TABLE 6.—Degree of Farming's Comparative Advantage in the U.S. Economy Cash grain farming (mainly corn and soybeans), Corn Belt. 5.42 1 1Except for the four types of grain farming, the concept of return is 1968 National Income of the industry or sector, divided by total man-hours worked by persons employed in the industry, also 1968. Data from Survey of Current Business, July 1970, U.S. Dept. of Commerce. Man-hours of all farm work from Agricultural Statistics, 1969, USDA. For the four kinds of grain farming, the concept is return to farm operator's labor and management, and to capital, divided by total used in man-hours. The return is adjusted to before-taxes basis for closer comparability to the National Income concept, which includes corporate profits taxes and social security taxes. Data from Farm Costs and Returns: Commercial Farms by Type, Size and Location, A.I.B. 230, ERS, USDA, September 1969. in the The bright prospects may, however, be negated by importing country policies that stimulate uneconomic domestic production. While feed grains are the most prominent examples of the types of commodities. that are susceptible of being affected, other commodities are not immune. Currently, policies affecting imports of oilseeds and meals are very favorable to world trade but we must remain alert to actions that may erode this situation. The proliferation of discriminatory trading arrangements and preferential agreements among groups of countries such as those being developed by the European Community is likely to affect a wide variety of commodities that in total will have a significant impact on prospects for U.S. exports. Another emerging problem, which concerns our relationships with Japan, bears upon our ability or inability to invest in the agricultural sector of Japan's economy. At issue here is United States policy toward Japan's formal barriers to capital inflow, barriers which at present prevent American firms from investing in Japan in such enterprises as hog raising, thereby boosting even further Japan's need for imported feed grains and protein supplements. Japan has just undertaken its Third Round of capital "liberalization." Agricultural production is not included among those industries now eligible for up to 100 percent foreign capital in any enterprise, nor even in the up to 50 percent category. A Fourth Round of liberalization is rumored for 1971 or later. It might be useful to explore further with Japan the possibility of their placing animal agriculture in the 100 percent foreign capital, liberalized category. We have excess capacity in agriculture and much of this could be used to produce for export if markets were available. We can compete with many commodities if we are willing to direct our resources to those enterprises where our land, capital and technology give us an advantage in comparison with other countries. VIII. SUMMARY World trade in farm products looms large as a part of all international trade. Other developed countries are our chief markets, but the less developed countries may become better markets as per capita income and effective demand increase within them. Our exports of farm products have grown and will set a record of about $7.5 billion in fiscal year 1971. Export markets are more important for some producers than others. Nearly three-fourths of our rice and three-fifths of our wheat and soybeans go abroad. Coarse grains, cotton, and tobacco are important export crops. While we now export about one-seventh of our total farm output, we could expand exports very materially if need and buying power were present. In 1970, some 58 million acres of cropland was withheld from production by farm programs. Most of it could come into produc tion immediately with a change in programs and a market for the produce. In the long run, the capacity of our agricultural plant could expand materially. Imports, like exports, have been growing. Our imports of a few commodities, notably beef, which compete to some extent with our own production have been growing fastest. We restrict some imports, especially sugar, beef, and cotton. World trade in most farm products is likely to grow over the next decade-some more than others. Growth in demand for wheat may be fair, but we will encounter continued stiff competition from other wheat exporters. Prospects for growing world markets for coarse grains and oil crops appear somewhat better. Basically, comparative advantage governs international trade. Our agriculture is efficient compared with agriculture in most other countries and compared with other U.S. industries. It follows that national policies should strive to promote trade and economic growth in those industries having cost advantages. DOMESTIC AGRICULTURAL POLICY-ITS INTERRELATIONSHIP WITH U.S. By Don Paarlberg I. THE NEW FARM BILL-A COMPROMISE. II. THE NEED FOR SUP- VI. A SUMMARIZATION. The Secretary testified before this group last May when we were in the process of working out a new farm bill. He spoke among other things about the extent to which U.S. agricultural exports had fallen off as a result of severely restrictive trade policies in Europe and other parts of the world; he told you of the further dangers to our trade of an enlarged European Community; he told you of the need for high level exports to keep our farm and agribusiness resources fully employed; and he told you of this Administration's aims to make commercial agriculture more "market-oriented." All these reflect our concern with agricultural trade policy and support our quest for more liberal trade. I. THE NEW FARM BILL—A COMPROMISE Today we have a farm bill that will shape agricultural programs for the next three years. It has not fully met our expectations; nonetheless it takes some important steps in the directions we had proposed. I believe the bill will allow us to manage farm programs in ways that will give the market a more prominent role and in ways that will signal to the world the U.S. interest and sincerity in striving toward more liberal trade. The new farm bill deals primarily with wheat, feed-grains and cotton. Without getting into an infinite amount of detail about commodities or the intricacies of farm program arithmetic, I would like to give you a broad general review of the new bill in the context of where we were with the preceding Agricultural Act and what we hope to achieve in this one. Don Paarlberg is Director of Agricultural Economics, Department of Agriculture. The new farm bill is a compromise of political and economic realities. It recognizes that excess capacity will continue in American agriculture for some time to come and it reflects a changing Congress that is becoming increasingly less patient with the price and income problems of commercial farmers and more and more preoccupied with the environment, the cost of living, civil rights, law and order and other urban problems. We have been very conscious of the fact that our farm policy is watched closely around the world. Other countries are keen to observe new trends and directions in our domestic policy and to check these against our posture on trade. I believe that the new farm bill shows them that we believe in moving in the direction of liberal trade for farm products. We have reduced incentives that stimulate uneconomic production in the U.S., and we are moving toward export price policies that will ultimately permit trade to be allocated more nearly according to comparative advantage. There are three general features of the new farm programs that will have direct economic as well as political bearing on agricultural trade. These are: (a) the loan rates which are the basis for commodity price supports; (b) the authority to set-aside substantial acreages to avoid surplus production of major crops; (c) The authority to continue overseas concessional credit sales and donations of farm products to friendly developing nations. The other principal feature of the bill is a payment limitation of $55,000 per farm, per crop. This probably has little economic impact on trade. II. THE NEED FOR SUPPLY MANAGEMENT The Current Situation-A U.S. Problem The farm bill is based on the premise that U.S. agriculture has an excessive amount of cropland available, that this excess is general rather than specific as to certain crops and that if a proper amount of cropland is "set-aside" farmers will make better decisions than government on how to use the remaining acreage. We would like to support those who advocate a phased reduction in our reliance on government programs. This is certainly a move in the right direction. However, we anticipate that our capacity to produce will be greater than our ability to utilize at acceptable prices for some years to come. Over the past thirty years we have gotten ourselves into a treadmill of government intervention that is very difficult to slow down and may be impossible to stop. American agriculture, geared to a lucrative wartime demand, had achieved an unprecedented rate of technological progress in the post-War II era. By the late '50's a capacity to produce food and fiber had developed that exceeded what could be used at home |