View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Agriculture
AN EIGHTH DISTRICT PERSPECTIVE
SUMMER 1988

The GATT Focuses on Agricultural Trade
Nations throughout the world have chosen to actively
The GATT
manage the production and trade of agricultural products
The GATT has been called the United Nations of world
by governmental policies rather than rely on free market
trade. Its goal is to liberalize world trade through the
forces. For example, the United States uses quotas to limit
reduction of trade barriers. It was founded in 1947 when
the importation of sugar and dairy products as a means of
23 nations signed the General Agreement on Tariffs and
maintaining high domestic support prices. It also uses export
Trade which was to be part of the International Trade
subsidies to sell commodities abroad. Japan supports its
Organization (ITO), a United Nations agency. The ITO was
politically influential farmers through quotas on imports of
never approved because of U.S. opposition, but the GATT
rice, beef, citrus and other products. The European
survived to become an independent institution. It now has
Community (EC) uses variable levies on farm imports to
96 member nations.
maintain high domestic prices and subsidies to stimulate farm
The GATT serves two primary roles. First, it functions
exports.
as a forum for member countries to discuss trade practices
These trade-distorting practices have spawned serious
and recommend improvements in GATT procedures. The
problems. Trade conflicts have strained relationships between
eighth round of trade talks began in September 1986 and
is scheduled to continue into 1992. It is known as the
the United States, the EC, Japan and other countries. For
Uruguay Round because the initial meeting was held in Punte
example, EC subsidies on pasta exports to the United States
del
Este, Uruguay. Subsequent meetings, however, are held
led to a retaliatory U.S. tariff on pasta imports. The conflict
at the GATT headquarters in Geneva, Switzerland. A mid­
was eventually resolved but not without a political cost.
term
review meeting to present a progress report is scheduled
World economic growth and efficiency are sacrificed to
for December 1988 in Montreal.
protectionist policies. Poor agricultural nations that might
The second GATT role is that of arbitrator in trade disputes
be the low-cost producers of many agricultural products are
among member nations. Most complaints are handled
unable to compete financially with the production and export
directly among concerned nations with the assistance of
subsidies of rich nations. Agricultural trade policies have
GATT experts. When necessary, a GATT panel can rule on
been costly to developed countries as well. It is estimated
a dispute and demand compensation for the aggrieved nation.
that the United States and the 12-country EC spent more
For example, in October 1987, a GATT panel ruled that
than $48 billion in 1986 for agricultural support programs.
Japanese import restrictions were “GATT inconsistent” for
These costs do not include the additional expense to
a group of 10 minor agricultural products such as prepared
consumers that results from the farm policies.
meats, tomato juice, canned pineapple and others.
Because the cost of these interventions was likely to
escalate, members of the General Agreement
Agriculture and the GATT
on Tariffs and Trade, commonly known as
The GATT’s success in reducing barriers
the GATT, agreed to discuss agricultural
to agricultural trade has been extremely
trade practices in the current round of
limited. Despite numerous appeals to the
THE
negotiations. In the past, GATT negotiations
GATT,
farm trade barriers have grown.
FEDERAL
have succeeded in lowering protectionism in
RESERVE
GATT has failed to liberalize agricultural
RANK of
the trade of manufactured goods. Agricultural
trade because it treats agriculture differently
ST. II >1 IS
trade, however, has been exempt from most
than most other forms of trade. It allows
GATT guidelines.
nations to use trade practices for farm



FEDERAL RESERVE BANK OF ST. LOUIS

products that would be considered “GATT inconsistent” for
most other traded goods.
For example, the use of import quotas and other
restrictions on import quantities is not allowed by the GATT.
The United States, however, demanded an exception to this
guideline for agricultural and fisheries products at the
inception of the GATT because many U.S. farm policy tools
would have been ineffective without quotas. The exception
allows quantitative restrictions for agricultural or fisheries
products if domestic production restraints are used. The
stipulation that domestic production restraints be used has
proved too vague to significantly inhibit the use of quotas.
The United States further weakened this already loose
restriction when it requested, and was granted, a waiver to
the constraint that domestic production be limited. This
waiver has weakened the GATT’s clout and has made it more
difficult for the United States to effectively criticize other
nation’s trade practices.
The GATT rules prohibit both direct and indirect export
subsidies. Again, however, there is an exception for
agricultural and other “primary products” as long as a nation
does not gain a “more-than-equitable” share of world trade
compared to a “previous representative period” through the
use of export subsidies. Enforcement of the subsidy law has
been hindered by the difficulty in determining what constitute
equitable trade shares and representative periods.

SUMMER 1988

negotiations will be difficult because many nations feel the
need to be self sufficient in food production for national
defense reasons and use import controls to stimulate domestic
production. Furthermore, negotiating the reduction in
agricultural protectionism will be difficult because of the
wide diversity of price support programs across the world.
In July 1987, the United States proposed that all subsidies
and barriers that distort agricultural trade be phased out over
a 10-year period. The U.S. proposition, in turn, stimulated
other countries and groups to offer agricultural trade
proposals for consideration by the GATT. Currently, the
GATT is attempting to form a consensus around a proposed
negotiating framework for use during the balance of the
Uruguay Round. The GATT hopes to announce its approach
at the December 1988 mid-term review.
Some observers fear that the recent surge in commodity
prices will alleviate some of the pressure on GATT nations
to liberalize agricultural trade. The higher commodity prices
reduce the budgetary expenditures related to national price
support programs. These lower costs, in turn, may lessen
the political expediency of agreeing to ambitious reforms,
particularly in those nations where strong political opposition
from farm groups is anticipated. Alternatively, the higher
commodity prices might provide a “window of opportunity”
during which reductions in government support to farmers
could be made with a lower political cost.

The Uruguay Round
The United States and other countries have recognized
that the existing GATT guidelines are flawed and have
contributed to the lack of progress in agricultural trade
liberalization. At the start of the current GATT round,
member nations agreed to examine all barriers to agricultural
trade including domestic agricultural policies that often have
substantial trade effects. Member nations will now consider
changing the guidelines that have treated agricultural trade
differently.
Numerous difficulties face GATT negotiators in their
attempts to liberalize agricultural trade. Many trade-distorting
practices are linked to domestic price support programs. For
example, the U.S. support program that purchases dairy
products to support milk prices would be unable to function
without quotas on dairy product imports. GATT negotiators
are limited because, generally, they do not have authority
to change domestic programs. Additionally, GATT

—Kenneth C. Carraro

Agriculture—An Eighth District Perspective is a quarterly summary of agricultural conditions in the area served by the Federal
Reserve Bank of St. Louis. Single subscriptions are available free of charge by writing: Research and Public Information Department,
Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views expressed are not necessarily official
positions of the Federal Reserve System.
2



FEDERAL RESERVE BANK OF ST. LOUIS

SUMMER 1988

EIGHTH DISTRICT AGRICULTURAL DATA
Percent Change
Prices and Costs1
C O N S U M E R P R IC E IN D E X (% ch a n g e )
N onfood
Food

Mar.
1988

0 .4 %
0.4

Apr.
1988

May
1988

Average Year-To-Date
19882
for 1987

0 .4 %
0.7

0 .3 %
-0 .4

0 .4 %
0.3

1 .9 %
1.5

Same Month
Year Ago

4 .1 %
3.3

P R O D U C T IO N C O S T S FO R F A R M E R S (% change)
A g ric u ltu ra l m a c h in e ry and e q u ip m e n t
F e rtiliz e r M a te ria ls
A g ric u ltu ra l ch e m ic a ls and ch e m ic a l p ro d u cts
G asoline

0.6
2.5
1.4
-0 .4

1.0
1.5
0.9
6.0

-0 .1
-1 .8
-0 .5
4.9

0.0
0.8
0.5
1.7

1.5
5.8
3.8
10.1

1.5
9.6
7.9
1.5

P R IC E S R E C E IV E D BY F A R M E R S (% cha n g e )
A ll p ro d u cts
Livestock
C rops

0.0
-0 .7
0.9

0.0
0.0
0.9

3.1
2.7
4.5

0.4
0.0
1.2

5.5
7.8
2.7

4.7
2.7
7.4

F EE D ER C A T T LE
W h o le sa le p rice - K ansas C ity ($ /cw t.)

$85.20

$86.50

$82.88

$ 7 5 .3 6

5.0

13.0

F EE D ER PIG S
W h o le sa le p rice - So. M isso u ri ($/head)

$48.65

$52.16

$46.85

$ 4 6 .6 9

4 7 .6

-9 .3

B R O ILE R S
W h o le sa le p rice - 12-city ($/lb.)

48.10<t

48.70$

N.A.

4 7.42$

2 2 .4

0.1

TURKEYS
W h o le sa le p rice - E astern U .S .,
8-16 lb. yo u n g hens (C/lb.)

47.00$

46.90$

N.A.

57.81$

-2 9 .5

-1 9 .6

CORN
W h o le sa le p rice - No. 2, ye llo w - St. Louis ($/bu.)

$ 2.09

$ 2.10

$ 2.13

$ 1.76

8.1

10.4

SOYBEANS
W holesale price - No. 1, yellow - Central Illinois ($/bu.)

$ 6.30

$ 6.71

$ 7.31

$ 5.33

23.1

32.4

$ 3.10

$ 3.14

$ 3.20

$ 2.89

- 13.5

6.0

$24.05

$24.00

$22.50

$ 1 3 .8 9

11.3

9 5 .7

-1 2 .2

-1 3 .0

W HEAT
W h o le sa le p rice - No. 1, hard w in te r K ansas C ity ($/bu.)
LO N G -G R A IN RICE
W h o le sa le price - A rka n sa s ($ /cw t.)
C O T TO N
A ve ra g e p rice re ce ive d by U.S. fa rm e rs ($/lb.)

57.70$

59.40$

56.40$

6 0.87$

Percent Change
U.S. Exports
C o m (m il. bu.)
S o yb e a n s (m il. bu.)
W h e a t (m il. bu.)
R ice (rough e q u iva le n t, m il. cw t.)
C o tto n (thou, bales)




Mar.
1988

Apr.
1988

May
1988

Average
for 1987

165.3
74.8
150.5
5.9
779.0

167.3
65.1
156.4
5.0
571.0

N.A.
N.A.
N.A.
N.A.
N.A.

134.9
6 5 .0
99.9
6.4
5 4 7 .8

Year-To-Date
19882
1 2 .1 %
-1 5 .1
32 .0
2.0
-2 0 .8

Same Period
Year Ago
9 .1 %
20.8
115.1
-1 5 .3
-1 3 .5

3

Non-Real-Estate Farm Debt Outstanding
Banks
Outstanding
($ millions)
U n ite d S tates
E ig h th D is tric t1
4
3
2
A rka n sa s
K e n tu cky
M isso u ri
T e n n e sse e

$ 2 8 ,1 6 4
1,879
350
368
950
239

PCAs3

Percent Change
3/87 - 3/88
3/86 - 3/88
-1 6 .7 %
-2 2 .3
-1 2 .7
-3 5 .1
-1 8 .3
-2 2 .8

-2 .2 %
-7 .2
-3 .9
-6 .4
-2 .0
- 11.7

Outstanding
($ millions)

Percent Change
3/87 - 3/88
3/86 - 3/88

$ 9,479
NA
153
155
103
201

9 .1 %
NA
-2 .5
-1 1 .2
-1 1 .8
-0 .9

-2 6 .5 %
NA
-2 8 .3
-3 5 .9
-5 7 .7
- 16.9

Agricultural Bank Loan Performance5
Percent of Net
Loan Losses at
Agricultural Banks

Percent of Farm Loans
Overdue at
Agricultural Banks
3/88
U n ite d S tates
E ig h th D is tric t4
A rka n s a s
K e n tu cky
M isso u ri
T e n n e sse e

2 .9 %
4.0
2.0
6.2
2.8
4.7

3/87

3/86

4 .7 %
7.1
5.7
7.1
5.4
5.3

6 .8 %
8.6
6.9
6.9
8.6
6.3

3/87

3/88
.1 5 %
.08
.07
.12
.09
.09

.2 7 %
.20
.10
.11
.36
.02

Agricultural Production Loan Interest Rate6
Banks

E ig h th D istrict A ve ra g e

PCAs

5/88

5/87

10.5%

1 0.1%

3/88

3/87

11.0%

11.0%

1 The consumer price index components are seasonally adjusted. All other data are not seasonally adjusted.
2 Percent change from December of previous year, based on the most recent month available.
3 Source: Farm Credit Banks of Louisville and St. Louis, Farm Credit Administration.
4 Includes all of AR and parts of IL, IN, KY, MO. MS and TN
5 Agricultural banks are defined as those with more than 25 percent of total loans in agricultural loans.
6 Interest rate data are for different dates. PCA rates are weighted averages for Arkansas and Missouri, not adjusted for stock purchase requirements.
Source: Farm Credit Banks of St. Louis.




3/86
.4 0 %
.28
.24
.17
.37
1.00


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102