Farmer's-eye view of embargo
Chicago — Corn farmer Keith Hora saw the value of his crop drop by $25,600 in a single day after President Carter embargoed Soviet grain shipments. Mr. Hora, who tills 1,600 acres near Riverside, Iowa, is one of a growing number of US farmers who depend heavily on exports to the USSR and other nations for their profits.
During the 1979 growing season, the Hora farm yielded 250,000 bushels of corn. He estimates that about 75 percent of that crop moved overseas.
When President CArter announced that 17 million tons of grain was being withheld from the Soviet Union, the effect on the grain market was dramatic: the price of corn dropped 10 cents a bushel on the first day of trading after the embargo was announced.
Across the great American farm belt from Ohio to California, from North Dakota through Texas are thousands like Mr. Hora. These farmers were once insulated -- politically, economically, culturally -- from the "outside world." Today, the weather in the agricultural lands of the USSR directly affects their incomes and their standard of living. The grain-trade weapon President Carter is wielding agains the Kremlin is, indeed, a two- edged sword to the Keith Horas of America.
According to the US Department of Agriculture's Foreign Agricultural Service, the US harvested 57.5 million metric tons of wheat in 1979 (there are about 37 bushels to a metric ton of wheat). While this placed the US second behind the Soviets in overall production, the Foreign Agricultural Service projected that 38 million metric tons of US wheat would go overseas -- nearly half of the expected world wheat trade.By comparison, during fiscal 1979 (Oct. 1, 1978, to Sept. 30, 1979), the third year of the US-Soviet grain sales agreement, the Soviets bought 3.8 million metric tons of wheat from the US. Before the embargo they were expected to buy another 5.4 million metric tons this year.
The picture is similar for corn. The 1978 US harvest totaled 180 million metric tons, according to the National Corn Growers Association.Of that, about 49.5 million metric tons was exported -- more than half of the world trade. During fiscal 1979, the Soviets bought 11.4 million metric tons of US corn. (There are about 39 bushels of corn to a metric ton.)
In fiscal 1979 the USSR imported 15.2 million metric tons of wheat and corn from the US out of total Soviet purchases of 190.6 million metric tons.
Agricultural industry sources indicate that, before the embargo, 67 percent of the US wheat crop, about one-third of the corn crop, and 36 percent of the soybean crop was destined for foreign tables and feedlots. Asia is the top market for US agricultural exports, including rice and other products, and Europe is No. 2.
Debate continues over the wisdom and necessity of using US grain exports as a diplomatic weapon. Agricultural experts say the exports have helped boost and stabilize the income of American farmers. Exports have provided an outlet for chronic crop surpluses that might otherwise be stored at taxpayers' expense. Exports for agricultural products help pay a major portion of the tab for imported oil. And, they say, Americans are helping to feed a hungry world.
But this has made US farmers increasingly vulnerable to the economic ups and downs that accompany shifts in world demand.
"The final incentive for farmers is price -- the profit potential for our crop," says Keith Hora, whose farm supports eight families. "Before the embargo , we produced two or three record crops in a row. And those crops were worth more each year. Under those conditions, the philosophy is to maximize production."
Farmers begin to plan for the new crop, he explains, as soon as the old one is harvested. A farmer may go to a local bank and borrow money against his crop's value to help pay for seeds, fertilizer, fuel for his heavy equipment, and perhaps even new storage facilities or machinery.
For Mr. Hora, those costs add up to about $80 to $100 per acre -- between $ 128,000 and $160,000. His rent may run $40 to $50 per acre, paid twice a year.
The growth in US agricultural exports has been impressive, experts say. "Prior to World War II, we were 'zilch' as far as world exports were concerned," says the president of a Washington-based grain marketing group.
From that prewar "zilch" (zero), agricultural exports for the first 11 months of 1979 earned the US $31.7 billion, up from $27.3 billion for the same period in 1978. When the December figures are in, the 1979 trade account for agriculture is expected to show nearly a $20 billion surplus.
That $20 billion will offset about one-third of the country's $60-$70 billion bill for imported oil, says Dr. Marvin Duncan, an agricultural economist for the Federal Reserve Bank of Kansas City.
"US agricultural exports have boosted farm income, and have helped stabilize [it] at those higher levels," says Dr. William Farris, professor of agricultural economics at Purdue University. From a depression low of $2 billion, net US farm income has grown to about $25 billion this year.
"Some of that is due to inflation," says Dr. Farris. "But a major part of the increase is because of growing exports."
The recipe for this country's success as the world's leading grain exporter contains elements of climate, geography, technological innovation, politics, world population and income growth, and a large dose of the shrewdness of the legendary Yankee trader.
"We have been uniquely blessed with resources," Dr. Duncan says. "We have a climate conducive to agriculture, and fertile cropland."
Moreover, because of improved farm techniques, better fertilizer, and superior plants developed through genetic research, US farmers are more efficient than their counterparts in other nations.
"Because of our efficiency, other countries can buy our wheat or corn more cheaply than they can grow it themselves," Dr. Duncan explains. "This allows them to use their resources for producing things for which they have a comparative advantage" in world markets.
These factors, combined with World War II and its aftermath, awakened the US country to its potential as a major food exporter.
"One of the reasons we moved into the forefront as a major [crop] exporter was because of the increased demand for food during the war," says Dr. Lowell Hill, professor of agricultural economics at the University of Illinois.
"As Europe began to recover after World War II, the US was one of the few countries with the resources, technology, and an incentive system to expand output to meet growing world demand. Remember, countries were rebuilding their economies and raising their dietary standards," he says.
Despite this increase in demand, US farmers still were faced with a growing crop surplus.
"American farmers were producing so much that the federal government was getting into price supports -- storing grain at the taxpayers' expense," says a spokeswoman for the US Department of Agriculture.
At the same time, postwar foreign aid had given the farmers a taste of the export market -- a taste which they found much to their liking.
These forces combined to produce Public Law 480 -- the Food for Peace program -- in 1954.
"The original intent of the program was agricultural surplus disposal -- finding an outlet for our burdensome inventories," the spokeswoman said. "But now we're into the development aspect of helping underdeveloped countries. Now, about 75 percent of Food for Peace aid goes to countries with an annual per capita income or less than $625."
In general, Dr. Hill says, "the government helped develop overseas markets for our agricultural products by encouraging domestic production and then having to get rid of the surplus."
At the same time, the world's population and income began to increase. According to Dr. Duncan, as income in developing countries improved larger portions of every dollar, peso, franc, or rupee went for food.
"There is a hierarchy in food needs, beginning with minimum dietary standards. These requirements are met through food grains such as rice or wheat , and through locally grown vegetables. And import needs are met primarily through aid programs.
"Then, as their incomes improve, these countries enter the commercial market. As the diet is upgraded, there is a shift from carbohydrates to protien, especially meats. That means the demand for feed grains increases," he explained.
As these demands develop and are spotted by US agricultural organizations, the Yankee trade enters the picture.
Take soy beans, for example. These beans, with their high protien content, are used in products ranging from cooking oil to chicken feed. Soybeans are our leading agricultural cash export. In 1978, US growers harvested 1.87 billion bushels for the legumes, and exported about 55.5 percent of that amount, valued at $6.9 billion.
"In 1956, soybean growers began to invest money to promote overseas sales," says American Soy Bean Association spokesman Steve Drake.
One of the target countries in Japan. "The Japanese wanted to increase their hog and chicken production. The feed they were using contained 150 ingredients. We went to the Japanese feed companies and tried to sell them on a bean-corn mixture. But they wouldn't buy it," Mr. Drakere calls.
So, he says, the group of growers went to the Japanese hog and poultry producers. In the tradition of the Madison Avenue "taste test," the US representatives set up a demonstration and compared the end products -- a chicken or hog raised on the US-recommended mixture, or on the Japanese "brand X."
"The Japanese farmers saw they could improve their profits, and the government saw that it could upgrade the nutritional value of the livestock," says Mr. Drake.
The result? "Four to five years ago, about 7 percent of the Japanese feed mixture came from the US. Today, it's about 11.1 percent. And for every half-percent increase, they need another 1.5 million bushels of soybeans. We're shooting for 14 percent," said Mr. drake.
A similar program conducted in South Korea by the US Feed Grains Council has resulted in improvements of that country's livestock production, says a spokeswoman for the group. But it also has led to South Korea's absolute dependence on the US for its feed grain supplies.
Sometimes market development can come at the expense of exports from another country. Again, Mr. Drake:
"We did a market study in [West] Germany to find out if housewives would buy soy oil for cooking. We took the results to Unilever, the world's largest producer of cooking oils. They test-markted a product with the goal of selling 800,000 liters the first year. They sold 4 million liters. That number is up to 8 million a year. and now there are six brands of soy oil available at German supermarkets."
That increase, however, came at the expense of olive oil imported from southern Europe. Europe now receives 86 percent of its soy beans from the US.
But while the American agricultural community extols the virtues of shipping grain overseas, it also acknowledges that its growing dependence on exports is leaving it more vulnerable to fluctuations in demand -- natural or political.
"There is nowhere near enough domestic demand to absorb our exports," says Dr. Duncan. "The farmer has mortgaged his future in the expectation of a growing export market."
Experts say that many things affect demand for US foodstuffs. Trade agreements and understanding play a large role, as does the value of the dollar overseas. So do embargos.
Also weather, the level of agricultural technology used, pest infestations, and similar factors can effect changes in a country's crop yield.
When foreign yields are high, demand slackens and commodity prices may decline. In cases of major crop failures, such as in the Soviet Union, demand can skyrocket and, with it, the prices of commodities in demand on world markets.
Dr. hill observes, "The export market certainly makes demand more volatile and less predictable."
These uncertainties and the farmer's need to plan ahead despite the variables make farmers like Keith Hora especially leery about using food as a political fool.
Moreover, Mr. Hora points out, when prices drop the farmer spends less. And that affects seed companies, fuel companies, fertilizer companies, and especially equipment companies.
But despite these misgivings, agricultural experts remain optimistic about the future of US farm exports.
Says Dr. Duncan, "I want to emphasize that we do not have the capacity to feed the world. It is in our interests to help improve food production in developing countries. Essentially, these countries will have to come as close as they can to feeding themselves. Our role will be to make up the difference between what they can produce for themselves and what they need."
That gap, he says, will remain as world population and income continues to increase.
"I see continued growth for US agricultural exports," Dr. Duncan concludes, "perhaps tripling in value" in the decade of the 1980s.