15.9. The Global Connection

American farmers typically have had an enormous market for their surplus crops in foreign countries. American grain and American processed foods were, for many years, among our main exports. In 1986 the tide turned. That year imports of food exceeded exports for the first time since 1959. The flood of imports added to the farmers' woes by making it more difficult to sell their crops at a profit.

One of the reasons for the flood of farm imports was the "green revolution." The green revolution refers to the use of equipment, improved seeds, and fertilizers to help farmers in less-developed countries increase their productivity. So successful has this effort been that some of America's biggest grain importers-China, India and Saudi Arabia-are now grain exporters.

Ironically, American farm policy, which was sup­posed to help U.S. farmers, served to promote the flood of agricultural imports into the U.S. Before 1985 farmers could receive a minimum support price by selling their commodities to the government. By guaranteeing prices for agricultural products, while at the same time removing them from sale, the gov­ernment created a market for foreign exports that would have been unprofitable.

For example, assume that the mythical country of Fibra could sell its cotton in the United States for 75 cents per pound at a time when the market price for American cotton was 72 cents a pound. Under those circumstances, Fibra would be unable to sell its cot­ton in the United States.

But what if the federal government chose to support cotton at 78 cents per pound that year? Under those circumstances, U.S. farmers would sell their crop to the government and Fibran farmers could sell their cotton to American buyers for 75 cents a pound.

Coupled with the loss of many overseas markets has been the loss of sales at home as low-priced foreign agricultural products flooded the market. In 1985, about 270,000 tons of Canadian wheat, 400,000 tons of Swedish oats, and 50,000 tons of Thai rice were sold on the American market at prices below those of homegrown varieties.

In explaining how it is possible for any foreign com­modity to undersell those grown on American farms, economists most frequently cite the following:

• Cost differentials. When production costs outside the U.S. are significantly lower than they are here, it may be possible to profitably undersell the American-grown product. American crops that require a large proportion of hand labor are often at a particular disadvantage. California grape pick­ers, for example, earn about $10 an hour compared to the $2 hourly wage paid to Chilean workers.

• The value of the dollar compared to other currencies. Rising dollar values from 1980 to 1985 made it more difficult for American farmers to export their crops. Its rising value also made foreign food imports less costly for American con­sumers. (See Chapter 13.)

• Dumping. Dumping is the practice of selling large quantities of goods in a foreign country for less than they cost to produce at home. Foreign farmers are able to sell goods in the United States for less than their production costs because of the subsidies given them by their governments. Similarly, and for similar reasons, there have been times when American farmers were accused of dumping subsidized products in foreign markets.