Of Food Threaten
Wider Trade Gap
U.S. Agriculture Exports,
Relied on to Ease Deficit,
Feel Heat of Competition
By SCOTT KILMAN
Staff Reporter of THE WALL STREET JOURNAL
November 8, 2004; Page A1
America's appetite for imported food is creating problems for the
Agriculture, one of the few big sectors of the economy that could be
counted on to produce trade surpluses, has recently generated
monthly deficits -- a development that could worsen the nation's
already significant trade imbalance.
According to the U.S. Department of Agriculture, the U.S. imported
more agricultural goods than it exported in June and August, the
first monthly trade deficits since 1986, when the Farm Belt was
mired in a depression.
"It's very worrisome," said Sung Won Sohn, chief economist of
banking giant Wells Fargo & Co. "We need agricultural trade
surpluses more than ever because the nonagricultural deficit is
What's happening is partly a trade-off for the free-trade agreements
signed by Washington. While those pacts, such as the 1994 North
American Free Trade Agreement, lowered barriers to U.S. farm
exports, they also eased the entry of imported foods.
The availability of imported food clearly benefits consumers, giving
them variety as well as new sources of competition that help keep
their food costs under control.
But the problem with the widening overall trade deficit is that it
is sustainable only as long as foreigners are willing to lend the
U.S. large amounts of money. Many economists warn that this isn't
likely to continue, and if they're correct, the risks are growing
for a market-rattling crash in the value of the dollar.
The overall trade deficit widened to $54 billion in August, the most
recent monthly figure available. That was the second-biggest gap on
record after June's $55 billion.
During the 1990s, the agriculture sector's ability to single-
handedly cut the trade deficit by as much as 16% some years gave it
political capital in Washington, helping justify billions of dollars
in annual farm subsidies. Now, agriculture's shrinking impact on the
trade scene, plus the swelling federal budget deficit, could make it
harder for the farm lobby to protect those subsidies.
The U.S. is still the world's biggest agricultural exporter. But the
agricultural-trade surplus is evaporating so quickly that some
economists in the Bush administration are quietly speculating that
the sector might generate an annual trade deficit as soon as the
fiscal year ending Sept. 30, 2005. That would be the first since
1959, when postwar Europe re-emerged as a major farm power.
"The way things are going, we could see it cross over in a year or
two," said Philip Abbott, an agricultural economist at Purdue
University in West Lafayette, Ind. Mr. Abbott and a fellow professor
created a stir in farm circles last year with their warning that
full-year farm trade deficits could materialize late this decade.
Speculation about the U.S. agricultural trade balance will grow over
the next couple of weeks because the USDA is slated to update its
forecast on Nov. 22. Currently, the government is projecting a farm
trade surplus of $2.5 billion for fiscal 2005. That would be a
nearly 75% drop from an estimated trade surplus of $9.5 billion for
The farm sector's trade surplus peaked in fiscal 1996 at $27.31
billion, the result of $59.75 billion of exports and $32.44 billion
of imports. Since that time, the value of U.S. agricultural imports
has climbed 62% to an estimated $52.5 billion in fiscal 2004. The
value of U.S. agricultural exports is up only 4% from 1996.
The evaporating farm trade surplus reflects both growing competitive
pressure on U.S. farmers and the changing tastes of American
U.S. agricultural exports have been stagnant for eight years in part
because new farm powers are emerging around the world in places
where land is cheaper and governments are pumping money into
infrastructure such as roads and ports. Brazilian soybean farmers
are winning customers away from the U.S., for example, and Russia
has transformed itself from a huge customer of U.S. wheat into a
wheat-exporting rival. India, which once depended on American aid to
fight famine, is an emerging food exporter. China, long a big buyer
of U.S. crops, is pushing for food self-sufficiency. Canada is a
major exporter of hogs and beef to the U.S. The upshot: The U.S.,
which controlled half of the world's trade in wheat in the 1980s,
now has just one-quarter of the world market.
At the same time, Europe has raised barriers to the import of some
U.S. foods containing genetically modified ingredients. Most
recently, the discovery of the first U.S. case of "mad cow" disease
in December prompted scores of countries to ban billions of dollars
of U.S. beef.
On the other side of the trade coin, imported food is one of the
fastest-growing categories in many supermarkets. The biggest factor
behind it is that more and more American shoppers want crops and
food they can't get -- or can't get in sufficient volume -- from
Even the weakening dollar, which makes foreign goods more expensive,
isn't slowing the flood of imported agricultural goods. In August,
the value of agricultural imports rose 24% from a year earlier to
$4.37 billion, which was $156 million more than August exports.
Many supermarket executives learned about importing during the
1990s, when they turned to Chile, Mexico and Argentina for grapes,
tomatoes, asparagus and apples to keep their aisles stocked with
fresh produce through the dead of the U.S. winter. Now retail
executives are trying their hand at more exotic fare, such as Irish
marmalade, Scottish cookies and Japanese horseradish powder.
According to the USDA, 78% of the fish and shellfish consumed in the
U.S. are imported, up 10 percentage points from 2000. Imported wine
had 27% of the U.S. market last year compared with 21% in 2000.
Everything from lamb and avocados to spices, beer, flowers and bell
peppers increasingly is imported.
"Shoppers want more and more choices," said Monte Wiese, president
of the specialty-foods unit of Hy-Vee Inc., a Midwest supermarket
Hy-Vee is putting olive bars in its stores. As at a salad bar,
shoppers can pick from 14 varieties of fresh olives from Greece,
Italy and Turkey. Hy-Vee is also importing, among other things,
canned coconut milk, cheese from Switzerland and canned artichoke
hearts from Spain.
Even U.S. farmers are getting into the act. Sunkist Growers Inc., a
citrus cooperative owned by growers in California and Arizona, is
making plans to import navel oranges from South Africa for sale
under its brand when U.S. oranges are out of season. "We either
provide consumers with what they want or we are out of the market,"
said Jeffrey Gargiulo, Sunkist chief executive.
The growing immigrant population is creating demand for imported
foods. General Mills Inc., for example, is beginning to import from
India the frozen flat breads roti and nan. U.S. food companies are
also using more foreign ingredients in their products. Much of the
Pepsi-Cola sold in the U.S. is made with concentrate imported from
places such as Ireland, where PepsiCo Inc. says manufacturing costs
are cheaper than in the U.S.
About 20% of the beef used by McDonald's Corp. restaurants in the
U.S. now is from foreign cattle. A McDonald's spokeswoman said a
shortage of lean beef in the U.S. is forcing the company's hamburger
suppliers to turn to cattle from Australia and New Zealand.
The import boom is causing a backlash among some U.S. agricultural
groups, such as Florida produce farmers. These groups successfully
lobbied Congress for a country-of-origin regulation requiring
supermarkets to label the birthplace of produce and meat, among
other commodities. Opposition from retailers, however, has stalled
implementation of the labels.