SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS
JULY, 1984
DISCUSSION: WORLD AGRICULTURAL MARKETS: IMPLICATIONS
FOR U.S. FOOD AND AGRICULTURAL POLICY
Eric J. Wailes
White has provided us with an interesting
paper on an important and timely topic. He has
laid-out squarely the dilemma of the apparent
contradiction in our domestic policies of rigid
price and income supports and our ability to
participate in highly variable international grain
and oilseed markets. He has narrowed the focus
to identify the market environment in which
U.S. agriculture operates, and described the pri-
mary characteristics of international agricul-
tural markets which affect the response to
traditional farm commodity programs. Finally,
he discusses implications of these characteris-
tics for formulating and executing an effective
farm policy.
I have only one basic disagreement with the
paper. This involves the logic underlying the
transition from his characterization of world
markets to his conclusion that the United States
should adopt a domestic policy which “inter-
feres as little as possible in the transmission of
signals about world market conditions.” He has
characterized international agriculture markets
as: (1) thin, (2) imperfect, (3) having probable
but uncertain price responsiveness, (4) highly
volatile due to production, demand and policy
shocks and (5) highly integrated with other
commodity and financial markets, capable of
transmitting exogenous shocks with increasing
immediacy. The problem for me lies with the
logic that, given this market environment, U.S.
domestic policy should be formulated so as to
interfere as little as possible with the kinds of
signals this imperfect and volatile environment
transmits. This policy prescription clearly defies
the implications of the theory of second-best.
I find it difficult to accept the proposition
that producers will allocate resources more ef-
ficiently and consumer welfare will be en-
hanced if producers and consumers respond to
the market signals as generated by the environ-
ment White has described. It is clear that do-
mestic economic and political forces provide a
more important constraint to policymakers than
do the circumstances of international agricul-
tural markets. The policy choice of opening up
international transmission of market signals to
facilitate our export dependency is dominated
by an ideological bias to reduce government
intervention and budget exposure.
I basically agree with White’s description of
the market environment.. Changes in the inter-
national monetary regime and information tech-
nology, among other factors, have contributed
significantly to global interdependence. The
growth in trade and the ability of the United
States to make the initial adjustments faster than
anyone else, has contributed to our export de-
pendency. However, the past decade has been
time enough for much of the rest of the world
to respond to the market that the United States
effectively exploited in the seventies. As with
our supply capacity, once in place in the rest
of the world, downward adjustment comes with
great political reluctance and economic cost.
One aspect of the market environment that
deserves consideration, but was not discussed
by White, is the irony that increased global
interdependence brings with it the sense of
vulnerability. Insecurity has had a degenerative
effect upon the efficacy of the market. As we
have seen, the developed countries have pur-
sued even greater insulation, and the developing
countries have embraced autarchy with adjust-
ments in consumption and changes in producer
price policies to attain self-sufficiency.
The essence of the problem in international
agricultural markets is that, for every country,
international participation has become a by-
product of domestic policy objectives. As re-
gards food, it is absolutely clear that very few
countries, if any, are prepared to accept a com-
petitive international market allocation of re-
sources to ensure their supply of foodstocks.
Regarding the characteristics of international
markets which most seriously affect the re-
sponse to traditional domestic agricultural pol-
icy programs, we would have benefited from a
fuller discussion upon what effect the more
fluid, volatile and uncertain international en-
vironment has had upon U.S. producer response
to domestic policy levers. Participation in gov-
ernment programs has increased significantly.
Eric J. Wailes is an Assistant Professor, Department of Agricultural Economics and Rural Sociology, University of Arkansas.
Invited discussion presented at the annual meeting of the Southern Agricultural Economics Association, Nashville, Tennessee,
February 5-8,1984. Invited papers are routinely published in the July SJAE without editorial council review but with review
of the copy editor (as per Executive Committee action June 25, 1982).
Published with approval of the Director, Arkansas Agricultural Experiment Station, Staff Paper 0784.
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