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.
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.)
Though not necessarily surplus to the country’s human needs.
Moreover, although U.S. surplus disposal laws provide for domestic as well as foreign disposal, only the latter will be considered here.
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.
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.)
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.”
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.
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.
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.
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.
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.
The much higher exports in the period 1948–52 were largely for foreign aid.
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.
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.
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.
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.)
FAO has suggested also the establishment of national food reserves in countries living near the subsistence margin.
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).
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.
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).
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.
Reminiscent perhaps of cartels.
Report of Review Working Party III on Barriers to Trade Other Than Restrictions or Tariffs (L/334, March 1, 1955).