The International Food Market

1
The International Food Market

• Kohls and Uhl Chapter 7

2
Introductory Remarks

• Compared to 2 in the 1950s, some 15 of the
  worlds food supply now moves across
  international boundaries.
• The U.S. is the worlds largest exporter of
  agricultural commodities along with being a major
  importer.
• In 1990, 24 of U.S farm output was exported
  accounting for about 14 of world food exports.

3
Consequences of Imports and Exports

• Exports represent a source of market expansion
  for U.S. farmers.
• Participation in world markets provides
  incentives for increasing the productivity and
  output of U.S. agriculture, i.e., increased
  production efficiency.
• Influences the volume, price and variety of the
  food supply for American consumers.

4
Consequences of Imports and Exports Cont.

• Trade related commerce can contribute to the
  economic development of low-income countries by
  providing them with needed imports and with
  purchasing power in world markets.
• Trade plays a role in diplomacy and foreign
  relations.

5
Consequences of Imports and Exports Cont.

• Agricultural exports make an important
  contribution to the balance of trade.
• Increased trade in agricultural commodities has
  made the nations of the world more
  interdependent.
• This implies American farm prices have become
  more variable and subject to climate, economic,
  political, and social changes throughout the
  world.

6
Why Nations Trade

• The profit incentive for countries to specialize
  in producing certain commodities and to trade
  these to countries specializing in other
  commodities.
• The fundamental bases for food trade are that
  productive resources are unevenly distributed
  throughout the world.

7
Why Nations Trade Cont.

• Besides giving consumers more freedom of choice
  and a varying diet, trade allows consumers to
  indicate the appropriate products to be produced
  in each country.

8
Principle of Comparative Advantage

• An economic principle that holds that economic
  gains are to be had, in the form of reduced costs
  of production and/or increased standard of
  living, if, under free trade conditions, each
  nation will specialize in and export those
  products it can produce relatively most
  efficiently, by virtue of its resource endowment,
  and import commodities for which it has a
  comparative disadvantage.

9
Principle of Comparative Advantage Cont.

• Trading comparative advantage products for
  comparative disadvantage products is a form of
  indirect production.
• The principle of comparative advantage goes
  counter to the common-sense notion that
  self-sufficiency is best.
• This also suggests that trade is not just a
  one-for-one exchange between countries.

10
Remarks on Comparative Advantage

• Every country will have some comparative
  advantages and disadvantages.
• This is true even if a country has an absolute
  advantage in all goods.
• When a country can produce all goods more
  efficiently over another country.

11
An Example

• Suppose the U.S. can produce 4 bushels of wheat
  or 2 bushels of corn an hour.
• Suppose the EEC can produce 2 bushels of wheat or
  3 bushels of corn an hour.
• The U.S. would find it in its best interest to
  produce wheat when allocated with only one hour
  of labor.

12
Another Example

• Suppose the U.S. can produce 4 bushels of wheat
  or 2 bushels of corn an hour.
• Suppose the EEC can produce 3 bushels of wheat or
  1 bushels of corn an hour.
• The U.S. would find it in its best interest to
  produce corn when allocated with only one hour of
  labor.

13
Costs of Trade

• Transportation of goods from country to country.
• The frequent resource adjustment imposed by
  competitive world markets and changing
  comparative advantages.
• Loss of self-sufficiency and increased dependency
  on others.

14
Costs of Trade Cont.

• The incentive for nations to create artificial
  comparative advantages through subsidies or
  government policies that distort costs and prices.

15
U.S. Farm Product Exports

• There has been large fluctuations over the years
  because of changes in world economic conditions.
• American trade policies
• War and peace
• Changing worldwide demand for food

16
A Few Statistics

• In 1981, 44 billion dollars worth of
  Agricultural commodities were exported accounting
  for 38 of world agricultural trade tonnage.
• From 1981-1987 U.S. tonnage and world share
  dropped due to an increase in global food
  production and intensified competition.

17
A Few More Statistics

• In the 1990s, grain and oilseeds have accounted
  for 48 of the value of U.S. farm product
  exports.
• In 1992, more than one-third of U.S. wheat, rice,
  tobacco, cotton and soybean crops were exported.
• Illinois, Iowa, Texas, California, Kansas,
  Nebraska, Indiana and Minnesota accounted for
  more than 50 of farm product exports.

18
U.S. Food Imports

• U.S. is the worlds largest importer of farm
  products.
• About 10 of U.S. food supply is imported.
• Canada and Mexico are the largest exporters to
  America accounting for 15 of U.S. farm product
  imports.
• In 1993, the U.S. purchased 52 of its
  agricultural imports from developing countries.

19
Implications of Food Imports

• They contribute to a more varied and lower-cost
  diet for Americans.
• They provide other countries with the purchasing
  power to buy American products.
• Farmers frequently complain that food imports
  adversely affect their prices and income.

20
Different Types of Imports

• Complementary or noncompetitive imports include
  bananas, cocoa beans, tea, coffee, and spices.
• These products can indirectly compete with
  domestically produced substitutes.
• Supplementary or competitive imports include meat
  products, sugar, fruits and vegetables, wool,
  dairy products, and oilseed products.

21
A Few Comments

• Recently, the U.S. has been attempting to
  increase its exports of high value-added products
  in order to increase export sales and create more
  jobs in the food sector.
• In 1992, value-added export products exceeded
  bulk farm export products.

22
Multinational Firms

• These firms facilitate rapid transfer of
  technology, management skills, and marketing
  strategies around the world.
• They must answer the following questions
• Whether to sell abroad?
• Which markets to enter?
• How to enter new markets?
• What production and marketing strategies to use
  in foreign markets?

23
Protectionism vs. Free Trade

• Trade policies range from the two extremes of
  protection from trade for domestic industry to
  free trade.
• Free trade rests on the belief that unrestricted
  trade among all nations will result in more
  efficient use of the worlds resources and a
  higher standard of living for all.

24
Currency Exchange Rates

• It is the value of the dollar in relationship to
  other currencies.
• U.S. farm product exports and imports are
  significantly influenced by the value of the
  dollar.
• Fluctuating currency exchange rates alter the
  costs and prices of a countrys imports and
  exports and can change the competitive position
  of an exporting country.