The International Market AG BM 102
Introduction We have a Global Food Market U.S. imports 20% of our food and exports 30% of our production
Russian poultry embargo February 2002 Response to our steel tariffs Affected beef and pork markets as well
Background 8% of poultry production goes to Russia Imports are 60% of Russian poultry consumption In 2001, 1 million Metric tons to Russia $630 million 57% of Leg Quarter (Bush legs) exports
Cost of the Embargo March - $100 mil. to poultry industry April $200 mil. to poultry industry Also affected beef and pork Barrows and gilts 35.3 cents., down from 45.8 previous year Steers 65.6 cents. down from 72.7 previous year
In Poultry Market Loss of Russian market is a decrease in demand, which lowers price in order to absorb the production. In the short run supply is inelastic so the price drops proportionately more than the quantity
In Domestic Meat Market Different ways of looking at it – one is added chicken on domestic market Increases supply Total meat demand quite inelastic Price of all meats fall sharply relative to quantity
More Broadly Many agricultural commodities have this situation Foreign market an important outlet A few big customers Overseas trouble can hurt market Asian currency crisis in 1997-99 Now, Mad Cow and Avian Influenza
Net Effect U.S. agriculture depends on foreign markets U.S. agriculture is affected by changes in foreign economic & political conditions Market for U.S. agriculture cannot grow much without foreign markets They won’t buy our stuff if we won’t buy theirs – free trade helps ag – but not all products
Free Trade & Ag Policy Free trade makes agricultural support difficult Can’t prop our prices up above world prices – sugar, peanuts, dairy Can’t get access to other markets & keep ours closed Ag is only part of bigger trade picture – steel, computers, etc. – broad negotiation
Concluding Comments Trade is important to U.S. agriculture Policy is complex Trade creates winners and losers, although both countries win in aggregate – tomatoes in Florida