Situation and outlook series. Western Hemisphere

110 Pages·1993·11.1 MB·English

Historic, Archive Document
Do not assume content reflects current
scientific knowledge, policies, or practices.

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INTERNATIONAL AGRICULTURE AND TRADE RE
United States WESTERN
Department of
Agriculture
Economic HEMISPHERE
Research
Service
RS-93-2
July 1993 Situation and Outlook Series
Trading Blocks and Policy Reforms Play Major Role
In Western Hemisphere Agriculture
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S’" realize how US consumers benefit from freer trade with Mexico
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Ef see if you should bank on continued Russian wheat imports
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consumption, and trade of the region’s key commodities. Detailed analysis backs up forecasts
on how agricultural policies and structure, as well as macroeconomic and trade policies, will
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INTERNATIONAL AGRICULTURE AND TRADE REPORT
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WESTERN
United States
Department of
Agriculture
HEMISPHERE
Economic
Research
Service
RS-93-2
Situation and Outlook Series
June 1993
Contents
Economics Editor
Summary. 3
Miriam Stuart
Glossary . 4
[phone]
Agricultural and Economic Situation and Outlook:
Word Processing Overview of U.S. Agricultural Trade with the
Lorie Thomas Western Hemisphere. 6
Dawn Williams
Western Hemisphere Trade in High-Value Agricultural
Products.11
Graphics Coordinator
Policy Reform Continues Tb Open Markets in
Letricia Womack
Western Hemisphere.15
Authors United States.18
Christine Bolling Canada.24
Dick Brown
Mexico.29
Lon Cesal
Brazil.32
W. Tferry Disney
Erin M. Dusch Argentina.36
Kenneth W. Forsythe, Jr. Special Articles:
Robert Green
What Factors Affect Grain Import Decisions?.43
Bob House
Cuba’s Minimum Imports Needs in the 1990’s.49
Kim Hjort
John Link Latin American Food Demand: Potential for Growth?.54
Steve Martinez Environment and Trade Issues for Western
Emily A. McClain Hemisphere Agriculture.59
Howard McDowell
Producer Subsidy Equivalents for Canada, Mexico, and the
Fredrick J. Nelson
United States.65
David Peacock
Policy Reform in Chile: Implications for U.S. Trade .74
Susan L. Pollock
The Latin America Debt Crisis: A Decade Later.78
Ralph Seeley
Mark Simone Potential Effects of the NAFTA on Mexico’s Grain Sector.82
Miriam Stuart
List of Tfext Tables.88
Constanza Valdes
List of Thxt Figures.89
Alan Webb
List of Appendix Tables .90
Front Cover Photo Appendix Tables .91
Emily A. McClain
Acknowledgments
In June 1992, the Agriculture and Trade Analysis Division Appreciation is extended to the many reviewers of this re¬
(ATAD) of the USDA Economic Research Service, reorgan¬ port. The authors and editor wish to thank the staffs of the
ized and established four regional branches; Africa and the USDA Economic Research Service (ERS) and Foreign Ag¬
Middle East, Asia and the Pacific Rim, Europe, and West¬ ricultural Service (FAS), including Carol Goodloe and the
ern Hemisphere. In addition, two crosscutting branches staff of the International Trade Policy - Western Europe
were established; Markets and Competition, and Trade and Inter-America Division of FAS; Robert A. Rie-
and Development. menschneider; Phil Shull; Lloyd Reck; John Link; Fred
Surls; Kathryn Zeimetz; Jerry Sharpies; William Coyle,
This issue of the Western Hemisphere International Agri¬ Bill Kost and the staff of the Asia and Pacific Rim Branch
culture and Trade Report is the first released under the of ERS; and many others.
new ATAD structure. The contents of the report reflect the
diversity of agriculture among the countries and the eco¬ Thanks are also extended to James Donald, Gerald Bange,
nomic and political issues faced by their respective agricul¬ Jim Matthews, Ed Missiaen, James Nix, Jerry Rector,
tural sectors. The report is broad in scope and articles ad¬ Russell Barlowe, and Andrew Aaronson of the USDA
dress specific issues that affect agricultural performance in World Agriculture Outlook Board; and to Kent Miller, Di¬
the Hemisphere. Important among these issues are the ane Decker, Joyce Bailey, Susan Yanero of EMS for edito¬
North American Free Trade Agreement, GATT, agriculture rial and design assistance.
and the environment, policy reform, and current and form¬
ing trading blocks. Approved by the World Agricultural Outlook Board. Sum¬
mary released June 3, 1993. Western Hemisphere is one in
Because this is the first report of the new Western Hemi¬ a series of six regional reports in die 1993 Situation and
sphere Branch, a significant amount of historical informa¬ Outlook series. Other titles are Former USSR, China, Asia
tion was included to help the reader understand the evolu¬ and the Pacific Rim, Africa and the Middle East, and
tion of the political and economic environment in which Europe. Summaries and text of reports also are available
current agricultural policies and production occur. Sub¬ electronically. Call [phone].
sequent issues of this report will be more balanced be¬
tween the past, current, and future.
Conversion Equivalents
The metric system of weights and measures is used in this report. The following are
conversions to the U.S. system of weights and measures.
1 hectare (ha) = 2.47109 acres
1 kilogram (kg) = 2.204622 pounds
1 liter = 1.0567 quarts
1 liter = 0.26418 gallons
1 metric ton (mt) = 2,204.622 pounds
1 metric ton = 1.102311 short tons
( 1 short ton = 2,000 pounds)
1 metric ton of wheat = 36.7437 bushels
1 metric ton of com = 39.368 bushels
1 metric ton of barley = 45.9296 bushels
2
Western Hemisphere/RS-93-2/July 1993
Summary
Recent economic, agricultural, and policy reforms have Poor economic performance in the late 1970’s and early
helped to increase trade in the Western Hemisphere. How¬ 1980’s led to extensive policy reforms in Mexico, Argen¬
ever, while liberalization and development of regional trad¬ tina, Brazil, and other Latin American countries designed
ing blocks should advance overall trade volume, the spe¬ to make their agricultural sectors more market oriented.
cific impacts on various countries and commodities are Agricultural reforms were more modest in the United
uncertain. Growing environmental concerns and evolving States and Canada. Although policy reforms have been
trade reforms have precipitated clashes between objectives adopted in many countries, most governments still provide
in some countries of the Hemisphere; conflicts that are some support to domestic agriculture.
likely to continue over the next decade.
The Canadian economic growth rate is expected to rise in
U.S. trade to the Western Hemisphere continues to recover 1993, benefitting from low inflation and increased exports.
from increased competition, world recession, a stronger Grain and oilseed production is forecast to rebound in
dollar, and the debt crisis in Latin American countries. 1993/94 from last year’s poor growing conditions, with
Over the past decade, horticultural, animal, and other high- canola, com, and soybeans having the largest increases.
value products have accounted for an increasing share of
total U.S. agricultural exports to the region. Policy reforms begun in the 1960’s have had a major im¬
pact on Chile’s farm sector and its agricultural and nonagri-
In 1992, the United States imported $12 billion in agricul¬ cultural trade. By the early 1980’s, these reforms had cre¬
tural goods from the rest of the Western Hemisphere, and ated what is today one of the most open market-driven
exported nearly an equal value to the region. U.S. farm economies in the world.
imports and exports in the Hemisphere are expected to in¬
crease slightly in 1993 as regional economies improve. Mexican population growth and higher per capita income
Thus, the U.S. agricultural trade balance should remain are expected to spur demand and expand the market, par¬
steady. ticularly for U.S. exports. At the same time, Mexico’s ex¬
ports of high-value farm products, including fruits, vegeta¬
Strong population growth, nearly 2 percent per year, in tan¬ bles, and livestock products, to the United States will rise.
dem with increasing household incomes indicate potential
for expansion in Latin American food demand. For exam¬ Increasing political and economic uncertainties have
ple, to bring these diets up to 1990 U.S. standards would slowed Brazil’s growth. However, the agricultural outlook
require an additional 2 million tons of grain per year, 5 remains stable due to continued governmental support,
million tons of vegetable oil, and 31 million tons of meat. good harvests, and a realistic exchange rate policy. The
Export opportunities are positive for U.S. farmers. United States will continue to face strong competition
from Brazilian exports of poultry and the soybean complex.
Current economic growth and investor confidence are pull¬
ing Latin America out of a decade-long debt crisis. How¬ The Argentine agricultural sector and the national econ¬
ever, Cuba, with the loss of major support from former omy are highly dependent upon farm exports, especially to
eastern block countries, may face further belt tightening. Asia, the Middle East, and other South American nations.
Brazil is becoming Argentina’s most important market for
Although less than 30 percent of the Western Hemisphere grain, and close commercial ties are developing between
population lives in rural areas, agriculture remains impor¬ the two nations. Soybeans and derivatives are Argentina’s
tant in the economies of most countries as a major em¬ leading agricultural exports. The expansion of the Argen¬
ployer (both upstream and downstream from the farm), tine farm sector will depend upon private investment, re¬
and as a source of foreign exchange, income for govern¬ duction of marketing costs from "privatization" of storage
ments, and food and fiber. and transportation, and prices in the world market.
Western Hemisphere/RS-93-2/July 1993 3
Glossary
Andean Group (AG) — also known as the Andean Pact, Spain, Portugal, Italy, Denmark, Greece, Belgium, Luxem¬
was established in 1969 to promote regional economic inte¬ bourg, and die Netherlands.
gration. Full members include Bolivia, Colombia, Ecua¬
dor, Peru, and Venezuela. (The AG also has associate EEP — Export Enhancement Program was initiated in
members and observers.) May 1985 under a Commodity Credit Corporation (CCC)
charter to help U.S. exporters meet competitors’ prices in
ALADI — Latin American Integration Association, was es¬ subsidized markets. The program was formally authorized
tablished in 1980 to promote freer trade between members, by die Food Security Act of 1985. Under the EEP, export¬
which include Argentina, Bolivia, Brazil, Chile, Colombia, ers are awarded commodity certificates which are redeem¬
Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela. able for CCC-owned commodities, enabling them to sell
certain commodities to specified countries at prices below
ATPA — Andean Trade Preference Act, was authorized in diose of die U.S. market.
1991 by the U.S. Congress to encourage production of le¬
gal (non-drug) crops in Bolivia, Colombia, Ecuador, and FAO — Food and Agriculture Organization of the United
Peru. Peru’s application for benefits is still under review. Nations was established in 1945 to raise living standards
Countries under the ATPA are eligible to export many and increase die availability of agricultural products in all
goods duty-free to the U.S. market. countries. Most UN members are also members of the
FAO, and current FAO membership exceeds 150 countries.
CACM — Central America Common Market, was estab¬
lished in 1960 to promote free trade and a customs union FSU — The former Soviet Union dissolved into 15 sepa¬
among Costa Rica, El Salvador, Guatemala, Honduras, rate republics in 1991. These new republics are Russia,
Nicaragua. Ukraine, Byelarus, Moldova, Kazakhstan, Uzbekistan, Kyr¬
gyzstan, Tajikistan, Turkmenistan, Armenia, Azerbaijan,
CARIBCAN — Canada-Caribbean Commonwealth Pro¬ Georgia, Lidiuania, Latvia, and Estonia.
gram, is a preferential trading agreement established in
1985 by Canada to benefit the Commonwealdi Caribbean. GATT — General Agreement on Tariffs and Trade was
first negotiated in 1947 among 23 countries, including the
CARICOM — Caribbean Community and Common Mar¬ United States, to increase international trade by reducing
ket, was established in 1973 to promote political and eco¬ tariffs and odier trade barriers. This multilateral agreement
nomic integration in the former British West Indies. All provides a code of conduct for international commerce.
but 5 of the 18 British Commonwealdi countries, territo¬ GATT also provides a framework for periodic multilateral
ries or colonies in the Caribbean, are full members. CARI¬ negotiations on furdier trade liberalization and expansion.
COM also has 2 associate members and several observer The eighth and most recent round of negotiations began in
countries. Punta del Este, Uruguay in 1986 - known as the "Uruguay
Round". There are currently over 100 members of the
CBI — Caribbean Basin Initiative as its commonly called, GATT. Western Hemisphere members include the United
but officially named the Caribbean Basin Economic Recov¬ States, Canada, Mexico, Argentina, Brazil, Guatemala,
ery Act (CBERA), is a U.S. trade preference agreement im¬ Guyana, Haiti, Jamaica, Nicaragua, Peru, Suriname, Trini¬
plemented in 1984 to provide duty-free access to the U.S. dad and Tobago, and Uruguay, and others.
market for 27 Caribbean, Central and Soudi American
countries (only 24 have received benefits). In 1990, die GSM — The GSM is an agricultural export credit guaran¬
CBI (or CBERA) was replaced by die Caribbean Basin tee program of the USDA’s Commodity Credit Corporation
Economic Recovery Expansion Act which makes die pro¬ (CCC) in effect since 1981. Under this program, CCC pro¬
gram permanent. tects U.S. exporters or financial institutions against loss
due to nonpayment by a foreign buyer. The maximum
EAI — Enterprise for die Americas Initiative is a U.S. pro¬ credit guarantee coverage period is 3 years under GSM-
gram supporting economic and trade reform in Latin Amer¬ 102, and up to 10 years under GSM-103. The amount of
ica and die Caribbean. The program is intended to encour¬ coverage, including the interest rate and the guarantee fee,
age trade liberalization in die Western Hemisphere, reduce is established in die Office of die General Sales Manager
Latin American debt, and increase foreign investment in (GSM) of die Foreign Agricultural Service of die USD A,
these same countries. The EAI contains elements which and varies by country.
encourage a Western Hemisphere-wide free trade zone in
die future. HVP — High-value product refers to any traded agricul¬
tural commodity diat incorporates a value-added compo¬
EC — European Community is an economic customs un¬ nent into its price once it leaves die farm gate. All live¬
ion created in 1958, which included a Common Agricul¬ stock and dairy products, and processed grains and
ture Policy (CAP) for member countries. The EC was oilseeds are considered HVP. Fresh fruits and vegetables,
originally formed by 6 nations, but is currently composed aldiough marketed in dieir raw form, are considered to be
of 12 member countries; U.K., France, Germany, Ireland,
4 Western Hemisphere/RS-93-2/July 1993
HVP due to their perishable nature and specialized trans¬ or an ordinary tariff. All quotas and tariffs would then be
portation and marketing requirements. phased out over a 5-15 year period.
LVP — Low-value or raw bulk agricultural products such USCFTA — U.S. - Canada Free Trade Agreement went
as com, wheat, soybeans, rice, and cotton are examples. into effect on January 1, 1989. The objectives of the
treaty are to reduce barriers and promote trade between the
MERCOSUR — The Spanish acronym for "the Common two countries. In agriculture, liberalization occurred in tar¬
Market of the South" (MERCOSUL in Brazilian Portu¬ iffs, export subsidies, certain nontariff barriers, and techni¬
guese). MERCOSUR is a trading block being formed by cal regulations.
Brazil, Argentina, Uruguay and Paraguay under the 1991
Treaty of Asuncion. Among other goals, MERCOSUR Uruguay Round — The current round of the GATT nego¬
calls for the free movement of goods and services, and a tiations which began in Uruguay in 1986.
common external tariff by 1995.
Note: For other Western Hemisphere Trade Agree¬
NAFTA — The North American Free Trade Agreement is ments (or TFade Blocks) see table 1.2.
designed to achieve economic integration and increase
trade among the U.S., Canada, and Mexico. Treaty nego¬ References
tiations were completed in 1992, and the U.S. president
signed the agreement in December. To be implemented, Lipton, Kathryn L., and Susan L. Pollack (1989). A Glos¬
the treaty must be ratified by the legislative bodies of the sary of Food and Agricultural Policy Terms, 1989.
three nations and as of June, 1993, the NAFTA is still un¬ AIB-573. USDA, Economic Research Service.
der consideration for ratification by all three countries. Ag¬
riculture is only one of many industries included in the USDA, Foreign Agricultural Service (1988). Dictionary of
NAFTA provisions. If implemented, the agreement would International Agricultural Trade. Agriculture Hand¬
immediately eliminate nontariff barriers for most agricul¬ book No. 411.
tural goods and replace them with either a tariff-rate quota
Western Hemisphere/RS-93-2/July 1993 5
Agricultural and Economic Situation and Outlook
Overview of U.S. Agricultural Trade with the
Western Hemisphere
The United States and the rest of the Western Hemisphere are major
agricultural net exporters, and on a similar scale. They ship about $12
billion annually in agricultural products to each other. Each represents
about one-quarter of the other’s export market and about half of the
other’s import supply. Recent economic and trade liberalization in Latin
America has increased trade in the Hemisphere. New regional trading
blocks are likely to have a similar effect of increasing overall trade
volume, but specific impacts on individual countries and commodities
are less certain. [Constanza Valdes, Ralph Seeley, and John Link]
The United States and the other Western Hemisphere coun¬ In 1991, U.S. agricultural exports to all destinations, val¬
tries trade substantial amounts of agricultural products ued at $39 billion (U.S. definition) were almost equal to
with each other, partly because proximity lowers transporta¬ those by the other Western Hemisphere countries to all des¬
tion costs and some commodities are not as easily pro¬ tinations, $42 billion (FAO definition). Total 1991 U.S. ag¬
duced in the importing trade partners (for example, ba¬ ricultural imports of $23 billion (U.S. definition) were also
nanas in the United States). Trade also arises when comparable to those by the remaining Western Hemisphere
differences in latitude cause production to peak at different countries, $22 billion (FAO definition). 1
times in different countries. Five Western Hemisphere
blocks that trade with the U.S. are examined in this paper; Almost half of total agricultural imports by other Western
Canada, Mexico, MERCOSUR, the Andean Group (table Hemisphere countries were from the United States in
1.2), and the rest of the Western Hemisphere, excluding 1991. Hie United States was the destination for over one-
the United States. quarter of agricultural exports by other Western Hemi¬
sphere countries in 1991 (appendix table 3).
The largest Western Hemisphere agricultural trading part¬
ners for the United States are Canada and Mexico (appen¬ Both die United States and die remainder of die Western
dix table 2). The remainder of the Western Hemisphere Hemisphere obtain almost half of dieir agricultural imports
has substantial population (appendix table 1), natural re¬ from each odier. Bodi are major net agricultural exporters,
sources, and trade, but has until recently been held back by exporting almost twice as much as diey import in value
political and economic factors (tables 1.1 and 1.3). If re¬
cent progress can be sustained, the whole of the Western
Hemisphere will represent an even larger trading partner A few items such as tobacco products, distilled alcoholic beverages, and
for the United States (figure 1.1). feed additives, are defined as agricultural commodities in FAO data, but are
defined as nonagricultural in U.S. Census/Customs data. The U.S. data are
Hie United States ships more than one-quarter of the value preferred in describing U.S. trade trends.
of its agricultural exports, $12 billion in 1992 (appendix ta¬
Table 1.1
ble 4), to Western Hemisphere countries. U.S. exports to Inflation and debt service for selected Western
the Hemisphere grew rapidly, 16 percent annually, from Hemisphere countries, 1991
1970-72 to 1978-84 (appendix table 2), and moderately, 4
percent annually, from 1978-84 to 1990-92. Growth was
Country Inflation Total debt service
strongest in animal products, followed by vegetables and
fruits (appendix table 5). Billion U.S.
Percent dollars
The United States also receives about half of its agricul¬
Mexico 22.7 12.2
tural imports, $12 billion in 1992 (appendix table 6), from
Argentina 171.7 15.2
Western Hemisphere countries. U.S. imports from the
Brazil 410.6 44 . 1
Hemisphere increased 11 percent annually between 1970- Uruguay 100.7 0.9
72 and 1978-84 (appendix table 2), then rose 4 percent per Chile 21.8 6.0
Colombia u> o 5.2
year between 1978-84 and 1990-92. Recent growth was Ecuador CD OO 4.8
Peru 409.5 7.3
strongest in cattle, fruits, grains, vegetables, and bananas.
Venezuela 34.2 5.5
U.S. coffee and sugar import values appear to be declining
(appendix table 7).
Source: The WEFA Group, December 1992.
6 Western Hemisphere/RS-93-2/July 1993