U.S. Exports of Surplus Commodities

RECENT INTENSIVE EFFORTS of the U.S. Government to increase exports of certain agricultural products have been prompted by a rapid growth of government loans on, and holdings of, these products. This investment has been due largely to a decline since 1952 in the dependence of the rest of the world on North American food supplies, while U.S. production, which had been expanded to meet overseas demand following World War II and the Korean war, has continued at high levels. Production has tended to be supported by rising technological productivity as well as by government price supports, and restrictions on planting and marketing have not been sufficient to hold back the surplus output.1

Abstract

RECENT INTENSIVE EFFORTS of the U.S. Government to increase exports of certain agricultural products have been prompted by a rapid growth of government loans on, and holdings of, these products. This investment has been due largely to a decline since 1952 in the dependence of the rest of the world on North American food supplies, while U.S. production, which had been expanded to meet overseas demand following World War II and the Korean war, has continued at high levels. Production has tended to be supported by rising technological productivity as well as by government price supports, and restrictions on planting and marketing have not been sufficient to hold back the surplus output.1

RECENT INTENSIVE EFFORTS of the U.S. Government to increase exports of certain agricultural products have been prompted by a rapid growth of government loans on, and holdings of, these products. This investment has been due largely to a decline since 1952 in the dependence of the rest of the world on North American food supplies, while U.S. production, which had been expanded to meet overseas demand following World War II and the Korean war, has continued at high levels. Production has tended to be supported by rising technological productivity as well as by government price supports, and restrictions on planting and marketing have not been sufficient to hold back the surplus output.1

Efforts to increase consumption were focused, until 1954, mainly on domestic outlets, particularly school lunches and donations through charitable organizations. For foreign policy reasons, the U.S. Government had tended until then to refrain from competing aggressively in world markets to dispose of the full excess of current output over domestic consumption. Under surplus disposal legislation enacted in 1954, however, special efforts have been made to increase U.S. agricultural exports through intergovernmental agreements containing special terms of settlement. The largest portion—about 60 per cent—of such exports has been sold for local currencies, a major part of which has been loaned back to the importing governments for developmental projects. Actual shipments under the surplus disposal program rose from $160 million in the fiscal year ended June 1954 to about $690 million in fiscal 1955 and $1,320 million in fiscal 1956.

The significance of this sharp increase is qualified by two considerations. One is a shift in statistical classification: part of the increase reflects the inclusion under surplus disposal legislation since 1954 of some foreign aid and relief financing, which is conceptually different from the disposal aspect of the program. A second is that the competitive world position of particular U.S. agricultural products is not reflected in the surplus disposal data alone. At times, rising exports under the surplus disposal program have been accompanied by reduced U.S. exports outside the program; at other times, the latter have been promoted by a more competitive pricing policy. For goods in surplus supply, an important part of the current crop tends to flow through government hands before final marketing; and for such goods, the prices permitted by the Government on regular export sales are an important factor in determining the volume of exports outside the surplus disposal program. Thus the effective competition provided by U.S. agricultural products in world markets is neither measured nor limited by the intergovernmental agreements and special terms which implement surplus disposal legislation.

A more informing indication of government efforts to promote U.S. agricultural exports is the share of the United States in total world exports of various agricultural commodities. From this standpoint it is significant that the U.S. shares of world exports of butter, cheese, and milk have risen sharply during the past two years. On the other hand, the 1955 rise in the U.S. share of world wheat and tobacco exports was hardly more than a recovery to their 1953 positions, the U.S. share in world corn exports recovered somewhat less, and the U.S. shares of world cotton and rice exports have continued to decline. This trend for cotton has been checked temporarily by a program to export U.S. cotton at more competitive prices during the next crop year, 1956–57, and rice also appears to be currently taken in larger quantities under intergovernmental agreements; but it is too early to say how much of the previous declines will be recovered.

The shift in U.S. policy over the past two years—from a tendency to shield world markets by withholding current U.S. output to a policy of reducing existing U.S. stocks—has led other exporting countries to express concern over the consequences for their own exports and for world prices. In March 1955, at the Ninth Session of the Contracting Parties to the General Agreement on Tariffs and Trade (GATT), a resolution was approved by all voting countries calling for prior consultation by countries planning to export agricultural surpluses, with a view to minimizing the displacement of ordinary commercial marketings of other countries. An amendment to the GATT Agreement relating to subsidies also was proposed, which would urge that countries using a government subsidy to encourage domestic production should not use the subsidy system in such a way as to result in acquiring more than an “equitable” share of the world market. U.S. acceptance of the principle involved was immediately signified, but formal adoption of this amendment awaits approval by other Contracting Parties.

The Food and Agriculture Organization, with its broad objective of improving human well-being by increasing and improving the distribution and utilization of agricultural products, has given considerable attention since 1953 to affirmative ways in which surplus commodities may contribute to raising investment, production, and living standards in the lower income countries. In multilateral discussions a set of principles for surplus disposal has been evolved and accepted by nearly all member countries, a consultative committee with very wide representation has been established in Washington for continuous exchange of views, and pilot field studies have explored the specific application of surplus commodities in certain countries. A committee of the Organization has also begun a series of studies on the international effects of national agricultural policies.

These activities of the UN agencies indicate that, in the broad international view, the surplus disposal problem has positive as well as negative aspects.

Concept of Surplus Disposal and Its Limited Significance

In current press and other discussions, the term “surplus commodity disposal” appears to carry a number of different connotations which are seldom defined. In its broadest sense the term can logically describe the total exports of a country, since all commodity exports represent goods which are surplus to the country’s actual domestic consumption.2 Another concept of surplus (as applied to agriculture) is the amount of crops carried over from previous harvests; in this view any effort to reduce the size of the carry-over is to be regarded in a different light from sale of the current crop. The significance of this concept is not clear, however, since fluctuations in harvests and in domestic consumption, currency instability, and other phenomena can make it possible at some times to dispose of previous carry-overs without any pressure on market prices, while at other times such pressure might arise during the sale of considerably less than the current crop.

It is perhaps most practicable and meaningful to use the term “surplus disposal”—at least in countries where the government engages in economic activity only in response to specific authorizing legislation—to describe the transactions carried out under special conditions that are contained in an avowed surplus disposal law. In the following discussion of U.S. practices, the term will be applied only to such transactions.3 This usage need not overlook the fact that some transactions outside the surplus disposal laws are patently motivated by considerations of surplus disposal; but to designate them all by the same term would tend to obscure the special character of most of the transactions that occur under surplus disposal legislation.

In the United States at present there are two major “surplus disposal” laws, of which the older is a section in the Mutual Security Act.4 As last revised in 1955, section 8 of this Act directs that

for the fiscal year 1956 not less than $300,000,000 shall be used to finance the export and sale for foreign currencies of surplus agricultural commodities. . . . Foreign currency proceeds accruing from such sales shall be used for the purpose of this Act and with particular emphasis on the purposes of section 104 of the Agricultural Trade Development and Assistance Act of 1954 which are in harmony with the purposes of this Act.

A more varied program for surplus disposal is contained in the Agricultural Trade Development and Assistance Act of 1954 (usually referred to as Public Law 480), which became effective in July 1954. The policy objectives of this law are summarized in the preamble, as follows:

to make maximum efficient use of surplus agricultural commodities in furtherance of the foreign policy of the United States, and to stimulate and facilitate the expansion of foreign trade in agricultural commodities produced in the United States by providing a means whereby surplus agricultural commodities in excess of the usual marketings of such commodities may be sold through private trade channels, and foreign currencies accepted in payment therefor. It is further the policy to use foreign currencies which accrue to the United States under this Act to expand international trade, to encourage economic development, to purchase strategic materials, to pay United States obligations abroad, to promote collective strength, and to foster in other ways the foreign policy of the United States.

In their operation, most of the transactions under these two laws are distinguishable from other (mainly ordinary commercial) transactions by the prior negotiation of bilateral intergovernmental agreements providing special terms of settlement, such as the acceptance of currencies other than dollars or gold (with an understanding that such currencies will not be converted into foreign exchange), or the outright grant of the commodities for economic development or famine relief purposes. In addition to these terms, Public Law 480 authorizes the “barter or exchange of such agricultural commodities for strategic materials entailing less risk of loss through deterioration or substantially less storage charges.” This last category differs from those previously mentioned in not involving any intergovernmental agreement; instead, the U.S. Government arranges its barter (in reality, matched sales) merely with U.S. private business firms, the latter being left free to find their own foreign markets and to negotiate their own terms. In such transactions, moreover, the country of destination for the U.S. export may be different from the country of origin of the “bartered” import.

In these various types of transaction under the surplus disposal laws, there are at least two groups which—in the international view—merit separate consideration from the others. One is barter which, as explained, may take a form that is indistinguishable from ordinary commercial transactions; the other is emergency relief grants and donations. In earlier years (for example, in 1951 when agricultural export prices were high, U.S. commercial exports were large, and stocks presented no problem), there were also large grants and loans for emergency agricultural aid. That aid was patently not motivated by considerations of surplus disposal, and from this it can be presumed that its continuance at the present time is also largely independent of surplus considerations.5

On the other hand, there is a considerable group of transactions outside the surplus disposal laws which can well be regarded as stimulated by the de facto existence of surplus commodity stocks. These are the commercial sales for dollars, not involving any intergovernmental agreement, but accompanied by a special announcement that the U.S. Government intends to reduce its surplus stocks. An example of this was the sale of one million bales of government-held cotton in January and February 1956. This sale was made by a government agency to private business firms for dollars on condition that these firms would then export the cotton to buyers of their own finding. The terms on which the private exporters resold in foreign markets also were left to their discretion. From the international standpoint, this sale was thus distinguishable from other commercial exports only by the expression of motive.6

It is to be noted, further, that ordinary commercial exports of products from a current harvest may compete with (or displace) the commercial exports of other countries just as effectively as the specially motivated commercial sales from (old) U.S. stocks, or shipments arranged by intergovernmental agreement under the surplus disposal laws. In each of these three broad categories, the significant question for other countries evidently must be not the expression of motive or the form of the transaction, but the aggressiveness with which the commodities are offered in foreign markets. It would be unrealistic to assume that aggressiveness can characterize only one form of export.7

The significance of these observations would seem to be this: What is really involved in the concern of other exporting countries over U.S. agricultural export competition is not merely an identifiable set of “surplus disposal transactions,” but the over-all magnitude of U.S. commodity exports and their accompanying sales policy. Statistics on exports under the surplus disposal laws will not provide much perspective on these characteristics, or on their general impact on world markets. An informative evaluation would need to approach the problem instead by studying the changes that have occurred in the total amounts exported from year to year, the shifts in market destinations, and the structural shifts in major producing areas. A few statistics along this line, together with a comment on the difficulties of interpreting them, are submitted later in this paper.

Magnitude of the Surplus Disposal Program8

The preceding discussion has indicated the scope of the surplus disposal legislation, which also limits the significance of the statistics covering it. To clarify the relation of surplus disposal to the foreign aid program, it may be added that a few, but not all, of the commodity shipments under foreign aid also come under the “surplus disposal” clauses. Not included in the latter category are commodity exports financed by the Export-Import Bank of Washington, some of those financed under the Mutual Security Act, and various earlier shipments under ad hoc relief legislation. On the other hand, the disposal program includes some commodity-shipments which are not considered as foreign aid; this applies to the sales for local currencies (although subsequent grants and loans from these currencies are considered aid) and the so-called barter program.

During the past two years, the volume of exports under the disposal program has risen rapidly (Table 1). For the next fiscal year (1956–57), such exports will be expanded further by a new cotton program, announced in March 1956, for offering at “competitive world prices” up to five million bales of government-held cotton. This offering is similar to the sale of one million bales in January and February 1956 in its emphasis on competitive prices; but whereas the one million sale was for dollar exchange only (and outside the surplus disposal legislation), the new offering is available either for dollar exchange or for other currencies under Public Law 480. It apparently was market anticipation of some such offering which led to a decline in world cotton prices and a virtual cessation of U.S. exports in the last months of 1955.9

Table 1.

U. S. Farm Exports Under Surplus Disposal Programs1

(In millions of U. S. dollars)

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Sources: U. S. Department of Agriculture, The Demand and Price Situation (Washington, November 18, 1955) and Foreign Agricultural Trade Digest (Washington, July 1956); Semiannual Reports of the President to the Congress on Activities under Public Law 480 (Washington).

Export values, except donations and famine relief which are at cost to Commodity Credit Corporation.

The barter relationship usually does not apply internationally; as a consequence, settlement is usually for dollars. See page 203.

Made through private charitable organizations; intergovernmental agreement not involved.

Involves intergovernmental agreement, but the “surplus disposal” motive may be absent (see discussion p. 204).

Sales for local currencies

Sales for local currencies, which are generally made at prevailing U.S. export prices, so far have comprised the major part of the disposal program. Such sales resemble grant-aid shipments in that both generate local currencies, the disposition of which involves an agreement between the United States and the importing country; also, in both cases some of the local currency proceeds are earmarked for U.S. use.

The programs differ, however, as to the ownership of the local currency and its ultimate disposition. Under grant shipments the bulk of the deposited local currency (counterpart funds) belongs to the aided country and is spent by it, and there is no repayment obligation to the United States. In contrast, local currencies deposited in payment for U.S. surplus commodities belong entirely to the U.S. Government; they are available for a variety of purposes, including offshore procurement of military items, purchase of materials for U.S. stockpiling, and assistance to foreign economic development programs. In the last connection, the local currencies are predominantly loaned back to the purchasing country and must be repaid with interest. The standard terms for these loans call for interest at 3 per cent if repayment is made in dollars, or 4 per cent if in local currencies. Principal is to be repaid in periods up to 40 years. (Actual repayment periods so far agreed to have varied between 9 and 40 years.)

The general uses of currencies acquired through surplus commodity sales are specified at the time the sales are agreed. For sales under Public Law 480, nearly half of the amounts involved so far have been loans for multilateral trade and economic development (Table 2). Most of the remainder has been for U.S. purposes, including the unspecified residual (although some of this residual may later be allotted for foreign economic development). Illustrative of the agreements specifying the objects of the loans are one with Japan involving $60 million for power facilities, irrigation, and reclamation, one with Peru for $2 million for irrigation, and one with Israel for $5 million for irrigation and power facilities.

Table 2.

Planned Uses of Local Currency Proceeds Under Agreements Between United States and Other Governments Signed July 1954–June 19561

(Export value, in millions of U. S. dollars)

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Sources: Semiannual Reports of the President to the Congress on Activities under Public Law 480 (Washington).

The data refer to prospective sales under agreements concluded during the period indicated. They include, however, only sales under Public Law 480; similar information on sales under the Mutual Security Act has not been published.

One of the smaller uses of local currency indicated in Table 2, but one which has recently been growing, is the purchase of goods for other countries. In a typical arrangement of this sort, a U.S. agricultural product is sold to an industrial country for payment in its local currency; this currency is then loaned or donated to a third country to pay for products which it buys in the second country. In a formal sense, such a transaction involves aid only to the third country which needs manufactured goods; the second country enters the picture only as an intermediary which enables the United States to forego its opportunity to provide the manufactured goods by substituting an export of agricultural products. Actually, the triangular transaction may also assist the second country to increase its total imports (by the amount of the increase in its exports), in that the use of its local currency to pay for the U.S. commodity constitutes a conservation of its foreign exchange which can then be used for other imports, either from the United States or from other countries.10

Over the entire period through June 1956, three fourths of the sales for local currencies under Public Law 480 were to countries in Europe and the Far East (Table 3). In Europe the greater part of the sales were to Yugoslavia ($123 million), Spain ($118 million), and Italy ($50 million), with seven other countries taking smaller amounts. In the Far East most of the sales were to Japan ($151 million), Indonesia ($97 million), Korea ($59 million), and Pakistan ($46 million). Local currency sales to the Middle East tended to increase; those to Turkey and Israel amounted to more than $40 million each; and those to Egypt and Iran were of smaller amounts. Sales to Latin American countries varied over the period, the largest being made to Brazil ($42 million), Chile ($40 million), and Argentina ($31 million), and the remainder of the total to that area being divided among four other countries.

Table 3.

Regional Pattern of U. S. Commodity Exports for Local Currencies, July 1954–June 19561

(Export value, in millions of U. S. dollars)

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See notes to Table 2.

World Exports and the U.S. Share

For some commodities, such as wheat and cotton, increased U.S. exports under the surplus disposal program have been more or less offset by declines in exports outside the program. For other commodities, such as butter, transactions under the surplus disposal laws have not been large, but exports have risen because of more aggressive U.S. selling for dollar exchange through ordinary commercial channels. Because of these developments, the aggressiveness of U.S. export policy is measured less appropriately by statistics of surplus disposal exports as such than by the over-all exports of the particular U.S. products.

The illustrative data for eight commodities provided in Table 4 show that the greatest percentage advances in U.S. exports have occurred in dairy products, a relatively minor sector of the surplus disposal program.11 U.S. butter exports rose from about one half of 1 per cent of total world butter exports in the late 1920’s, and a similar percentage in the years 1948–52, to 2.4 per cent in 1955. Cheese exports, which probably accounted also for one half of 1 per cent of total world cheese exports in the late 1920’s and only a little more than this in 1953–54, rose to nearly 3 per cent in 1955.12 It is to be noted, however, that such small initial export shares are inherently susceptible of much faster relative increases than would be possible for commodities which initially accounted for a larger share of the market. Thus U.S. milk exports, which accounted for perhaps 9 per cent of total world milk exports in the 1920’s and for a postwar low of 20 per cent in 1953, rose to 28 per cent by 1955—a relatively small rise, but probably more significant from the standpoint of other competing export countries. The rise in milk exports resulted from increased donations through charitable organizations (including the United Nations Children’s Fund) as well as through larger disposal sales for local currencies. Butter exports, as mentioned above, increased almost solely as a result of increased offerings at competitive prices for dollar exchange.

Table 4.

U.S. and World Exports of Selected Commodities

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Sources: International Institute of Agriculture, World Trade in Agricultural Products (Rome, 1940); Food and Agriculture Organization of the United Nations, Yearbook of Food and Agriculture Statistics, 1951 and later years; U. S. Department of Agriculture, various bulletins.

Twelve months ended June for wheat; 12 months ended July for cotton.

Rough estimate based on assumption that world exports in 1924–28 were a little larger than in 1934–38.

Except for wheat, exports of the major commodities which have been emphasized under the surplus disposal program have shown comparatively little increase in the export statistics so far. Wheat and wheat flour rose from a low point of 25 per cent of world exports in the crop year ended June 1954 to about 29 per cent in 1955 and 34 per cent in 1956. This is still well below the earlier postwar years, although it is higher than the level that obtained in the late 1920’s.13 The U.S. share of world rice exports similarly remains above the level of the 1920’s, but its tendency in the past two years has been downward. The U.S. share of world cotton exports declined sharply in the crop year ended July 1953, and again in 1956, to a level that is very much lower than that in the 1920’s. For rice and cotton it appears that the more recent fall in U.S. exports reflected a government policy of not offering these commodities at competitive prices during 1955. The current (1956) policy appears to be somewhat more aggressive, but it is too early to judge how lasting its effect may be on the U.S. share of the world market.14

U.S. exports of corn and tobacco recovered in 1955 from their decline of the previous year. The major factor in the higher corn exports was reported to be a short crop in Argentina.15 The recovery of tobacco exports appears to have been aided by the sale of 40 million pounds for local currencies under Public Law 480; even with this assistance, however, the U.S. share of world tobacco exports has not risen above its stable long-term level.

It is difficult to evaluate the meaning of these statistics in terms of distortion in the world trade pattern for these commodities. There are few (if any) sectors of world trade where the origin and destination of various goods and services remain fixed for years at a time, and it would be debatable whether the actual changes in U.S. exports in these commodities have been any more dynamic than changes in its exports of many other goods and services, or than the exports of other countries. Even in butter and cheese, where the percentage increase in U.S. exports has been most striking, the obverse side of the percentage is that the share of the rest of the world has been reduced only from 99 to 97 per cent—a relatively negligible shift. In milk, the relative impact for the rest of the world is greater—a reduction in its share from about 78 per cent during 1952–54 to 72 per cent in 1955; but for the major commodities—wheat, cotton, and rice—there has been no appreciable reduction over the past two years in the aggregate share of other exporting countries in world markets, even if the figures are carried through June 1956.

Looking beyond these recent changes, the question may well be asked whether there are any long-term structural changes in the pattern of world production and trade which should be taking place, and which might be expected to entail a gradual decline in U.S. exports of crude commodities. The statistics cited here do not throw much light on this question, since production and trade have been disturbed by abnormal events for the past two decades. If the more normal period of the 1920’s were not so long past, it might be considered significant that the current U.S. shares in world exports of wheat, corn, rice, and dairy products are all appreciably above that earlier period. Before this fact could be accepted as significant, however, many other questions would have to be answered regarding changes in comparative costs and consumption requirements in the major producing and consuming areas.

FAO, GATT, and Other UN Discussions

The U.S. Government program to reduce its holdings of surplus agricultural commodities by sale in foreign markets under special terms has led the governments of competing exporting countries to fear that their own normal marketings would be displaced, thereby seriously impairing their foreign exchange earnings. These fears have been expressed both in the world press and in the various international agencies which provide an opportunity for multilateral exchange of views on this subject, especially the Food and Agricultural Organization (FAO) and the General Agreement on Trade and Tariffs (GATT). Such expressions refer most often to potential market displacement, since actual displacement appears so far to have been relatively small.16 In addition, concern has been expressed over the weakness of international prices which can develop when it appears that the United States may undertake to reduce its large commodity stocks.

The negative aspect of the surplus commodity problem—the potentially distorting effects of surplus transactions—has received attention in both FAO and GATT sessions. The FAO appears, however, to have given relatively more thought to the affirmative aspect of the problem—that is, to the potential contribution that commodities which are surplus to the consumption requirements of high income countries can make toward raising living standards in the lower income countries. The latter are a logical destination for such surplus commodities, not only because of their need but also because of the economics of market demand—that is, the tendency for incremental income in such countries to be spent largely on basic food and textile needs. (In the higher income countries there is typically little elasticity of demand for food and textiles with respect either to income or to price changes.) In such cases, however, there is a problem of planning so that the increased consumption of agricultural commodities is accompanied by new employment, preferably in productive projects that will permanently increase the country’s output and its ability to sustain higher living standards.

FAO discussions

The growing accumulation of agricultural products in some areas was discussed in the FAO Conference as early as 1953. Early in 1954 a working party was set up to consider suitable methods of surplus disposal, and it considered the possibility of special terms for such disposal to aid economic development, welfare, and relief.17 Out of the discussions of the Committee on Commodity Problems and of the Seventh Conference emerged a set of Principles of Surplus Disposal Recommended by FAO, which has been formally accepted by 36 member governments. In Section I are three general principles which advocate:

  • (1) The solution to problems of agricultural surplus disposal “through efforts to increase consumption rather than through measures to restrict supplies”18

  • (2) The avoidance by disposing governments of “undue pressure resulting in sharp falls of prices on world markets”

  • (3) An undertaking by both importing and exporting countries that surplus disposal under special terms will be made “without harmful interference with normal patterns of production and international trade.”19

In Section II are more specific principles that would apply to “sales on concessional terms” and to “sales of government-held stocks in exceptional volume.” These list a number of “common sense criteria” that should be taken into account in gauging whether such sales cause harmful interference with production and trade, and in weighing such harm against the advantages to countries benefiting from these special disposal measures. For sales in exceptional volume or at an exceptionally rapid rate, the principles urged prior consultation among governments interested in the possible effects.20

After working out these principles, the Committee on Commodity Problems considered various ways to apply them in practice. One approach was to set up field missions to make pilot studies. The first such study explored the possible utilization of dairy surpluses in Egypt, and a second the utilization of surplus supplies of all types in India, as an example of methods that could be used in other countries. The latter study pointed out the opportunity for underdeveloped countries to undertake investment projects of a social nature (e.g., road construction, irrigation, soil conservation) if they can obtain low-cost food and clothing to absorb the increased money income which such projects would provide. The study concluded that some 30 to 50 per cent of the cost of additional development projects could be financed through agricultural surpluses; in addition, some types of project were mentioned where as much as 75 per cent of the total cost could be covered through foreign surpluses. It was noted that the study was planned so that “consumption within the country would increase to the full amount of the surpluses provided to assist in the financing of economic development, so that no burden would be created either on domestic markets or on international markets.” At the Eighth Session of the FAO Conference in September 1955, the FAO Council concurred that the use of surpluses to aid economic development was “a highly promising approach,” and urged its consideration by governments and interested international organizations.

In addition, FAO has tried to widen the opportunities for inter-government consultation on surplus disposal by establishing in June 1954 a consultative subcommittee to sit in Washington on a continuous basis. At the end of 1955, 21 countries were members and 36 others were observers.

Having some bearing upon the question of surplus disposal, but extending beyond it, studies have also been started in the FAO on the international effects of national agricultural policies. These studies are aimed at facilitating adjustment of inconsistencies between such policies. One study on grains has been completed and a second on livestock is in process.

GATT discussions

At the Ninth Session of the Contracting Parties to the GATT, discussion of the negative aspects of surplus disposal led to a Resolution on the Disposal of Surpluses, which was approved on March 4, 1955 by all 32 voting countries, including the United States. This Resolution considered that “when arranging the disposal of surplus agricultural products in world trade” the countries involved should consult with other suppliers of those products (and with any other interested countries), with a view to keeping the liquidation orderly and, “where practicable,” to expanding aggregate consumption of the product. The intent of this consultation was further clarified in the preamble which indicated that “export of such surpluses without adequate regard to the effect on the normal commercial trade of other Contracting Parties could cause serious damage to their interests by restricting markets for their regular competitive exports and by disrupting market prices.”21

At the Tenth Session in November 1955, when reviewing the actual consultations during the first six months under the Resolution, the U.S. delegate explained that prior notification had been given and consultation sought by the United States in connection with all sales for foreign currencies. Three classes of surplus transactions had not been notified for prior consultation, however. Sales under Mutual Security (foreign aid) legislation had not been notified in advance because they were an integral part of the total aid program for the country concerned, based on its over-all need, and there was no presumption that shipments under this program would affect the division of normal commercial exports between the United States and other exporting countries. Grant shipments of surplus commodities for famine or emergency relief also had not been notified for prior consultation, because it was not considered likely that these transactions would displace commercial marketings; but if they did, there was a question whether the humanitarian aspects of such relief programs should be dominated by commercial considerations. “Barter” transactions were not notified for prior consultation because the foreign markets involved were determined by private traders, not by the Government. Nevertheless, in all cases where there was no prior notification the U.S. Government was ready to consult on a review basis regarding any transaction on which complaints were made. At that time, some delegates felt the consultation procedures had had some beneficial effect, while others considered that the results had not been fully satisfactory from their standpoint, in part because not enough time had been allowed. In view of the importance of the question, the Contracting Parties decided to review the experience again at the next session.

Export price competition outside the scope of formal surplus disposal transactions also was discussed in the Ninth Session of the GATT, and it was agreed to propose the addition of several paragraphs of text and interpretation to Article XVI relating to subsidies. These would admonish that, under a domestic price-stabilizing system which entails export prices being lower than domestic prices, operations that are financed out of government funds should not be conducted in a manner “which results in the Contracting Party having more than an equitable share of world export trade in that product, account being taken of the shares of the Contracting Parties … during a previously representative period, and any special factors which may have affected or may be affecting such trade in the product.”22 U.S. agreement to the principle enunciated here was signified by U.S. approval of the proposed amendment, but its formal incorporation in the GATT Agreement awaits approval by other Contracting Parties.

Taken together, these GATT paragraphs on surplus disposal and price-stabilizing systems would cover all exports of (domestically) price-supported products from the United States. As the FAO noted in connection with its own principles, however, agreement on general principles does not automatically determine their application. Differences of opinion may arise over such questions as the definition of a normal trade pattern, an equitable share of the market, and the allowance that should be made for special factors. Underlying these questions may be a more basic economic question: How much stability can be injected into the world trade pattern through an agreement to maintain equitable shares,23 before the gains to individual protected exporters begin to be outweighed by losses to the importers through failure to follow evolving shifts in comparative productivities? This question was apparently not overlooked by the working party which drafted the proposed amendment, for it “agreed that in determining what are equitable shares of world trade the Contracting Parties should not lose sight of the desirability of facilitating the satisfaction of world requirements of the commodity concerned in the most effective and economic manner. . . .”24

These reports on multilateral discussions have been cited to indicate an awareness by other countries that export competition from U.S. agricultural products is not limited to formal “surplus disposal” transactions, but can extend also to dollar sales under usual commercial terms. The official reports have tended to support the statistical indications of Table 4 that U.S. export policy has not yet resulted in any substantial increase in the U.S. share of world exports of the major commodities. It is encouraging also that a procedure of consultation has been established for the exchange of views of interested exporting and importing countries, although the complexity of interpreting statistical data and of applying the agreed principles of conduct may preclude complete satisfaction by all participants.

*

Mr. Dirks, Chief of the North American Divison, is a graduate of the University of Pennsylvania and Middlebury College, and was for four years a graduate fellow in economics at Tufts University and Columbia University. From 1936 to 1946 he was a member of the staff of the Board of Governors of the Federal Reserve System, and subsequently chief of Financial Intelligence Branch in the U.S. Office of Military Government (Germany), and economist in the Office of the Secretary of Defense.

1

This is not to minimize the interference of rigid price supports with progress toward a rational adjustment. The economics of their effect is well understood, but so far it has been difficult to gain political agreement on moving to another basis. (A well-rounded discussion of the underlying trends and their policy implications is provided by John D. Black, in “Agriculture in the Nation’s Economy,” American Economic Review, Vol. XLVI (March 1956), especially pp. 42–43.)

2

Though not necessarily surplus to the country’s human needs.

3

Moreover, although U.S. surplus disposal laws provide for domestic as well as foreign disposal, only the latter will be considered here.

4

In addition to the two laws described in the text, minor export operations (estimated at $5 million in fiscal 1956) are carried out under an Act of August 24, 1935, which provided for the use of customs receipts for the removal of surplus commodities. Most of the operations under that law relate to domestic disposal.

5

Barter transactions and relief donations also differ from sale for foreign currencies in that there is less likelihood that they impinge upon the usual marketings of other exporting countries. This is because the recipient country may offset barter and relief imports by reducing the amounts that it would otherwise have imported from the United States for dollar exchange. (This possibility exists also for surplus commodity sales for non-dollar currencies under the Mutual Security Act, since the recipient country is not required by this Act to give assurance that its special purchase is in addition to its usual purchases from the United States.)

6

It may be thought at this point that there can be no “ordinary commercial exports” of a commodity whose domestic price is so high that, if any of it is to be exported, it must be by benefit of a government subsidy. It is not clear, however, whether the U.S. subsidy for export is comparable to a conventional subsidy which (in other countries) may signify an export price that is below cost of production. Since productivity per man-hour in U.S. agriculture has risen more rapidly over the past 20 years than productivity in industry, it is not unlikely that U.S. agricultural exports could compete equally effectively in world markets if domestic market prices were set free.

The fact is that the particular use of domestic price supports to increase farm income in the United States tends to distort the comparative price advantages for agricultural against industrial products, and the export subsidy thus represents an offset (admittedly in uncertain degree) to that distortion. It is because the export price cannot be said to differ determinately from U.S. production costs that the bulk of exports outside the surplus disposal program are here regarded as “ordinary commercial exports.”

7

These remarks are not intended to imply that intergovernmental agreements and special terms necessarily reflect aggressive selling, but only that all three types of transaction have a common potential for aggressive competition. Moreover, the actual degree of competitiveness in these transactions can, and apparently does, shift from time to time. Nor should it be inferred that the United States has been unique in guaranteeing minimum prices for agricultural products or in employing bilateral trade agreements. Many, if not most, other countries engage in such practices.

8

While $1.4 billion of surplus commodities were exported in the period July 1953-December 1955, special domestic disposal programs absorbed another $1.3 billion of government stocks. Other measures to deal with the surplus problem domestically include flexible support prices, reductions in seeded acreage, and marketing quotas. These domestic measures will not be discussed here.

9

However, it should be noted that the sharp fall in U.S. cotton exports earlier in 1955 was probably more a reflection of uncompetitively high U.S. prices. Also, the U.S. price competition in January and February 1956 was not so keen as to prevent some recovery in world prices during the sale.

10

In a minor variant of this arrangement, the U.S. agricultural commodity has been exported to the aided (third) country, which then re-exports it to the (second) country where it wishes to establish a credit.

11

Among the $504 million of intergovernmental agreements signed through December 1955 to export agricultural products for payment in foreign currencies, dairy products accounted for only $8 million, or 1.6 per cent.

12

The much higher exports in the period 1948–52 were largely for foreign aid.

13

Wheat exports of the 1930’s were subnormal, first because of the currency devaluations of competing countries in 1931–32, and later because of short U.S. harvests. With the return to a more normal harvest in 1937, the U.S. share of world wheat exports recovered the next year to 19 per cent.

14

On the basis of tentative information at the end of July 1956 on cotton production, consumption, and stock requirements in noncommunist countries, the U.S. Department of Agriculture estimated that U.S. cotton exports during 1956–57 would be at least double the 2.1 million bales estimated for 1955–56.

15

The sharp rise in the U.S. share of world corn exports between the 1930’s and the early postwar period reflected partly an increase in U.S. exports, and partly a 70 per cent fall in the rest-of-the-world total. Most of the latter was accounted for by Argentine exports, which fell from 257 million bushels in 1934–38 to 58 million bushels in 1948–50. Corn exports from several East European countries also decreased over this period.

16

The FAO Monthly Bulletin of Agricultural Economics and Statistics reported in December 1955 that “cautious policies of surplus disposal have so far avoided any major disorganization of world markets.” In February 1956 at the Twelfth Session of the UN Economic Commission for Asia and the Far East, the Commission concluded that “It was clear [also] that the concern expressed by some countries earlier regarding the possible adverse effect of agricultural disposal policies had been happily alleviated by the cooperative manner in which these policies were being executed.” In part, the U.S. procedure has probably reflected a recognition that major displacement of foreign exports and weakening of international-prices would be politically undesirable as well as economically costly. These considerations apply of course to all U.S. agricultural exports, including those outside the surplus disposal law.

In regard to U.S. rice, an FAO report in October 1955 noted that “The U.S. Government, however, in order not to disrupt world markets unduly, has not [during 1955] offered for export sale rice from government stocks at prices lower than the equivalent of support prices paid to farmers” (Report of the Third Special Meeting on the Economic Aspects of the Rice Industry, CCP 55/27). In this connection it was noted that during 1955 the Far Eastern countries on the whole (principally Burma and Thailand) expanded their rice shipments, as did Egypt and Brazil, while the United States and Italy alone continued to reduce their exports notwithstanding that the stocks available in these two countries would have enabled larger exports to be made. (The significance of these developments is perhaps qualified by the fact that the increased marketings of Burma and Thailand, which included disposal of large carry-over stocks as well as most of their new crop, were made possible by their finding new markets in communist countries.)

17

FAO has suggested also the establishment of national food reserves in countries living near the subsistence margin.

18

Nevertheless, in a list of “basic means of dealing with the problem of surpluses,” the Committee on Commodity Problems included “the discouragement of uneconomic production” (C55/22, Appendix B, Guiding Lines for Dealing with Agricultural Surpluses).

19

The reference to special terms would cover what were described earlier in the present paper as surplus disposal transactions in the formal sense, while principle (2) would apply also to what were described as ordinary commercial transactions.

20

Observance of these FAO principles was further recommended to the American States by a Resolution of the Inter-American Economic and Social Council in December 1954 (ES-Res. 37/54).

21

Italics supplied. The admonition against disrupting world prices and in favor of promoting increased consumption calls to mind similar references in the major U.S. surplus disposal law, Public Law 480. The President of the United States is here required to “take reasonable precautions” to assure that commodity sales for foreign currencies “will not unduly disrupt world prices.” In order to assure that the surplus exports under special terms are not merely a replacement of normal U.S. exports, the importing country also is required to give formal assurance that such purchases are in addition to its usual purchases from the United States. (This requirement applies to surplus transactions under Public Law 480 but not to those under the Mutual Security Act.) Such assurance is not the same thing as assuring that these exports do not replace the normal export trade of any country; from the international viewpoint, the more desirable objective would evidently be an increase in world consumption.

22

Italics supplied.

23

Reminiscent perhaps of cartels.

24

Report of Review Working Party III on Barriers to Trade Other Than Restrictions or Tariffs (L/334, March 1, 1955).