ary

G-27

Issued October 1934

UNITED STATES DEPARTMENT OF AGRICULTURE

AGRICULTURAL ADJUSTMENT ADMINISTRATION

WASHINGTON, D. C.

REOPENING FOREIGN MARKETS FOR FARM PRODUCTS

Extract from an address by Henry A. Wallace, Secretary of Agriculture, at the American Institute of Cooperation, Madison,

Wis., July 11, 1934

Three paths in foreign trade are open to America. We can go nationalistic, and become highly self-sustaining; we can go internationalistic and try to win back our lost foreign trade; or we can take a course perhaps half-way between.

The nationalistic course would lead us toward ultimate self-conainment, but it would do so at a cost heavy in terms of economic acrifice and perhaps extreme regimentation; a cost which, in agriulture alone, would mean the abandonment of about 40 million cres of good crop land. The internationalistic course, on the other and, might not involve any acreage reduction, but would obligate to import annually at least 500 million dollars more of goods an we now import. Only in this way can foreign countries pay interest on their debts to us and at the same time make current purhases of goods and services on a predepression scale. Between hese extremes there is a third alternative, a "planned middle ourse." This would involve the admission annually of perhaps 200 million dollars more of goods than we now import and at the same me permanent seeding-down or reforesting of some 25 million acres of good plow land, or perhaps 50 million acres of poor land.

None of these courses is easy, none can be taken heedlessly or pasmodically. Each involves some pain. The question is whether we are willing to suffer a little pain now in order to avoid an infinitely greater pain later on. Because the middle course involves perhaps the least discomfort, I have been inclined to favor that, and recognize it as our probable choice.

NATIONAL TRADE POLICY NEEDED

The big problem in American agriculture as well as in our entire economic life is to determine whether or not we are going to continue producing on the 50 million surplus acres formerly needed for exports. We must develop a national policy to which we can stick for 25 or 50 years.

The pursuit of a planned middle course involves two steps: First, Bome reduction in the size of our agricultural plant as a whole; and, second, a reopening of foreign markets for our farm products. With

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the world's capacity for agricultural production, including our ow greatly expanded throughout the war and post-war era, and in th face of a general collapse of purchasing power for our farm proc ucts both at home and abroad, it was not a matter of choice but sheer necessity that led us to the adoption of an emergency program to reduce surplus acreage.

But the amount that we can export with profit need not and shoul not continue indefinitely at the pitifully shrunken level to which has now fallen. Ten years ago-to go back before the peak of th inflationary period preceding the depression-we were exportin almost 2 billion dollars' worth of agricultural products annuall During the 5-year period, 1922-26, our agricultural exports averag annually slightly less than 2 billion dollars. By 1933 the value ha declined to 694 million dollars-scarcely more than a third of wis it had been a decade earlier. The shrinkage in quantity was not great as these figures indicate. The prices received were necessaril distress prices.

TARIFF REDUCTION IS JUSTIFIED

People who delight in splitting hairs say it is inconsistent launch a simultaneous attack to restore foreign trade and adju domestic production. They forget that a manufacturer usually r doubles his efforts to sell goods when a lowered demand leads him reduce his output. The same principles apply to agriculture.

We are also told that it is inconsistent and unfair to ask our farm ers to curtail production while we permit any imports of agric tural products, however remotely competitive, to come into the cour try. It is true that when we curtail production of a crop und conditions where imports are likely to increase as a consequence, are compelled, as a matter both of justice and of common sense, take steps to limit those imports. But to say that every dollar worth of agricultural imports, however remotely competitive wit domestic production, must be shut out of the country before any cu tailment of domestic production is attempted, is to fail to unde stand the problem. The only outcome would be to subsidize the le effective kinds of agricultural production at the expense of the mo effective, while still leaving us face to face with the problem finding outlets for a large surplus of farm products.

NEW TARIFF ACT HOLDS PROMISE

Under the new tariff act the President is authorized to enter in trade agreements with foreign countries and in connection ther with to reduce or increase-any existing tariff rate by as much 50 percent. I especially stress the words "in connection therewith because it has been erroneously assumed by some that the act a thorizes the President, simply at will, to alter any rate by 50 pe cent, without reference to tariff negotiation with foreign countri Not only must the changes in rate be limited to agreements enter into with foreign countries; but, in addition, since the purpose of th act is to increase foreign trade, we must suppose that most, if n all, of the changes in rates will be downward.

This drive for the restoration of foreign trade surely has not com too soon. Everywhere, international trade has shrunk sensationall

In terms of volume, world trade in 1933 was reduced approximately 70 percent of its 1929 level; in terms of value, to but 35 percent of its 1929 level. Of our own foreign trade the value declined from 92 billions of dollars in 1929 to 23 billions in 1933-a decline of approximately three-fourths. Moreover, our share in total world. trade between 1929 and 1932 fell from 13.83 percent to 10.92 perent-a very significant decline. To the United Kingdom alone we sent some 597 million dollars' worth of agricultural products annually in 1922-26, but only 192 million dollars' worth in 1933. To Germany we averaged 288 million dollars' worth annually in 1922-26, but only 103 million dollars' worth in 1933.

FARMERS HAVE MUCH AT STAKE

In any soundly conceived program for the upbuilding of our seriously depleted foreign trade, farmers in this country have much at stake. But it is not only a matter of restoring foreign outlets for farm products; it is a matter also of improving the entire economic well-being of the country and hence of increasing the demand for farm products at home as well as abroad.

What, then, are the possibilities of restoring foreign markets for farm products, and for which are the chances most promising? Past performance does not necessarily tell us what future performance will be. Earlier trade figures must therefore be used with reservations. We were able to export nearly 2 billion dollars' worth of agricultural products annually in the predepression era— time when our exports were being inflated by overzealous foreign ending, the implications of which, in terms of increased imports of goods and services, we were unwilling to face. But it does not follow that we can expect to export as much in terms either of quantity or value in the future.

EUROPEAN COUNTRIES GREAT POTENTIAL OUTLET

Of the 2 billion dollars' worth of annual exports in 1922-26, nearly half went to the United Kingdom and Germany, the former taking 30.6 percent, the latter 14.8 percent. Another 30 percent was distributed between France, Italy, Japan, Canada, and Netherlands, in ratios ranging from 7.1 percent for France down to 4.7 percent for Netherlands. Therefore, while Japan, China, and a number of other countries outside of Europe cannot be overlooked, the great potential outlet for our farm products remains, as it has always been, on the other side of the Atlantic.

COTTON AND TOBACCO PROSPECTS BEST

For cotton, our greatest agricultural export, increased trade is chiefly a matter of purchasing power rather than of trade barriers. In this case the significance of the tariff-bargaining program upon which we are about to enter arises from its relation to world economic revival as it affects the European cotton-textile industry. Cotton exports have been directly restricted by trade barriers only in Germany, and it is not yet clear whether the German restrictions are intended to restrict consumption or to promote a policy of hand-to

mouth buying. On the whole our cotton exports have been restricted by the low level of consumer's incomes in foreign countries rather than by trade restrictions. Tariff bargaining, insofar as it increas world trade, will increase world business activity and purchasing power and hence will strengthen the foreign demand for cotton.

More direct are the possible benefits of tariff bargaining for ou other important export crops, since most of them are subjected t serious trade restriction. Among those in a more favorable posi tion is fruit, the price of which could be greatly improved by relaxing of restrictions.

For tobacco, also, the possibilities seem good. The United State continues to possess important advantages over other countries the production of certain types of tobacco.

WHEAT AND PORK FACE SERIOUS OBSTACLES

Trade restrictions on pork in the importing countries, especiall in the United Kingdom and Germany, have decreased imports mor drastically than the countries have increased their domestic produ tion. By tariff negotiation, therefore, it may be possible to increas our exports to these countries without displacing any great amour of their domestic production.

For wheat the prospects are less favorable than for pork for tw reasons. The first and more important reason is the increasing co parative advantage of the newer countries. The other reason is th those importing countries that have reached or approached sel sufficiency in wheat probably will be reluctant to retreat very f from their present position. The reasons for this reluctance a both economic and military. Self-sufficiency in wheat is somethin to which these countries seem to attach peculiar importance.

In the greatest importing area, the United Kingdom, the situatio is different. For the measures adopted by the British to encoura domestic production have done little to discourage consumption, a while encouraging some expansion of production, have neverthele left the country dependent upon imports for most of its suppli Hence there is little that can be done through tariff bargaining increase total British imports of wheat, and probably not mu that can be done to increase our share of the trade; though aba donment of preference to the dominions would help to some exter

We recently have had a little experience in bargaining for creased exports of farm products through quotas on liquor impor which illustrate both the possibilities and obstacles involved in su efforts.

At the time of the repeal of the Prohibition Act a marketing agr ment was drawn up under the authority of the Agricultural Adju ment Act by means of which it was possible to institute a syste of import quotas on wines and liquors. It was specifically set for in the marketing agreement that the quotas should be based on t average imports during the 5 years immediately preceding the w and that all countries should be allowed quotas equivalent to the figures. It was provided that additions would be made to the basic quotas for such countries as would agree to make some conce sion with respect to their imports of agricultural products from t United States.

It soon became apparent that the liquor quotas would be of relatively little value for bargaining purposes, because the American demand for wines and liquor from most countries proved to be considerably less than was permitted by the basic quotas for which 10 bargaining was necessary. Our high import duties on wines and iquors were an outstanding factor restricting the outlet for foreign Fines and liquors into this country, and there was no provision for reduction in these duties in connection with the liquor-bargaining program.

TRADING FRUIT FOR WINE

It was possible, however, to secure certain very definite advantages or our export trade in agricultural products. The expansion of he French market for American apples and pears during the last 2 3 years has been one of the outstanding developments in our exort trade in agricultural products. We were consequently anxious maintain our outlet in this market to the fullest possible extent. was possible to induce the French Government to increase the Hota for apples and pears to 20,000 metric tons for the first quarter 1934. This was a larger quantity of apples and pears than had rer before been exported to France from the United States in any rresponding period and over five times the quota that was granted American apples and pears in the last quarter of 1933. The other outstanding instances of advantages gained through the quor quotas were in connection with tobacco exports to Spain and aly. The Spanish Government, through the Spanish Tobacco onopoly, made a commitment to purchase 32 million pounds of merican tobacco over and above the amount of the purchases that ad been intended for the 1934 season. As for Italy, the Italian obacco Monopoly agreed to purchase in the United States 14 illion pounds of leaf tobacco. This commitment, while for a relavely small amount, was distinctly helpful because of the fact that taly now buys from the United States certain higher-priced types f dark tobacco for which the demand, both foreign and domestic, is ather restricted.

CONCESSIONS NECESSARY FOR TRADE EXPANSION

The thing that stands out most, however, in this experience with he liquor quotas is that we cannot expect something for nothing. Though we secured some important concessions through the liquor mport quotas, we could have secured a great deal more if our tariff laties on liquor had not been so high that the quotas extended could ot be fully used.

And this brings us to the crux of the whole matter. What concesons are we prepared to make in connection with our new tariffargaining program?

It has been suggested that we could make painless concessions by ncouraging imports of noncompetitive goods, such as coffee, tea, or abber. But we can, in fact, make no concessions on such products. They are not dutiable under our tariff, and our consumers already by as much of them as they can afford to at world market prices. In order to make a real concession, we must make it on some commodity of which our Government is now hindering or restricting the imports to the detriment of the foreign producer.