Where Our Ag Trade Policy Comes From

Any careful analysis of the the agreements arrived at or discussion of pending agreements in agriculture that might be emerging from the current World Trade Organization (WTO) ministerial meeting in Seattle would be wise to consider author Studs Terkel's admonition, "We can't say where we are going unless we know where we have been."

Clearly, in the last fading light of the 20th century large diversified and often absentee multinational corporations have become the dominant force in the production and manufacturing of food and fiber in the United States and the world. They have also become the dominant force in fashioning national farm and international trade policies that serve their own voracious interests.

No better example can be found than in two former Cargill Corp. executives -- William R. Pearce and Daniel Amstutz -- who came to play such a key and profound role in fashioning world trade policies in the past 30 years.

When the U.S. entered the 1970s it was faced with an economic crisis as the nation's balance of payments was worsening and the value of the dollar was plummeting as Washington refused to redeem foreign-held dollars for gold. For the first time in the century, the U.S. began to register a trade deficit. In 1971, the U.S. showed such a deficit of $2.02 billion, even though ag products were registering a $1.8 billion surplus.

The Nixon Administration, realizing the need to respond, appointed a Presidential Commission on International Trade and Investment Policy, headed by Albert L. Williams, head of IBM's finance committee. The committee, which reported to the President the following year, was composed of representatives from several major corporations, academics and two labor leaders.

Corporate agribusiness was well represented by Edmund W. Littlefield, head of the Business Council and a board member of the Del Monte Corp., and Pearce, then a vice-president of Cargill Corp., the nation's largest private corporation, who would come to play a prominent role on the Commission and would be responsible for writing much of its final report.

The Nixon's Administration's New Economic Policy (NEP) soon came to incorporated the Williams Commission's analysis and policy recommendations. Recognizing that there were costs to maintaining the U.S.'s philosophy of "economic imperialism," the report pointed out "many of the economic problems we face today grow out of the overseas responsibilities the U.S. has assumed as the major power of the non-communist world."

A major section of the Williams report was devoted to outlining a strategy for expanding U.S. food exports. The basis for this strategy was the principal of "comparative advantage." It was simply a means of describing an international division of labor structured around U.S. interests.

As authors Roger Burbach and Patricia Flynn observe in their 1975 report, "U.S. Grain Arsenal," the Williams Commission believed that the U.S. had a natural advantage in grain production due to highly favorable soil and weather conditions, combined with intensive application of technology and capital thereby making it a model of "capitalist efficiency."

In the interests of the "rational use" of the world's resources, the Commission argued, other countries should remove their agricultural trade barriers and end domestic policies that subsidized "inefficient" farmers. "In other words," Burbach and Flynn comment, "they should abandon policies aimed at self-sufficiency and allow the United States to become the world's granary." It is estimated that 75 percent of the world's current food supply is (by dry weight) grain based.

By allowing "free trade," U.S. exports would be able to penetrate the Japanese and European markets while Third World countries could rely on their "comparative advantage" in producing labor intensive crops such as fruits, vegetables and sugar for export -- thus earning the necessary money to import vital U.S. grain products.

The Williams Commission also believed that to carry out such "free trade" policies, U.S. agriculture would have to be converted into an efficient export industry, phasing out domestic farm programs designed to protect farm income and move to a "free market" oriented agriculture. This approach was widely supported by corporate agribusiness and would become the cornerstone of Nixon's farm policy.

By devaluing the dollar in August, 1971 the U.S. took the first step in implementing its new export policies. As the president of the National Grain and Feed Association described it: "the NEP was very important in giving U.S. agriculture an advantage due to the devaluation of the dollar."

A crucial element in expanding food exports was the multilateral trade negotiations carried out under the General Agreement on Tariffs and Trade (GATT).

In 1972 as Peter Flanigan, the head of Nixon's Council on International Economic Policy, was imploring the USDA to develop a strategy for the upcoming GATT negotiations, Cargill's Pearce was appointed the White House's special deputy trade representative. Flanigan's principal target (which would remain the basis of the U.S. negotiating position throughout the GATT negotiations and continues to this very day) was the Common Agricultural Policy (CAP) of the European Common Market countries.

Burbach and Flynn explain why. "The CAP has been a thorn in the side of U.S. grain exporters since its inception in the mid-sixties. The U.S.was ... demanding the removal of the Common Market's protective tariff system which effectively prevents U.S. grain exporters from being competitive in the European market ... The U.S.was also demanding the end to domestic farm support policies in Western Europe which, in the view of the Flanigan report, was sustaining millions of small and "inefficient" farmers.

The subsequent passage of the Trade Reform Act of 1974, engineered through the Congress by Pearce, directed U.S. negotiators to trade off concessions from the U.S. in the industrial sector in exchange for concessions to the U.S. in the agricultural sector. Many believe this action only accelerated the decline of many long-time U.S. industries, like steel.

By the end of 1971 the U.S. dollar was floating, setting off a major realignment of international currencies. Poor growing conditions plagued the Soviet Union, drastically cutting its grain crop. Weather problems set back grain production worldwide through 1972.

By July, 1973, in the aftermath of what would become known as the "Great American Grain Robbery" when both the Russians and Chinese purchased massive amounts of heavily subsidized U.S. grain, an effort was made by the Nixon Administration to limit rapid commodity price increases. The U.S. instituted a series of highly-controversial export controls on soybeans and soybean products.

Both the Reagan and Bush Administrations repeatedly sought to end domestic price supports for U.S. farmers, putting them at the mercy of the so-called "free market."

As Walter B. Saunders, Cargill's vice-chairman, told a 1985 National Grain and Feed Association convention in New Orleans: "The fundamental problem with farm policy goes back nearly 50 years to the belief that the best way to protect farm income is to link it to price. That has required us to set up elaborate mechanisms to cut production to meet residual demand. It has led to price support policies that divorce U.S. agriculture from the signals of the market whenever competitive pressures intensify.

"But if the 1980's have taught us anything so far, it's that we can't solve the economic problems of the marginal farmer through price protection. And attempts to do so spread those financial problems to otherwise viable producers ... Income must become less dependent on unit prices and more dependent of production efficiencies, diversification of income sources, better marketing and greater volume."

The fact that the Reagan and Bush Administrations sought to further weaken the U.S. farm economy and invest even more economic control in the hands of corporate agribusiness was clearly evident in their concerted efforts to utilize GATT in eliminating necessary U.S. farm programs and preventing Congress from exercising any future control over production or the pricing of agricultural products.

The U.S., for its part, sought to have all agricultural programs put "on the table," meaning that all government farm programs that impact price, production, consumption, or trade in any way be eliminated. That included dairy and commodity programs, import restrictions on agricultural products and existing conservation programs. Throughout the '80s and early '90s these programs were the mainstay of net U.S. farm income.

As my colleague Mark Ritchie, president of the Institute for Agriculture and Trade Policy, describes so well this period: "Rather than putting the bin-busting harvests of the mid-1980s into emergency food stocks (isolated from the market, as is the Strategic Petroleum Reserve), the U.S. government spent billions on export subsidies, driving down prices and draining away the reserves.

"The resulting artificially low prices have had huge impacts both in the U.S. and abroad. They fueled increased demand for industrial corn products like starch, sweeteners and solvents. Low prices also encourage the formation of gigantic cattle, dairy, hog and poultry factories, which have driven out many smaller family farmers and ranchers.

"Low prices," he continues, "also were used to 'hook' other countries on buying cheap, subsidized U.S. food, rather than growing their own. ... The combined impact of low prices, upward spiraling demand and reduced production through farmer attrition has skewed our food system."

What the Reagan, Bush and Republican administrations (with valuable assistance from Bill Clinton) sought and finally achieved in the 1996 "Freedom to Farm" bill was a plan to "decouple" so-called welfare-type payments to farmers for a seven-year period while they "adjusted" themselves to a "free market" or, more accurately, what could be described as a "transition" out of agriculture.

One need look no farther than the drafter of that original proposal -- Daniel Amstutz, another former Cargill vice-president and one-time chief agricultural trade negotiator for the United States -- to learn who its major beneficiaries were intended to be. The measure was promoted around the globe by Cargill, the Fertilizer Institute and other agribusiness groups who clearly stand to substantially benefit from a return to full-scale agricultural production and a cheap raw materials policy.

It should also be noted that when Pearce and Amstutz left the government they both returned to Cargill.

It doesn't take a land grant college agricultural economist to see that this nation's farm and food domestic and trade policy in the last 30 years has been unmistakably "of the grain trade, by the grain trade and for the grain trade."

A. V. Krebs is Director of the Corporate Agribusiness Research Project, P.O. Box 2201, Everett, Washington 98203-0201 e-mail: avkrebs@earthlink Web site:

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