O'Rourke, A. Desmond

English

Research Papers in Economics

AGRICULTURAL TRADE LIBERALIZATION--
IMPACTS  ON PRODUCERS
A. Desmond O'Rourke
Washington State University
Conventional  wisdom has  been  that the  United
States  has  set the  pace for  global trade  liberalization
for much of the  last 50 years, and that since the mid-
1960s,  the agricultural  sector has  been strongly  com-
mitted to such liberalization  because of its belief in its
superior competitiveness.  However,  both  the  actual
and perceived impacts of trade liberalization have been
disappointing  and frustrating  for agricultural produc-
ers.  As a result, their commitment  to trade liberaliza-
tion and to specific initiatives such as presidential "fast
track" authority, expansion of the North American Free
Trade Agreement  (NAFTA),  or extension of the  Gen-
eral Agreement on Tariffs  and Trade-World  Trade Or-
ganization  (GATT-WTO)  process is wavering.
Actual Versus Perceived Impacts
It is  important to  recognize  that producers'  per-
ceptions of the impacts  of trade liberalization may be
just as vital to their acceptance  of trade policy initia-
tives as the actual impacts.  Economists often see the
world differently than does the typical producer.  They
build multivariate, multidimensional models of the real
world.  They  weigh offsetting impacts  on producers,
consumers  and  societies.  They alter  constraints  and
conditions  to simulate  alternative outcomes.  In con-
trast, producers view the world selectively.  They focus
on the factors likely to affect them.  It gives them little
solace that their loss is the consumer's gain.  They view
effects of a trade policy in absolute terms, e.g. whether
Figure 1. U.S.  Agricultural Trade,.1980-1999F  in deflated  U.S.  dollars
1980  1982  1984  1986  1988  1990  1992  1994  1996  1998
Source:  USDA/ERS.  FATUS,  various
U
80
70
60
50
40
a)
a)
0
O
I.
c-~
30
20
Imports
Exports
"  ~~~~~~~~~~~~,,A
· ,  I~~··i~e
I~  ~  ~  ~~~~-it had a positive  or negative  effect on their prices  or
incomes.
The actual  impacts of trade liberalization  on U.S.
agricultural  producers have been unimpressive,  to say
the least.  For example, when one adjusts U.S. agricul-
tural exports and imports for inflation, U.S. exports in
fiscal year  1999  are  likely to  be  36.5 percent  below
those for FY 1980,  whereas  U.S. agricultural imports
are  expected to be 13 percent  higher (Figure  1).  The
net balance  of trade in agricultural products will have
shrunk from almost $40 billion in FY  1980  to about
$10.6 billion in FY 1999, a decline of 77 percent.  This
is not what U.S. agriculture  expected from trade liber-
alization.
For many  commodities,  the expansion of exports
has not  brought  commensurate  improvements.  For
example, Washington  State apple exports have moved
steadily upwards  since the early  1970s.  However,  the
real free on board' (FOB) shipping point price of Wash-
ington apples in the 1990s is dramatically below what
it was  in the  1970s (Figure 2).  For the latest five sea-
sons, 1993-97, the average FOB price in real terms was
$8.86 per box,  compared to  $13.65  in the  1975-79
period, a decline of 35 percent.
To economists  using their holistic models,  such a
decline is explicable by a number of factors-a change
in macroeconomic  conditions, a change in the balance
of supply and demand, or a shift in the nature or magni-
tude of trade  barriers.  However,  producers  and their
representatives  usually see the world in more simplis-
tic terms.  U.S. wheat producers  saw Canadian  wheat
and barley imports surge after the Canada-United  States
Free Trade Agreement (CUSTA)  came into force and
blamed  the  agreement.  As a result,  they opposed  its
extension into NAFTA.  Canadian apple producers saw
their apple prices decline after CUSTA came into force,
blamed  dumping  of U.S.  apples  and got a minimum
price trade barrier established.
Producer Perceptions Influential
Producers have deep-seated beliefs,  attitudes  and
perceptions  about trade that make them endemically
Free  on board  is the  price  offered  without  delivery  charges.
Figure 2.  Washington Apples--Exports  and Prices:  1975-1997
$35
a)
|-  $30
a)
r  $25
Cs
0
IL  $20
x
0
.o  $15
C  $1
$10
$5
35
30
0
25  L
0
20  O 0 O
15
I)
10  o
x X 5  u
Exports
Prices
55. a  .0,.5,,.-w  ,5
0
1975  1978  1981  1984  1987  1990  1993  1996
Sources:
Prices-  Washington  Grower's Clearing House Association,  Inc.  Annual Apple  Price Summary,  Wenatchee, WA  (annual)
Exports- Wenatchee  Valley Traffic Association.  Wenatchee-Yakima Apple  Export Report (unpublished,  bi-monthly)
U
I~~~~~~~~~~~~~~~~~~~~m0  I
1->-~pi  Afthostile  to trade liberalization.  Those  perceptions can
be easily intensified by temporary incidents.  They are
very difficult to change.  However,  if they are not dealt
with, they make  rational trade policy more  difficult.
For example, most producers view exports as good.
Exports are a signal that they are competitive in yield,
price or quality on the world market.  They are a reward
for excellence.  In contrast,  imports are usually viewed
as bad.  If other countries  are selling  successfully  in
U.S. markets, it can only be because they are cheating.
The usual culprit is government  subsidies.
In many cases, what exporters and importers con-
sider to be normal trade practices,  producers consider
to be  unpatriotic.  For  example,  Cargill's  attempt  to
import Argentinian wheat into the U.S. was denounced
by  the U.S.  grain industry  even though U.S.  grain  is
sold in many countries  that have  domestic  grain pro-
duction.  Many fruit  and vegetable  producers  are un-
happy  with their neighbors  who supply the U.S.  from
subsidiary  farms  in Mexico,  Peru  or Chile.  Pacific
Northwest  farmers  resent Canadian  wheat using  U.S.
road, rail or port facilities for export to third countries.
Cattle producers are irritated by Canadian cattle trucks
ferrying  animals to  U.S.  packing  plants.  Arguments
about efficiency,  economies  of scale or locational fac-
tors do not lessen the natural resentment.
Producer Disappointments
Producers  can  also  legitimately  complain  that
while  they  have  accepted  freedom  to  farm as  delin-
eated  in  the Federal  Agricultural  Improvement  and
Reform Act of 1996 (FAIR)  (P.L.  104-127),  they have
been  denied  the  complementary  freedoms  needed  to
make freedom to farm work.  Their freedom to trade,
freedom  to  use  their farm  resources  and  freedom  to
market their products has been increasingly  curtailed.
The Uruguay  Round  of GATT delivered  only a
fraction of the reduced tariffs and increased market ac-
cess that was originally promised.  In many cases, tar-
iffs have been replaced  by outrageous tariff rate  quo-
tas,  phytosanitary  barriers  or new  and  ingenious  ob-
stacles.  Farmers  naively  believed  that  the FAIR  Act
would "get government out of agriculture."  However,
as  traditional  farm  programs  have been  phased  out,
producers  are  facing  increasing  restrictions  on  their
use of land, air, water, chemicals and labor and on many
traditional farm practices.  In marketing farm products,
the food safety bandwagon has brought with it a whole
new set of intrusive restrictions on farm practices, most
involving  additional  costs  to producers.
Many producers of specific  commodities feel be-
trayed as they watch the outcomes of past agricultural
trade liberalization efforts.  U.S. grain farms see contin-
ued lack  of access  to  many  major  markets.  Florida
winter vegetable growers are unhappy with the inroads
made by Mexican  suppliers.  Pacific  Northwest  fruit
producers  are  irritated  by  Mexican  trade  constraints.
California  avocado  producers  are  angered  by market
access  concessions  to  Mexico.  In commodity  after
commodity,  there is  a litany of complaints.
On the other hand, trade liberalization  that might
benefit U.S. farmers has been painfully slow.  The open-
ing of the Japanese market has been a classic example.
After  ten years  of "liberalization,"  import  duties  on
beef entering  Japan  are  still a prohibitive  50 percent,
while import duties on Japanese beef entering the U.S.
are 4 percent.  After 20 years of negotiating  access for
U.S. apples to Japan, exports last season were zero be-
cause of an expensive and inflexible quarantine proto-
col.  China and South Korea, the next two largest mar-
kets  in Asia,  are  equally  recalcitrant.  The  Uruguay
Round of GATT moved in the right direction, but there
has  been  no  progress  since.  Trade  liberalization  of
agriculture  within the Asia-Pacific  Economic Coop-
eeration:  (APEC)  is  so far just talk.  There is  fear  that
current global economic crises  and the leadership  cri-
sis in many countries may make agricultural trade lib-
eralization even  more slow  in the next decade.
Conclusion
Producers  have  many reasons  to believe  that the
agricultural  trade  liberalization  process  has  not been
beneficial  to them.  Not all of those reasons  are valid.
Many  are based on deep-rooted biases or on a partial,
selective analysis  of events.  However,  producers  per-
ceive that agricultural  trade liberalization  has brought
much pain and frustration  and insufficient compensat-
ing gains.  It is  suspected that the U.S. is  in danger of
losing the slim majority among its producers that helped
to promote the Uruguay Round of GATT, NAFTA and
APEC.
In  turn,  if U.S.  agriculture  was  to  slip back  into
traditional subsidy programs  and increased protection-
ism, it would  lead many  other countries  to slip back
into  a  protectionist  mode.  Policy  makers  need to be
aware of the risk they are running if they do not address
both the real and the perceived concerns of producers.
It will be difficult to keep the support of producers and
producer organizations for new initiatives under GATT-
WTO, APEC  or the Free Trade Area  of the Americas,
unless those concerns  are addressed.
2  APEC  was  established  in  1989  as  an  informal  dialogue  group.
It  has  since  become  the  primary  regional  vehicle  for promoting
open  trade  and  practical  economic  cooperation  among  its  18
member  economics.Consequences of Devolution

AGRICULTURAL TRADE LIBERALIZATION-- IMPACTS ON PRODUCERS

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