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)f FOREIGN ECONOMIC DEVELOPMENT AND AGRICULTURAL TRADE

E.|?S f^g,, by

Raymond P. Christensen and Arthur B. Mackie

Reprinted from

FOREIGN AGRICULTURAL TRADE

OF THE

UNITED STATES

September 1963

Development and Trade Analysis Division

Economic Research Service

U.S. Department of Agriculture

ERS-Foreign-61 September 1963

SPECIAL in this issue

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FOREIGN ECONOMIC DEVELOPMENT AND AGRICULTURAL TRADE

by

Raymond P. Christensen and Arthur B. Mackie 1/ Agriculture's Interest in Foreign Economic Growth

American agriculture has a big stake in larger overseas markets for farm prod- ucts resulting from foreign economic development and growth. In recent years, farm products from 65 million harvested acres -- about 1 acre in 5 — have been exported. Value of agricultural products shipped abroad totaled a little over $5 billion in both 1961 and 1962 . This is about 1$ percent of the total value of U.S. farm marketings.

Traditionally, the best markets for agricultural products have been the highly- developed countries. For example, Japan, the United Kingdom, West Germany, Canada, and the Netherlands have been the largest importers of U.S. farm products. Trade with these countries can be expected to increase as they achieve still higher incomes.

But over the long term, less-developed countries are potential markets for much larger quantities of products from the United States and other developed countries. How rapidly markets expand in low-income countries will depend upon how rapidly these countries achieve economic growth and increase their foreign exchange earnings. Economic and technical aid programs can be very important in helping low-income countries achieve higher growth rates.

Food aid programs also can make important contributions to economic growth. Under these programs, unemployed people in the less -developed countries are paid with food for work in improving resources and building up productive capacity.

If the various aid programs help improve income levels in the low-income countries, commercial markets for farm products as well as other products will be increased. Italy, Greece, and Japan, for example, are countries where economic growth has led to expanded commercial export markets for U.S. farm products . 2/

1/ Chief and International Agricultural Economist, respectively, of the Economic Development Branch, Development and Trade Analysis Division, ERS.

2/ See Johnson, Sherman E., "The Strategy of Food Aid," Econ. Res. Ser., U.S. Dept. Agr., paper presented at the 39th Annual Agricultural Outlook Conference, Washington, D. C, November II4, 1961.

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The complementary relationship between economic growth and trade has long been recognized. In l£80, for example, Richard Hakluyt, an English historian and geographer , said to English merchants:

"If you find any island or maine land populous and the same people hath need of cloth, then you are to advise what commodities they have to purchase the same withal. If they be poore, then you are to consider the soile and how by any possibilities the same may be made to enrich them, that hereafter they may have something to purchase the cloth withal." 1/

Economic growth in less-developed countries depends on .improving output and productivity of their agriculture as well as their other industries. Although demand for food may not go up as much as demand for industrial products as countries grow, total demand for agricultural products does expand, and inter- national trade in these products increases as countries achieve higher income levels .

This paper compares the relationship of economic development and agricultural trade with associated levels of total and agricultural trade in developed and less-developed countries. Total and per capita incomes are used as measures of economic growth. Special attention is given to how economic growth and incomes abroad influence exports of U.S. agricultural products.

Income and trade data for three groups of countries are examined:

(1) Developed countries of the free world, including countries of Western Europe, Canada, Australia, New Zealand, Republic of South Africa, Japan, and the United States .

(2) Less -developed countries of the free world.

(3) Eastern Trade Area, including countries of Eastern Europe, the Soviet Union, Mainland China, Mongolia, North Korea, and North Vietnam.

World Population and Income Patterns

About two-thirds of the world's population is in the free world and about one- third in the Communist, referred to as the Eastern Trade Area (table 1) . Within the free world, about one -third lives in developed countries and about two-thirds in less -developed areas.

Income estimates of the less-developed countries, where much production is for subsistence, have many limitations. However, available data indicate that the (1) developed countries (excluding the Eastern Trade Area) had about two- thirds of total world income in 1959-60 (average of calendar years 1959 and

1/ Quoted by Black, Eugene, R., "The Diplomacy of Economic Development" Harvard University Press, Cambridge, Mass. I960, p. i\Q.

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Table 1. — Estimates of population and income, by major regions, 1959-60

averages l/

Region 2/

Popu- lation

Income

Total

Agricul- tural

Popu- lation

: Agricultural : income as

Total :Agrlcul": share

Percentage distribution

income

tural income

of total

income

Million

Billion dollars:

— Percent —

Developed

United States. . . Other countries.

Less-developed ,

Eastern Trade Area

669 179 i;90

1,29k 981

730 1;09 321

ll|2 21U

69

16

53 51 57

World total,

2,9U3

1,086 177

23

6 17

ua

33

67

38 29

13

20

39

9 30

29

32

9 k

17

36 27

100

16

1/ Value data are U.S. dollars. Data on agricultural income are preliminary estimates. Estimates of income and population were computed from data given in the United Nations Statistical Yearbook, 196l and 1962.

2/ Other developed countries include Belgium-Luxembourg, Netherlands, West Germany, France, Italy, Denmark, United Kingdom, Norway, Sweden, Switzerland, Ireland, Austria, Portugal, Finland, Greece, Iceland, Spain, Turkey, Yugoslavia, Canada, Australia, New Zealand, Republic of South Africa, and Japan. Less- developed countries include Africa (all countries except Republic of South Africa), Latin America, Asia less Japan, China Mainland, North Vietnam, North Korea, and Mongolia. Eastern Trade Area includes U.S.S.R., Eastern Europe, China Mainland, North Vietnam, and North Korea.

i960), (2) less -developed countries had about one-eighth, and (3) Eastern Trade Area about one -fifth (table 1) . These data indicate the relative importance of total production and economic activity in the different regions. There may be some underestimating of income in the less-developed countries because of difficulties in placing values on subsistence production, which accounts for a large part of total income in these areas. But even with upward revision of income data for the less -developed countries to allow for this, developed countries would still account for the major part of world production and income

Agriculture is more important in the less -developed countries and in the Eastern Trade Area than in the developed countries. For example, agricultural income accounted for only 9 percent of total income in the developed countries in the 1959-60 period, compared with 36 percent in the less-developed countries and 27 percent in the Eastern Trade Area. But this does not mean the less- developed countries account for most of the world's agricultural production. According to preliminary estimates, developed countries earned about 39 per- cent of world agricultural income in 1959-60, the less-developed countries had 29 percent, and the Eastern Trade Area about 32 percent.

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The United States accounts for the major part of the total income and. economic activity of developed countries outside the Eastern Trade Area. With only 27 percent of the population, the United States accounted for 56 percent of total income and 23 percent of agricultural income of the developed region in 1959-60.

World Trade in Agricultural and Other Products

It would not be correct to say that low-income countries are not developed because they do not trade enough. In 1959 and I960, total exports and imports of the less -developed countries amounted to 19 percent of the total value of all production and income in these countries (table 2). The comparable percentage was also 19 percent for developed countries, excluding the United States. Exports took only 5 percent and imports k percent in the United States. But the United States covers a large area with much specialization in production and trade among regions within the country. One -third or more of total production enters world trade channels in many small developed countries such as Norway and Sweden.

Total Agricultural Trade and Income

Agricultural products account for nearly one -third of total world trade. For less -developed countries in 1959-60, 5U percent of all exports were agricul- tural. The proportion was 23 percent for the United States and 25 percent for other developed countries. It was 28 percent for the Eastern Trade Area. These data suggest that agricultural exports become a smaller proportion of total exports as countries develop and achieve higher incomes. But the absolute volume of agricultural exports of most countries continues to in- crease with economic growth and rising incomes.

Total value of exports for a country or region approximately equals total value of imports over a period of years, although exports may not equal imports in any one year.

Developed countries as a group import more agricultural products than they export (table 2). However, total value of agricultural exports from the United States was about 10 percent larger than agricultural imports in 1959-60. Other developed countries imported about $8 billion more agricultural products than they exported. Countries in Western Europe and Japan are large net importers .

In contrast, less -developed countries as a group export more agricultural products than they import. Less -developed countries rely heavily upon agri- cultural exports as a source of foreign exchange earnings and employment. In 1959 and I960, total value of agricultural products exported by these coun- tries averaged nearly $8 billion more than value of agricultural imports. The Eastern Trade Area imports slightly more agricultural products than it exports.

This relationship of agricultural imports to development suggests that .imports of agricultural products become a larger proportion of total imports as coun- tries achieve higher incomes. The opposite relationship is suggested, by data

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on agricultural and total exports. For less -developed countries, 2k percent of all imports were agricultural. The proportion was 27 percent for the United States, but 38 percent for the other developed countries. The high proportion of agricultural products to total imports of developed countries suggests that as the less-developed countries achieve higher levels of development , they will become larger markets for U.S. agricultural exports.

One can express the value of agricultural exports as a percentage of agricul- tural income to show the relative importance of agricultural exports to the agricultural sectors of each region. However, this percentage does not indicate the proportion of agricultural production exported. Agricultural incomes herein referred are values added by agriculture to the national income. Total value of agricultural production is larger than agricultural income because it includes value of products and resources purchased from other economic sectors for use in farm production. Agricultural income represents only product value of agricultural labor and land.

Agricultural exports are almost as important to agriculture in the developed countries as in less-developed countries. In both groups, agricultural ex- port values in 1959 and I960 amounted to nearly 30 percent of total agricul- tural income (table 2). However, in the Eastern Trade Area the comparable figure was only 7 percent.

Per Capita Income and Trade

The relation between levels of economic development and trade also is shown by per capita income and trade data (table 3). Income, exports, and imports per capita of all products were 6 times larger for developed countries than for less -developed countries in 1959-60. Agricultural exports were only 3 times larger, but agricultural imports were about 9 times larger in the developed than in less-developed countries in 1959-60. The relationship between income and total trade is more uniform than for agricultural trade . The high dependency of less-developed countries on agricultural exports is reflected in the relatively high level of exports per capita at this level of income. The relatively low level of agricultural imports per capita probably reflects greater use of their foreign exchange earnings for capital imports needed to finance industrial and general economic development. These data suggest that even in the low-income countries agricultural imports would be increased with higher levels of income and economic development.

U.S. Share of World Trade

U.S. exports accounted for 12 percent of all agricultural products and for 13 percent of all goods and services entering world trade channels in 1959-60. These percentages are based on total exports, including exports by foreign countries to the United States.

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Table 3. — Estimates of income and foreign trade, by major regions, 1959-60

averages l/

Region 2/

Per capita estimates of

Total	Total	Agricultural
income	Export	s \| Imports	Exports	Imports
		— Dollars -	•-
1,091	119	n5	30	ill
2,285	105	Qh	25	22
655	125	127	32	1*8
110	20	21	11	5
218	15	15	h	h

Developed

United States . . .

Other countries . Less-developed. . . . Eastern Trade Area

World total. . .

369

1*1

13

1/ Computed from data in tables 1 and 2 .

2/ See footnote 2 of table 1 for countries in each region.

13

Table k shows the share of total imports of foreign countries supplied by the United States. In 1959-60, U.S. exports accounted for the following per- centages of total imports by foreign countries:

Agricultural products . , All goods and services

Developed countries (PercentJ

12 17

Less-developet countries (Percent)

23 22

These data indicate that the United States is less important as a source of agricultural products than as a source of other products. They also indicate the United States accounts for a much larger share of imports for the less- developed countries than for the developed countries.

Obviously, U.S. exports are influenced by exports of other countries as well as by incomes in importing countries. But U.S. exports are distributed between developed and less-developed countries (excluding countries in the Eastern Trade Area and the United States) approximately the same way as income. This is evident from the following 1959-60 percentage distribution data:

Developed Less-developed

countries countries

(Percent)

Population 27

Income 69

U.S. exports

Total 61

Agricultural 65

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( Percent)

73 31

39 35

Table 1;. --Estimates of total and per capita incomes and imports from the United States and other countries, by major regions, 1959-60 averages l/

Income and imports

Developed countries 2/:

Less-developed countries

Eastern Trade Area

Total estimates

■- Billion dollars —

Income

321.0

ll*2.0

21U.0

Total imports

From United States 3/. From other countries.,

Agricultural imports From United States 3/. From other countries . .

62.1

10.8 51.3

27.5 6.2

21.3

1U.7 .2

1I1. 5

23.5

2.8

20.7

6.5 1.5 5.o

— Dollars —

1*.3

.1 U.2

Per capita estimates :

Income : 655 . 00

Total imports : 126.73

From United States : 22. 01*

From other countries : IOI4.69

Agricultural imports . . , From United States . . From other countries

1*7.96

5.71

1*2. 2l*

110.00

21.25

U.73

16.1+6

5.02 1.16 3.86

218.00

H*. 98

.20 11*. 78

U.38

.10

U.28

l/ Preliminary estimates in U.S. dollars. See tables 1 and 2 for source of data.

2/ Excludes the United States.

3/ Excludes $1.7 billion of special category of U.S. exports which are not distributed among regions .

The developed countries accounted for nearly two-thirds of U.S. exports and the less -developed for a little over one -third. Income was distributed about the same. The number of people apparently has little influence on how exports are distributed. It is purchasing power that counts.

Total imports of foreign countries from the United States and other countries are closely related to income. Agricultural imports, however, are relatively

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greater in the developed countries. Imports of all goods and services and of agricultural products per $100 of income in 1959-60 were as follows:

Developed Less-developed

countries countries

(Dollars) (Dollars)

All goods and services 19. 3k 19.37

From United States 3. 36 U.37

From other countries 15.98 15.00

Agricultural products 7.32 U. 58

From United" States 87 1.05

From other countries 6 .U5 3 .53

The value of goods and services imported per $100 of income is about the same for the less -developed countries as for the developed. As might be expected, the developed countries import much more agricultural products per $100 of income than do the less -developed.

U.S. exports of agricultural products averaged a little over $1 for each $100 of income in the less-developed countries and a little less than $1 for each $100 of income in the developed countries. However, a substantial part of U.S. agricultural exports to the less-developed countries were concessional sales in 1959-60. In I960, for example , 60 percent of these agricultural exports to the less -developed countries were under the P.L. J4.8O program com- pared with 11 percent to the developed countries.

Changes in Income and Trade

Total income and total trade have moved upward together during the last decade.

Considered here are how changes in .imports of all products and agricultural products by developed countries (excluding the United States) and by less- developed countries have been associated with changes in income during the 1950-61 period. Also considered are how changes in imports from the United States compare with changes in imports from other countries, and how growth rates for income and imports compare. The growth rates referred to are compound annual rates.

For developed countries, total income and imports increased at the same rate, 6.8 percent a year, during 1950-61 (figure 1). Imports from the United States increased 6.5 percent annually, not quite as much as the rate for all imports. Imports of agricultural products from all countries increased at a rate of U.7 percent a year while those from the United States increased at a somewhat lower rate, 3-3 percent a year.

For the less -developed countries, total imports from all countries increased 5.1 percent and those from the United States at 3.8 percent. The growth rate of income was 5.2 percent (figure 2). Imports of agricultural products from all countries went up 1.9 percent a year, but those from the United States

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TOTAL INCOME AND IMPORTS OF DEVELOPED COUNTRIES

$ BIL. (CURRENT U. S. VALUE)

200

100 80

60

— All imports from all countries ♦

Agricultural imports from all countries *

\

All imports from United States

• w

Agricultural imports from United States —

1

1950 1952 1954 1956 1958 1960 1962

INCLUDES COUNTRIES OF WESTERN EUROPE, CANADA, AUSTRALIA. NEW ZEALAND. JAPAN AND REPUBLIC OF SOUTH AFRICA. ^INCOME AND IMPORTS OF THE UNITED STATES ARE EXCLUDED.

U. S. DEPARTMENT OF AGRICULTURE

N.EG. ERS 2277-63(8) ECONOMIC RESEARCH SERVICE

FIG. i -ill-

TOTAL INCOME AND IMPORTS OF LESS-DEVELOPED COUNTRIES

$ BIL (CURRENT U. S. VALUE)

200.0

100.0 80.0

60.0

40.0

20.0

10.0 8.0

6.0 4.0

2.0

1.0 0.8 0.6

Nationa income

Al imports from all countries

— Agricultural imports from all countries

*=- — — °— Too y

All imports from United States

Agricultural imports from United States

V^U-2

1950 1952 1954 1956 1958 1960 1962

INCLUDES ALL COUNTRIES IN AFRICA (EXCEPT REPUBLIC OF SOUTH AFRICA). ASIA (EXCEPT JAPAN AND COMMUNIST ASIA} AND LATIN AMERICA.

U. S. DEPARTMENT OF AGRICULTURE

NEC ERS 2278-63(8) ECONOMIC RESEARCH SERVICE

FIG. 2

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increased at 5.5 percent. Rapid expansion in imports of agricultural products from the United States , of course, was influenced by shipments under P.L. J4.8O programs .

All data are expressed in values of current U.S. dollars. Purchasing power of the U.S. dollar declined in value by about 26 percent or 2.3 percent a year during the 1950-61 period. On the other hand, the value of imports, measured in constant dollars, declined about 11 percent or 1 percent a year during this time. Therefore, the upward trends shown for income and imports generally reflect real changes in income and physical volume changes in imports . A comparison of growth rates for the developed countries shows that the physical volume of trade grew about as rapidly as income in current dollars but about If times faster in constant dollars. In the less-developed countries, the growth rates of income and all imports were more nearly the same.

The share of U.S. products imported by the developed countries has remained nearly constant since 1950. The proportion was 18 percent in 1950 and 17 per- cent in I960. However, the U.S. share of agricultural products imported by the developed countries declined from 17 percent in 1950 to 12 percent in i960. Of course, U.S. exports to West European countries were relatively large during the early 1950' s, when agricultural production had not fully recovered from wartime damages. These conditions probably account for most of the per- centage decline of the U.S. share of agricultural imports by the developed countries.

The share of U.S. products imported by the less-developed countries declined slightly during the past decade. It was 25 percent in 1950 compared with 22 percent in I960. But the U.S. share of the agricultural imports of these countries increased from lij. percent in 1950 to 23 percent in i960. Large shipments of agricultural products under the P.L. I48O program, beginning in the late 1950's, probably accounts for this change. It also is associated with rapid population growth, expanding demand for food, and inability of the less- developed countries to expand food production quickly.

Future Trade Potential

Judging from experience during the 1950's, foreign economic growth will have a major influence on foreign markets for agricultural products in the years ahead. Of course, U.S. exports also will be influenced by changes in (l) demand for and production of agricultural products in importing countries, (2) supplies made available for export by competing foreign countries, and (3) U.S. capacity for supplying agricultural products for export. Since the United States accounts for about 15 percent of all the agricultural products imported by foreign countries, developments affecting foreign production, consumption, and trade can have large impacts on U.S. agricultural exports.

To provide general indications of how foreign markets for U.S. exports may change in the future, two sets of extrapolations for 1980 have been made, based on the following assumptions:

1. Continuation of 1950-61 growth rates for income and trade measured in current dollars .

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2. Continuation of 1950-61 growth rates for income and trade measured in constant dollars .

If the growth rates for income and trade during 1950-61 continue, total value of exports of agricultural products from the United States in current dollars would be 2.3 tines larger in 1980 than in 1959-60 (table 5). They would increase from $1|.3 billion in I960 to $9.8 billion in I98O. Exports to the Eastern Trade Area would be additional, but they have been relatively small. Our agricultural exports to developed countries would increase from $2.8 bil- lion in i960 to $5.U billion in I98O while those to the less -developed coun- tries would increase from $1.5 billion to $U.U billion.

If real growth rates for income and imports during 1950-61 continue, total value of agricultural exports measured in 1959-60 dollars would be about twice as large in I98O as they were in 1959-60. Removal of the effects of inflation causes growth rates for income to decrease relative to those for imports. The deflated results appear more realistic, however , than those expressed in current dollars .

These estimates suggest that total value of U.S. exports to the developed countries would more than double by I98O; U.S. exports to the less -developed countries would also double , but agricultural exports to these countries would nearly triple.

Agricultural imports for the developed countries likely will account for a declining proportion of total imports. Most developed countries are rapidly improving agricultural technology and production. Moreover, the proportion of income spent for food likely will decrease as per capita incomes increase.

But for the less-developed countries, imports of agricultural products quite likely will increase as rapidly as income. These countries are experiencing rapid population growth and find it difficult to expand their agricultural production quickly. Many densely-populated countries are likely to become large net-importers of agricultural products as they progress economically.

Finally, it is important to note that a large proportion of U.S. agricultural exports to the less -developed countries are financed under P.L. lj.80 programs. If these countries achieve income growth, an increasing proportion of U.S. sales can be commercial. It is well known that American agriculture has surplus agricultural production capacity. Use of this capacity through food aid programs to help the less-developed countries develop and achieve higher incomes can lead to larger commercial sales of farm products in the future than it is possible to predict with past trends.

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Table 5. — Estimates of annual growth rates for income and imports, developed and less-developed countries, 1959-60 average values, and 1980 extrapolated values

	[1950-61 growth rates measured in 1/	; 1959-60 ; average ] values	1980 values assuming ' 1950-61 growth rates for income and imports
	\ Current " dollars	Constant dollars	Current dollars	1959-60 dollars
	— Perc	ent --	— Billion dollars —
Developed countries 2/
Total income	6/8 6.8 6.5	U.5 6.U : 6.2	321.0 62.1 10.8	1,196.5 231.5 38.1	77U.1
Total imports From all countries: From United States'	■RU.7 36.0
Agricultural imports: From all countries: From United States:	U.7 3.3	U.2 2.9	23.5 2.8	58.9 5.1i	^6 5.0
Less-developed coun- : tries :
Total income :	5.2 5.1 3.8	2.9 It. 2 i 3.U	11*2.0 27.5 6.2	391. k 7U.U 13.1	251.5
Total imports : From all countries: From United States :	62.6 12.1
Agricultural imports: From all countries: From United States:	1.9 ^>6	1.6 : 5.2	6.5 1.5	96 k.k	8.9
Imports from U.S. 3/ :
Total :	—	:	17.0 U.3	51.2 9.8	1*8.1
	9.1

1/ Compound annual growth rates. Current values were converted to ±95k dollars to obtain growth rates in constant dollars . 2/ Excludes United States. 3/ Excludes imports by Eastern Trade Area.

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