Food -- more exports need not push domestic prices up, study says
With domestic food prices heading higher, can the strapped US economy afford both to feed the hungry world better and build domestic stockpiles needed to prepare for future poor crop years?
At first glance, it seems obvious that meeting such costly objectives is bound to add to inflation.
Yet some agricultural economists taking a closer look are convinced that increasing both grain exports and stockpiles over the next two years can have a significant positive effect on the US economy as a whole.
A Chase Econometrics study commissioned by the National Association of Wheat Growers and dealing with the key food commodity, wheat, concludes that not only are far higher wheat prices needed to keep US wheat farmers in business, but that raising wheat prices to more than $6 a bushel will have spinoff effects benefiting the entire economy.
"Chase Econometrics concludes that a 40 percent increase in wheat prices would cause an increase of only 0.2 percent in the consumer price index," according to Don Loeslie, a Warren, Minn., wheat farmer who heads the National Association of Wheat Growers' economic research committee. "If this price increase is brought about only by higher wheat exports, then the benefits of a lower balance of trade deficit, increased jobs, and higher farm income which stimulates farmer purchases would more than offset the negative impact of slightly higher inflation in the US economy."
This new call to increase grain exports for the benefit of all comes at a timely moment. Incoming President Ronald Reagan and his choice for secretary of agriculture, John Block, are both outspoken champions of "aggressive expansion of agricultural exports."
Near the end of his campaign, Mr. Reagan told farmers in Iowa: "The Reagan-Bush administration will cooperate fully with the very fine export promotion programs which farmers have developed and for which farmers are providing much of the money. I promise to give farm exports direct, personal, presidential support; to insist that access to foreign markets be kept free of unreasonable trade barriers."
The Chase study figures show, however, that exports would have to increase dramatically over the next two years to guarantee farmers a $6 price for their wheat in 1982. This would mean increasing the 1979-80 export level of 1.4 billion bushels a year to more than 1.8 billion bushels. Chase instead suggests a government-backed export drive might increase sales to 1.6 billion bushels. In this case, an additional half-billion bushels would be put into reserve stockpiles to boost prices to $6.
The result, according to Chase vice-president Ray Daniel, is that "a combined policy of maintaining both strong exports and adequate food grain reserves would . . . protect farmers against higher energy and other costs and also provide reserves to protect consumers against food shortages during droughts or other major crop disasters."
As well, Mr. Daniel finds, the combined export and reserves plan "would boost US agricultural exports by 5 percent or $2.2 billion." This boost alone would reduce the US net trade deficit by 43 percent and raise farm income by 13 percent or $3.4 billion. With farmers using their extra income to buy new tractors, cars, and other items, employment and the economy as a whole would be stimulated.
Without some such program, the Chase study warns, farmers will be overrun by escalating production costs -- projected for 1982 at 42 percent above 1979 levels. Yet current projections point toward sluggish wheat prices since planted acreage is up and weather prospects are favorable for a bumper winter wheat harvest this spring which would depress prices.
The only answer -- for consumers as well as for farmers -- is paying higher prices for grain to offset production costs, according to the National Association of Wheat Growers. Carl Schwensen, the association's vice-president, concludes that "prices which return income sufficient to cover production costs and to produce a needed margin of profit for farmers are essential in ensu ring adequate US wheat supplies over the long term."