CURRENT CHALLENGES FOR AGRICULTURAL POLICY



Schuh


Challenges in Policy

on agriculture. Perhaps the best way to ap-
preciate this is to recognize that agriculture
has been a beneficiary of the OPEC-induced
increase in petroleum prices. The huge in-
crease in our import bill has caused the dollar
to decline in foreign exchange markets. This
has strengthened the competitive advantage
of our agricultural products abroad, and con-
tributed to the high levels at which our ag-
ricultural exports have remained despite
bumper world crops in recent years.

If the petroleum cartel should break up,
the dollar would undoubtedly rise as our oil-
import bill declined. The competitive poten-
tial of our agricultural exports would then de-
cline, and unless there were offsetting de-
velopments our agricultural sector would face
another severe adjustment problem. Such a
development would pose a serious challenge
to agricultural policy.

Our challenges in trade policy are equally
numerous and complex. Agriculture has ben-
efited from the substantial Iiberafization in
trade policy that has taken place in the
post-World War II period. But the potential
for further liberalization is quite great. The
levels of agricultural protection are much
higher than are the levels of industrial pro-
tection. Yet the world tends to deplore indus-
trial protectionism while regarding agricul-
tural protectionism as perfectly normal.

Protection of domestic agriculture in most
countries causes agricultural output to be
produced in the wrong places, thereby rais-
ing its cost and sacrificing output potential
[Johnson, 1974]. Such protection prevents
market adjustments from taking place, with
the result that relatively small shifts in de-
mand or supply in international markets lead
to rather large price fluctuations [Johnson,
1975]. Given the relative openness of our
own agricultural sector, that sector as well as
its consumers have to bear an important
share of the adjustment burden from chang-
ing conditions in international markets.

The immediate challenge is to encourage
liberalization in agricultural trade policy in
the current round of multilateral trade
negotiations. The lack of success to date does
not bode well. But try we must.

Three factors complicate any attempts to
obtain trade liberalization for agricultural
products. The first is the growing wave of
protectionism both here and abroad. This
drive for protectionism is due in part to slug-
gish growth rates among the industrialized
countries. But the rapid shifts in comparative
advantage due to exchange rate realignments
and the emergence of some middle range
economic powers such as South Korea,
Taiwan, and Brazil have also played an im-
portant role.

A second factor that retards agricultural
trade liberalization is the growing tendency
to self-sufficiency in agriculture among many
countries. The instability of international
commodity markets has encouraged this ten-
dency. But the perceived potential for deal-
ing with regional or sector adjustment prob-
lems by means of import substitution policies
also plays an important role.

Unfortunately, the ill-advised rhetoric of
U.S. policy-makers and intellectuals also has
to accept its proper share of the blame. Con-
cern with the world food problem has caused
us all too often to promote self-sufficiency in
food production as a desirable policy goal.
But self-sufficiency should not be confused
with the quite appropriate goal of strengthen-
ing and developing the agricultural sector. In
fact, modernization and development of ag-
riculture can, and often times should, lead to
an increased dependence on trade.

A final factor that retards a liberalization in
agricultural trade is the failure to devise and
implement positive adjustment policies. Ex-
panded trade almost inevitably imposes
rather severe adjustment problems on par-
ticular groups in society. The difficulty of
dealing with these adjustment problems
eventually leads to protectionism. Our own
track record on this issue is not very good, as
witnessed by our dairy policies. Ironically we
have seldom used the considerable trade ad-
justment policy instruments provided in the
1974 Trade Adjustment Act.

The high protective tariffs the European
Community maintains for its agricultural sec-
tor are a reflection of its unwillingness to deal

239




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