is running a bit less than $7 billion at the
moment, and food aid about $2.2 2.5 billion over the last year. In
other words, the budgetary transfer of funds to developed country pro-
ducers is a significant sum in the context of world agriculture as a
whole. Add to this the transfers from consumers through price supports
in developed countries, and one would expect these policies to have some
influence on the location of production.
The FAO has estimated this policy impact over the last few years.
They have calculated what they call "producer subsidy equivalents," the
proportion of farm receipts in a particular commodity which are
accounted for by farm policies.1 To the "producer subsidy equivalents"
one can apply a supply elasticity to obtain an idea of the "production"
effect of such policies. This has been estimated at roughly 15 million
tons for wheat, 10 million tons for corn and about 3 million tons for
sugar for Canada, Australia, the European Community, the United States,
and Japan. To get a more sophisticated measure of the location shift as
a result of price supports, one should perhaps also add a dynamic ele-
ment, with productivity change (in countries where demand is not growing
very rapidly) being maintained by the price support system. This I
would argue is the case in Europe for the major commodities.
The other side of the coin are the relatively low incentives given
by many developing country. governments to producers. This was docu-
IThis work is reported in FAO (1977) and has also been described in
Josling (1980).
I
mented by Peterson some years ago, and confirmed by more recent
studies.2 There is, however, no comparable measure of the "lost" pro-
duction arising from low incentives in developing countries. One sus-
pects that the "dynamic" influence of prices on technology would be even
more important in such a calculation.
Why should one be concerned over the location of production arising
from different incentives? It should be clear that different prices in
different countries lead to higher production costs than necessary. The
least-cost way of producing something is to distribute production in
such a way that the marginal cost is the same in all production loca-
tions. World costs lie above the "least-cost" cost curve if you have
higher prices (and hence marginal costs) in developed than developing
countries. In Figure 1, the aggregate cost with price Pa in developed
and Pb in developing countries would be given by P for quantity Q. This
would fall to Pc on ES with equal prices among countries.
It is also interesting to consider the implication of different
prices in social (as opposed to private) cost terms. One could argue
that there is likely some divergence between social and private cost of
production in developing countries. In other words, the marginal social
cost of production (MSC) in developing countries is probably rather low
relative to the price cost (S) in Figure 1. In developed countries,
with much better labor and capital markets, there probably isn't much
2See Peterson (1979).
3The "aggregate supply curve" is not well-defined for the situation
of different prices among countries. Thus, in the diagram Q is the
actual supply from the two countries at an average cost of P. ES is a
genuine cost curve drawn with the equal price assumption.
MSC=S
Pe '-
Pc
Pt,
Developed Countries
q q
Developing Countries
A
1
I
S
I
I
I
Aggregate Supply/Costs
Deviations from lowest private cost (ES) and lowest social cost (EMSC)
conditions arising from different prices among developed and developing
countries.
EMSC
I
//
I
Figure 1.
divergence between the marginal social and the marginal private cost.
The optimal allocation of production in the world as a whole is where
the marginal social costs are equal.
Movement from the present situation to a private optimum for the
quantity Q, would require a rise in the prices in developing countries
and a fall in developed country prices to where they are equal (at
P ). Then to get to the social optimum one would have to lower devel-
i
oped country prices even further (to Pa) and raise developing country
prices (to Pe), ending up with the highest incentives in those countries
with the lowest social cost. Marginal social costs would be equal at
Pd, the point corresponding to Q on the aggregate MSC curve. The
present location of the production, with more incentives in developed
countries than in the developing ones, thus has two potential costs.
One is the inefficiency in private cost terms of differential prices (as
given by (P-Pc)). Secondly, there is a social loss as shown by (PC -
Pg) to the extent that there is in the developing countries a divergence
between the marginal social cost and the private cost of production. If
this analysis is correct, these could represent major costs for the
world as a whole as a result of the influence on the location of produc-
tion of developed (and developing) country policies.
Market Stability
In the case of market stability, the influence of developed country
policies has been recognized for some time now. The period of price
instability in 1973-75 caused a lot of economists to go back and look at
the structure of markets and their relationship to domestic policy. The
proposition can be simply stated and illustrated. Figure 2 shows an
exporter 2(a) and an importer 2(b), with various policy instruments
designed progressively to stabilize domestic prices. The first part of
the figure shows an exporter with a free-trade export supply curve XF
that wants to introduce domestic price stabilization policies. Imagine
that it introduces a minimum price for its producers (Pa); the effect is
to shift the export supply curve from XF to Xp (Figure 2) at prices
below that minimum. If now a country were to set a minimum price for
both producers and consumers (in other words, a minimum domestic price
at Pb), then the export supply curve would become totally inelastic, as
shown by XT, at points below that domestic price level.4 Such a policy
might eni.ail a variable export subsidy. In the European Community, for
instance, an export subsidy is paid which is enough to bridge the gap
between the domestic price and the (lower) world price. Consequently,
the export supply curve for the European Community over the normal range
of world market prices is totally inelastic with respect to price.
Consider now an analogous reaction at the top end of the market,
during high price periods. A maximum price for consumers (of Pc), such
as the U.S. tried during the Nixon Administration with price controls,
will move the export curve to XC. If a country resorts to export embar-
goes or variable export taxes (to keep domestic prices at Pd), the curve
will be perfectly inelastic as shown by XT. The country is saying "we
will export this much and no more." The implication of such policies
operating on domestic price stability is that one can move from quite
4It is not suggested that each country uses all of these instru-
ments: merely that the likelihood of more "aggressive" domestic stabil-
ization policies increase as world prices deviate from some "desired"
national level.
---I
price-responsive export curves to ones that appear very steep by the
time all the various policy modifications are taken into account.
On the importing side, the analogy is clear. In Figure 2, the
free-trade import demand is shown as Mf. A minimum price for producers
(of Pa) through a deficiency of payment system means that only consump-
tion is responding to price changes; the import demand curve might
follow a path such as Mp. A fixed domestic price such as a minimum
import price at Pb, backed up by a variable levy system as in the Com-
munity, will cause the import demand curve to become perfectly inelas-
tic, as in MT, below that domestic price.
On the way up, a similar thing might happen. A maximum consumer
price of Pc, backed by consumer subsidies, for instance, will imply that
only the producers react to high prices (curve MC). And if a country
were to put on import subsidies above a price of Pd, as the Community
did briefly in 1974 for sugar, then one could observe a perfectly
inelastic import demand curve, as shown by MT in Figure 2.
The third part of the figure shows the impact on world markets if
several countries act in this way. One can hardly imagine anything
worse for international market stability than the interaction of these
"S" shaped curves. It means that there is a little bit of stability for
small variations of output or demand, but the market explodes whenever
one gets outside a particular range. By contrast, a well functioning
market might allow a reasonable amount of variability around a band, but
make sure that prices rarely stray outside that band. For that is when
the costs of instability get very high.
SXt P M Mt M X
PC
Xc M
Xf Pd-
Pd
c
Pc _-s
Pb / b M
X// Mp X M
XP Mt
Xt ____
Sexporter b) importer c) world market
a) exporter b) importer c) world market
Figure 2. Impact of domestic market stability policies on world market stability.
Why is this important? The distortion of the trade curves clearly
has a direct influence on world price stability. But there is a second
reason why domestic price stabilization is important: domestic stocks
relate to changes in domestic price. So, if one stabilizes domestic
price, there will be a lack of incentive to stock. Who wants to hold
stocks in the European Community? Everyone knows what the current price
is on domestic markets, and within narrow limits what the price is going
to be the next year. So, there is little speculative gain to be had in
holding stocks. Therefore, those countries that stabilize their domes-
tic prices are also those countries that have very low ratios of stocks
to domestic production. In the case of the Community, cereal stocks are
about 10 percent of domestic utilization. In the case of the U.S., they
are 20-25 percent and of Canada, about 35-50 percent. (The Canadians in
fact hold stocks to control supply; one way of getting supply control is
for the Canadian Wheat Board just not to buy the full crop from the
farmers, and allow the stocks on farm to build up until farmers decide
to reduce production.)
In a study for IFPRI, I estimated this stock response in the wheat
market by looking at the relationship between stock changes and world
price changes. For any $10 per ton increase in the world price,
Canadian wheat stocks decrease by 1.29 million tons. In the case of the
U.S. it is 0.97 million tons for every $10 increase in the world
price. In other words, EC response is not exhibiting stabilizing but
destabilizing speculation. In Canada and the U.S. there is at least a
5See Josling (1980).
reasonable release of stock as the world price goes up. There are very
important implications for developing countries. If one happens to be a
small developing country importing one-half million tons of cereal per
year, then serious problems arise when the price of cereals is two and
one-half times the price that was anticipated. At the least it can make
quite a difference to the internal budget and to foreign exchange pay-
ments.
Commodity Substitution
The third policy link with world markets is that which is engen-
dered by the degree of' market substitution among commodities. Policies
in one crop show up as disruptions in other product markets. There is
evidence that this effect is becoming more important in recent years.
The agricultural system itself is undergoing a very rapid modification
in terms of the end-use pattern of the products. It would have been
fairly easy five or ten years ago to observe, without fear of contra-
diction, that wheat, rice, sugar, and cassava (manioc or tapioca) are
food crops. Corn, barley, and soybeans were, on the other hand, feed
crops. Recently there has been a lot more substitution both between the
categories and within categories, together with the emergence of a new
end-use, the production of ethanol from crops.
An early example of such substitution was the food use of soybeans
through the development of textured soy proteins. This appears to have
stabilized in the U.S.; it probably accounts for about 10-15 percent of
the meat market, and it is not growing. Such substitution never really
took off in Europe, although at one stage the projection was for tex-
tured soy proteins to take over 30-40 percent of the meat market.
I
Another, more recent, example of this is the use of corn as a food crop,
in competition with sugar. High fructose corn syrups are very important
in the U.S. sweetener market, though not so important in Europe because
the Community has put a prohibitive tax on the production of isoglu-
cose. Again, the EC uses a lot of wheat for feed, and this trend
appears to be taking hold in the U.S. In Japan rice is being fed more
than it was, because of the size of the Japanese rice surplus. Other
recent examples are the use of cassava in animal feed, and the use of
corn and sugarcane for ethanol production. The by-product of using corn
in ethanol manufacture is corn gluten which substitutes for soybeans,
resulting in an interesting interrelationship between the feed sector
and the fuel economy.
Now why is this important? One thing that makes such substitution
interesting is that these various uses are driven by different economic
variables and policies. Food uses are driven more by population pres-
sures and food security policies. Food has a "peak" income elasticity
at a relatively low income level (see Figure 3). Feed is driven by
income, by livestock (rather than human) population, and by livestock
policies. I would suggest the "peak" is at higher income levels for
feed use. Fuel demand is driven by crude oil and natural gas prices and
the demand for gasoline. I suspect the "elasticity peak" is higher for
fuel uses of crops, though I confess I don't have an estimate to back up
that assertion. As a crop moves from one end-use category to another it
takes on a different demand "dynamic" and is influenced by different
policies.
Income
elasticities
fuel
feed
food
Income
Figure 3.
Patterns of income elasticities for different end-uses
of agricultural crops.
_ I II_____ I_ I
As an example of policy interactions, let us look at EC corn
policy. In the early years of the Community, feed grain policy was
aimed at keeping the price of corn high in Europe, mainly as a support
for domestic wheat producers. In fact, corn prices came to reflect
feeding values in relation to the high-priced wheat. This high corn
price is now locked into the system; if the EC were to try to reduce the
corn price, then that would generate more surplus wheat. As a conse-
quence, corn prices have stayed 30 to 40 percent and occasionally up to
60 percent above the world market price. On the other hand, the pro-
tein-rich soybean meal is imported free of duty and cassava usually
comes in at a fixed 6 percent tariff.
Soybean meal plus cassava makes a very good substitute for corn and
barley; one can feed it at rates up to 40 percent of pig rations and up
to about 15 percent in poultry rations, and to a lesser extent in cattle
rations. Cassava cannot compete with corn at world market prices. The
EC is about the only place where the price ratio is enough to generate
this particular switch, and the effect has been quite dramatic. The
imports of cassava into the community increased 25 percent per year
through the '70s, starting with a million tons and reaching 6 million
tons by 1980. The EC finally negotiated a limitation agreement with
Thailand; they agreed to give Thailand $70 million to look at diver-
sification crops and the Thais agreed to limit their exports to 5 to 5.5
million tons. Basically the agreement was acceptable to the Community
because it stopped the growth of the cassava imports and marginally
i
acceptable to Thailand because of the side-payment in terms of financial
aid.6
Everyone has heard about the high corn price in Europe. What is
not so well known is that the price isn't the same in all countries in
the Community. The strong currency countries which would normally have
a decreasing price level, through the appreciation of their currency,
make use of an arrangement which involves the use of special exchange
rates for agricultural products or "green rates." The green rate
doesn't change automatically to match the market rate; it lags behind
the market rate. A strong currency country therefore has higher prices
than the rest of the Community. The result is that soybean prices
decline with the appreciation of the exchange rate change in Germany,
the Netherlands, and Belgium, but corn and barley prices don't go down
so fast. The corn price goes up relative to the soybean price.
In 1978 the support price of barley was about $137 per metric ton
in the UK; in West Germany it was $193 per metric ton, both reflecting
the 120 units of account per metric ton institutional price in the
Community. The soybean price per metric ton was about the same in both
countries, so one can get an idea of the leverage that the green rate
system has on relative feed ingredient prices and hence on the feed
rations. Thus, of the 6 million tons that were imported into the EC in
1980, 4 million tons went to the Netherlands and 2 million tons went to
Germany.
6Incidentally, they didn't find any satisfactory alternative crops.
This is an extreme case reflecting the fact that at that time
sterling was unduly weak and the market was strong.
One of the reasons why this story is important is that cassava is
food for low income families in Indonesia and other countries. It has
not usually been a traded commodity, although there is a market for
cassava starch. Thailand and Indonesia between them earned about $56
million in cassava exports in 1980. A recent study suggests that at
least half of that can be attributed to the fortuitous increase in
exporting earnings resulting quite accidentally from a developed country
agricultural policy, namely the higher price of corn in Europe.
Conclusion
Developed country* policies influence the efficiency of world mar-
kets and stability of world prices. In the light of experience with
these policies during the 1970s, there has probably been no appreciable
move towards a better distribution of production in world agriculture.
The failure of NTN to tackle protectionism, in particular in Western
Europe and Japan, is a case-in-point. Developed countries in general
are still high cost producers. The LDCs still tax their agriculture
though there may be more exceptions to this rule than before.
Is there any measurable progress towards international stability?
There has been no coordinated national grain stock program; the current
wheat trade convention has no economic provisions. There has been no
increase in EEC stock variability (with respect to world price) which is
one of the major problems in the world cereals market at the moment.
8See Nelson (1982).
Official FAO figures on prices in developing countries show a
medium price for 30 developing countries somewhere between the EC and
U.S. price, for wheat and corn and rice. See FAO (1981).
U.S. cereals policy has probably contributed to stability through the
farmer-owned reserve policy. Though the total amount of stocks may. not
be greater than would have been held by the CCC, the transparency of the
program has some advantages for world markets. Although there has been
the new IMF food financing facility, that in itself increases the need
for stabilization stocks, because a food financing facility gives access
to foreign exchange at the time when prices are high.10
Increased flexibility in end-uses for agricultural products will
continue to accentuate the interdependence among policies and pose new
problems for developing countries trying to take advantage of inter-
national markets in support of their own food and agricultural
programs. The threat of major diversion of corn for ethanol production
seems at present to have receded, but it served to illustrate the extent
of the linkages among markets.
Solutions to the problems raised in this paper do not come easy.
But if the international community is to attempt to improve the condi-
tions under which commodities are traded internationally, then the vari-
ous links with national policies must be recognized and discussed
directly. The reward is a trading system which ensures a low-cost
agricultural and food sector and which can assimilate and adjust to the
inevitable fluctuations in production in weather-related crops. For
developing countries, such a system would be an invaluable guide to
their own resource allocation and development decisions.
10The World Food Council is trying to canvass support for a small,
clearly defined stock for a group of LDCs which will try to offset the
effect of the food financing facility.
69
REFERENCES
FAO. International Agricultural Adjustment: Third Progress Report.
Rome: FAO c81/24, Rome, July 1981.
Progress of International Agricultural Adjustment: Working Paper.
FAO, ESDG, October 1977.
Josling, T. Developed-Country Agricultural Policies and Developing-
Country Supplies: The Case of Wheat. IFPRI Research Report.
Washington: March 1980.
Nelson, G. Implications of Developed Country Policies for Developing
Countries: The Case of Cassava, Unpublished Ph.D. thesis, Stanford
University, 1982.
Peterson, W. "International Farm Prices and the Social Cost of Cheap
Food Policies," AJAE 61:1 (Feb. 1980).
-F
DIPLOMACY AND FOOD: THE RULES OF THE U.S. STATE DEPARTMENT
Lawrence Witt
Professor Emeritus, Michigan State University
Adjunct Professor, University of Arizona
The titles of the five seminars indicate that you are examining the
role of agriculture in international relations. The topic for today
suggests that conflicts exist between diplomacy and food, specifically
with the State Department. I submit that the situation is complex and
has changed over time. Moreover, the mention of the State Department
has become a synonym for non-agricultural departments and agencies that
have expressed serious concerns and proposed actions contrary to strong-
ly expressed agricultural desires. These agencies include the Treasury,
Office of Management and Budget (OMB), the Cost of Living Council, the
maritime unions, and George Meany. The State Department has been on
both sides though usually not at the same time. AID, formally a unit of
the State Department, usually has been close to agriculture, except when
some of its client countries attempt to use U.S. funds to expand their
exports of farm products the U.S. also exports.
I have chosen to explore this topic by examining some of the policy
concerns (or bureaucratic wrangling) in Washington over foreign economic
policy as it applies to agriculture. As you will see, this has involved
both domestic and foreign policy in general as well as domestic and
foreign agricultural policy. The experiences of the 1970s have demon-
strated that important issues can emerge with frightening rapidity and
e eminar pres n ation t the Food and Re source Ecno Depart-
ment, university or lorida, Gainesville, Flori(a, March 1 SZ.
71
that the stakes can be large. Since I served in Washington for seven of
the 10 years of the 1970s I will draw heavily on the following episodes:
The Russian wheat purchases of 1972
The soybean embargo in 1973
Food aid decisions in 1974 and 1975; the World Food Conference
The Soviet grain purchases in 1974
The US-USSR Grains Agreement, 1975-80
Efforts to build an international grain reserve, 1975.
I have drawn heavily upon I.M. Destler, then with the Brookings
Institution, who interviewed many of the principals in writing his book,
Making Foreign Economic Policy (1979). Those of you seeking more de-
tailed information will find a wealth of detail in his book on both
trade and agriculture in a framework of foreign economic policy. His
opening paragraph could be an emerging theme for our topic today:
The core of the problem of foreign economic policy is
the need to balance domestic and international concerns.
Particular decisions inevitably affect both. But policy
makers do not always address both in a balanced way (p. 1).
I shall begin with a brief contrast in the background and training
of those working in the Department of Agriculture and the Department of
State, so as to indicate the ways in which parochial views may develop
in each of the two bureaucracies. Next I shall indicate the general
congruence and occasional conflicts in the two decades prior to 1970.
Then, I shall briefly review the policy conflicts in the six episodes of
the 1970s, mentioned earlier, including the roles of other U.S. agen-
cies. Finally, I will draw on Destler for his suggestions of how such
situations should be handled in the future, specifically whether cen-
tralization of decision making p th,i Executive Office of the President
or decentralization (and coordination) in the several departments is a
feasible procedure.
Personnel Background
The USDA and related agencies tend to be heavily staffed in senior
positions with farm reared people with experience in 4-H/Future Farmers-
high school vocational agriculture/agricultural college B.S. degrees/-
higher degrees in other agricultural colleges, and work experience in
the colleges, agribusiness, and USDA. This often leads to a bent or
bias toward the primary worth of food production and a cherishing of the
values held by farm people. Since you know that this description is
over-simplified, you will recognize that the following description of
the Department of State also is subject to many exceptions.
The Department of State consists of the Foreign Service (about a
third of the total), a large number of technicians dealing with the
machinery of international communication and travel (another third or
so), and general service employees dealing with personnel, payroll, data
analysis, translation, etc. Most of the policy positions are held by
Foreign Service personnel plus a few general service employees, who may
or may not become part of the Foreign Service during their careers.
At one time the Foreign Service drew mainly on Ivy League schools,
B.A. degrees, entering at the lowest rank with a pay scale that paid
about L-!hre:-f.urths of their e: p nses. They tended to be private busi-
ness oriented wlith some indnJependent income from their families. 'They
were bright, lucid, personable, without technical competence in anything
except perhaps languages--English and a foreign language or two.
Before, during and after World War II the State Department found that
they needed more competency than they possessed. Three alternatives
were used: (a) lateral transfer from other government agencies, or out-
side, of mid-career analysts, (b) broader range of recruitment with
changes in exam questions to give some preference to people with gradu-
ate training, and (c) in-service training of selected individuals to at
least the M.A. level in economics and political science and sometimes as
far as the "all but" stage of the Ph.D.
Since then half a dozen commissions have examined, discussed and
advised on the personnel policy of State. The role of the Foreign
Service has been both increased and downgraded; policy analysis posi-
tions have been given increased and decreased informal quotas of Foreign
Service personnel, that is, outside recruitment for such positions has
sometimes been facilitated. The basic problem is the assignment policy
in the Foreign Service--the rotation of people from country to country
every two or four years, including a tour of duty in Washington. These
changes in responsibilities and environment do not permit the develop-
ment of expertise in economic analyses, commodity problems and the
implication of alternative policies, particularly on U.S. domestic
problems. During the past decade or so, Foreign Service personnel have
been able to select one of the three "cones", economics, political or
consular (including junior administrative roles). Before Henry Kis-
singer, they tended to be rotated within a region with Western Europe as
the elite region and Africa at the other extreme. Mr. Kissinger man-
dated that Foreign Service officers should be assigned to a new region
whenever a new tour of duty was specified. Few people in the Western
I
Europe or East Asian regions were enthusiastic! I do not know the extent
of possible backsliding in the past four years. The reasons for
Kissinger's policy was the paucity of people capable of taking a world
view of economic and political policy.
Almost no graduates of agricultural colleges made it into the
Foreign Service, except for a few who opted into the Foreign Service in
the early 1950s when the agricultural attaches (largely recruited for
State by the USDA) were transferred from the Foreign Agricultural Ser-
vice of the USDA.
The State Department system provided people who were broad gauge
and politically alert to developments in their region but unused to and
often unable to make in-depth analyses using the modern tools of eco-
nomics and political science.
Policy positions before 1972
During the period of the reciprocal trade agreements, State and
Agriculture agreed on the need to reduce foreign trade barriers against
U.S. exports. Disagreements appeared on specific commodities when the
USDA resisted cutting U.S. tariffs on such commodities as wool, sugar
and dairy products. But there were inter-departmental procedures for
reconciling these differences. Official Washington and agricultural
policy specialists recognized the conflict between high support prices
and efforts to expand agricultural exports, exacerbated in the 1960s by
an overvalued exchange rate for the U.S. dollar, but they also recog-
nized the difficulty in making policy changes. The State Department,
generally opposed to export subsidies, and at first opposed to food aid
as dumping and in conflict with the concepts of free trade gradually,
grew to be a strong supporter of the food aid program, for at least two
reasons. First, the USDA became less aggressive in pushing food aid and
chose to harden the terms. Second, the Ambassador and other senior
embassy officials found that the ability to provide food aid to the host
country gave them needed leverage upon host country policy and enabled
them to present the U.S. as a humane country concerned with individual
welfare. The use of food aid was particularly welcome when development
aid funds were not available or were being curtailed.
In general, before 1972, U.S. domestic agricultural policy was a
given. While foreign economic policy might lead to some marginal modi-
fications, State had to adapt and adjust, occasionally expressing frus-
tration and some philosophical differences to special audiences.
The Events of the 1970s
During 1971-72, as part of a general foreign policy stance of
rapproachment to the USSR, the Nixon administration removed several
barriers to trade with the USSR, Eastern Europe, and the People's
Republic of China (PRC). For example, after June 1971, export licenses
from Commerce were no longer necessary to sell grains to these coun-
tries, the 50 percent requirement on the use of U.S. bottoms was sus-
pended, and credits to the USSR were proposed.
In July 1972, large Soviet purchases depleted our grain reserves,
led to rising prices but were not followed by a timely abandonment of
export subsidies or release of wheat acreage controls in time for the
seeding of winter wheat. By and large, the problems and policy decision
were confined to the USDA, leading to a critical view of the USDA by
other government agencies, as prices rose and protests mounted from
those concerned with inflation and domestic economic policy.
This domestic concern increased a year later as soybean prices
reduced the profitability of livestock production and stimulated a
further rise in food prices. The result, in June 1973, was a soybean
embargo--an action completely contrary to several decades of effort to
encourage trade and to assure the world that the U.S. was a reliable
supplier of farm products. The Director of the Cost of Living Council,
John Dunlop, and the Department of Commerce took major roles in forcing
an acquiesence by the USDA.' The State Department played no role.
Unbelievably, the principal actors considered the embargo as primarily a
domestic economic policy issue. In contrast to the previous year the
government rushed to a decision.
In both cases, the incident turned out badly. The excluded govern-
ment agencies could easily make the case that narrowly based policy
decisions are likely to be unbalanced, particularly when the resulting
action has both domestic and international consequences. The political-
ly alert, overseas foreign service officers reported innumerable experi-
ences of adverse foreign reactions.
The amount of food aid supplied by the U.S. declined from 1967 to
1973, due to (a) improved harvests in India, (b) budgets being cut in
real terms as food prices rose, and (c) larger commercial sales reducing
pressures on the USDA to export to concessionary markets. Moreover, the
allocation had shifted toward foreign policy objectives so that in 1973
nearly half of the Title I food aid went to South Korea and South Viet-
nam and in 1974 about two-thirds went to South Vietnam and Cambodia.
These allocations were made through an inter-agency committee estab-
lished in the 1950s; AID and State had urged successfully an increase in
food aid to the indicated countries as a means of providing further
economic support despite limitations in other aid funds. Although small
reversals in amounts and allocations were being made to favor the poor-
est countries, the activist Secretary of State, Henry Kissinger, pro-
mised in several international forums to make a major effort to increase
the quantity of food aid. He sought authorization for a larger commit-
ment as part of his address to the World Food Conference in late 1974.
A summer 1974 drought in the Corn Belt contributed to a larger
rather than the predicted slower increase in food prices. As a conse-
quence, domestic economic policy priorities led to delays and doubts
about whether any increase was feasible. The USDA, under Butz, was not
very supportive. State, under Kissinger, was aggressive in seeking more
food aid, particularly for political purposes to foreign policy
clients. Treasury, OMB, and sometimes the Council of Economic Advisors
(CEA) sought to reduce or hold back food aid to reduce the ravages of
inflation and to hold down the federal budget. Eventually, long after
the World Food Conference, a small increase in food aid was authorized
late in FY 75 as grain prices declined--too late for Bangladesh.
During the same period, the Soviets had again entered the U.S.
grain markets, raising fears of a repeat of the 1972 experience. This
time, however, the USDA had sales information early, because of pro-
cedures initiated in 1973, and notified the White House in accordance
with previous instructions. President Ford, with Treasury Secretary
Simon, Butz and other officials present, told grain company representa-
tives that sales could not go forward. Eventually Simon headed a Moscow
mission that renegotiated the contracts for the same aggregate amount
but reversed the quantities of wheat and corn. The resulting export
management system was overseen by a White House based committee consist-
ing of Sievers of CEA in the White House, Yeutter or Bell in the USDA,
Katz from the economics bureau in State, Malmgren, deputy special trade
representative, and Hormats from the National Security Council. Sievers
argued that his role was too operational for the CEA, so Bell became
chairman in his place.
These informal controls were relaxed in the winter and spring of
1975 as grain prices declined. 'However, by summer, information accumu-
lated that the 1975 Soviet harvest would be down sharply. In eight days
in July, the USSR purchased 10 million tons of grain. A "temporary
suspension" in sales was announced by Secretary Butz to be in effect
until August 11, subsequently extended to September, pending the crop
report on corn.
One State Department official on September 10, 1975, through the
U.S. Embassy in Warsaw, quietly extended the suspension to Poland, just
prior to a meeting between Butz and the Polish Minister of Agriculture
to discuss a long term grain trading agreement or understanding. This
ill-advised single agency action was reversed, after three weeks, by
Butz and the Polish minister.
While the suspension of new sales to the USSR was in effect, the
maritime unions threatened a boycott of existing contracts unless ship-
ping interest--and consumers--were given more support. The first meet-
ing with labor representatives did not include either Agriculture or
State, but did include an audience with President Ford. The second and
conclusive meeting did include both Butz and Kissinger. Immediately
1
thereafter Undersecretary of State Charles Robinson headed a mission to
Moscow to negotiate long term agreements on grains, shipping rates, and
arrangements to purchase oil at less than OPEC prices. He succeeded in
the first two. Although the USDA was represented by a lower level
person, the main outline of the Grain Agreement was drafted by Assistant
Secretary Bell and his staff.
Thus, while farm groups bemoaned that the USDA was playing a minor
role to State, in truth they were more accurate in complaining about the
influence of the maritime unions and George Meany. Certainly, in the
subsequent semiannual US-USSR conferences on the Grains Agreement, the
USDA played the primary role, but including prior inputs from other
interested agencies. Interestingly, the central person was an agri-
cultural economist, Dale Hathaway, the only senior federal official
whose office for him, his predecessor, and his successor carries a
domestic and a foreign economic policy responsibility, namely as assis-
tant secretary for commodity programs and international relations.
The last episode to be reviewed stemmed from Kissinger and Ford
speeches to international audiences in 1974 indicating a readiness to
move towards an international system of food reserves. Kissinger con-
tinued in the same theme at the World Food Conference and one of the
major resolutions echoed this theme. The USDA, having recently gained
freedom from burdensome surpluses, was not enthusiastic about the pro-
posal that "a worldwide reserve of as much as 60 million tons of food
may be needed to assure adequate security."
International and interagency conversations continued in the winter
and spring of 1975. The EC was prepared to support a price based
commodity agreement; the developing countries wanted substantial conces-
sionary prices to apply to their purchases; Japan wanted to be assured
of access while the Soviets expressed deep interest but no views. In
Washington the USDA wanted the costs to be widely shared among the
developed countries, including USSR, quantitative guidelines for acquir-
ing or releasing stocks and an aggregate reserve of no more than 25
million tons of wheat and 5 million tons of rice, and further discussion
on whether feed grain stocks were needed. State, with Enders as the
main spokesman, urged price criteria for stock management and tight
controls to maintain the integrity of the reserves. This was consistent
with other policies in favor of international commodity agreements.
Other Washington agencies--the CEA, Treasury and OMB--wanted to place
more reliance on the free market' system and less on the use of the
federal budget.
The U.S. did not develop a proposal for almost a year. Eventually,
the CEA, primarily Ed Schuh, developed a modest proposal that would
provide food security to the developing countries. But by this time it
was too late, as foreign observers could see that the U.S. was being
pressed by domestic developments to again absorb the costs of a substan-
tial grain reserve.
Several conclusions can be drawn from this tangled web: first, in
1972, the USDA, partly through bureaucratic lethargy, failed to recog-
nize that a quantum jump in the demand for grain had occurred as a
result of a Kremlin decision not to force, as they had previously, a
partial liquidation of their livestock sector. Instead, they chose to
import enough grain to continue their expansion of livestock produc-
tion. It is impossible to know whether a multiagency decision would
have recognized this change sooner.
Second, in 1973, the non-USDA agencies failed to recognize the
substantial flexibilities (substitutabilities) inherent in the US live-
stock production sector; that is, there is a substantial response to
price in the use of grains and protein supplements in US livestock
production. The virtual exclusion of the USDA and State from the cen-
tral decision on a soybean embargo kept both this technical insight and
the foreign economic policy impacts from being given consideration.
Third, in 1974 and 1975 on food aid and grain reserves, State moved
too aggressively and stubbornly into domestic economic and agricultural
policy. The free enterprise economic philosophies in the other agencies
were in opposition, and for feed grain reserves, State had not done its
homework; they underestimated the amount of adjustment to prices among
feeds in livestock production and the food reserves implicit in a large
livestock industry.
Finally, policy makers came to realize only slowly that the insti-
tutions that have developed in the livestock-feed grain sector of the
EC, Eastern Europe, and USSR grain-livestock sectors have tended to make
the international demand for grains less sensitive to prices. Internal
prices are established by rigid domestic policies; imports or exports
occur when supplies are out of step with demand at those prices, plus or
minus a somewhat flexible reserve; when recourse is made to the world
market, the effect is of a sharp kink in either the supply curve
(exports from the EEC), or demand curve (imports by the USSR or Eastern
Europe), thus imposing greater instability upon world supply and demand,
over a period of years, in comparison to the situation before these
institutions were developed.
Implications
We have seen that single department responsibility has led to one-
sided decisions, that is, to a parochial view with an inadequate balance
between the domestic and the international interests of the nation, and
often between the interests of, one economic sector and the more general,
national interests. While one might argue that the failures are asso-
ciated with the Butz Department of Agriculture and not the Bergland
Department of Agriculture, the facts are that the latter was both a more
broadly concerned USDA and one that interacted frequently and often
daily with the Executive Office of the President, the CEA, Department of
State, and other agencies. Thus, I argue that the Bergland Department
of Agriculture offers an example of decentralized decision making with
coordination, as needed, in the Executive Office of the President. The
major organizational option is a foreign economic policy unit making
decisions in the Executive Office of the President, or possibly as an
outside-the-White House unit making all foreign economic policy deci-
sions. The Council on International Economic Policy in the Nixon admin-
istration was a significant effort at centralized decision making.
The choice between centralization and decentralization is not
unique to food policy; it applies to other policy areas as well. As
Destler suggests:
The Department with most of the information and day-to-
day action tends to emphasize one set of policy concerns to
the neglect of others. Yet to transfer authority from it to
a White House-based coordinating body would separate the
making of policy from detailed information and operational
responsibilities, complicate communications with the Congress
and the public and undercut the department's performance of
its ongoing day-to-day functions. And once this "solution"
is used in enough policy areas, the biases of departments and
agencies and boundaries between them merely become replicated
in the organizational and jurisdictional divisions within the
Executive Office of the President. (p. 128)
The first USSR wheat purchases in 1972 affirm that a single depart-
ment cannot be left alone to make decisions when a major economic event
occurs. The soybean embargo of 1974, the Soviet purchases of 1974, and
the informal embargo against Poland indicate that the primary department
cannot be ignored. The food aid episode of 1973-74 and the 1975 Soviet
purchases leading to the US-USSR Grains Agreement were untidy since a
variety of views of the administration and of certain members of Con-
gress were expressed but the final results appear to be a reasonable
resolution of the concerns and issues that concerned the nation.
Although single issue proponents object to compromise as an evil thing,
the give and take that lead to compromise are useful procedures within a
governmental bureaucracy as they are within a legislative body.
Decentralization, however, does not imply a complete lack of cen-
tral monitoring or pressures for interagency coordination when a major
event occurs or looms on the horizon. There needs to be a small office,
say three to five people, in the Office of the President who serves as
honest brokers of different points of view and who have the authority to
bring together people from several departments to discuss the implica-
tions of alternative policies. They need to be sensitive to emerging
problems, capable of considering implications for the current matrix of
domestic and foreign policy, and able to press for an integrated
national policy position with which the various interests can live.
This small office, which must have access at a senior level to the Oval
Office, would function primarily when a crisis looms in the relations
between domestic and international policy. Experience has shown that
power is likely to gravitate to those with domestic economic policy
responsibilities unless there is a procedure by which relevant inter-
national issues can be introduced before a decision is finalized.
I conclude by suggesting that the Department of State has had less
influence on farm and food policy than has been attributed to it. With
the exception of food aid and the short informal embargo on grain sales
to Poland, the State Department has become actively involved only when a
crisis appeared at a time when other federal agencies also intervened.
Moreover, the State Department has frequently supported a USDA leader-
ship position in favor of greater trade, continuance of food aid ship-
ments and special credits to countries in Eastern Europe. They have
differed when the USDA has been indifferent to broader foreign economic
policy concerns and at times when State suggestions for extra assistance
to foreign policy clients are substantial. The impression of substan-
tial differences appears only when a major crisis appears and usually
when other units of the federal government also have serious misgivings
about the apparent balance being forged between domestic and foreign
economic policy.
In the world of today, just as the impact of foreign policy on the
domestic economy is too great to permit the decisions to be centralized
in the Department of State, the impact of food policies on domestic
economic policy and on foreign economic policy are too important to
1
85
permit the decisions to be centralized in the Department of Agricul-
ture. At the same time the informational inputs of the primary depart-
ments are too vital to permit decisions to be made without the active
participation of the department with day-to-day operational respon-
sibilities.
REFERENCE
Destler, I.M. Making Foreign Economic Policy. Washington: American
Enterprise Institute, 1979.
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