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 Front Cover
 Table of Contents
 Acknowledgement
 Preface
 Distinguished seminar lecturers:...
 Seminar proceedings






Group Title: Economics Report - University of Florida. Agricultural Experiment Stations ; no. 107
Title: U.S. agriculture as a strategic resource in the international arena
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE PAGE TEXT
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00027774/00001
 Material Information
Title: U.S. agriculture as a strategic resource in the international arena departmental seminar proceedings, 1981-82
Series Title: Economics report
Alternate Title: US agriculture as a strategic resource in the international arena
Physical Description: ix, 85 p. : ill. ; 28 cm.
Language: English
Creator: Degner, Robert L
Publisher: Food and Resource Economics Dept., Agricultural Experiment Stations, Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville
Publication Date: [1983]
 Subjects
Subject: Produce trade -- Political aspects -- Congresses -- United States   ( lcsh )
Agriculture and state -- Congresses -- United States   ( lcsh )
Foreign relations -- Congresses -- United States -- 1981-1989   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Includes bibliographies.
Statement of Responsibility: R.L. Degner, editor.
General Note: Cover title.
General Note: "August 1983."
Funding: Florida Historical Agriculture and Rural Life
 Record Information
Bibliographic ID: UF00027774
Volume ID: VID00001
Source Institution: Marston Science Library, George A. Smathers Libraries, University of Florida
Holding Location: Florida Agricultural Experiment Station, Florida Cooperative Extension Service, Florida Department of Agriculture and Consumer Services, and the Engineering and Industrial Experiment Station; Institute for Food and Agricultural Services (IFAS), University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: aleph - 002199025
oclc - 11970275
notis - ALD8905
lccn - 84622421 //r94

Table of Contents
    Front Cover
        Front Cover
    Table of Contents
        Table of Contents
    Acknowledgement
        Page i
    Preface
        Page ii
    Distinguished seminar lecturers: Biographical sketches
        Page iii
        Page iv
        Page v
        Page vi
        Page vii
        Page viii
        Page ix
    Seminar proceedings
        Page x
        John Mellor. Growth in third world demand for food and implications for the United States
            Page 1
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        Daniel E. Shaughnessy. United States food policies--a special place in world security
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        R. J. Hildreth. The rebirth of agricultural economics in China--implications for U.S.-China agricultural trade
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        Timothy E. Josling. The impact of developed country agricultural policies on world markets
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        Lawrence Witt. Diplomacy and food: The rules of the U.S. state department
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Full Text
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.
I
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.


viii









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-
I
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


I









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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