International Trade and Finance: A North American Perspective

By Khosrow Fatemi | Go to book overview

19
THE LINKAGE BETWEEN U.S. AGRICULTURE AND THIRD WORLD DEVELOPMENT

EMMANUEL I. OSAGIE


INTRODUCTION

While the nonagricultural sector of the economy continues to amass record trade deficits, the U.S. agricultural trade balance is far from a deficit. In 1973 the trade balance experienced an unprecedented increase of about 216 percent from the previous year. Since 1973 it has increased from $9.3 billion to $19.5 billion in 1983, with a peak of $26.6 billion in 1981. This tremendous increase is explained by the export boom resulting from the internationalization of U.S. agriculture within the last two decades. The growing foreign market led the way for optimistic investments in agriculture. Marginal farmlands, formerly made idle by government programs, were brought back into production, and by 1981 total acreage planted reached a record high of 391 million acres. 1

However, since 1981 agricultural export earnings have declined from $43 billion to about $29 billion in 1985. Total net farm income has declined from $34 billion in 1973 to $15 billion in 1983, a 56 percent decrease. Farm equity and real estate prices have declined, while total farm debt has tripled. Several domestic and foreign "diseconomies" have been proposed as possible explanations for the current depressed posture of the U.S. agricultural sector. Among these reasons are (1) the strength of the dollar relative to other currencies; (2) the economic development of Third World countries; and (3) unsupportive U.S. agricultural policies.

Both politicians and economists have become concerned about the degree of importance of foreign market outlets to the agricultural sector and the economy as a whole. The Food Security Act of 1985 acknowledged this problem by extending the in-kind export subsidy program to all potential exporters and mandated that at least $2 billion be spent on the program for

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