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SEF?TEMBER.-OCTOBER 1969

Exchange Rate Adjustrnents
Under the Par Value System . . . page 3
U. S. Foreign Agricultural Trade
In the 1970's:
Growth or Contraction? . • . . . . page 11

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Exchange Rate Adjustments
Under the Par Value System

1946-68
By Thomas E. Davis
currency crises
T during the ofpastinternational
few years has led to a vigorous debate over the adequacy of the present
international exchange rate system. Of central
issue in this debate i whether or not the present system is unduly rigid in allowing exchange
rate adjustments as a means by which countries
can attempt to achieve equilibrium in their balance of payments.
Supporters of the present system generally
maintain that the system contains adequate
provisions for rate adjustments, when and if
needed, as well as provi . ion that promote exchange rate stability- the latter of wh ich arc
con idcred cs ential for the growth and development of international trade. According to the
basic provisions of the system, as set forth in
the Articl es of Agreement of the International
Monetary Fund (IMF) in 1945 , the stability of
exchange rates is promoted by requesting each
member country of the IMF to agree on a fixed
par value of its currency, and to maintain transactions in its currency within one per cent
either ide of the agreed par value. The provi ions for exchange rate adjustmen t stipulate
that a member wishing to change its agreed
upon par value is eligible to do so in order to
"correct a fundamental disequilibrium" in it
country' balance of payments. Approval of the
IMF i required if the proposed change ( including all previous changes in either direction)

is in exc s;s of IO per cent of the initially agreed
upon par value. Supporters of the sys tem point
out that these provisions clearly recognize and
ttllow for exchange rate adjustments whenever
disparate trends in co ts , prices, and incomes
among countries make rate adju tments necessary and advisable . Moreover, it i held that the
requirement for IMF approval of large adjustments serves to recognize the valid principle
that exchange rates are matters of international
concern and hence hould not be subject to unilateral manipulation by particular countries.
Critics of the par value system claim that
whi le there may be nothing inherent in the design of the system to prevent desirable rate adju tm ents from being made, the system noncthclc has developed into one of virtually fixed
rates with very few adjustments being made in
practice. One of the major reasons for this
hardening of the system, it is felt, is that governments have found it politically difficult and
inexpedient to alter their exchange rates. This
difficulty stems both from reasons of national
prestige and from the unde irable effects that
a ra te change may have on the real incomes of
certa in sectors of a community. Another reason
for the reluctance of government to alter their
rates is th at with the emergence of a va t
amount of speculat ive funds capable of putting
prodigious pressure on a currency once it has
become suspect, governments very often have

Monthly Review • September-October 1969

11 E sr.RI ES

Exchange Rate Adjustments

found it difficult to determine the appropriate
amount of needed adjustment. Thus, it is often
claimed that governments not only have m ade
few and infrequent adjustments under the system, but once changes h ave been made, governm ents usually have made th em large in
magnitude so as to avoid having to repeat th e
process in the near future. With the e deficiencie in mind , a number of critic of the
system have recently propo ed a variety of alternative exchange rate systems designed to
increase the flexibility of exchange rates .
In view of the current controversy over the
rigidity of th e present exchan ge rate system,
thi s a rticl e exam ines the actual behavio r o f cxchan g rate. fo r cou ntri ·s that have operated
und er th e par va lue sys tem during th e postwar
I criod 1946-68. The exam inatio n will focus on
th e number, frequency , and magnitude of exchange rate adjustments.

NUMBER OF ADJUSTMENTS
A s a first approximation of the number of
rate adjustments th at have occurred unde r the
pa r value ystem, Table 1 presents-for each
of the years 1946 through 1968-the number
of co untries with membership in the IMF
( column I ), the numb r of member countri e.
with establi sh d par values ( column 2), and
the number of changes m ade in es tabli hed par
value by member countrie ( column 3). T he
year 1946 was chosen a the starting date of
the time se ries because it was in D ecember
1946 when the 40 original members of the IMF
first announced their initial par values.
T able 1 shows that a total of 70 changes
were made in officially establi hed par values
by member countrie of the IMF over the 22year pe riod ending I 968. 1 Of th e e 70 change ,
14 took place during the general currency re-

alignment in 1949, and 18 occurred during
1967, when a number of countries went along
with the United Kingdom 's devalu ation of the
pound sterling. Table 1 also shows, however,
that 9 out of the 70 cha nges made in par values
involved neither an appreciation nor a deprec iat io n, but in tead repre ented ju t a change
from one type of currency unit to another. New
Zea land , for example, changed just the nominal
va lu e of it currency in July 1967 when it establi hed a decimal unit- th e New Zealand
pou nd- to replace the old New Zealand doll ar.
Thus , it is perhaps more mea ningful to state
that a total of 6 1 ub tantive cha nges were
made in officia ll y es tab li shed par va lu es during
the 1946-68 per iod.'
Additiornl problems arise, however, in employi ng the lega l or officia l definition of a par
va lue. On the one h and , some member countries li sted a havi ng agreed upon par values
with the IMF have not in practice carried out
most or even any of their commercial transactions at the established parity rates. Rather, they
have employed a system of multiple rates applicable to different types of tran sactions. A s is
well known, multiple rate practices were rather
common in a number of countrie , particularly
in Latin America , up to and including the mid1950' . T heref re , the cxclu io n of the co un trie from consideration would seem in order,
ince their par values had little or no economic
meaning. On the other hand, some member
cou ntries not having agreed upon par valu es
with the IMF have carried out the majority of
their transactions at fixed or stable unitary excha nge rates. Italy, for example, did not have
an e tablished par value with the IMF until
1960, but neverthele s had an es entially tabl e
un itary rate app lica bl e to mo t of it tra nsaction s during the years 1949 through 1959.

A total of 114 cou ntries were members of the Fund during 1946-68 but Table I lists ju t 111 co untri es at the end
of 1968. This is because 3 of the 114 cou ntries had with drawn their membership. The e 3 countries and the date
of their withd rawal are:
uba (1964), Czechoslovakia
(1954), and Poland (1950) .

2
The 9 countries changing their par va lu es without apprec iating or depreciating their re pective currencies were:
ran ee (1960) , South Africa (1961) , Finland (1963) ,
Ghana (1965), Aust rali a (1966), Yugoslavia (1966 ), New
Zealand (1967) , Ghana (1967), and Zambia (1968).

Federal Reserve Bank of Kansas City

Under the Par Value System

Table 1
EXCHANGE RATE ADJUSTMENTS UNDER THE
PAR VALUE SYSTEM, END OF YEAR 1946-68
Number of IMF Member Countries

Total
Members

With
Par
Values

Number of
Changes in
Par Values

With
"Eff ective"
Pa r Values

Without or
Not Using
Par Values
but With
Fixed or
Stable
Unitary
Exchange
Rates

_ (_1)_

_ill_

(3)

(4)

(5)

(6)

(7)

0
0
1
14
3

4
4
4

0
0
1
17

Number of IMF
Member Countries

Year

1946
1947
1948
1949
1950

40
45
47
48
49

32
37
40
40
40

1951
1952
1953
1954
1955

50
54
55
56
58

44
49
49
,49

1956
1957
1958
1959
1960

60
64
68
68
68

49
51
53
56
59

1961
1962
1963
1964
1965

75
82
102
102
103

61
65

1966
1967
1968

105
107
111

Total

72
72

75
81
84
86

Total of
Columns

(4)

+ (5)

Number of
Changes in
"Effective"
Par Values
or in Fixed
or Stab le
Unitary
Exchange
Rates

5
5

27
29
29
31
30

1
1
2
3
2

27
27
30
30
31

4
4
4
3
3

31
31
34
33
34

1
2
1

35
40
43

9
9

3(1)

30
31
34
38
41

8
8

46
49

0
2

6(1)
2
2(1)
0
3(1)

45
50
56
56
61

15
19
31
30
28

60
69
87
86
89

3(2)
18(2)

67
70

_3Ql.

24
23
25

91
93
97

1
19
1

25
26

70(9)

0
1
1
1
2

1
2
1

NOTE : In column 3, the numbers in parentheses denote changes in par values involving neither appreciations nor depreciations .
SOURCE : International Monetary Fund, International Financial Statistics and Annual Reports on Exchange Restrictions.

Under these circumstances, it would seem appropriate to broaden the legal definition of a
par value to include those countries that had
either fix ed or stable unitary exchange rates .
To cope with these problems, a modified but
more mea ningful par value concept for analytical purpose is ad pted for use in this articl e.
Thi concept is incorporated into Table I by
showing for each year the number of member
countries with "effective" par values ( column
4), and also the number of member countries
Monthly Review • September-October 1969

without or not using par values but nevertheless
having fixed or stable unitary exchange rates
(column 5). a Countries classified as having
"This o ncept was first employed by Marga ret de Vries
in a n art icl e designed Lo . how th e in creasing adherence of
countries to the par value system during the period 194666. or this article, the cou ntry c las ifications appearing in
de Vrie ' art ic le were upd a ted and used as th e basis for
developing the tabu lar data on exchange rate adjustment
of cou ntri es und er the par value system . See de Vries,
" Fund Members' Adherence to the Par Value Regime :
Empi rica l Evidence," International Monetary Fund, Staff
Papers, November 1966.

Exchonge Rote Adjustments

Table 2
FREQUENCY OF EXCHANGE RATE ADJUSTMENTS
UNDER THE PAR VALUE SYSTEM, 1946-68
Years With
"Effective"
Par Value
or With
Fixed or
Stable Unitary
Exchange
Rates

Total

Making
No
Change

All Countries
1- 5 years
6-11 years
12-17 years
18-22 years
Total

16
45
15
27
103

13
34
9
8
64

3
10
4
10
27

9*
12

0
1
2
3
6

Number of IMF Member Countries

More Developed Countries
1- 5 years
0
6-11 years
4
12-17 years
5
18-22 years
16
Total
25
Less Developed Countries
1- 5 years
16
6-11 years
41
12-17 years
10
18-22 years
11
Total
78

13
33
7

....1.
58

Making
One
Change

Making
Two
or More
Changes

0
1

2
6
10

3
8
2
4
17

FREQUENCY OF ADJUSTMENTS
Number
of
Changes

3
12
8
35
58

0
4
4
27

0
0
1
2

3
8
4

8
23

•Included are 3 countries that made more than 2 changes. They are Iceland (6 changes), France (4 changes), and Finland (3 changes) .
SOURCE: lnterna!ional Monetary Fund, International Financial Statistics
and Annual Reports on Exchange Restrictions.

"effective" par values arc defined as those conducting mo t or all of their transactions at
agreed upon parity rates. Table 1 then presents
the sum of the countries having either "effective" par values or having fixed or stable unitary exchange rates ( column 6). The last
column in Table 1 lists the number of changes
made by these countries in their respective exchange rates.
On the basis of this modified par value concept, it is shown that a total of 58 exchange
rate adjustment were made during the 194668 period. Of these 58 adjustments, 17 occurred in 1949 , and l9 took place in 1967 .
More detailed information on these 58 changes
- including the specific countries making these
changes, as well as the date and magnitude of
6

each change-is presented in Table 5. A summary discussion of the frequency and magnitude of these changes is contained in the following two sections.

The frequency of exchange rate adjustments
made by countries op rating under the par
va lue system during 1946-68 is presented in
Table 2. This table first lists the total number
of IMF member countries acco rding to the
number of years these countries had either
"effective" par values or fixed or stable unitary exchange rates.4 The table next shows the
numbe r of th sc countri s that made no ch,rngc
in their exchange rntcs, then the number that
made one change, followed by th number that
mad e two or more c hange . The aggregate
number of changes is presented in the final
column of the table.
As seen in Table 2, 64 countries made no
change in their exchange rates out of a possible 103 countries th at operated under the par
value system during the 22-year period. 5 The
39 remaining countries accounted for all of the
58 changes, wit h 12 of these countries making
two or more changes in their exchange rates . In
term , of frequency of change, 43 out of the 58
changes were made by countries that operated
under the par value sy tem for at least 12 years
or more and 35 change were made by countries under the system as long as 18 years or
more. Alternatively, only 15 changes were
•For example, Japan , which became an IMF member in
1952 and had a fixed unitary exchange rate at the end of
that year, and which also had an "effective" par value
at the end of each of the 16 subsequent years through
1968 , was entered in the table as being under the pa r
va lue system for a total of l 7 years.
r'Tablc 2 li sts l 03 countries as bein g under the sy tern durin g 1946-68 in stead o f the total of l 14 th a t were members
during th at period beca use 11 countries did not have
either "effec ti ve" par values or fixed or stab le unita ry
rates. In c luded in th e 103 cou ntries a re 6 countries th a t
were not und er the system at the end of 1968 (see the
tota l of 97 me mb e rs shown for 1968 in Table 1, column
6) . These 6 cou ntries were Cuba , Czechoslov akia, Korea ,
Laos, Peru , and Poland.

Federal Reserve Bank of Kansas C,ty

Und e r the Par Value System

made by countries that operated under the par
system for 1 1 years or less.
The mo re developed countries accounted for
60 per cent of th e 58 rate adju stm ents, ma king
35 cha nges in all. 0 Of these 35 changes, 3 1
we re made by more de velo ped count ries th at
opera ted unde r th e pa r valu e system 12 yea rs
or mo re, a nd 2 7 c ha nges we re made by mo re
developed co untri es o pe rating unde r the system I 8 years a nd ove r. The less d vc lo ped
countries made 2 3 ch a nges during th e 22-yea r
pe ri od, with abo ut o ne-half of these cha nges
being m ade by less develo ped countries th at
operated un der th e sy tern 12 yea rs o r mo re.
Alth oug h th e num be r o f less dcv ' lo ped co un tri es ;11n o un tc d to ;i bo ut three-fou rth s o f th
to ta l nu m ber o f co untri es, mos t of th e less developed co un tri es we re under the p~11· valu e
system a conside ra bl y sho rter tim e th a n the
more de veloped countries.
T he frequency of rate adju stment made by
IMF m ember co untries during the two subperiods 1946-57 and l 957-68 is presented in
T able 3 . The purpose of this tabl e is to e xa mine
the contention th at the par valu e sys tem has
beco me more rigid recently with res pect to
exch ange rate adju stm ents th an it was in earlier
yea rs. The e nd o f th e yea r I 957 was chosen as
the di viding da te of th e ove rall pe riod beca use
it sepa ra tes th e pe ri od into two I I-yea r cg7

Table 3
FREQUENCY OF EXCHANGE RATE ADJUSTMENTS
UNDER THE PAR VALUE SYSTEM,
1946-57 AND 1957-68
Years With
"Effective"
Par Value
or With
Fixed or
Stable Unitary
Exchange
Rates

Number of IMF Member Countries
MakMak -

Mak -

ing

ing
One
Change

Two or
More

Total

ing
No
Change

1- 5 years
6-11 ye ars

13
33

12
16

Total

0
5*
5

15
86

2 1'

3
31

101

Num ber of
Changes

Changes

All Countries

1946-57
1

!!..
24

~
1- 5 ye ar s
6 -11 y ors
Total

More Developed Countries

1946-57
1- 5 years
6 -11 years
Total

5
17

0
4*

0
25
25

0
12
12

17
18

1957-68
1- 5 years
6-11 years
Total

0
17
17

Less Developed Countries

1946-57
1- 5 years

6-11 years
Total

16
24

0
6
6

1957-68
"On th e bas is o f the lega l or offic ial de finiti on of a par
val ue, th e more deve lo ped co un t ries acco unted for a
slightly sm a ll er propo rtio n o f the to tal ra te a djustme nt s.
Spec ifica lly, 50 per ce n t of the 70 changes in legal pa r
values were m a de by m o re deve loped co un tr ies. C lass ified as m ore developed co un tri es in t hi s a rticle are 14 industri al countries (A ustria, Be lgium, Canada , D enm a rk,
Fra nce, Ge rmany , I taly, J a p a n , Lu xem bou rg, Nethe rland s,
Norw ay, Sweden , Un ited Kin gdom, a n d U nited States)
a nd 11 o th er developed co u ntr ies ( F inl a nd , G reece, Iceland , Ire la nd, Po rtu ga l, S pa in , T urkey, Y ugoslav ia, Australi a, N ew Zea la nd, a nd So uth A fr ica) . A ll ot he r coun tri es a re class ifie d as less developed countri es.
7

lt sh o ul d be noted t hat ma ny o f the less develo ped co un tri es di d no t become me m be rs of t he IM F u ntil afte r the
mid- 1950's. M o reover, of th e less deve lo ped co untries th a t
were m e mbers prior to th a t time, m any em ployed multi ple
exc hange rate prac tices and he nce we re exclu ded fro m
consideration because t hey did no t have either "effecti ve"
par valu es o r fixed or stabl e unitary ra tes.

Monthly Review •

Se pte mber-Octob er 1969

1- 5 years
6 -11 years
Total

15
61
76

14
17

..2..

14
17

* France made 3 changes.

Iceland made 4 changes.

SOURCE : International Monetary Fund, International Financial Statistics
and Annual Reports on Exchange Restrictions.

mc nt

a nd a lso beca use it was at th e e nd of

1957 th at ma ny co untri es bega n moving towa rd
grea te r co nvertib ili ty of the ir currencies. The
form at of Ta ble 3 is simil a r to T able 2, in that
it list the nu mber of IMF membe r countries
making cha nges in their exchange rates according to the number of yea rs these countries
7

Exchange Rate Adjustments

had-at one time or another during the given
period-either " effective' ' par values or fixed
or stable unitary xchange rate . Table 3 also
provides a breakdown of rate changes made
by more developed countries and less developed countries during the two subperiods.
A indicated in Table 3, there were 24 rate
change in 1946-57, and 34 rate changes during 1957-68. In the earlier period, the 24 rate
changes were made by 18 of the 46 countries
(39 per cent) operating under the par value
system. ln the 1957-68 period , the 34 rate
changes were made by 30 of the 10 l countries
(30 per cent) under the par value system.
Thu s, on the ba sis of the total number of countries operating under th e system, it would appear that a slightly grea ter proportion alt red
their exchange rat s during 1946-57 th·rn during 1957-68.
MAGNITUDE OF ADJUSTMENTS

Table 4
MAGNITUDE OF EXCHANGE
RATE ADJUSTMENTS
UNDER THE PAR VALUE SYSTEM, 1946-68
Magn itude of
Adjustments
(In per cent)

1946-68

1946-57

1957-68

3
18

1
3
2

15
5

All Countries
Apprecia tion

0 - 9.9
Depreciation
0 · 9.9

10 - 19.9
20 · 29.9
30 · 39.9

40 and over

Total

2
3
6

13
5
24

1
3

9
8
35

8
4

1
6
2
1

1
9
3
7
3

0
0
0
5
1

1
9
3
2
2

More D veloped Coun tri s
Appreciation
0 - 9.9
D preciation
0 - 9.9

10 - 19.9
20 - 29.9
30 - 39.9
40 and over

The magnitude of exchange rate adjustments
made under the par value system during 194668 is summarized in Table 4. A detailed list of
these changes, as was indicated earlier, appears
in Table 5 . The method used to calculate the
magnitude of the rate changes is the commonly
accepted one; that is, rate changes arc expre ed in term s of percentage changes rela tive to gold or the U. . doll ar with the gol d
content in the weight and fin e ness in effect on
July I, 1944. This method produce the familiar results, for example, of devaluations of
the British pound of 30.5 per cent in 1949,
and 14.3 per cent in 1967.
Table 4 shows that out of 58 rate adjustments made during 1946-68, there were 3 appreciations and 55 devaluation s. Of these deva lu ations, 2 1 were made in magnitude ranging up to 19 .9 per cent, and 34 were made in
amount of 20 per c nt or over. In fact, 11 of
these dev aluation w re 40 per cent or over.
The more deve loped countries mad 32 devaluations in all, of which about two-thirds
were 20 per cent or over, while the less devel-

Number of Rate Adjustments by
IMF Member Countries

Total

Less Developed Countries
Appreciation

0 - 9.9
Depreciation

0 - 9.9
10 . 19.9
20 - 29.9
30 · 39.9
40 and over

Total

SOURCE : International Monetary Fund , International Financial
Statistics and Annual Reports on Exchange Restrictions .

oped countries devalued 23 times, of which
more than one-half were 20 per cent or larger.
The average amount ( the arithmetic mean) of
aU 58 rate adjustments was 26.9 per cent, with
the average for the more developed countrie
being 28.2 per cent, and the average for the
les, developed countries being 24.9 per cent.
The relatively large magnitudes of mo t of
the exchange rate devaluation in the 1946-68
period arc due partly to the predominance of
the sizable ra te changes made during the genera] currency realignment of 1949. In that
year, 9 IMF m mber operating under the par
Federal Reserve Bank of Kansas City

Under the Par Value System

Table 5
COUNTRY DATA ON EXCHANGE RATE ADJUSTMENTS, 1946~68

Country

Number
of
Changes

Years With "Effective"
Par Value or With
Fixed or Stable Un itary
Exchange Rates

Date and Magnitude
of Changes

More Developed Countries
1
2
3

1
1

4
5

Australia
Belgium
Canada
Denmark
Finland

France

Ge rmany (Fed . Rep.)
Gr c
le land

2
6

16
20
18

1
1

12
22

8
9

10
11
12
13
14
15
16
17
18
19

Ireland
Luxembourg
Netherlands
New Zealand
Norway
South Africa
Spain
Turkey
United Kingdom
Yugoslavia

2
2

21
22
10

22
22

1
1

2
2

19
22
13

1949 (30.5%)
1949 (12.3%)
1949 (9.1%); 1962 (1.8%)*
1949 (30.5%); 1967 (7.9%)
1949 (30.5%); 1957 (28.1 %);
1967 (23 .8%)
1948 (56 .5%); 1949 (21.8%)
1957 (16.7%); 1958 (14.9%)
1961 (5.0%)*
1949 (66.5%); 1953 (50.0%)
1949 (30 .5%); 1950 (42 .6%)
1960 (57.1 %); 1961 (11.6%)
1967 (24.6%); 1968 (35.2 %)
1967 (14.3%)
1949 (12.3%)
1949 (30.2%); 1961 (5.0%) *
1967 (19.5%)
1949 (30.5%)
1949 (30 .5%)
1967 ( 14.3%)
1960 (68.9%)
1949 (30.5%); 1967 (14.3%)
1961 (93.3%); 1965 (40.0%)

less Developed Countries
1
2
3
4

5
6
7
8
9

10
11
12
13
14
15
16
17
18
19
20

Ceylon
Cyprus
Ethiopia
Gambia
Ghana
Guyana
India
Iraq
Israel
Jamaica
Malawi
Mali
Mexico
Nepal
Pakistan
Philippines
Sierra Leone
Trinidad and Tobago
Tunisia
U. A. R.

19
8

22
2

12
1
2

1
1
1
1
1

22
7
6
4

1
1

19
13
7
6
11
15

1
1
1

1967
1967
1963
1967
1967
1967
1949
1949
1967
1967
1967
1967
1949
1967
1955
1965
1967
1967
1964
1949

(20 .0%)
(14.3%)
(0.6%)
(14.3%)
(30 .0%)
(14.3%)
(30.5%); 1966 (36.5%)
(30 .5%)
(14.3%)
(14.3%)
(14.3%)
(50.0%)
(43.9%); 1954 (30.8%)
(24.8%)
(30.5%)
(48.7%)
(14.3%)
(14.3%)
(20.0%)
(30.5%); 1963 (19.9%)

*Denotes appreciation.
SOURCE : International Monetary Fund, International Financial Statistics and Annual Reports on Exchange Restrictions.

Monthly Review • September-October 1969

Exchange Rate Adjustments Under the Par Value System

value system, including the United Kingdom ,
devalued their currencie 30.5 per cent. These
changes are reflected in the data shown for the
subperiod I 946-57. In that period, all but 4 of
the 24 total changes were in amounts of 20 per
cent or more. As a result, the average amount
of these 24 changes was 31.5 per cent. ln the
1957-68 period, though, a majority of the devaluation were less than 20 per cent. These
lower magnitude reflect, of course, the devalu ations of 1967, at which time 11 members of
the IMF, including the United Kingdom, devalued their currencie by 14.3 per cent. Nonetheless, due to a substantial number of devaluations of 20 per cent or more, the average
change for 1957-68 amounted to 23.3 per cent.
Thus, for both periods, the average exchange
rate adjustment was more than 20 per cent.

CONCLUSIONS
The principal results of the foregoing examination of the number, frequency, and magnitude of exchange rate adjustments made by
countries operating under the par value system
during the 1946-68 period can be summarized
as follows. First, 58 rate adjustments were
made by just 39 countries out of a possible
I 03 that were under the par value system during the period. Secondly, and in term s of frequency of adjustments , 43 out of the 58
changes were made by countries that were
under the par value sy tern at least 12 years or

longer, and 35 change were made by countries
under the system 18 years or longer. And
finally , the average magnitude of the 58
changes was as much as 26 per cent, with the
average change in the ubperiod 1946-57 and
1957-68 being in excess of 20 per cent.
These results, it would seem, tend to support the view that exchange rate adjustments
under the par value system have been relatively
few and infrequent in number a wel1 as large
in magnitude. However, it , hould not be concluded from these results that the institutional
provisions for rate adjustments contained in the
present system arc unduly rigid. The provisions
of the present sys tem, it shou ld be pointed out,
off r countries the opportunity to make rate
;1dj u-;t ments when and if needed . I ndced , if
thc:-.c prc:-,cnt provision:-, ar li berally interpreted
they would appear to offer more than adequate
scope for countries to make modest and frequent changes in their exchange rates. Therefore, it is suggested that, if greater frequency
in rate adjustments is to be obtained in the
future, it need not be necessary to adopt some
alternative exchange rate system. What will be
required, though, is for governments to exhibit
grea ter readiness and willingness to make more
frequent and timely rate adjustments within the
framework of the existing system. It may be
that the attitudes of governments arc now
evolving in this direction as a result of the
numerous currency crise of recent years.

Federal Reserve Bank of Kansas

City

U. S. Foreign Agricultural Trade
in the 1970's:
Cirowth or Contraction?
Ry Richard D. Ree.,

ll . S. a •ricultural exports from
Ethe reduceden levels
of I <)67 and 1968 is not
XPANS ION

likely in the near future . _:;, xports of agricultural products from the United Statcs declined
in 1967 and 1968 , interrupting the impress ive
growth trend that prevailed in other recent
yec1rs . From 1958 through the record year of
1966, agricultural exports increased by more
than three-fourths. What implication does the
downturn hold for future trade? Can th e reduced shipments, in fact, be termed "downturn" or arc they mere ly a short pause in a
continued expansion of agricultural sh ipment s?
This article will focu s on the prospect for
U. S. agricultural trade in the decade of the

1970\. Agricultu1 .ti export,, as well as imports,
wil l be reviewed for n:ccnl yea rs in order to
give a more mcanin 1 ful perspective to current
level s of forcign trade. Trade data will be prese nted for the years starting with 1958- thc
year that marked the previous sharp decline in
agricultural exports and set the stage for the
sharp rate of farm export growth through 1966.
The article will look at the agricultural balance of trade and will point out its relative importance to the overall U. S. balance of trade
and the balance of payments. Another section
will stress the relation of exports to domestic
farm income- particularly in the Tenth federal
Re serve Di strict. Finally, factors influencing

Table 1

u. s.

AGRICULTURAL EXPORTS, 1958-68
(Millions of Dollars)
1968*

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

Other

5!>0
656
256
1,363
413
354
125
138

570
445
240
1,490
572
346
145
147

576
980
249
1,752
594
379
140
162

633
875
272
1,987
566
391
125
175

590
528
286
2,147
725
373
149
236

677
577
276
2,373
816
403
173
289

841
682
279
2,656
1,001
413
158
318

787
486
313
2,632
1,157
383
155
316

726
432
315
3,186
1,229
482
176
335

675
465
310
2,675
1,245
499
164
347

677
460
277
2,460
1,270
524
173
388

Total Exports

3,855

3,955

4,832

5,024

5,034

5,584

6,348

6,229

6,881

6,380

6,228

Animals and animal products
Cotton, el(cluding !inters
Fruits and preparations
Grains and preparations
Oilseeds and products
Tobacco, unmcrnufactured
Vegetables and preparations

* Preliminary .
SOURCE: Foreign Agricultural Trade of the United States, U. S. Department of Agriculture.

Monthly Review • September-October 1969

u. s.

Foreign Agricultural Trade in the 1970's:

Table 2

u. s.

AGRICULTURAL EXPORTS AND GOVERNMENT-FINANCED PROGRAMS, 1958-68
(Millions of Dollars)
Public Law 480

Year

1958
1959
1960
1961
1962
1963
1964

1965
1966
1967
1968

Long-Term
Dollar and
Convertible
Sales for Fore ign
Foreign
Currency
CurCredit
Sales
~

752
731
1,014
878
1,007
1,162
1,232
899
815
736
539

97
152
239
201
384

Donations
for Disaster
Relief and
Economic
Devel opment

Volun tary
Relief
Agency
Dona tions

43
32
49
93
81
99
62
73

159
111
124
151
178
160
186
180
132
179
150

108
101

Total Agricultural Exports

Barter for
Strategic
Ma terials

65
175
117
181
137
38
35

5
41

13
3

Total
Public
Law 480

Mutual
Security
AID

1,019
1,049
1,304
1,304
1,445
1,511
1,612
1,309
1,306
1,237
1,177

214
158
157
179
35
11
23
26
47

33
5t

Under
Specified
Govern ment
Pro~rams

Outside
Specified
Govern ment
Pro~rams *

All

2,622

3,855

2,748

3,955

3,371
3,541

4,832
5,024
5,034
5,584
6,348
6,229
6,881
6,380
6,228

1,233
1,207
1,461
1,483
1,480

3,554

1,522

4,062

1,635
1,335
1,353
1,270
1,182

4,713
4,894
5,528
5,110
5,046

*"Total agricultural exports outside specified Government programs " (sa les for dollars) include, in addition to unassisted commercial
transactions, shipmen ts of some commodities with governmental assistance in the form of : ( 1) barter shipments for overseas procure ment for U. S. agencies; (2) extension of credit and credit guarantees for relatively short periods; (3 ) sales of Government -owned
commodities at less than domestic market prices; and (4) export payments in cash or in kin d .
t lncludes shipments for January -Ju ne 1968 only .
SOURCE : Foreign Agricultural Trade of the United States, U. S. Department of Agriculture .

future trade levels and prospects for trade expansion in the coming decade will be di sc ussed .
EXPORTS IN RETROSPECT

Starting with 1958, the United States xportcd a larger total dollar amount of agri cultural goods each succes ivc year until 1965 ,
when lower exports of animals and animal
products and cotton helped to drop the annual
total slightly below the year-earlier level, as
shown in Table 1. Strong grain exports boosted
the 1966 total to an all-time record, only to be
fo llowed by two successive years of declines in
1967 and 1968. The closing of the Suez Canal
in J un c 1967 , record world gra in production ,
low r grain prices, reduced Government program shipments (Tab le 2), currency deva lu ations, and th e U. S. dock strik e were principal
factor contributing to the decline .
Since 1958, dollar volume of cotton exports
ha trended downward, while th at of fruits,
12

vegetables, anim als and animal products, and
tobacco have trend ed upward by slight-to-moderate amounts. During the same time , shipments of grains almost doubled , while oilseeds
tripled in dollar volume. The large r gra in exports rcfl ct increased food grain shipm ents as
we ll as feed grain requirements for large r world
live tock number .
During 1967 and 1968, when exports declined, the trends of most groupings were opposite those for the entire 1958-68 period .
Most of the dec reased level of U. S. agricultural exports since 1966 can be attributed to
sharply lower dollar shipments of grain . This
reflects I wer price and mailer world demand for U. S. gra ins, due to record world
gra in production . Feed grain hipments in
1968 were $408 million le s than in 1966,
while wheat and flour shipment were down
by $433 million . Wheat export alone were
down $403 million during the two years. Partly
Federal Reserve Bank of Kansas City

Growth or Contraction?

mes tically produced agricultural products. Included are many a nim al, cotton , fruit , grain ,
tobacco, and vegetable products. Noncompeti tive imports bas ically do not compete with
U. S. prod ucts, since they eith er are not produced in the United States o r are produced in
li mited quantit ies. Examples include bananas,
coffee, cocoa, rubber, tea, and carpet wool.
Co mpe titive imports increased 57 per cent
to $3,042 milli on in 1968, primarily because
o f larger shipm ents of animals and anim al
prod ucts, fruits, suga r, and vegetables (Table
3). Smaller increases were noted for nuts, o il seeds, and tobacco. Cot ton and grain s declined
during the period . Much of th e increase in com pct iti ve imports is due to attractive U. S. prices
;ind co ntinu ed cons um er de mand for ce rt <1in

offsetting during th e period were la rge r shipments of milled rice , primarily as a res ult of
higher prices. Exports of a nim als a nd animal
products, fr uits, a nd vegetables declined by
small amo unts in 1967 and 1968, whil e cotton , oilseeds, and tobacco increased modes tly .
IMPORTS IN RETROSPECT

For the purposes of this article, agricu ltural
impo rts will be referred to as either "competit ive" or " noncompetitive." lt is recognized
that there is a certa in deg ree of co mpetitiveness
betwee n a ll products but that ome compete
directly with our domest ic production , whereas
ot he rs co mi,ete in an indirec t manner . C'om i,ct itive imports arc th ose th;1t ;1re si mil <1r to, and
;1rc us ·d fo r the s; 1mc purposes as, o ur do-

Table 3

S. AGRICULTURAL IMPORTS, 1958 .. 68
(Millions of Dollars)
1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968*

700
26
66
66
62
147
520
96
74
181

764
20
78
57
67

644
23
88
55
69
161
507
115

884
25
88
43
60
151
504
101
83
184

893
24
104
43
68
144
611

784
21
124
50

921
18
123

1,224
15
182

91
211

158
458
110
104
214

75
174
130
114
205

1,160
18
130
44
82
186
502
127
144
231

1,081
28
138
47

80
189

737
31
88
54
62
145
458
114
78
171

189
587
129
166
255

111
228
641
142
178
272

1,938

2,015

1,9 18

1,938

2,128

2,292

2,096

2,246

2,627

2,697

3,042

77
1,097
165
383
52
123
186

77
961
160
216

127
1,197
131
201
60

162
1,059
120
182

179
1,067
122
177
57

190

108
174

77
986
132
228
60
89
165

Oth er

69
1,171
172
248
48
80
'155

177

71
187

188

174
963
147
170
58
38
205

182
1,139
136
188
61
48
232

Total Noncompetitive

1,943

2,083

1,906

1,753

1,740

1,719

1,986

1,840

1,864

1,755

1,986

Total Imports

3,881

4,098

3,824

3,691

3,868

4,011

4,082

4,086

4,491

4,452

5,028

Competitive
Animals and animal produ cts
Cotton, excluding !inters
Fruits and prepara tions
Grains and preparations
Nuts and preparatio ns
Oilseeds and products
Sugar, cane
Toba cco, unmanufoctured

Vegetabl es a nd preparations
Other

Total Competitive

175
496
100
71
187

441

Noncompetitive
Bananas
Coffee
Cocoa, beans
Rubber, crude natural
Tea
Wool, carpet

1,002
143
322
56
112

957
135
197
58
115
175

* Preliminary .
SOURCE : Foreign Agricultural Trade of the United States , U. S. Deportment of Agriculture .

Monthly Review • September-October 1969

U. S. Foreign Agricultural Trade in the l 970 's:

products during the domestic off-production
season.
Imports of noncompetitive products increased on ly slightly since 1958. All of the increase came from bananas, tea, and "other, "
while import of coffee, cocoa, rubber, and
carpet wool declined in dollar volume. Relative to total imports, noncompetitive imports
declined from 50 per cent in 1958 to about
39 per cent in 1968.
Total imports reached $5,028 million in
1968-up 30 per cent since 1958. Three commodity groups- animals and animal products.
sugar, and coffee- accounted for a major
share or total imports. The three comprised
about 60 per cent of tot.II imports in 1958
,tnd 1968 .

Chart 1
U. S. BALANCE OF TRADE, 1958-68
B 1111 on s of Do 11 a rs
8
7

6
5
4

3
2

I-

0
I

BALANCE OF TRADE

1958

'60

'62

'64

'66

' 8

SOURCE : Foreign Agricultural Trade of the United States , U. S.

There ha s been considerable interest in the
impact of international trade in agricultural
products on the U. S. balance of trade. The
nonagricultural balance of trade fluctuated at
high surplu s figures from 1958 to 1964-peaking at $5,290 million in that year. The surp lu s
declined sharply after 1964 and was at a deficit
of $61 million in 1968 (Chart I). With the influence of an agricultural trade surp lu s during
those years, th e overall balance of trade was
able to maintain a relatively favorable position,
although it suffered a severe reduction. Agriculture's balance of trade ha s been favorable
since 1960, although reduced exports in 1967
and 1968, together with sharply higher imports in 1968, adversely affected the amount
of surplus.
Early in World War II, agriculture established a surplus trade balance as a result of
the Lend-Lease Progr;.1m. The Marshall Plan
and other programs continued to expand agricultural trade after the war so that agriculture
maintained a trade surplus from 1943 through
1949, with a high surp lus of $1,197 million
in 194 7. For most years during the 1950' ,
carryover stocks were at relatively low levels,
14

Department of Agriculture.

resulting in little export expansion. With
sharply higher imports during the decade, agriculture's balance of trade showed a deficit for
every year from 1950 through 1959, except
for 1956 and 1957- the two largest export
years in the decade. During the I 960's, abundant supp li es of agricu ltu ral goods again resulted in expansion of exports which was
reflected in the trade surp lu ses mention d
earlier. Factors that wi ll be discussed in detail
later do not favor a dramatic improvement 111
the trade balance in the near future.
BALANCE OF PAYMENTS

In order to determine agriculture's net contribution to the U. S. balance of payments , it
is necessary to adjust the trade data so a to
remove shipments under Government programs. This is done in Table 4 by adding
certain rea lized dollar return. and savings on
noncommercial agricultural exports to the annual "dollar" export . Jn effect, it deducts noncommercial exports from the total export data.
The result i total agricultural dollar earnings
and reflects the contribution of agriculture, on
Federal Reserve Bank of Kansas City

Growth or Contraction?

Table 4
AGRICULTURE'S CONTRIBUTION TO TH
. S. BALANCE OF PAYMENTS, 1960-68
(Millions of Dollars)

Commercial agricultural exports

1960

1961

1962

1963

1964

1965

1966

1967

1968

3,371

3,541

3,554

4,062

4,713

4,894

5,528

5,110

5,046

118

148

156

160

223

183

132

225

183

Plus : Rea lize d dollar returns and
savings on noncommercial agri cultural exports
Titl e I, Public law 480,
foreign currencies use d
by U. S. agencies
Title I, Public law 480,
principal and interest repayments on dollar credit sa les
Mutu a l Security (AID) for ign
curr nci s u s -d by U. S.
agc ,1 ci s

Expor t-Import Bon k principal
and inter st doll ar repayments

Total agricultural dollar earnings,
act ual plus realized dollar returns
on noncomme rcia I exports

3,538

3,735

3,741

4,233

4,941

5,106

5,699

5,442

5,340

Less : Agricultural imports

3,824

3,691

3,868

4,011

4,082

4,086

4,491

4,452

5,028

Net contribution to the U. S. balance
of payments attributable to agricul tural commercial trade

- 286

- 127

222

859

1,020

1,208

990

312

* less than $500,000.
SOURCE : Foreign Agriculturol Trode of th e United States , U. S. Department of Agr iculture, and Foreign Gold and Exchcrnge Reserves ,
U. S. Departmen t of Agriculture .

lhe expor t side , lo lh c halance of paymenl s.
After subtracti ng agr icu llurnl imports for each
yea r, il ca n be seen that agriculture has had
a pos ili vc net influence on th e U. S. balance
of payments each year in th e I 960's, except
for 1960 and 1962.
IMPORTANCE OF AGRICULTURAL EXPORTS

One measure of the importance of exports
to the U. S. farmer is to express agricu ltural
exports as a percentage of fann income. In this
a nalysis, cash receipt s from farm marketings
will be used to indicat e farm income, since ca~h
receipts comprise a major proportion of farm
in come and such data arc ava ilable by states.
Table 5 summarizes the valu,!tion of export
shares by com modity and cas h farm marketings by Tenth Federal Re se rve District states.
Monthly Review • SC'ptcrnb~r October

1969

The state expo rt shares arc the result of a
stud y done by th e Foreign Development and
Trade Division , Economic Re search Service,
U . S. Department of Agr iculture. Since it is
difficult to precisely record the ultimate desti nation of the entire production of a given state,
some means of estimation is needed. The export shares were derived by expressing a particular state's contribution to the total output
of the Nation on th e basis of production or
sales data. Thi-; percentage wa then app lieJ
to th e expo rt valuation by commodity to obta in
the export share.- by state, show n in the table.
The va lu ati o n is b,1sed on the officia l va lue at
the port of exportation, including freight, insurance, and other charges to the port.
A sig nificant port ion of Tenth Federal Reserve Dist rict farm income is depe nden t on
15

S. Foreign Agricultural Trade in the 1970's:

Table 5
VALUE OF AGRICULTURAL XPORTS
Fiscal Year 1968
(Millions of Dollars)
Tenth

District

Wheat

Colo.

Kans .

Mo.*

Nebr .

N.
Mex. *

31.0

177.6
11.6

42 .9
7.5
1.0
27 .0
3.8
57 .1
.3
.5
.3
2.2
4.3

70.3

Wheat flour
Rice
Feed groins

9.5

49.l

Cotton

14.3

Soybeans
Tobacco

.5
3 .4
.1
3.4
4.3
.3
4.8

.3
.2
2.0
4.2
4 .6
.1
6 .0

Other

5 .5

Total

Fruits

United
States

Cent of

1,1 92 .5
85.0
339.2
1,000.3
474.8
750.7
493 .6
287.4
169.2
115.7
104.4
111 .3
58.7
143.9
40.6
947 .8

33.7
28 .2
.3
18 .6

401.8
24.0
1.0
186.5
26.1
87 .9
.3
1.3
6.7
6.8
22 .8
25.6
2.3
32 .2
3.6
79.7

Okla .*

Wyo.

2.4

71.6
2.4

6 .0

5 .5
10.0

6.2
12.3
3.0

.3
.8
1.3
1.6
.2
1.7
3.4
10.1

2 .5

88.9

Tenth
District
States

13 .5

u. s.

5 .5

11.7
.4
4 .0

1.6
6.0

.8
1.7
9.0
9.9
.1
12.7

26.0

15.3

20.1

.9
.2
2.0

62 .8

296.0

174.1

229.5

23 .5

114.9

7 .8

908 .6

6,315 .1

14.4

Cash receipts from
farm marketings

902

1,510

1,313

1,694

318

823

201

6,761

42,814

15.8

Exports as per cent
of cash receipts

7 .0

19.6

13.2

13.5

7 .4

14.0

3.9

13.4

14.8

Veg tobl s
Dairy products
Meats and products
Hides and skins
Poultry products
Lard and tallow

4 .3

Nuts

1.2

as Per

.5
.8

.1
.l
.1

5.9

21.8
23 .0
3.9
22.4
8.9
8.4

*E ntire state not included in Tenth Federal Reserv e Di stri ct.
SOURCE : Fore ig n Agricultural Trade of the United State s, U. S. Department of Ag ricu lture .

agricultural exports. In fiscal 1968, 14.4 per
cent of U. S. farm exports were produced in
the District. These exports represented 13 .4
per cent of Tenth District cash farm marketings. On a commodity bas is, abo ut a third of
wheat a nd flour ex ports ca me from the Tenth
District- Kansas alon e produced abou t 15 per
ce nt of th wheat exported. Other im portant
export commoditi es produced in the Tenth Di trict were feed gra in. , soy bea ns, meats and
products, hid s and kins, a nd lard a nd tallow.
Kansas ranked sixt h in export share rankings of the 50 states-Nebraska, Mis o uri, a nd
Okl ahom a ranked 9 , 12, a nd 18, respect ively .
16

Colorado tied wi th New York for 29, New
Mexico ra nked 36, a nd Wyoming 42 . The top
five states in th e N ation ranged from lllinois
with exports of $585 million to North Carolina
with $366 million; a nd also included Texas ,
Ca liforni a, and Iowa in order.
FACTORS INFLUENCING FUTURE TRADE

Projection of fore ign trade in to the future
is a hazardo us task. However, factors that can
affect the lev I of trade in coming yea rs provide some in ight. M a ny of the conditions that
bro ught about the ex port reduction since 1966
Federal Reserve Bank of Kansas City

Growth or Contraction?

Poss ible expansive factors include world economic growth , population growth, marketing
efforts, and price competitiveness. For many
years , world eco nomic growth has been a pri111;1ry conce rn of U. . fo :·cign policy . The
United State~ shipped hu ,e quantities of food
to d vcloping cou ntri es under various aid programs. Not only did th se shipmen ts help feed
the population and provide markets for our
surplu s products, they provided an economic
base within the country from which economic
growth cou'.d be stimulated. In recent years,
the emphasis has been shifted to encouragement of more production in the developing
country. It is believed , however, with economic
growth and the comparative advantage of many
of the resource in the United States for producing certain kind s of agricultural products,
that foreign markets for our farm good can
be expanded. Economic expansion in industrial ized countries such as Japan and countries
of Western Europe bodes well for U. S. farm
exports. Japan, formerly a recipient of large
U. S. aid shipments, is now our largest cash
customer and is a prime example of benefits
derived from efforts to promote economic
growth and permit nations to enjoy the benefits of geographical specialization.
Expected increases in world population still
represent an important stimulus to foreign
trade. It has been estimated that world population will double by the year 2000 and that
world food supp'.ies must increase sharply to
adequately feed the masses. Recently, developing countries have been growing in population

by 2 to 3 per cent per year, while their food
production per capita has been increasing at
only a fraction of th at level. During the next
decade, population growth will be promoted by
improved health practices and better dietsleading to a dee· ining death rate . In some developing countries, this will be offset to a certain extent by governme nt progra ms encouraging family planning. Such programs take time,
and farm commodity shipments will continue to
be necessa ry to adequately feed the people.
Extensive marketing efforts throughout the
world arc being conducted by the U. S. Department of Agriculture in co njunction with
priv;1tc industry and var ious trade groups as
" means o r competing wi th other supplier nations. Mark ting teams have been assisting impo :·ting countries by means of product research,
trade fairs, exhibits, product promotions, market surveys, semi nars, trade missions to the
United States, advertising, educational surveys,
pub· ic demonstrations, and product-acce;,Jtance
efforts. These activiti~s encompass practically
al l U. S. agricultural products that move in
fo reign trade chanoels and is indicative of the
effort undertaken to promote our agricultural
exports .
Price competitiven ess will have a direct bearing on the level of our export in the coming
decade. For exa mpl e, si nce the I ntcrnational
Gn1ins Arrangements (lGA) became effective
on July l, l 968, some of the m ajor wheat exporting nation s have been selling wheat for
less than the approved minimum of $ 1. 7 3 per
bushel. As a result, the United States had been
priced out of some markets and placed in an
unfavorable competitive position. After recent
meetings of the IGA mini terial nations, the
United State announced reductions in the export price of wheat in response to the existing
distortions in the world market. Also, the European Economic Community (EEC) announced
the termination of subsidized French wheat exports to the Far East at levels sharply below IGA
price minimums. If competitive price relation-

Monthly Review • September-October 1969

still exi t and will continue to exert an influence in the near future. In addition, new
situations are constantly arising that must be
considered as they become evident. Future
agricultural trade will be affected by expansive as well as contractive factors. Factors on
both sides wi ll be di scus ed in evaluating the
prospects for trade in the l 970's.
Expansive Factors

U. S. Foreign Agricultural Trade in the l 970 s:

ships can be restored a nd maintained , U. S.
wheat exports could benefit.
Contractive Factors

World production of agricultural products
has increased significant ly in this decade; although on a production-per-capita basis the
increase has been le. s pronounced . World grain
production in the next decade wili benefit
greatly from new wheat and rice varieties.
Wheat varieties developed in Mexico through
efforts of the Rockefeller Foundation have
proved readily adaptable in di et-deficit Asian
countries such as Indi a and Pakistan . A bright
future is alsn predicted for Asi~111 production
from new rice varict ics developed by the Intcrn~1tional Rice In stitute- established by the
Ford and Roc kefeller Foundation s- in the
Philippines. Though addi tional plant breedin g
may be required to improve consumer acceptance and to reduce possible susceptibility to
local insect and disease damage, the new technology will help all eviate hunger throughout
much of the world. This increased production
will compete with our wheat exports. Continued
shipments will be needed for some time , however, a the A sian nations build up ample
grain reserves . Also, if the economics or the
less-developed nations can be improved, demand for farm products co uld expand more
rapidly than their ability to expand domestic
production.
Another possible factor affecting trade in the
I 970's will be domestic labor disputes such as
the Jongshoremen's strike that disrupted export
shipments from late 1968 through the first
quarter of 1969. The strike covered dock
workers at Atlantic and Gulf ports. Atlantic
coast ope rati o ns were resumed in late Febru ary l 969 , while Gulf port strik es were se ttled
a month later. The effect of th ese strik es will be
evident in lower sh ipment totals for thi s year.
It cou ld affect shipm ents in future years, since
some importing countries have Jost confidence
in the dependability of th e United States as a
supplier.
18

Trade policies of importing nations will have
an important effect on future export levels . For
instance, Japan recognized a deterioration in
its balance of trade and, in I 967, sought to
help correct this by diversifying the sources
of its agricu ltural imports . By diversifying its
supply, Japan also intends to gain additional
markets for Japanese industrial products and
to provide some eco nomic assistance to devel oping co untries. To accompli sh these goals, the
J apa nese Government is joining with private
firm s in an effort to encourage agricu ltural
production in the Far and Near ast, Africa,
,tnd South America . Part of th e additional production will be av;1ilable for importing by
J;ipan and wil l, thu s, incrcasl'. the comp ' lit ion
to U. S. production for the important Japanese
mark et.
Protec tionism is o ne other factor that can
se verely restrict U. S. exports in the future .
Any policy that tends to protect a group of
buyers or sellers from competitive pressures
and thus inhibit freely moving trade is considered protectionism. International trade is
based on the proposition that nations will
trade those commodities for which they enjoy
a comparative production advantage. Protectionism seeks to overlook thi s basic idea by
protecting sectors that operate without a production adva ntage. Much ha · been written
rece ntly about the di sadvantages of protectionism; yet, press ure for protection conti nu e to
prevail throughout the world. For in stance, the
EEC is considering an internal consumption
tax to be levied on all U. S. soybean oil and
meal en tering member countries. The proposed
tax of $60 per metric ton for oil and $30 per
metric ton for mea l would also directly affect
shipments of raw soybeans, since it is a n internal consumption tax. Last year, the United
States shipped beans , oil, and meal valued at
$ 1.16 billion- nearly 40 per cent of thi s goi ng
to the EEC. This is just one form of protection. Others include tariffs, duties, quotas,
subsidies, inspect ion policies, and health regulations. Needless to say, the EEC is not the
federal

Reserve Bank

Kansas City

Growt h or Cont rac ti on?

only group of countries gui lty of enacting trade
restriction measures. Historically, the United
States has imposed strong restrictive measures;
though we have worked at lowering the barriers since the passage of the U. S. Reciprocal
Trade Agreements Act of 1934. At the end
of World War IL the General Agreement of
Tariffs and Trade ( GA TT) was formed by 23
countries- with the purpose of restoring wartorn wor ld commerce by setting up basic rules
for international trade policy and negotiations.
The U. S. Trade Expansion Act of 1964- and
the Kennedy Round negntiatine. sess1om of
GATT endin~ in 19()7 continued the t;1sk. of
rcducin , world t1 .idr rl'strictions.
CONCLUSION

With the :1bove factors in mind, wh ,1t is the
prospect for agricultural trade in the 1970\'?
During the next several years, the United States
will be hard-pressed to maintain exports at or
near current levels. The current protectionist
mood , fewer funds for aid shipments, and
increased world production make expansion
difficult in the short run. Later in the de-

Monthly Review •

Septernb r-October 1969

cade, as nations continue to develop, exports
likely will again trend upward. More economic growth, larger populations, possible unfavorable weather conditions-causing reduced
world production - and trade ncgot1at1ons
could again stimulate larger U. S. agricultural
shipments. The potential for growth in the
next decade is excellent. Many nations arc
likely to make significant gains in their economic growth during the next decade, and, if
the experience with Japan is duplicated, the
demand for additional agricultural exports
should be bright for the latter part of the
1970\.
ln1ports of ,tgricultural co111111oditics likely
will continue lhL' 111oder;11c uptrend of recent
yc,1rs into the next decade. lbrring a change
in import policy, it is anticipated that most
of any increa'.-ie in imports will be centered
in the competitive product . If U. S. prices
remain favorable to the producer, it will serve
as a stimulus especially to competitive imports.
Noncompetitive imports are likely to be steady
to slightly upward during the decade, with
minor fluctuations from year to year.

Full text of Economic Review (Federal Reserve Bank of Kansas City) : September-October 1969

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