June 1997
U.S. Wheat Trade Has Political Roots
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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.
by Carl Schwensen, NAWG Executive Vice President
When the U.S. Constitution was signed in Philadelphia on September 17, 1787-nearly 210 years ago-9 out of 10 people lived and worked on farms, and they produced for their own families as well as for the market. In fact, about one-half of those attending the Constitutional Convention were farmers.
Tobacco, wheat and rice were among the leading export commodities that were shipped to Europe and the Caribbean, and the country was becoming dependent on export earnings to add to its wealth. Local historians record that the port city of Alexandria, Virginia, just up the Potomac River from George Washington's Mount Vernon, exported 94,954 bushels of wheat in 1803 and a high of 231,572 bushels in 1857.
Significantly, export trade and the prospects for growth convinced the authors of the Constitution to explicitly forbid taxes on exports. This prohibition remains, and, it is the foundation for the $60 billion in farm exports that now move into the world market.
While it was the political decisions of our founding fathers that permitted agriculture to grow, it was also political judgment in the mid-1970s which brought embargoes of farm exports.
U.S. consumers in the mid-1970s were bristling over an array of price increases, and the government instituted controls on a wide range of products. The former Soviet Union was making a monumental shift from being a net exporter of grain to become the world's biggest grain buyer. In July of 1975, the Soviets secretly purchased one-half of their grain import needs from the U.S. in one week. The markets were stunned, and President Ford asked major grain exporting companies to stop selling, and a moratorium went into effect. Ultimately, an agreement was negotiated which regulated Soviet access to the U.S. market, in the interest of political stability.
Again in 1980, politics interfered with markets when the Soviets invaded Afghanistan, and President Carter suspended sales in the interest of "national security." Markets collapsed and the government took steps to take the embargoed grain off the market to stabilize prices. Some of that wheat is still around today in the form of the four million metric ton, government-owned Food Security Commodity Reserve.
Present-day farm policies (the Federal Agriculture Improvement and Reform Act of 1996) do not prevent the government from tampering with farm export trade, but they do make it more difficult for intervention to take place.
Government stocks and farm-owned reserves of grain are gone, and price supports have been set well below market values. Acreage set-asides are gone too, and emphasis has moved from idling surplus land to environmental stewardship through the Conservation Reserve Program (CRP). Discriminatory use of the Export Enhancement Program, the United States' chief export assistance tool, and export credit programs are the principal means, short of an embargo, available to the government to limit exports.
Agriculture is now the largest positive contributor to the U.S. merchandise trade balance, which was only recently dominated by aircraft and chemical sales. The Agriculture Department observes that the farm sector's dependence on exports is rising, and it is growing twice as fast as the rest of the economy.
For wheat, USDA sees income gains in developing countries driving stronger growth in wheat trade in the 1997-2005 period, and demand could build at the rate of 4 percent per year. In the future, U.S. exports can be expected to remain heavily agricultural, just like they were 200 years ago.n