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TABLE OF CONTENTS
Chapter
Page
V. IMPORTS IN THE U.S. ECONOMY 26
Why do we open our shores to foreign imports and
thereby take jobs away from American workers?
Wouldn't we be better off if we looked after
ourselves first?
Discussion
Approach
Introduction
Complementary Imports
Supplementary/Competitive Imports
Which Goods Should We Import?
Summary
VI. AGRICULTURAL EXPORTS 32
How dependent is U.S. agriculture on world markets?
Discussion
Approach
Exports in U.S. Agriculture
Exports and Michigan Agriculture
Future of Agricultural Exports
Summary
VII. DEVELOPING NATIONS AS TRADING PARTNERS 40
Isn't it true that although developing nations may
wish to purchase our products, they will never
achieve the financial capabilities of becoming
major U.S. trading partners?
Discussion
Approach
Are Developing Nations Important Trading
Partners of the U.S.?
Market Potential in Developing Countries
Future Exports to Developing Nations
Summary
VIII. THE DYNAMICS OF DEVELOPMENT AND TRADE 46
Aren't we spoiling the market for U.S. agricultural
products by helping other nations develop their own
agriculture (and thereby competing with our products)?
Discussion
Approach
Development Strategies
Development Strategies and Trade
Summary
IX. SELECTED REFERENCES
APPENDIX 1. -- Reproduction of Figures for
Use on Overhead Projectors
LIST OF CHARTS & FIGURE
LIST OF TABLES AND FIGURES
Table Figure Page
1-1 Comparative Lifestyle Indicators 9
1-1 World Population. 1975 and 2000 9
1-2 World Arms Transfers in 1978 10
2-1 Sources of Investment in a Typical 14
Developing Country
2-2 Government and Private Development 16
Assistance in 1980
2-1 U.S. Budget Allocations for 1982 15
3-1 Food Aid as a Percentage of U.S. Agricultural 19
Exports, 1960-1968
3-1 Food Aid Recipients as Cash Customers 20
5-1 U.S. Import Reliance on Developing Countries 28
for Selected Minerals, Metals, and Raw
Materials, 1980
5-2 Sources of U.S. Agricultural Imports 29
6-1 U.S. Exports and Imports of Agricultural 33
Products, 1970-1982
6-2 U.S. Agricultural and Non-Agricultural Trade 34
Balance, 1970-1982
6-3 Percent of Production Exported of Five Major 35
U.S. Crops in 1954, 1966, and 1980
6-4 Michigan Agricultural Exports and Imports, 36
1970-1982
6-5 Percent of Major Michigan Crops Exported 36
in 1981
6-1 Michigan's Major Agricultural Export Countries, 37
1981
6-2 U.S. Exports in Millions of Metric Tons 38
for Selected Years
7-1 The Share of U.S. Farm Exports Going to 41
Developing and Centrally Planned Countries
7-2 Proportion of Income Spent on Food in 42
Selected Countries (1979)
7-3 Average Per Person Yearly Consumption of 42
Selected Foods in the U.S., Developed
Countries, and Developing Countries (1970)
7-1 U.S. Agricultural Exports to Selected Countries, 44
1969-1971 and 1979-1981
7-2 Grain Imports in Millions of Metric Tons 45
by Developing Countries in Selected Years
I. INTRODUCTION
To Sharpen Understanding of Trade and
Development Issues
International events, ranging from Japanese
trade policies to Central American political
struggles to Soviet grain harvests, clearly affect
our everyday lives. Michigan and other American
citizens are interested in activities of Federal
and State institutions in the international arena,
especially as they relate to agriculture and
our food system. Yet they often find it difficult
to obtain a clear understanding of underlying
problems and relationships.
Extension agents and other discussion leaders
frequently find themselves in the awkward
position of having to explain complex agricul-
tural trade and development issues to their
constituents even though they themselves are
limited to the same inadequate and often- confus-
ing sources of information. This report is in-
tended to help close this gap in the areas of
foreign trade and economic development policies.
The treatment of issues presented is insufficient
to transform the reader into an authority on
trade and development. It is hoped, however,
that it will provide enough information to broaden
and improve the on-going deliberation of these
matters in communities across the state. Pro-
gressing through the report, it will become
increasingly clear that these are controversial
and complicated issues. We do not attempt
to offer "the answer" but rather seek to present
fundamental concepts and basic facts to help
sharpen the understanding of these important
questions.
Organization of the Report
In each chapter, a question and discussion format
is used to make it easier to address a specific
question or concern. The materials are intended
to help enlighten discussion and hopefully to
stimulate the organization of local study groups
Trade and development are con-
troversial and complicated
issues.
Purpose:
I. INTRODUCTION
U.S. seeks good relations with
nations for humanitarian,
political, and economic reasons.
and other policy discussion forums. The materials
are also cross-referenced to help indicate the
linkages among the various issues.
The discussion of each set of questions is subdi-
vided into three sections. The first of these
provides a brief statement indicating the approach
to be used in the response. The second is the
body of the discussion, where relevant facts
and figures are cited and explained. Many
of the charts and graphs used are reproduced
in large size in the Appendix so they may be
removed for reproduction as overheads to be
used to accompany oral presentations. In the
third section, main points are summarized.
A final chapt.er--Selected References--lists
the sources of information used in the compila-
tion of the report. The interested reader will
also find suggested additional background reading
materials.
General Background
In the aftermath of an unpleasant international
event (such as the Iranian hostage crisis, terrorism
in Beirut, or the civil war in El Salvador), the
argument frequently springs forth that the
U.S. should pull back from its international
involvements and isolate itself from the world
community as much as possible. This argument
is most frequently directed at our relations
with the developing nations since the view
is often prevalent that we gain nothing from
such involvements.
A more reasoned view recognizes that the
United States seeks good relations with all
nations for a combination of important humani-
tarian, political, and economic reasons. We
will briefly review these and their interrelation-
ships.
Humanitarian Concerns
Let's turn first to humanitarian reasons for
our involvement with developing nations. The
peoples of these nations, constituting the vast
majority of the world's population, lag far
behind people in developed nations in terms
of health, material wealth, and other yardsticks.
In Table 1-1, the major differences between
the level of living of the average American
and that of the average citizen of a developing
nation are revealed. Given such wide disparities,
our humanitarian concerns are well justified.
Most Americans cannot forget that the U.S. was
founded by refugees from other lands who
Wide disparities in level of living
exist around the world.
I. INTRODUCTION
Table 1-1
Comparative Lifestyle Indicators
U.S. Developing
Countries
Income Per Person ($) 11,360 260
Life Expectancy
(at birth) 74 57
Infant Mortality
(per thousand) 13 94
Energy Use Per Person
(lbs. of coal
equivalent) 25,698 926.2
Source: World Development Report, 1982.
set off in search of a better life. Although
many (but not all) Americans have found that
better life, the tradition of lending a helping
hand to those who are less fortunate remains
strong. We, as a people, are sensitive to the
plight of those in the U.S. and throughout the
world who live in conditions of hunger and
poverty. Their well-being and our well-being
are at some level unalterably entwined.
Humanitarian concerns of Americans for the
less fortunate are likely to become even more
important, as developing country populations
grow. As shown in Figure 1-1, world population
is expected to reach over 6 billion by the year
2000, with as many as 80 percent of these
people living in developing countries. The
World Bank has estimated that about 1 billion
or approximately 30 percent of the population
of all developing countries were living under
conditions of absolute poverty in 1980 with
barely adequate diets, and incomes which leave
little, if anything, for clothing, fuel, shelter,
and other necessities.
National Security and Defense Concerns
A second major reason for U.S. involvement
with other countries is to further our own national
defense. The U.S. devotes a sizeable proportion
(around 25 percent) of its annual federal budget
Developing countries will con-
tinue to feel population
pressures as they try "to
develop."
Figure 1-1. World Population, 1975 and
2000
1975
World Population = 4,090 million
Developing Countries = 2.959 million
Developed Countries = 1,131 million
U.S.S.R.
SAfrica9.4% and
E. Europe
N. America,
W. Europe, Japan,
Australia, and
Asia L.L .erica N. Zealand
Sand. .. 1: 7.9%
.0 .... Oceania .':
55 6%. :::.
Developing Countries
Developed Countries
2000
World Population = 6,350 million
Developing Countries = 5,027 million
Developed Countries = 1,323 million
U.S.S.R.
and
Arca 7.3% E. Europe
12 2.8%N. America.
12.7% W. Europe. Japan.
Australia, and
.::: N Zealand
Source: ODC, 1982.
1. INTRODUCTION
Figure 1-2. World Arms Transfers in
1978 (in $ millions of 1977 Constant
Dollars and in Percentages)
A strong national defense re-
quires good relations
internationally.
Recipient
Region
1978
Total: $19,177 million
Czech.
3.9%
Nearly % of all arms transfers
are to Middle Eastern or
developing countries.
w. I
Germany 4.2%
U.K. 5.3%
France
6.6%
Source: ODC, 1982.
By
Supplying
Country
I. INTRODUCTION
to national defense. As a part of our foreign
policy, we also give away (and sell) vast quanti-
ties of arms in order to help "friendly" nations
protect themselves and our own perceived
national security interest. As shown in Figure 1-2,
in 1978 there were some $19 billion in world
arms transfers (which includes both sales and
gifts). Developing countries were major clients
for these arms, and the U.S. and the USSR
were the major suppliers. In the future, however,
many foreign policy experts feel that the major
world power nations will experience greater
and greater limitations on the utility of military
power as a policy instrument.
Hunger and poverty are major destabilizing
forces in the modern world. The potential
is large for national and international conflict
to emerge from such conditions. As a result,
it is important to recognize that U.S. trade
and development assistance policies can represent
another means of fostering a stable and peaceful
international environment and of achieving
our national security objectives. When other
nations prosper and share common interests
with the U.S., there is less need to worry about
defense investment and other deterrents to
the expansion of Soviet influence and control.
Economic Self-Interest Concerns
The third basic reason for U.S. involvement
with other countries is that these relations
are economically advantageous. In simple
terms, foreign nations are both sources of
goods and resources which we consume, and
markets for the goods which we produce. In
the following chapters, we will emphasize
the surprisingly major role which developing
countries play on both the import and export
sides of our own national economy.
Arms supplies to "friendly
nations" are one way the U.S.
tries to maintain security.
However, hunger and poverty
are major destabilizing forces.
Trade with developing nations is
economically advantageous.
II. FOREIGN DEVELOPMENT ASSISTANCE
* Why do other nations require our assistance?
* Why does the U.S. give so much to other countries
(and get so little in return)?
Approach
Our discussion begins by briefly outlining the
role that foreign assistance can play in the
development process. (A more specific discus-
sion of this issue with reference to food aid
is given in Chapter III.) Then the performance
of the U.S., as compared to other nations in
providing development assistance funds, is
examined.
. Development Assistance: Why Is It Needed?
Although it is clear that levels of living vary
tremendously in different regions of the world,
there is no agreement as to what, if anything,
can and should be done about this. Some ana-
lysts think that improvement of trade relations
and access to credit markets (along with changes
in domestic policies within the developing
nations) are key elements in the development
process. Others feel that these avenues are
simply not sufficient to help the disadvantaged
nations of the world. They suffer from lack
oi monetary, material, and human resources
and are ill-prepared to compete in the world
market. This view holds that only direct develop-
ment assistance in the form of investment
capital, technology, and education can provide
them with the needed boost.
Although they may need some outside assistance,
these nations are not totally dependent upon
it. The actual data for total investment activity
within a typical developing country can be
broken down as shown in Table 2.1. Developing
countries themselves provide by far the largest
share of internal investment funds. Total foreign
involvement (including investments for profit)
represents only 20 percent of investment activity.
Development assistance funds from both private
and public sources account for less than 10
percent of aggregate investments.
There is no clear agreement on
how to best support
development.
Developing countries themselves
provide the largest share of in-
vestment funds.
II. FOREIGN DEVELOPMENT ASSISTANCE
Table 2-1
Sources of Investment in a
Typical Developing Country
Domestic Self-Generated Funds 80%
Foreign Private Investment 12%
Foreign Government and Private
Assistance 8%
Source: Morss, 1982.
The U.S. often exerts profound
and unintended influences on
the activities of other nations.
One nation helping another "to
develop" is a fairly recent
concept.
Aren't Our Funds Misused?
Many Americans are concerned that our assis-
tance often goes to nations that turn around
and take advantage of us. It is essential not
to overreact to specific examples (such as
Iran) and instead seek a balanced view of this
issue. Americans too easily forget that ours
is an immensely powerful nation which is fre-
quently regarded by other countries as being
overly concerned with its own self-interests.
The U.S. often exerts profound and unintended
influences on the activities of other nations.
Only when Americans recognize the validity
of the statement "when the U.S. sneezes, other
nations catch pneumonia" may we begin to
understand why some other nations are wary
in dealing with us.
It is important to realize that the process of
one nation helping "to develop" another is a
fairly recent phenomenon. Previously, more
advanced nations entered the affairs of others
as colonizers or conquerors. Participants on
both sides of the development process are
still experimenting with their roles. Misunder-
standings and failures are unfortunate but
are to be expected. Overall, successes out-
weigh failures. Some nations such as South
Korea and Taiwan achieved remarkable increases
in income in the decade of the 1970s (averaging
7 percent per year). Other developing countries
have dramatically improved the health and
nutrition of their population even without large
increases in income. For example,the per
capital income in the U.S. was 42 times that
of Sri Lanka and 6 1/2 times that of Costa
Rica in 1980. Yet we find that life expectancy
of 74 years in the U.S. is nearly equaled by
II. FOREIGN DEVELOPMENT ASSIST
both Sri Lanka (66 years) and Costa Rica (70
years). Ircia provides a further example where
life expectancy went up by 9 years (from 43
to 52 years) between 1960 and 1980 despite
limited resources- Improvements are being
achieved.
How Does the U.S. Compare to Other Nations
in Development Assistance?
Contrary to what most Americans believe,
the U.S. is not among the most generous of
the developed nations. In Table 2-2, it is shown
that, although the U.S. is the largest overall
donor, in 1980 it ranked 11th out of 17 nations
in terms of the amount of government and
private contributions per individual citizen.
Specifically, in 1980 the average Norwegian
contributed the equivalent of $123.80, the
average German $63.97, and the average Ameri-
can only $37.88.
Contributions to development from church
groups and other charities amount to less than
10 percent of government development assis-
tance funds. When Jhese two sources of funds
are summed, it is clear that our performance
lags behind many other nations. We may, in
fact, ask ourselves if the U.S. as the largest
and richest of the developed nations is doing
its fair share.
Development Assistance as a Competitor for
Domestic Funds
One argument made by some opponents of
U.S. development assistance programs is that
the resources we "give away" in foreign coun-
tries could be better spent domestically. It
is a mistake to assume that a cutback in foreign
assistance programs would mean that vast
sums of money would be available for realloca-
tion to domestic problems. Figure 2-1 shows
that this is until ue. Foreign aid programs (which
include military as well as development assis-
tance) represent only a little over 1 percent
of the national budget. Whether these funds
are halved or doubled will have little effect
on other activities such as domestic welfare
programs. In contrast, our national defense
expenditures account for a full 26 percent
of the budget. Therefore, in many respects
this argument represents a callous attempt
to pit one group of poor against another.
Throughout these materials, the numerous
benefits that our country reaps from our trade
and development activities will be highlighted.
Foreign aid programs represent
only 1 % of the national budge
Figure 2-1. U.S. Budget Allocations
for 1982
Foreign
Aid Programs
1%
11. FOREIGN DEVELOPMENT ASSISTANCE
Table 2-2
Government and Private Development
Assistance in 1980
U.S. is not the most generous of
developed nations-ranks 11th
out of 17 nations in per capital
contributions.
Countries Total Per Person
($ Millions) ($)
Norway 506 123.80
Sweden 982 118.09
Netherlands 1,656 117.09
Denmark 481 93.86
France 4,080 75.96
W. Germany 3,938 63.97
Belgium 626 63.55
Australia 697 47.99
Canada 1,138 47.53
Switzerland 299 46.92
United States 438 37.88
United Kingdom 1,886 33.71
Japan 3,330 28.51
Austria 198 26.37
Finland 122 25.53
New Zealand 78 24.92
Italy 675 11.83
Source: ODC, 1982.
In looking at the budget figures, we must remind
ourselves that our foreign assistance objectives
complement our national defense objectives.
We pursue foreign assistance to attack underlying
development problems and to help maintain
a stable and peaceful world community. Develop-
ment assistance should be seen as a needed
complement to our national defense policies
rather than competition for scarce funds.
A final misconception about our aid programs
is the belief that most of this money is spent
overseas. In fact, government figures show
that over 80 percent of these development
II. FOREIGN DEVELOPMENT ASSISTANCE
assistance funds end up being spent on U.S.
goods and services. In 1982, the total amount
of goods and services purchased in Michigan
by our foreign assistance program exceeded
30 million dollars. This includes agricultural
commodities as well as machinery and equip-
ment, and technical knowledge and training
services.
Summary
1. Development assistance, not merely improved
trade relations or access to credit, repre-
sents a required input into the development
process in many nations.
2. Developing nations should not be regarded
as being helpless and subservient--they,
in fact, provide most of their investment
funds from within their own economies.
3. Development assistance is a long-term,
complex, and difficult process, and there
are many different viewpoints on the sub-
ject. In general, it has been successful.
4. The U.S. has been less generous on a per
capital basis in giving development assis-
tance than most other Western nations
($38.00 per year per American vs. $64.00
per German and $124.00 per Norwegian).
5. Foreign aid is a relatively minor budget
item in the U.S.
6. Development assistance should be seen
as providing some of the same benefits
as national defense--ensuring a stable
and peaceful world community.
7. Most development assistance monies are
spent for commodities and services pro-
duced in the U.S., thereby helping U.S.
businesses and citizens as well as developing
countries.
Development assistance com-
plements our national defense in
ensuring a stable and peaceful
world. Eighty percent of U.S.
foreign aid goes toward the pur-
chase of U.S. goods and
services.
III. FOOD AID
* Do our international food aid programs make any
sense?
* Are food aid programs simply preventing other
nations from pulling themselves up by the
bootstraps?
* Are food aid recipients becoming viable producers
and consumers in the world community?
Approach
We will focus on the historical record of U.S. food
aid programs. The discussion here should be
supplemented with that presented in Chapters VI-VII
which detail the extent to which the developing
countries are and will continue to be major
U.S. trading partners.
History of Food Aid
The major U.S. food aid program (P.L. 480)
was initiated in the 1950s at a time when food
surpluses were a major problem in U.S. agricul-
ture. At the time, the disposal of food surpluses
overseas was seen as a means of both helping
people in other countries as well as developing
commercial markets for U.S. agricultural goods.
In the 1950s, food aid shipments represented
as much as 41 percent of total U.S. agricultural
exports. As is detailed in Figure 3-1, the impor-
tance of food aid in terms of our overall export
of agricultural products has declined dramatically.
In the early 1960s, the percentage of food
exported in the form of food aid remained
as high as 29 percent, and currently food aid
represents only 3 to 4 percent of our total
agricultural exports. The public's perception
that the vast majority of our agricultural exports
are given away in developing countries is not
correct. The figures presented here indicate
that 97 percent of our agricultural exports
are in the form of commercial sales.
Criticisms of Food Aid
There are two fundamental criticisms to the
use of food aid as a development tool. The
first is that our provision of free or low-cost
commodities lowers the price of food within
developing nations and thereby destroys food
production incentives. Michigan farmers know
only too well how low food prices dampen incen-
tives to produce. The second criticism is that
In 1950, 41 % of all agricultural
exports were food aid
shipments.
Today, less than 4% of total
agricultural exports consist of
food aid.
Figure 3-1. Food Aid as a Percentage
of U.S. Agricultural Exports, 1960-1968
Percent
Food Aid
1970 1975 1980
Source: ODC, 1982; USDA, 1982.
III. FOOD AID
Food aid can hurt internal
production.
Food aid is best used to provide
a "breathing space" at a critical
time in the development
process.
food aid disrupts existing food systems by creat-
ing a taste for imported foods. While both
criticisms have some validity in specific cases,
many analysts believe that food aid, when
integrated into a national development policy,
will on the whole be beneficial. Food aid also
plays a key role in "relief" efforts during crises
to prevent starvation and death. The proper
use of food aid requires the recognition that
poverty, not food, is the central problem which
must be overcome. Basically, the role of food
aid should be to provide a "breathing space"
at a critical time in the development process.
Once such a boost has been given, these nations
may be better able to re-enter the world market
economy as full participants.
Table 3-1 points out the validity of that argument
by documenting the growth in our commercial
agricultural trade with former food aid recipients.
In fact, 7 out of our top 10 commercial clients
in 1982 were former food aid recipients.
Table 3-1
Food Aid Recipients as Cash Customers
U.S.
Commercial
Food Aid Agricultural
Leading Received Exports
Recipients FY 1955-80 FY 1981
($ Million) ($ Million)
India 6,040 324
Egypi 2,455 950
Pakistan 2,135 147
Korea 1,972 2,136
Indonesia 1,707 382
South Vietnam 1,464 -
Yugoslavia 1,020 188
Brazil 898 843
Bangladesh 841 75
Israel 717 365
Turkey 674 87
Source: Foreign Agriculture, July 1982.
III. FOOD AID
Summary
1. Food aid currently represents only 4 percent
of total U.S. agricultural exports.
2. Food aid when properly integrated into
national programs can help in fostering
development. It is also helpful during
short-run crises.
3. It has greatly assisted in the development
of commercial markets for U.S. agricultural
products.
Today, very little of our exports
are given away.
I
IV. INTERNATIONAL TECHNOLOGIES FOR MICHIGAN AGRICULTURE
* Why do Michigan scientists invest so much time and
effort in helping other countries develop their
agricultural potential?
* What does Michigan gain from this?
Approach
The following quote summarizes quite well
the main points we are striving to make:
"The productivity of modern agricul-
tural crops cannot be maintained--
let alone expanded--without constant
infusion of fresh germ plasm. Without
these foreign infusions, (North)
Americans would have their diets
limited to cranberries, blueberries,
strawberries, pecans, sunflower
seeds, and little else. There is
no such thing as a home-grown
meal."_1/
Types of Benefits from International Exchanges
International involvement by American scientists
benefits not only the citizens of the countries
receiving technical assistance but also benefits
our own citizens. While Americans may realize
that our major crops and livestock breeds origi-
nated outside the U.S., they often forget that
our agriculture still depends upon international
exchanges for advancements and improvements.
The U.S. can learn from other nations who
have greater or different kinds of success with
particular crops than we do. Similarly, there
is much we can learn from the Israelis and
others about agricultural production under
arid conditions.
We also depend upon the availability of imported
genetic materials to improve our crops and
livestock. In livestock, an excellent example
i/Norman Myers, "The Exhausted Earth," Foreign
Policy, No. 42 (Spring 1981), p. 141.
American agriculture depends
upon international exchanges for
advancements and
improvements.
V. INTERNATIONAL TECHNOLOGIES FOR MICHIGAN AGRICULTURE
of this is the introduction of Zebu (Brahma)
cattle from India and Pakistan which has increased
the heat tolerance of our beef cattle and permitted
the tremendous expansion of the livestock
industry in the southern U.S. Tomatoes and
potatoes have been improved through the intro-
duction of varieties of South American origin,
soybeans with Chinese varieties, and sorghum
with Ethiopian varieties. According to a recent
USDA estimate, genetic improvements account
for at least 1 percent of agricultural productivity
gains each year, a farm gate value approaching
one billion dollars.
J.S. Agriculture benefits from
sing foreign genetic material.
* Yield improvements of 15
to 30%.
* Disease and insect
resistance.
Case Studies: Dry Beans, Wheat, and Tart Cherries
In Michigan, we can point to the recent accom-
plishments of three MSU scientists in improving
the genetic base of our crops. Dr. Wayne Adams,
a world renowned dry bean breeder, and his
colleagues recently released a series of new
varieties (Swan Valley, Neptune, Domino, Black
Magic, C-20) that have key features of Central
and South American heritage. These varieties
outyield previous ones by 15 to 30 percent
due to new plant architecture as well as to
a number of characteristics such as longer
maturity and resistance to stress, air pollution,
and disease. Dr. Adams traveled to Colombia,
South America in 1973 to give a speech on
plant architecture. While there, he identified
varieties of dry beans which had characteristics
of plant architecture that appeared desirable
for solving Michigan problems. He obtained
seeds from the plant collection in Colombia
and used them in his hybridization program.
This represents an excellent example of the
successful combination of the diverse pool
of germ plasm available in other countries
and American technology. As a result, farmers
and consumers in many nations benefit.
Dr. Everett Everson's wheat breeding program
at MSU relies heavily on germplasm from other
countries to provide disease and insect resistance.
In fact, plant breeders frequently have to rotate
genes for resistance every few years to maintain
viable varieties. Specific examples of contribu-
tions from other countries in Dr. Everson's
wheat research program include the following:
1. Powdery mildew resistance from
the Near East.
2. Hessian fly (insect) resistance from
European germplasm.
3. Winter hardiness genes were introduced
from material from Turkey and Russia.
IV. INTERNATIONAL TECHNOLOGIES FOR MICHIGAN AGRICULTURE
4. Lodging resistance from Mexican
material.
5. High yield potential genes from
Japan.
6. Spindle streak resistance (virus)
was incorporated into the Michigan
program with material from Russia
and Mexico.
7. Cereal leaf beetle resistance genes
were introduced with material from
Russia.
Dr. Amy lezzoni recently collected genetic
materials in Eastern Europe needed to improve
the tart cherry, another of Michigan's major
crops. The current tart cherry industry, which
is based upon a single cultivar (Montmorency)
imported from France 400 years ago, represents
a classic example of genetic vulnerability.
Diseases, pests, and most particularly frost
threaten Michigan's tart cherry industry: wide
year-to-year production variations result.
In the past decade, production has ranged from
147,000 tons (1972) to 69,000 tons (1981).
Eastern Europe possesses a tremendous diversity
of both wild local varieties and hundreds of
scientifically improved cultivars. Dr. lezzoni
believes that her collection effort will advance
the breeding programs at MSU by at least 15
years. Among her major goals are the introduc-
tion of new cultivars which will bloom later,
avoiding damaging frosts and cultivars more
suited for mechanical harvesting.
Scientific endeavors, especially in agriculture,
cannot be pursued if they are constrained by
national borders. Everyone has much to gain
when the international scientific community
cooperates.
Summary
1. Michigan (and U.S.) agriculture relies
heavily on international inputs.
2. Dry beans, tart cherries, and wheat represent
examples of the importance of international
exchanges of germ plasm for the continued
vitality of Michigan agriculture.
* Reduced crop vulnerability.
V. IMPORTS IN THE U.S. ECONOMIC
* Why do we open our shores to foreign imports and
thereby take jobs away from American workers?
* Wouldn't we be better off if we looked after
ourselves first.
Approach
The importation of foreign-produced goods
is a controversial issue in any society. This
discussion attempts to present both the costs
and the benefits of opening the U.S. economy
to imports. In particular, we highlight the
trade-offs between short-and long-run objectives,
and between the protection of jobs for a specific
group of workers versus the generalized benefits
shared by the overall population.
Introduction
Although the natural resource base and productive
capacity of the U.S. may be unmatched in
the world community, the material wealth
of this country could not be maintained if the
U.S. chose to isolate itself from other nations.
One reason is that about 17 percent of the
merchandise produced in the U.S. is sold to
other countries. A second reason is that we
depend heavily upon imports of various kinds.
U.S. depends on the world com-
munity for critical imports and as
a market for exports.
Imports of specific products have widely varying
implications for different groups in the U.S.
There are two broad categories of imports.
The first includes those goods that "complement"
rather than compete with domestic production.
The second competes with or supplements
U.S. production (depending on how one wishes
to phrase it) since it consists of products which
are produced in the U.S.
Complementary Imports
This category of imports complements the
resource and skill base of our economy. Many
of the natural resources essential for the func-
tioning of our industrial society fit into this
category since in the U.S. they are either entirely
absent or not available in sufficient quantities.
In many instances, developing countries represent
our principal suppliers of these key commodities.
17
V. IMPORTS IN THE U.S. ECONOMY
Many key commodities are im-
ported from developing
countries.
Figure 5-1. U.S. Import Reliance on
Developing Countries for Selected Minerals,
Metals, and Raw Materials, 1980
0 10 20 30 40 50 60 70 80 90 100 %
Source: AID; based upon latest data
from U.S. Bureau of Mines.
For example, in 1978, 100 percent of natural
rubber, 93 percent of tin, and 41 percent of
petroleum products consumed in the U.S. were
imported from developing countries. In Figure 5-1,
we list some of the major commodities imported
from the developing countries. This list indicates
the extent the U.S. is dependent upon other
nations for its prosperity.
Tropical agricultural crops make up a second
major component of complementary goods.
Although these crops could potentially be produced
in greenhouses, they can be provided much
less expensively by nations with more suitable
climates. The importation of coffee, cocoa,
bananas, and many spices are examples. About
35 percent of all agricultural imports are classi-
fied as being complementary or non-competitive.
Production patterns of the U.S. and the develop-
ing nations are generally quite complementary
in the area of agricultural products. Developing
nations are major clients for our products while,
at the same time, we receive 62 percent of
our agricultural imports from them (Figure 5-2).
Industrial products, in contrast, cause controversy
as to whether these goods should be regarded
'as complementary imports since the U.S. produces
them. Whether it makes sense to import some
of these goods and specialize in producing
(and perhaps exporting) others is questioned.
For example, 15 to 20 years ago, the domestic
automobile manufacturers had little interest
in producing small cars so the importation
of limited quantities of foreign small cars
served to fill a gap in the market. Those cars
were largely complementary to our production.
Currently, the importation of foreign cars
is a major political issue. For simplicity's
sake, we will place all manufactured products
in the following section on supplementary or
competitive imports.
Supplementary/Competitive Imports
This class of imports are goods which are also
produced domestically. The decision to import
these goods represents a cost to the society
since it implies a reduction in the sales of
domestic products (and hence a reduction in
U.S. jobs). We should not stop at this level
of analysis but instead trace through all of
the implications of purchasing foreign-made
goods. In taking a broader view, the benefits
of trade frequently outweigh the costs.
V. IMPORTS IN THE U.S. ECONOMY
A first benefit derived from imports has to
do with the relationship between our imports
and our exports. When we import goods, we
provide foreign exchange to other countries
which in turn finance their purchases of our
exports. Thus, while the closing of our borders
may retain specific jobc, it will also almost
certainly set in motion a chain of events which
will result in the loss of jobs in our export
sectors.
Secondly, the ability to trade for rather than
produce certain goods allows the U.S. to redirect
its resources towards more profitable enterprise-'.
There is no reason for the U.S. to produce
everything it has the potential to produce.
Both sides can benefit when Hong Kong chooses
to exchange shirts for microcomputers which
we produce.
This second benefit, unfortunately, only holds
true in the long run. In the short run, the U.S.
economy may be faced with severe adjustment
problems as workers and resources are driven
out of particular industries. Still the argument
can be made that it is best to confront these
short-run problems head-on rather than mask
them through strict import restrictions. Ultimately,
the U.S. must maintain an efficient and competi-
tive economy if it is to prosper in the world
market and experience has shown that it will
generally not do this behind high trade barriers.
Manufacturers can ignore the need to invest
in new plants and equipment and pass higher
costs on to consumers without the fear of losing
markets to more efficient foreign producers.
A third reason why imports are important to
the U.S. economy is the advantage passed along
to consumers. Imported goods increase the
quantity and selection of goods available.
Imports from developing nations are often
less expensive than domestic goods of comparable
quality. In 1979, Armericans were estimated
to have saved more than 2 billion dollars through
their purchases of -less expensive imports.
These savings are particularly important to
lower-income Americans. Finally, it should
be noted that industries in other sectors in
the U.S. economy benefit since a high percentage
of the 2 billion dollar savings is redirected
to purchases of domestically produced goods.
The costs of imports receive more attention
than do the benefits because the costs (lost
jobs) are quite concentrated and visible. They
Sixty two percent of our
agricultural imports are from
developing countries.
Figure 5-2.
Imports
Sources of U.S. Agricultural
I IDeveloped Countries
FY Developing Countries
x Does not sum to 100 due
to rounding error.
Source: USDA, 1982.
Imports provide foreign
exchange so other nations can
purchase our exports.
Trade allows nations to take
advantage of any comparative
edge.
V. IMPORTS IN THE U.S. ECONOMY
Maintaining a free economy can
causee short term dislocations but
s needed to remain
competitive .
he question of which goods
iould be traded is often
misunderstood.
-at goods should be produced
d what ones imported should
guided by the concept of
rmparative advantage.
represent one of the few areas in which labor
and management in the affected industries
can agree. If we would stop to consider our
best interests, we might have a far different
viewpoint.
Which Goods Should We Import?
The question of which goods should be traded
is often misunderstood. A notion persists that
a nation should export goods that it is "better"
at producing and import goods for which other
nations have the advantage (ignoring for the
moment the employment issue).
This view of trade is too restrictive. Often
it pays for a nation to import products it could
more efficiently produce than its trading partners.
To understand why, let us consider a simple
example of a dentist who is quite expert at
both cleaning and filling teeth. Why does the
dentist specialize in filling teeth and hire a
dental hygienist to perform the cleaning function?
The reason is that, even though the dentist
can carry out both tasks more quickly than
the hygienist, it is most profitable for him/her
to concentrate on the job which yields the
greatest income and "buy" the services of hygienist
to do the less remunerative task. Similarly,
even though the U.S. may be more efficient
than Japan in producing both wheat and color
televisions, it may still make sense for the
U.S. to concentrate on wheat and exchange
some of what is produced for televisions.
We call this the "law of comparative advantage"
and it has very important implications for
the goods exchanged in international trade.
It means that countries need not be restricted
to exporting goods they are "best" at producing--
they can and should also export goods which
they are relatively good at producing and should
import (allow others to produce) goods which
they are less expert at producing. If we reflect,
we can come up with many similar exchanges
in our own lives. A case in point is hiring the
neighbor's child to mow the lawn even though
we know that we could do the job better. We
make the exchange in order to devote our time
and energy to otlier (better) uses.
V. IMPORTS IN THE U.S. ECONOMY
Summary
1. In looking at imports, we must be careful
to look at both short- and long-run implica-
tions as well as at the interest of specific
and broader groups of U.S. citizens.
2. An important share of our natural resource
and agricultural imports comes from devel-
oping countries.
3. The U.S. economy derives a number of
benefits from imports:
a) Provision of foreign exchange to our
trading partners to be used to purchase
our exports.
b) More efficient resource use.
c) Cost savings and hence lower inflation
for U.S. consumers.
d) Greater variety of goods.
4. Employment adjustment problems must
be dealt with if the society is truly going
to benefit from trade.
Imports benefit consumers with
more discretionary purchasing
power.
MWWEE..MEENNW
VI. AGRICULTURAL EXPORT
0 How dependent is U.S. agriculture on world markets?
Approach
In this chapter, we explore the increasing integra-
tion of the Michigan and U.S. farmer into the
world market over the past 20 years. Americans
must realize that dependence is a two-edged
sword--other nations rely on our exports but
our farmers rely just as heavily on the remunera-
tive production opportunities which are created
in foreign markets.
Exports in U.S. Agriculture
Americans are proud that their agricultural
sector is one of the most productive in the
world. Productive capacity itself, however,
is not sufficient to make our farmers (and
our nation) successful. In addition, they require
a market to sell what they produce.
Increasingly, that market has been in other
countries. In the past two decades, the proportion
of total U.S. farm production exported has
more than doubled. In dollar terms, as is shown
in Figure 6-1, our exports have increased from
over 7 billion dollars in 1970 to around 40 billion
dollars a year in recent years. 1/ Over the
same period, our imports have increased at
a slower pace. The result (Figure 6-2) has
been the amassing of ever larger trade surpluses
in the agricultural sector. We use these surpluses
!/Since these are both measured in current
dollars and there has been considerable inflation
since 1970, there is an obvious overestimate
of the change in exports. Roughly speaking,
7 billion dollars of exports in 1970 are equivalent
to 20 billion dollars in 1983 (using the U.S. Aver-
age Consumer Price Index as an inflator).
So when measured in constant 1983 dollar
terms, exports have still increased significantly
since 1970.
Agricultural exports have nearly
tripled since 1970.
Figure 6-1. U.S. Exports and Imports
of Agricultural Products, 1970-1982
(in current dollars)
illfons
Dollars
- ~imp
1975
1980
Source: USDA, 198
VI. AGRICULTURAL EXPORTS
Figure 6-2. U.S. Agricultural and Non-
Agricultural Trade Balance, 1970-1982
(in current dollars)
Billions of dollars
30
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982
Source: USDA, 1982.
The agricultural sector has
amassed large trade surpluses.
One dollar of farm exports
creates 2 additional dollars of
goods and services elsewhere in
the U.S. economy.
VI. AGRICULTURAL EXPORTS
Figure 6-3. Percent of Production Exported
of Five Major U.S. Crops in 1954, 1966,
and 1980
1954
S1966
,1980
Wheat Rice Soybeans Cotton Corn
Source: USDA, 1967, 1981a.
Agricultural exports are expected
to increase in the future-
especially feed groins for
livestock.
Percent
Exported
100
VI. AGRICULTURAL EXPORTS
Millions
of dollars
900
800
700
600
500
400
300
200
100
1975 1980
Source: Wu, 1982.
Figure 6-5. Percent of Major Michigan
Crops Exported in 1981
Percent
Exported
60
50 -
30o
Figure 6-4. Michigan Agricultural Exports
and Imports, 1970-1982 (in current dollars)
Corn Soy-
Corn beans
Dry
Beans
Source: M
I Future of Agricultural Exports
Agricultural exports peaked for both the U.S. (43
billion dollars) and Michigan (938 million dollars)
in 1981 and declined somewhat in 1982 (39
billion and 752 million dollars, respectively)
Wheat as a result of both the worldwide recession
and the strength of the U.S. dollar. This points
DA, 1982. out the disadvantages of being exposed to the
(about 20 billion dollars a year) to purchase
other goods and resources from foreign producers.
The ability to sell our products in other countries
has important employment effects within our
economy. Current estimates attribute one
million jobs (half on-farm and half off-farm)
to agricultural exports. Furthermore, it should
be realized that for every dollar of farm exports,
two more are created elsewhere in the economy.
The growing U.S. dependence on foreign markets
can be seen in Figure 6-3 which highlights
the percentage of our major crops exported
in 1954, 1966, and 1980. We rely heavily on
the availability of foreign markets for all of
these goods. Currently, between 30 and 70
percent of these major crops are produced
for foreign consumption.
Exports and Michigan Agriculture
Michigan farmers participate actively in interna-
tional trade. One out of three acres of agricul-
tural production is devoted to exports. These
exports provide between 25 and 30 percent
of gross farm receipts.
In Figure 6-4, we document the rapid increase
in Michigan's agricultural exports in the past
decade. In 1970, agricultural exports were
93.6 million dollars and represented only 38
percent of Michigan's agricultural imports.
Over the past two years, exports have attained
the levels of 938 million and 752 million dollars
and have exceeded agricultural imports by
35 and 22 percent, respectively.
Figure 6-5 shows that between 30 and 70 percent
of the major Michigan crops are exported.
Michigan farmers have oriented their production
to fulfill the demands of these markets. Table 6-1
lists the 12 major foreign clients for Michigan
agricultural products. Of special interest here
is the emergence of Mexico as well as the
developing nations of Asia (China, South Korea,
and Taiwan) as important buyers of Michigan
products.
Exports
Imports /
/ ',
1970
Table 6-1
Michigan's Major Agricultural Export
($1,000)
Countries, 1981
Wheat Feed Soybeans Fruit Vegetables
and Grain & and and and Animal ($1,000)
Rank Countries Products Products Products Products Products Products Other TOTAL
1. Japan 9,577 88,850 20,829 6,332 14,856 12,393 3,216 156,051
2. Mexico 3,415 36,832 5,643 730 30,120 7,276 3,963 87,979
3. Canada 14 2,623 2,847 9,790 33,666 4,010 5,120 58,070
4. Netherlands 1,764 9,404 27,897 1,266 2,551 1,181 6,148 50,211
5. USSR 10,776 27,438 0 0 1,597 506 157 40,474
6. West Germany 147 7,006 11,804 1,264 4,744 2,005 1,647 28,617
7. China 20,418 3,970 2,315 4 0 193 12 26,912
(Mainland)
8. South Korea 5,530 13,315 2,537 158 506 2,776 415 25,237
9. Taiwan 1,741 12,099 5,431 1,187 1,041 1,196 589 23,284
10. Italy 2,305 11,317 7,193 253 917 749 525 23,259
11. United 69 7,310 2,112 929 7,063 1,789 1,587 20,859
Kingdom
12. Poland 816 14,256 2,345 0 0 2,511 119 20,047
Source: MDA, 1982.
VI. AGRICULTURAL EXPORTS
vagaries of the international market. The
benefits are, however, much greater. In Table 6-2,
predictions for future trends in international
trade indicate that the U.S. will maintain its
market share (except for soybeans) and greatly
increase the quantities of wheat and coarse
grains exported over the next decade.
Table 6-2
U.S. Exports in Millions of Metric Tons
for Selected Years
(World Market Share in Parentheses)
Actual Projected
1969-71 1981-82 1992-93
Wheat 28.1 (53%) 48.3 (59%) 56.0 (53%)
Coarse Grains 44.8 (76%) 58.2 (74%) 94.3 (78%)
Soybeans 18.9 (73%) 31.0 (71%) 33.3 (60%)
Source: MSU Agriculture Model, Fall, 1983.
In the decade of the 1960s, the phenomenal
growth of Michigan and U.S. agricultural exports
was fueled primarily by the rising incomes
and improved diets in Western Europe and
3apan. In the 1970s, the socialist and developing
countries represented major growth markets.
In both instances, the U.S. benefited from
increases in feed grain exports as livestock
production and consumption expanded in these
countries.
Many Americans do not realize that a significant
(35 percent) and growing percentage of our
agricultural exports are destined for developing
nations. In Chapters VII and VIII, we will examine
why these nations represent such important
clients for U.S. farmers now and in the future.
Developing countries are increas-
ingly significant markets.
VI. AGRICULTURAL EXPORTS
Summary
1. Exports are essential for the well-being
of agriculture in the U.S. and Michigan.
We depend on the world market.
2. Our export dependence has increased dramatically
in the past 20 years.
3. Currently, one million jobs in the U.S. are
generated by agricultural exports.
4. In Michigan, one-third of all acreage is
for export and 25-30 percent of farm
receipts come from exports.
5. Although there may be several years of
stagnation in exports in the immediate
future due to the effects of the current
worldwide recession, the long-run outlook
for agricultural exports (especially to
developing countries) is bright.
U.S. Agriculture depends on
foreign markets.
VII. DEVELOPING NATIONS AS TRADING PARTNER
* Isn't it true that although developing nations may
wish to purchase our products, they will never
achieve the financial capabilities of becoming major
U.S. trading partners?
Approach
Two factors, rising income and population,
account for the developing nations being important
clients for our agricultural production. This
chapter is closely linked to the discussion of
U.S. exports (Chapter VI) and the discussion
of the dynamics of development and trade
(Chapter VIII).
Are Developing Nations Important
Trading Partners of the U.S.?
Some observers tend to underestimate the
market potential represented by 75 percent
of the world's population. But as shown in
Figure 7-1, the absolute amount of exports
going to developing countries more than tripled
during the period 1970-1982 and the percentage
of our exports destined for these nations increased
from 32 to 35 percent. Both the quantity and
the share claimed by these nations is expected
to continue to rise.
Market Potential in Developing Countries
In order to understand why developing nations
rather than developed nations offer such great
potential, we must understand certain facts
about the nature of the demand for agricultural
products. In general, people with low incomes
spend a much higher proportion of their income
on food while people with high incomes spend
relatively less of their income on these goods.
This same relationship holds true with respect
to increases in incomes--low-income people
devote a much higher proportion of any increase
in income to basic food and clothing purchases.
To illustrate this point, let us consider the
following example. A General Motors executive
and a parking lot attendant are each given
a $1,000 raise over their previous yearly salary
(about $20 a week extra). Based solely on
their starting salaries, we would expect the
The amount of agricultural ex-
ports to developing countries
tripled from 1970-1982. *
Figure 7-1. The Share of U.S. Farm
Exports Going to Developing and Centrally
Planned Countries
VII. DEVELOPING NATIONS AS TRADING PARTNERS
Figure 7-2. Proportion of Income Spent
on Food in Selected Countries (1979)
Source: Mackle, 1983.
iol 201 301 401 501 601 701 %
United States
France
W. Germany
Japan
Italy
South Korea
Honduras
India
Tanzania
Niger
Figure 7-3. Average Per Person Yearly
Consumption of Selected Foods in the
U.S., Developed Countries, and Developing
Countries (1970)
Yearly
Consumption
(Ibs. per person)
lloo-
- U. S.
SDeveloped Countries
Developing Countries
Cereals Cereals Meat Milk Oil Seeds
(Feed) & Oil
Source: FAO, 1971.
700o
500
300-
100
Vegetables
49______________________
I
VII. DEVELOPING NATIONS AS TRADING PARTNERS
parking lot attendant to devote a higher propor-
tion of the raise towards increasing the quantity
and quality of his/her food purchases. The
more highly paid executive would probably
not spend anything additional on food.
Rich nations are similar to relatively rich people--
they cannot be expected to absorb or consume
large, new quantities of agricultural products
as incomes of their citizens increase. Most
of the new income will instead be devoted
to the purchase of TV sets, microcomputers,
automobiles, and other such goods.
In contrast, as incomes grow in developing
countries, so do food purchases. Demonstrated
in Figure 7-2, U.S. consumers choose to devote
only 16.4 percent of their income to food pur-
chases. In poorer nations such as India and
Niger, consumers spend 60 percent or more
of their income on food.
The types of food consumed also change as
incomes increase. Figure 7-3 presents average
consumption figures for Americans, citizens
of developed nations taken as a whole, and
citizens of developing nations. Americans
on a per person basis consume far more meat
and cereals (which go into the production of
meat). The diets of the citizens of the develop-
ing nations contain a very high proportion of
cereals for direct human consumption and
lag behind in all other food categories. Although
the developing nations probably will not follow
exactly the consumption patterns of the richer
nations, we would expect their food consumption
to increase and diversify, and thus to become
more similar to the developed nations as their
incomes rise. The U.S., the principal supplier
of feed grains, is in an excellent position to
profit from this transformation as both developed
and developing nations increase their livestock
sectors.
Low-income people devote a
much higher proportion of any
increase in income to basic food
and clothing purchases.
As incomes improve, meat is
consumed-and more feedstuffs
are required to produce animal
protein.
Aside from income, the other principal element
which drives up food consumption is increased
population. Developing countries not only
have the greatest current population, but their
growth rates are also more than double those
of the developed nations. As a result, more
than 80 percent of the new consumers in the
next two decades will be in these countries.
Data on the growth in volume of agricultural
imports over the period 1965-1980 point out
the effect of these factors. Agricultural imports
VII. DEVELOPING NATIONS AS TRADING PARTNERS
Increased population expands
the demands of developing
nations for food.
by developed countries increased by 4.7 percent
per year (principally an increase in feed grain
imports), developing country imports rose by
7.1 percent per year. Table 7-1 shows that
while our exports have grown rapidly to other
developed nations, they have grown even more
rapidly to selected developing nations. It is
important to note that all of these developing
nations in the past have been major recipients
of U.S. foreign assistance. Clearly, our agricul-
ture benefits when their economies develop.
Future Exports to Developing Nations
Predictions for the next decade (Table 7-2)
foresee developing nations playing an increasingly
important role in world food markets. For
wheat and coarse grains, the volume of developing
country imports increases by 37 and 260 percent,
respectively, with the market shares also increas-
ing. Soybean imports grow more slowly but
eventually should expand rapidly as the livestock
sectors in developing countries modernize.
Table 7-1
U.S. Agricultural Exports to Selected Countries,
1969-1971 and 1979-1981
1969-71 1979-81 Increase
(Million Dollars) (Percent)
Developed Countries
Japan 1,076 7,061 556
Netherlands 514 3,112 605
W. Germany 505 1,663 329
United Kingdom 418 982 235
France 169 699 414
Developing Countries
Colombia 20 235 1,075
Brazil 36 661 1,736
Nigeria 15 349 2,226
South Korea 100 1,686 1,586
Taiwan 127 1,150 805
VII. DEVELOPING NATIONS AS TRADING PARTNERS
Table 7-2
Grain Imports in Millions of Metric Tons
by Developing Countries in Selected Years
(Market Share in Parentheses)
Actual Projected
1969-71 1981-82 1992-93
Wheat 25.4 (63%) 39.8 (48%) 62.2 (58%)
Coarse Grains 2.3 (6%) 18.6 (24%) 49.2 (41%)
Soybeans 1.0 (6%) 10.3 (23%) 20.9 (36%)
Source: MSU Agriculture Model, Fall, 1983.
Summary
1. Developing nations, which contain 75 percent
of the world's population, currently purchase
35 percent of our agricultural exports.
2. These nations will seek increased imports
as:
a) incomes rise and diets change; or
b) populations grow.
3. They are our brightest future markets--as
poor nations prosper so will our food and
agricultural sector.
U.S. agriculture benefits when
the economies of developing
countries improve.
VIII. THE DYNAMICS OF DEVELOPMENT & TRADE
* Aren't we spoiling the market for U.S. agricultural
products by helping other nations develop their own
agriculture (and thereby competing with our
products)?
Approach
This is a complex issue because simple facts
and figures cannot provide an understanding
of the underlying dynamics of economic develop-
ment. We will examine how the development
process progresses and what the implications
are for the products the U.S. currently exports.
Development Strategies
In responding to this question, it is critical
to recognize that in the development process
"things are not always as simple as they seem
to be." Early in this century, Henry Ford came
to the revolutionary conclusion that if he paid
his workers more he would be able to create
a market for his product and thereby raise
his profits. The U.S. agricultural sector faces
a somewhat similar opportunity. Helping devel-
oping countries grow food appears to be a good
strategy to help create markets for American
agricultural (as well as industrial) products.
In order to comprehend the logic behind this
strategy, we must first understand some funda-
mental aspects of the development process
in these countries. The vast majority of people
in the developing nations earn their livelihoods
in the agricultural sector. A development
Li tegy which focuses primarily on industrial
development generally will not absorb or provide
employment for the mass of rural people for
a lengthy period of time. While such a strategy
may result in an increase in national income,
the distribution of that increase will be such
that the incomes of the bulk of the population
will remain stagnant. In terms of our example
in the previous chapter, the automobile execu-
tives rather than the parking lot attendants
are the initial beneficiaries of the development
effort. Since we do not expect these relatively
richer people to devote a high percentage of
"Things are not always as simple
as they seem to be."
Helping developing countries
grow food helps create markets
for American agriculture and
industry.
Vill. THE DYNAMICS OF DEVELOPMENT & TRADE
Rising incomes plus population
growth can easily combine to
outstrip needed increases in
domestic supplies and create
demands for agricultural imports.
this new income to food, total national food
consumption does not increase rapidly.
In contrast, a development strategy based
upon a balance between industrial and agricultural
development will increase productivity in both
sectors. Agriculture can in a sense become
the "engine of growth" since it generates capital
surpluses and releases labor for industrial devel-
opment and non-agricultural employment.
With incomes of both agricultural and non-
agricultural workers rising, so will the demand
for food. In most cases, domestic increases
in production are not sufficient and increased
imports are also required. Overall, this balanced
strategy sets in motion a dynamic process
of development.
Development Strategies and Trade
An important question to consider is why studies
show that broadly based programs which result
in food production increases also raise the
demand for food imports. This occurs because,
on the production side, the supply of agricultural
goods is limited in the rate that it can increase
in the short-to medium-term. On the demand
side, the two forces of rising incomes and popula-
tion growth combine to outstrip the domestic
supply and spill-over into a demand for agricul-
tural imports. An additional reason is that
at higher income levels a greater demand emerges
for non-locally produced status foods such
as feed for livestock, rice, and wheat flour.
So we find that some of the best customers
for American farm products are just those
nations most successful in increasing their
own agricultural production since they have
succeeded in setting the whole development
process in motion. Countries with stagnant
agricultural production must have minerals
or other resources or they will find it.difficult
to generate sufficient income to raise their
imports.
This is certainly not to say that in individual
cases American farmers will not lose markets
for specific crops in specific countries. Rather
the argument is that in the long run and in
general it is in the interests of American agricul-
ture to foster agricultural development and
economic growth around the world.
VIII. THE DYNAMICS OF DEVELOPMENT & TRACK
Summary
1. The type of development a country embarks
on profoundly influences the rate at which
the demand for food grows.
a) Urban industrial growth programs
result in a low growth of demand
for food, unless nations have minerals
or other resources to exploit.
b) Broadly-based rural development
programs linked to industrial develop-
ment result ina much more rapid
growth in the demand for food.
2. As a result, the American farmers' long-
run interests are best served by rapid
agricultural development in the developing
world because when agriculture grows
so usually does the demand for agricultural
imports.
A balanced agricultural and in-
dustrial growth strategy can set
in motion a dynamic process of
development.
IX. SELECTED REFERENCES
Cassen, Robert, et al. (ed.). (1982). Rich
Country Interests and Third World
Development. London: Croom Helm.
Food and Agricultural Organization. (1971).
Agricultural Commodity Projections,
1970-1980. Vol. 2, Part II, Statistical
Appendix. Rome.
Mackie, Arthur B. (1983). "The U.S. Farmer
and World Market Development."
Washington, D.C.: United States Depart-
ment of Agriculture, International
Economics Division. (Mimeograph).
Michigan Department of Agriculture. (1982).
"Michigan Agricultural Exports, FY 1981."
Lansing: Marketing and International
Trade Division.
Myers, Norman. (1981). "The Exhausted
Earth." Foreign Policy, No. 42 (Spring
1981), p. 141.
Office of Management and Budget. (1982).
United States Budget, Fiscal Year
1984. Washington, D.C.
Overseas Development Council (Roger Hansen
and Contributors). (1982). U.S. Foreign
Policy and the Third World: Agenda
1982. New York: Praeger.
Turk, K.L.; D.F. Snyder; and 3.T. Scott.
(1978). "Rationale for United States
University Involvement in International
Education, Research, and Develop-
ment." Association of U.S. University
Directors of International Agricul-
tural Development Programs, AUSUDIAP
Publication No. 2.
IX. SELECTED REFERENCES
* United States Department of .Agriculture.
(1981a). The U.S. Agricultural Trade
Book. FAS M-307. Washington, D.C.
* United States Department of Agriculture.
(1981b). Yearbook of Agriculture:
Will There Be Enough Food? Washington,
D.C.
* United States Department of Agriculture.
(1981c). "What Farm Exports Mean
To You." Washington, D.C.: Office
of Government and Public Affairs.
United States Department of Agriculture.
(1982). U.S. Foreign Agricultural Trade
Statistical Report, Calendar Year
1982. Washington, D.C.: Economic
Research Service.
United States Department of Agriculture.
(1983). Foreign Agriculture. Washington,
D.C.: Foreign Agriculture Service.
United States International Development
Cooperation Agency. (1980). "Con-
gressional Presentation, Fiscal Year
1982." Washington, D.C.
Vollrath, Thomas. ( ). "Factors Affecting
Agricultural Trade: An Intercountry
Empirical Inquiry." United States
Department of Agriculture International
Economics Division Staff Report.
Washington, D.C.
* World Bank. (1981). Towards A Better World.
Washington, D.C.
* World Bank. (1982). World Development
Report, 1982. New York: Oxford
University Press.
World Food Institute. (1982). "World Food
Trade and U.S. Agriculture, 1960-1981."
Ames: Iowa State University.
* Wortman, Sterling and Ralph Cummings,
3r. (1978). To Feed This World: The
Challenge and the Strategy. Baltimore:
The Johns Hopkins University Press.
Wu, Ming W. (1983). "Michigan Economy
and World Trade." Conference on
Michigan and the World Community,
Michigan State University, April 7-9,
1983.
Developing Countries
Developed Countries
2000
World Population = 6,350 million
Developing Countries = 5,027 million
Developed Countries = 1,323 million
1975
World Population = 4,090 million
Developing Countries = 2,959 million
Developed Countries = 1,131 million
:::Africa
Af 9.4% and
9 .*\'.8% :
:::: E. Europe
/ 17.3% N. America,
.:: W. Europe, Japan,
i' : .i.i | Australia, and
l::: :. ::;..L.m N. Zealand
N. America,
W. Europe, Japan.
Australia, and
N. Zealand
Figure I.1 World Population, 1975 and 2000.
Source: ODC, 1982.
By
Recipient
Region
By
Supplying
Country
1978
Total: $19,177 million
w.
Germany 4.2%
U.K. 5.3%
I France
S. Asia 2.0% 6.6%
6.6%o
Figure 1.2 ,World Arms Transfers in 1978 (in $ millions
of 1977 Constant Dollars and in Percentages).
Source: ODC, 1982.
Foreign
Aid Programs
1%
Figure 2-1.
U.S. Budget Allocations for 1982.
Source: OMB, 1983.
Percent
Food Aid
30 -
20-
10
1960
Figure 3-1.
1965 1970 1975 1980
Food Aid as a Percentage of U.S. Agricultural Exports,
1960- 1968.
Source: ODC, 1982i USDA, 1982.
Natural Rubber
in .
Columbium
Bauxite
Cobalt
Aluminum
Petroleum Products
Manganese Ore
Chromium Percent of U.S. Consumption
.: ....:......... from Developing Countries
Silver ..........
Tungsten.........
Copper
0 10 20 30 40 50 60 70 80 90 100 %
Figure 5-1.
U.S. Import Reliance on Developing Countries
for Selected Minerals, Metals and Raw Materials, 1980.
Source: AID; based upon latest data from U.S. Bureau of Mines.
Does not sum to 100 due
to rounding error.
Oceania Mexico,a a
10% Central .(I
America a
Caribbean I
18 %
Europe a \ k^^
USSR S ouW
20 % South
\.,. Amerlca"
S20% % j
Canada ^ '
8%| Asia 1 --] Developed Countries
< ed8% '0 Developing Countries
Figure 5-2. Sources of U.S. Agricultural Imports
Source: USDA, 1982.
40
Exports
, -- Imports
1975 1980
Year
Figure 6-1.
U.S. Exports and Imports of Agricultural Products, 1970-1982
(in current dollars).
Source: USDA, 1982
Billions
of
Dollars
1970
Billions of dollars
-120
-20
-30
-40 = Agricultural Trade Balance
SNon-Agricultural Trade Balance
-50
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982
Figure 6-2. U.S. Agricultural and Non- Agricultural Trade Balance,
1970-1982 (in current dollars).
Source: USDA 1982.
__ i ITJ
E'-' i
-r3
Billions of dollars
Percent
Exported
100
90
80
70-
60
50
40-
30
20
0 Wheat
Wheat
Rice
Soybeans
Figure 6-3. Percent of Production Exported of Five Major U.S. Crops
in 1954, 1966, 1980.
Source: USDA 1967, 19810.
1954
1966
1980
Cotton
Corn
Millions
of dollars
900
800
700
600
500
400
300
200
100
1970
Figure 6-4.
/
-
/
/
Exports
Imports
I %/
/
- *,, -I.
1975 1980
Michigan Agricultural Exports and Imports,
1970-1982 (in current dollars).
Source: Wu, 1982.
Percent
Exported
60-
50-
40-
20 -
0 L-
Soy- Dry
Corn beans Beans Weat
Figure 6-5. Percent of Major Michigan Crops
,Exported in 1981.
Source: MDA, 1982.
$ BIL.
1970 1972 1974 1976 1978 1980
Figure 7-1
The Share of U.S. Farm Exports Going to
Developing and Centrally Planned Countries.
Source: USDA, 1982.
301 401 501 601 701 %
Figure 7-2. Proportion of Income Spent on Food in Selected Countries (1979)1
'Includes food, beverages, and tobacco
Source Mackie, 1983.
United States 7-
France
W. Germany
Japan
Italy
South Korea
Honduras
India
Tanzania
Niger
Yearly
Consumption
(Ibs. per person)
1100
3001
Cereals
Figure 7-3.
oU. S.
E Developed Countries
] Developing Countries
Cereals
(Feed)
Meat
Milk
Oil Seeds
8 Oil
Vegetables
Average Per Person Yearly Consumption of Selected Foods in the U.S.,
Developed Countries, and Developing Countries (1970).
Source FAO, 1971.
OT
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