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September 19, 2003

Economists: U.S. on verge of becoming net agricultural importer

WEST LAFAYETTE, Ind. – For more than 40 years the United States has exported more agricultural products than it has imported. That could change within a few years, said two Purdue University agricultural economists.

The gap between American export and import values is narrowing, said economists Phil Paarlberg and Phil Abbott. They predict imports could overtake exports by 2007, if current trends continue.

U.S. agricultural exports are projected to climb by $500 million in the coming fiscal year, which begins in October, to $56.5 billion. Imports are estimated to jump as much as $3.5 billion in 2003-04.

"What we've seen in the last several years is that agricultural exports have been relatively flat in real dollars while imports have been rising quite rapidly, even through our so-called recession," Paarlberg said. "A couple of years back imports were $41 billion, and last year they were $45 billion. We expect them in the coming year to climb to $47 billion or $48 billion.

"The last time we were a net ag importer was in the 1950s."

Fiscal year 1958-59, to be exact. At that time Europe had completed the rebuilding of its agricultural industry following World War II, and demand for U.S. agricultural products stagnated.

The current sluggishness in the U.S. ag export trade dates back to 1996.

The rise in imports is closely tied to diet and lifestyle changes, Paarlberg said. Americans are consuming more foods either that aren't produced in the U.S. or produced in insufficient volumes to meet consumer needs, he said.

"Take a pizza," Paarlberg said. "If it's got black olives, where did they come from? They probably came from Morocco. If it's got sausage, that might be from a hog that came from Canada.

"If you go to a Mexican restaurant and order guacamole, chances are that came from outside the country because we don't produce that many avocados. We import even simple things like babyback ribs. We kill 100 million hogs a year, but we eat so many babyback ribs that there's a good chance those ribs came from Denmark."

Many restaurants stopped serving ribs two years ago when an outbreak of foot-and-mouth disease in Europe stemmed the flow of livestock imports into the U.S., Paarlberg said.

But Abbott said Europe's refusal to accept genetically modified (GMO) grain has little to do with the tightening ag trade balance. The U.S. is a world leader in biotech crops, which are genetically modified to resist insects and herbicides.

Instead of looking across the Atlantic Ocean, U.S. exporters should be focusing their attention on the other side of the Pacific Ocean, Abbott said.

"We put too much emphasis on the European market," he said. "The markets that really matter to agriculture now are in Asia. I think it's a bigger concern what the Chinese do with GMOs than what the Europeans do. There's a big uncertainty in how the Chinese are going to handle the trade agreements they've made with us. Those agreements revolve around a lot of technical issues in terms of inspections at the border and approvals and whether the agreements are temporary or permanent. We're watching that play out now."

Abbott said it is a misconception that the rest of the world relies on American farm products for survival.

"The thing we need to remember is that in the rest of the world most countries are reasonably self-sufficient in agricultural commodities," he said. "Other nations produce most of their own needs, and trade meets a fairly small portion of those needs. Trade policy is important in determining how much countries let in at any given time."

Agricultural exports will continue to be a major segment of U.S. trade, even as import values grow, Abbott said.

"We need to understand that the products we're importing are different from the products that we're exporting," he said. "There's a danger in looking at agriculture as an aggregate sector and not understanding that there's a great deal of diversity in that sector. Some parts of agriculture will always be competitive with the rest of the world, and there are some things that we're better off getting from the rest of the world, and we should import them."

U.S. import-export trends actually prove how strong the nation's economy and agriculture are, Paarlberg said.

"Gains from trade occur on the import side," he said. "You export commodities in order to pay for the commodities that you import. The benefit is on the consumption side, not the sale side.

"I think we get that confused all the time. We think mercantilist – we need to sell, sell, sell. But why are you selling? So that you can buy other goods from overseas."

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Sources: Phil Paarlberg, (765) 494-4251, paarlbep@purdue.edu

Phil Abbott, (765) 494-4274, abbottpc@purdue.edu

Ag Communications: (765) 494-2722; Beth Forbes, bforbes@aes.purdue.edu; http://www.agriculture.purdue.edu/AgComm/public/agnews/

Related Web site:
Purdue University Department of Agricultural Economics


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