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U.S. Food Imports Now Exceed Exports

THE AGRIBUSINESS EXAMINER
November 10, 2004, Issue #379
Monitoring Corporate Agribusiness
>From a Public Interest Perspective

EDITOR\PUBLISHER; A.V. Krebs
E-MAIL: avkrebs@earthlink.net
WEB SITE: http://www.ea1.com/CARP/
TO RECEIVE: Send name and address

INCREASING IMPORTS OF FOOD CREATING TRADE PROBLEMS FOR U.S ECONOMY

SCOTT KILMAN, WALL STREET JOURNAL (11/8/04): America's appetite for imported food is creating problems for the U.S. economy.

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 ballooning."

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 September
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
November 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 fiscal 2004.

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 four percent from 1996.

The evaporating farm trade surplus reflects both growing competitive
pressure on U.S. farmers and the changing tastes of American consumers.

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 U.S. producers.

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 ten 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 chain.

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. [ November 8,
2004 ]