Embargo: experts differ on farm impact
The impact of withholding 17 million tons of Soviet-bound grain, in reprisal for the Soviet invasion of Afghanistan, may be lighter on US farmers than at first assumed, agricultural economists say.Skip to next paragraph
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The big worry, US grain trade exporters contend, is the long-run breaking of momentum in agricultural export expansion, and the loss of foreign exchange revenue to offset dollars spent for imported oil.
Politically, Mr. Carter is likely to be hurt less in farm state support than his Republican and Democratic rivals assert. Much of the mechanism for easing the embargo's burden on farmers has already been set in the Carter administration's previous farm legislation. Grain planting does not start again until April. And House-Senate conferees will have time to work out with the administration details of a revised program -- expected to include changes in loan rates for farmers, higher target prices, a doubling of the farmer- held grain reserve, payments to divert acreage from production, and an expanded gasohol program -- in time for the new growing season.
If the government steps in quickly to buy grain as promised to help support market prices, and the grain program is adjusted quickly, Mr. Carter may escape some of the anticipated backlash in the Midwest grain states during the primaries. In the general election, it was already anticipated the plains states would vote Republican again in 1980.
US grain export companies voice distress over the embargo's impact on expanding grain trade. "It's devastating," says Joseph Halow, executive director of the North American Export Grain Association. "The domino effect will be horrendous.
"You're talking about 650 million bushels of grain -- more than Canada produces in a year," Mr. Halow says. "It will mean $7 billion in lost foreign exchange. Soviet confidence in the US as a supplier will be shattered. The whole US agricultural program is built upon exports."
Michael Hall, president of Great Plains Wheat Inc., and export market development organization, says the Soviet embargo will cost US farmers $3.5 billion in lost sales, if the 17 million tons go unsold, and another $3.5 billion in reduced grain market prices, or $7 billion.
However, farm economists see the embargo's impact, if it stays in force through the Sept. 30 end of the crop year, as less severe.
"Probably on balance the farmers will not be hurt very much, if at all," says Edward O. Harshbarger, Federal Reserve Bank of Kansas City, Mo., economist. He sees 10 million to 15 million tons less grain sold, not the full 17 million tons embargoed.
A 10 percent to 20 percent drop in grain prices could result from the embargo through 1980, says Stanley Hargrove, director of agricultural services for Data Resources Inc. Farm income also could drop $5 billion to $5.5 billion.
However, Mr. Hargrove says, the farmers losing the money may be those who can better afford it.
"Farmers producing hogs, cattle, poultry, and soybeans are the ones who are hurting," Mr. Hargrove says. "Too many hogs have depressed meat prices. Soybean growers, too, had a bumper crop, but the Soviets hadn't come along to take it from them. Depressed grain prices should help livestock producers reduce costs more than expected.
In effect, the anticipated lower grain prices in coming months should result in a "transfer of $1 billion or $2 billion in income from grain growers to meat producers," Mr. Hargrove suggests, "many of whom are the same person."
"Even with the embargo, grain prices at planting time this spring will be up or comparable to last spring's levels," Mr. Hargrove says. "Farmers had no idea prices would rise the past year the way they did. The big jump came in late summer, after planting, as prices rose when Soviet buying needs became clear. So grain farmers have had in effect windfall prices."
The American consumer may get a slight -- "one-or two-tenths of a point" -- break in food prices from the Soviet embargo this year, Data Resources computer models suggest.
"The US consumer may not gain much from this in the long haul," Iowa State University economists Robert Wisner says. "We may have larger supplies of livestock than we expected three to six months ago. But the US economy was depending on the grain sales. The dollar may be lower, raising the import cost of autos, textiles, aND OTHER CONSUMER products we import."
Grain prices this spring, though down from what had earlier been predicted will still be high enough to encourage heavy planting, most farm economists agree.