Events of the past two years have made food an increasingly worrisome item in household budgets and in the budgets of nations. In early 1974, food prices to the American consumer were 25 percent greater than two years earlier. This reflected dramatic increases in farm beef prices, while farm corn prices were double and wheat prices triple those of early 1972. Clearly something new has happened to a food market which has historically fed Americans well and for a uniquely small proportion of their income.

A series of events was associated with these price adjustments. In August 1971 the U.S. dollar was floated and a major realignment of international currencies set underway. Then inadequate rain cut the 1972 Soviet grain crop, while drought in Argentina and Australia crippled grain production; the Soviets began to purchase 28 million tons of grain, 18 of them from the United States. India's monsoon dropped below normal, cutting the cereal crop and eroding hopes for near-term self-sufficiency in cereal production. Peru's fish catch was a disaster; drought and typhoons slashed rice and corn crops in the Philippines; and, in the United States, the corn and soybean harvest was stalled by wet weather in the fall of 1972. The following spring still more wet weather delayed U.S. plantings. In July 1973 the United States, to limit rocketing price increases, instituted export controls on soybeans and soybean products. Finally, Congress adopted legislation that drastically altered the framework of American agriculture in the direction of a free market, with sharply lowered price supports and incentives for stockpiling.

In the developing new market situation, U.S. agricultural exports in calendar 1973 reached $18 billion, up from $9.4 billion the previous year and an average of $6.7 billion over the past five years. Although world cereal production recovered and indeed reached record levels in 1973, American agricultural exports in the current year continue high, and remain a critical element in the reversing of serious balance-of-payments deficits. At the same time, quantities of cereals allocated to PL 480 food aid programs have dropped to the lowest levels since the start of the program in 1954.

To comprehend the close interdependence among countries and peoples of the world these events reflect, a good place to start is with the brutal facts of the world food market-how it has been dominated by the affluent, whether Communist or capitalist, and how the poor have been the first to suffer in times of restricted overall food supplies. Next, we must explore whether the tight food situation of the past two years is likely to continue. What is the medium-term outlook for the world food balance, and how confident can we be of the best available predictions, given the variability of weather, the unpredictability of government decisions, and the energy crisis?

Key policy issues emerge. While they are stated in terms primarily of U.S. policy, they are in fact worldwide in their implications. In view of the new U.S. farm legislation and programs which essentially pull out all production stops, what will be the impact of international markets on our domestic food markets? How can the United States and the world adjust to-or moderate-the prospect of widely fluctuating prices in the future? Under anticipated conditions, will the United States share food with low-income countries and on what terms? And if American PL 480 programs continue to wind down, what needs in the lower-income countries will go unmet; what can be done about them?


For as long as there has been trade among nations, developed nations have commanded the food they wanted, when they wanted it. Wealth and high incomes have been the instruments of command. In times of abundance, this purchasing power has been subtle and has displayed a low profile; its impact has not quite achieved a critical mass which would earn the enmity of the have-nots. Only in times of food shortage and high prices does this power, and its related imperialistic effects, become shocking to its victims. Then, whether they be nations or citizens within, those with money have preëmpted what food they wanted; those without money have tightened their belts.

Today, people in the developing nations, two-thirds of the world's population, eat only one-fourth of the world's protein, and most of that is in the form of cereals. In countries such as India people consume less than 400 pounds of cereals per capita each year. On the other hand, in the developed countries, where large quantities of cereals are converted to protein, per capita grain consumption is 1,435 pounds in the Soviet Union, about 1,800 pounds in West Germany and France, and 1,850 pounds in the United States. All told, the billion people in the rich nations, with Cadillac tastes for livestock products, use practically as much cereal as feed for livestock as the two billion people in the low-income nations use directly as food.

The conversion factor is by now well-known. Although forages and other products inedible for humans can usually make some contribution to livestock productions, substantial shifts in such production are heavily dependent on cereals. In the United States, even after advances in feeding technology, a little less than two pounds of cereals are now needed to produce one pound of poultry. For hogs the ratio is 3.5 to 1, for beef 6.5 to 1.

Nonetheless, high-quality protein, particularly from livestock products, is a consumer preference throughout the developed nations-and they can afford to indulge their tastes more and more. Americans have come to consume an average of 110 pounds or more of beef per person a year, in addition to substantial amounts of other meats and livestock products. Similar trends in Western Europe and Japan have been increasing rapidly in recent years,1 and now the Soviet Union and the East European countries are showing the impact of policies and programs to upgrade the diet of their peoples.

Such consumption of livestock products is in large part a matter of taste, not nutritional requirements. While the protein quality of livestock products is higher than that of cereals, that of soybeans and other food legumes is also high. The fact is that the physical requirement for protein intake is considerably less than that now consumed by the majority of Americans and many in other developed countries. Yet its continued expansion-with the use through conversion of ever-larger amounts of cereals for this purpose-appears to be virtually a political imperative.

Thus, while population growth has obviously been a significant factor in increasing world food demand, an even more striking feature of the demand situation has been the sharp recent increase in cereal consumption per capita in developed countries where populations have not been growing rapidly. The figures are startling:


(in pounds)

1964-66 1972-74 Percent

Average Average Increase

United States 1600 1850 16

U.S.S.R. 1105 1435 30

European Community 9001 10001 11

Japan 5301 6201 17

China 420 430 2

Developing Countries (ex-China) 3702 395 72

Source: Economic Research Service, U.S. Department of Agriculture

1 Figures for the cereal consumption of the European Community, and to a lesser extent of Japan, are reduced somewhat by the extensive use of non-cereal grains for livestock feeding. Japan's figure is also reduced by the fact of extensive direct imports of meat, thus cutting the livestock consumption of cereals within Japan.

2 The 1964-66 figure was depressed in the averages by India's two bad crop years in that period. The percent increase to 1972-74 thus exaggerates an increase that was in fact minimal.

The reader will note that in this eight-year period the increases in per capita consumption for the United States and U.S.S.R. (250 and 330 pounds respectively, although some of the latter may have gone into stockpiles) were more than half the total consumption per capita in the developing countries. The table helps to explain the Soviet grain purchases of 1972. Traditionally, when the Soviets came up short on production, they steeled themselves to wait out the shortage, sometimes to the point of accepting large-scale livestock slaughter. But not in 1972, when winter-kill and dry midsummer weather disrupted the Soviets' cereal harvest expectations. Instead of tightening their belts, they made massive grain purchases on the world market. With the aid of these imports, the pace of their livestock development efforts continued unabated.

The Soviet Union's decision to protect diets was felt worldwide by both rich and poor. When the Soviets purchased practically one-fifth of the total U.S. wheat supply-production and beginning-of-the-year stocks-in the 1972-73 crop year, supplies normally available to others dropped sharply. Nations and people reacted by bidding up the price of the remaining wheat, the more aggressively because Japan and several other commercial importers of U.S. foodstuffs found their currencies worth substantially more in terms of dollars as a result of successive devaluations.

In contrast, the low levels of wealth and income of the poor countries once again determined how well they could compete in the food-purchasing power game. So long as the overall production of cereals is relatively responsive to needs, effects on the poor are minimal, especially over time. But in times of severe dislocation of the balance of demand and supply through sharply increased demand or curtailed supplies, the impacts can be harsh-especially in those countries unable to insulate their poor from the market through concessional means such as the U.S. food stamp program. For example, the 1972-73 Indian food grain crop dropped from 105 million to 96 million tons. In the tug-of-war between maintaining diets and saving foreign exchange, diets lost and food prices were allowed to increase. In some areas, food grain rations were cut in half in fair-price food shops, which serve many of the lowest income Indians. Per capita calorie availability dropped toward the critical levels of the mid-1960s.

Thus, in a world having great wealth and affluence among only one-third of its population, the 2,300-year-old words of the Greek cynic Diogenes come back to haunt us. When asked for the proper time to eat, he responded, in his own practical manner: "If a rich man, when you will; if a poor man, when you can."


Only a person of great-but false-confidence would speak with assurance of future developments in international food markets. We are dealing with a multitude of fundamental uncertainties. But perspective can be gained through an examination of history and of major forces impinging upon food production and consumption.

On the production side, only in the last 25 years have figures from all over the world been systematically compiled, and even today the data for many developing countries are at best broad estimates. Nonetheless, one can assess certain trends.

Over the period since 1955, the Third World has generated agricultural increases almost in step with the developed world. In both developed and less-developed countries (excluding Communist Asia), food production in 1973 was more than 30 percent above levels of the early 1960s and more than 50 percent above the mid-1950s.

Unfortunately, the upward production trend in the developing nations has been almost totally eclipsed by population growth, so that food production per capita over the past two decades has increased slightly less than half of one percent per year. (Africa has not shared in the increase and in fact has shown a downtrend since 1961.) By comparison, per capita food production in the developed regions of the world has increased at an annual rate of one and one-half percent, or three times as rapidly. Mr. Micawber would have recognized the problem depicted in the tables below.


In recent years the sharpest increases in per capita food production among the developed countries have occurred in Eastern Europe and Russia: 1973 per capita food production in both areas was more than 25 percent greater than in the early 1960s. Over the same period, increases in the United States and Canada were much more modest, at least partially due to programs restricting production; Western Europe's increases fell somewhere in between.

Africa's continuing decline in per capita production and accelerating dependence on food imports have now been further exacerbated by the devastating drought in the Sahelian Zone. South America's progress is spotty: Chile has had serious problems; Mexico has not lived up to forecasts of self-sufficiency; but Brazil and Colombia have made considerable gains. Asia's Green Revolution has improved that area's feeding ability, but even there, as well as in Africa and Latin America, weather variability remains a highly important factor accentuating crop declines and exaggerating production peaks.

All in all, worldwide trends have caused the United States to become more and more the major food supplier in international markets. American production has not only supported large and growing exports, but has also sustained domestic food consumption at the highest level of any people in the world. Outstanding land and water resources, along with a rapidly advancing technology based on heavy investments in research and large supplies of low-cost fossil fuels, have made it possible for American agriculture to move ahead while directly employing a steadily smaller work force.

When it comes to forecasting the future balance of food demand and supply, many factors must be taken into account: population and income changes, the availability and acceptability of substitutes for traditional foods, development and adoption of new technologies of production, potential changes in the use of water and land, prices of inputs such as fertilizers and fuels, and of course, weather. For most of these variables one can make assumptions for the future with fair confidence. Let us initially assume also that (1) fuel, fertilizers and pesticides will be available in adequate quantity and at prices consistent with trends up to October 1973, and (2) that weather will approximate the long-term average (normal weather).

Using the above approach, two points of overwhelming importance emerge in the projections of the U.S. Department of Agriculture. First, the role of the United States as the major supplier of food in international markets is expected to expand. Second, the dependence of the lower-income countries on food imports is expected, by 1985, to be nearly double the 1970 level. The two points add up to heavy dependence by the developing countries on the United States as a supplier of food.

The projections for the United States anticipate continued advancement of agricultural technology, as well as policy pressures to use exports of food to help pay for imports which underpin the American standard of living. Moreover, levels of production will depend substantially on returns to farmers and on government programs. If farm product profits remain at recent high levels, significant expansion of production is likely to occur as land not now in production is utilized to grow crops and forages, and new technologies are adopted more readily in order to capture these potential profits.

The expected expanding role for the United States also reflects anticipated developments in other countries. In Japan, for example, resource limitation coupled with a continuing drive to upgrade the diet as incomes increase should lead to a growing dependence on imports of food. On the other hand, the European Community has aggressively pursued policies promoting self-sufficiency in food production. These are expected to continue to be effective.

Developments in Canada would somewhat parallel those in the United States. For her size, Canada's role in world food is already extraordinary, and steadily growing. However, Canada's production is only one-sixth that of the United States, and heavily focused on wheat.

The prospective import level of the U.S.S.R. is one of the major uncertainties which will affect the world market, and especially the price and availability of food to the developing world. In the intermediate and long-run future, the Soviets' capacity to import large amounts of agricultural products will be determined largely by their ability to obtain credit from and sell goods to the West. To a large extent, this may involve the Soviet Union's natural resources, such as petroleum.

In the poor countries, statistical increases in food production will likely keep up with population and perhaps gain on it. Some areas, such as Brazil, will be able to expand the area devoted to crops; others will develop their cropping capacity through irrigation, and one hopes most will have improved technology. However, nutritional improvement efforts and income growth-above all, the use of cereals to produce livestock products-are expected to push demand ahead of local production increases; hence the prospect that the poor countries will increase their dependence on imports of food, especially cereals and especially from the United States.

It is important to remember that these prospective import levels of the developing countries are in the context of only modest improvement of nutrition for the masses of people in these countries. Under any conceivable combination of increases in farm production, slowing of population growth, and increases of income, an overwhelming number of poor people in these countries will still be inadequately fed for decades to come. The closing of the food gap between the rich and the poor is a long way off.

In overall terms, the forecast for the decade would be a recovery of world food production: per capita supplies of food would resume an upward trend. The crisis conditions of recent months would not be expected to continue on and on, although farm product prices would not be likely to fall to the relatively low levels of early 1972.


But what of the assumptions of normal weather and of adequate and historically priced energy components? Both, especially the latter, are open to serious question.

Unfortunately, man has not thus far been particularly successful in forecasting weather developments, or in modifying them. Various modern developments, to be sure, mitigate the effects of bad weather. Expansion of irrigation, improved drainage, soil and water conserving techniques such as ponds and terraces, shorter-growing, fertilizer-responsive plants, and mechanization-all soften the impact of weather.

Still, any farmer in India, Russia or America knows that if you don't get rain, you don't get grain. But sometimes professional economists forget; there is a great tendency even for experts to assume that recent weather will continue or will change to fit their image of the future. Such thinking generated much of the famine talk in the mid-1960s, and subsequently the abundance talk when the Green Revolution took hold. If the weather in 1970 had been poor instead of good, as it actually was, observers would not have been so confident about India's ability to feed her people, and forecasters of self-sufficiency would have been more cautious.

The cyclical assessments of Indian food needs are a special lesson for those of us attempting to guess at the prospective import requirements of the Soviet Union. Perhaps even more than in India, variations in Soviet cereal production are cut largely from the weather pattern. As former Soviet Agriculture Minister Matskevich has pointed out, only one-third of Soviet agricultural land lies south of the 49th parallel and only 1.1 percent of it lies in areas with an annual rainfall of as much as 28 inches. In contrast, almost all of the United States lies below the 48th parallel, and 60 percent of U.S. arable land receives at least 28 inches of rainfall annually. Little wonder, then, that there are frequent and wide changes in Soviet cereal production-such as the drop of 14 million tons in 1972, and then an increase of 40 million tons in 1973. A graph of the record since 1960 shows a marked upward trend, but it is like the teeth of a sharp saw, with the jags almost annual.


Adversity in different regions of the world has differing implications for the rest of the world. For example, the tragedy of recent years and months in the African Sahelian Zone is a catastrophe for those people, but other parts of the world are not seriously affected. In contrast, in 1972 and 1973 much smaller proportionate changes in Russia set off worldwide reverberations. With the great dependence of the world on the cereal supplies of the United States, any substantial production changes in the United States can now have equally sharp effects on other countries.

And now, of course, we have the energy crisis. Fuel supplies are limited in many countries, and prices have increased several-fold. Fertilizer supplies (largely petroleum-based) are also limited, and the prices are sharply up, partly because productive capacity was already lagging behind increases in fertilizer consumption, and partly because of supply difficulties and higher prices associated with the crisis. Whatever the long-term course of the energy problem, in the near term farmers throughout the world-developed and developing-will be paying higher, possibly drastically higher, prices for both fuels and fertilizer. Further, in many cases these items will simply not be available in the amounts desired.

In the United States, the domestic supply situation for nitrogen fertilizers was eased considerably when price controls on domestic sales of fertilizers were removed in October 1973. Export prices had not been controlled, and U.S. manufacturers had found exporting more profitable than selling domestically. But, with the removal of domestic price controls, prices of domestic supplies moved up rapidly and much of the incentive for fertilizer exports was eliminated. Further, efforts have been directed toward giving higher priority for natural gas allocations to producers of ammonia, a basic ingredient of nitrogenous fertilizers. Electricity, diesel fuel, and gasoline used directly in farm production account for only about three percent of total U.S. fuel consumption, and steps have been taken to minimize difficulties for U.S. farmers in obtaining fertilizers and fuel. While shortages thus may not be severe, costs of these farm inputs will be sharply higher, probably more than 25 percent above those of last year.

In Japan and Western Europe, production costs may be at least as much affected. However, the effects of the energy crisis in these areas may be far more pronounced on the demand side. The rapid economic growth of Japan, for example, has been the fundamental factor leading to a richer diet, increased food consumption and ever-increasing imports of food from international markets. With the slowing of economic growth, this expansion of food consumption is likely also to slow down. Similar developments could easily occur in Western Europe. Thus, the prospective changes in food supply and demand among the developed countries are extremely uncertain, and may tend to balance out.

By contrast, the potential effect of the fertilizer and oil crises on the food balance of countries such as India and China is clearly negative, even ominous. Together these two nations import over one-third of the nitrogen in international trade. They and other low-income countries dependent on imports of fuels and fertilizers could be drastically hurt.

How severe will the impact be? A limited perspective can be gained from relevant numbers for India, which for the year 1974 has been planning to use 3.9 million tons of fertilizer-incidentally a very sharp increase reflecting improvement in agricultural practices and the use of fertilizer-intensive strains as part of the Green Revolution. Almost all of this supply is heavily dependent on imported petroleum and to a lesser extent on imported finished fertilizer. In the face of the present price increase for these products (nearly three-fold in the case of urea), it seems entirely possible that India's capacity to pay for and produce what she needs will fall short by as much as one million tons. Such a shortfall would translate into the loss of at least seven million tons of grain, which is equivalent to seven percent of India's current cereal consumption.

As for China, she is the third largest user of nitrogen fertilizer in the world and the largest importer.2 Japan has been a primary source of her supplies, and she has been a primary outlet for Japanese exports, taking over 80 percent. If Japan is forced to continue curtailing fertilizer production, the effect on China could be serious-and in any event the cost and the strain on China's limited foreign exchange capacity are bound to go up sharply. Similar effects will apply to virtually every developing country, hitting hardest those which have participated most actively in the Green Revolution.

In this potentially critical situation there is room for speculation about another set of government decisions. To what extent will the oil-rich countries take steps to ameliorate the impact of fuel and fertilizer availabilities and prices on the developing countries? Could the Arab nations become, in effect, an international Robin Hood, favoring the poor over the rich? Over a period of years, the resulting impacts could drastically alter traditional production and trading patterns. For the short term, however, the energy crisis hangs over any prediction of both levels of supply and price.

In sum, if one takes a measured view of all factors-and if the worst does not happen on weather and energy supplies-it is still possible to visualize an uneasy overall balance between supply and demand for food over the next decade. Yet both will fluctuate substantially from year to year and from area to area. Supply levels are bound to be affected both by weather variation and by the uncertain availability and price of fuel and fertilizer. The level of demand, especially for imports, is highly uncertain: the effect of the fuel crisis on the capacity of nations to pay, and especially the unpredictable decisions of countries such as Russia and China, are involved. Thus, one can now with confidence anticipate that under the circumstances that have now developed there will be wide fluctuations in prices in coming years.


Earlier we set out two major issues having significant international dimensions. What will be the linkages between our domestic food markets and international markets? Will the United States share food with the lower-income countries and on what terms? The first has special relevance to the rich countries, especially the United States. The second relates to poor nations. But the two issues are closely related, just as the futures of the poor and the rich nations are intertwined. The approach to either issue will set substantial restraints on the approaches that might be taken to the other.

By maintaining large stockpiles of grain, the United States has in past years been able to moderate price swings-nationally and internationally. As international "shortages" have developed-through increased demand, reduced supplies, or both together-the availability of U.S. stocks has dampened price changes in the international market while discouraging increases in domestic prices. In times of general surplus, the United States has in the past chosen to stockpile large portions of its domestic production, and it has also withheld land from production, rather than accept lower domestic prices or larger export subsidies in order to avoid a buildup of stocks.

In the past year-in a revolution experienced but perhaps not fully understood by Americans-this general situation of the past decade or two has completely changed. With bad weather in the U.S.S.R. and other countries, and continued expansion of domestic demand for livestock products in Europe and countries such as Japan and the Soviet Union, the jump in U.S. agricultural exports has virtually eliminated agricultural stocks held by the government.3 Aside from an export limitation on soybeans/oilseeds and their products during the July-September 1973 period, importers-traders and countries-have continued to be free to buy any amounts of food commodities from private traders for export from the United States, and the usual shock absorbers of government stocks and export subsidies were not there to cushion the impact on U.S. domestic prices.

This direct contact between U.S. and international markets permits U.S. farm prices to be influenced by international markets and vice versa. For example, January 1974 Rotterdam import prices for U.S. hard winter wheat were over $6 per bushel-$3.30 above the levels of a year earlier. U.S. farm prices were up almost $3 per bushel. Comparable corn import prices were up $1.40 per bushel, and U.S. farm prices were up $1.20.

Not only have government stocks been depleted, but because of the expansion of foreign demand the United States has brought land once held out of production back into production.4 For 1974, there are no government programs designed to hold agricultural land from production. Thus, two of the important food reserves of the United States-government-held stocks of food and land held out of production by government programs-have been wiped out.

And in large part this is now a matter of law, not executive discretion. For the new farm legislation of 1973 means that, with economic forces as they are, government stocks of food will not be accumulated. In effect, the law allows U.S. market prices to reflect international and domestic market forces, without the high price support levels that formerly operated for key commodities.

True, there is in the legislation a mechanism-price support loans-similar to that utilized in the past for the accumulation of government stocks of agricultural products. But as a matter of legislative policy the "loan rate"-in effect, the price level at which it would be advantageous for a farmer to put his commodity into stocks rather than sell it on the market-was deliberately set low.5 Now, with world price changes, the loan price of $1.37 for a bushel of wheat compares to the early 1974 price to farmers of $5.00! It was the policy aim of the new law to avoid the accumulation of large government stocks and their substantial budgetary costs; now events have not only eliminated previous stocks but produced a situation where any buildup of government stocks is unlikely.

In the absence of American stocks, and with the domestic American market and the international market moving together, it is a virtual certainty that food prices will be unstable-not necessarily fluctuating as sharply as they did in 1973 under the impact of a combination of extraordinary developments, but surely far more than in recent history prior to 1973. As surely as night follows day, local weather conditions around the world will change from year to year, producing changes in import needs and export supplies. And the energy crisis will affect all, but some more than others.

Another major variable, particularly affecting grain markets, will be the behavior of the Soviet Union and other monopoly traders. When the United States had export payments and substantial stocks of wheat, international prices and shares of export markets among suppliers such as the United States, Canada and Australia reflected an awareness of both political and economic influences on the respective governments and on quasi-government organizations such as the Canadian and Australian Wheat Boards. In contrast, information about Soviet crop conditions, government budgets, political directions, consumer prices, and other relevant factors is extremely limited. The recent agricultural agreement between the U.S.S.R. and the United States calls for exchange of information on crop conditions. This is a step in the right direction, but much will still not be known.

Moreover, much the same factors apply to the People's Republic of China. In the current 1973-74 crop year, it has become a much larger buyer of grain in the world market, with purchases totaling probably more than nine million tons, a 50 percent increase over recent import levels. Moreover, China has switched heavily to the U.S. market, taking seven million tons of the total here and becoming the No. 1 U.S. wheat customer for this period. And this after a year when weather in China was generally good, with no sign of the catastrophes and internal conditions that produced the Chinese food crisis of the early 1960s. We simply do not know either the present guidelines for Chinese purchases (whether they too, for example, are now stressing protein enrichment) or the true state of Chinese stocks.

Inevitably, the question arises as to the rules by which the U.S.S.R. and other state-controlled economies should be expected to play. Basically, this is a worldwide question, for the impact reaches all. But it is particularly acute for the United States, in view of the increasing dominance of American supplies and the new vulnerability of the American price structure. Is it reasonable for the U.S. government to permit the U.S.S.R. and China to make purchases in the U.S. grain markets in any amount they decide? To do so subjects the U.S. market to possible wide fluctuations in purchases-amounting to possible manipulation-by political leaders of these countries, acting with full access to information on our crops and prices, as well as on their own crop conditions.

This matter is broader than just trade with the Soviet Union or the People's Republic of China. The Japanese government and Japanese importing interests work closely together. Just this last year Japanese concerns purchased relatively large amounts of cotton and shrimp, causing in both markets sharply higher prices as private U.S. traders attempted to buy their needs from remaining supplies.

Under such conditions there is an urgent need to develop understandings with large countries-especially those dealing as monopolies or near monopolies-as to the "rules of the game." At a minimum, the U.S. government and public must have information on developments within these countries. Weather, agricultural production, stock, and price information would appear to be essential if these countries are to have access to our markets.

Perhaps bilateral deals and understandings are not the long-term answer to this problem, but for the time being they are essential. In the Soviet case, for example, are we not entitled-in return for allowing free Soviet purchases in the future-to press for reasonable understandings on such matters as the access of other American commodities to the Soviet market, guaranteed minimum purchases year in and year out, and similar related matters?


Important as it is-and dramatic to Americans-the issue of the state-controlled economies is only a part of the wider problem that all nations face, of adapting to the prospective variability of international food prices. In dealing with the problem, it is again the developed countries that have the mechanisms and the resources to insulate themselves from the adverse effects of quick changes. The European Community, for example, uses a system of variable levies on imports and through this and other mechanisms has managed to keep the level of internal agricultural prices remarkably stable even through the confusion of the past year. Even so, the prospective situation will force a rethinking of food and trade strategies by many countries. It seems likely that countries like Germany, Britain, Japan and Russia will press within the constraints of energy costs and supplies for increased agricultural production. Also, these countries, and even countries like India and Turkey, will seriously consider carrying larger stocks than they have in the past.

Such stocks would presumably reduce the vulnerability of a few countries to international price and supply changes. On the other hand, steps in this direction will likely be intermittent. Neither the governments nor the private traders of these countries have had substantial experience dealing in food markets characterized by widely varying prices.

In addition, the state-trading nations, and some other developed countries, have ready mechanisms for controlling exports and insulating their domestic price structure from shock price increases. Canada, for example, controls her exports of wheat by decisions of the Wheat Board whether to offer wheat for sale and at what price. Unlike the outcry caused by the U.S. soybean controls of last summer-where contracts actually underway were in effect abrogated-the Canadian approach has caused no protest; contracts are not made unless supplies are estimated to be clearly available, although of course the effect on the world market of withholding supplies can be equally great.

In the case of the United States, any search in this direction would lead us to examine similar export controls as well as export taxes and subsidies-and finally the renewed accumulation of stockpiles. All of these could operate to mitigate price instability in the domestic market; some would help the world market as well, though others would have the opposite effect. Each has its difficulties, and these must be faced.

For example, although export taxes have been commonly employed by other countries to insulate domestic prices by reserving supplies for domestic consumption, Article I, Section IX of the U.S. Constitution on its face seems to forbid such taxes. On the other hand, for a brief period during the 1960s, techniques were devised whereby wheat exporters on occasion paid the U.S. government specified amounts, under a balancing arrangement whereby on other occasions when U.S. prices were higher than international prices they received a payment.

More practicable than either export taxes or subsidies might be an arrangement to extend to commercial exports the controls-in effect, a form of export licensing-that have applied for some years to shipments of food under PL 480. Under this procedure, the country desiring commodities approaches the U.S. government indicating the amount it would like to obtain. The government, considering U.S. market conditions and the appraised needs of the applying country, decides on the amount to be financed by PL 480 funds. This agreement is made public, and the recipient government proceeds to deal with the private trade in making the purchase up to the agreed-upon amounts. For sales to the state-trading countries, since government financing would not be involved, the review process in the U.S. government could be focused primarily on supply availability.

Finally, there is the question of establishing food reserve stocks, on a national or conceivably an international basis. Since Biblical times when Joseph was called on to advise the leaders of Egypt, the deliberate building of stocks of food has been attractive to man as a means of stabilizing prices and assuring availability of supplies. What is obvious to leaders today has been obvious to leaders throughout history. Stocks of food can be used to supplement available supplies when production falls short of needs, and thereby mitigate price increases. Equally obvious is that the accumulation of stocks means less consumption and higher prices during the period of their accumulation.

Most agree that because of variability of production and unpredictability of other events, there is today a need for accumulating and utilizing stocks of food, in order that consumption is not forced to vary directly with changes in production. The mechanics and policy framework for establishing stocks of food and for managing these stocks are much less obvious, due to the multiple and sometimes conflicting objectives that stock programs can support. In practice such programs can operate in a host of ways: they can stabilize prices or, by withdrawing supplies, actually increase them; they can be used to stimulate production; they can be used primarily as a set-aside to meet acute shortages, which however means that their usefulness in stabilizing prices is reduced; their impact on private trade through commercial channels can be encouraging or discouraging; there is a question whether they can or should be earmarked especially for lower-income countries.

The choice among these objectives is by no means agreed upon among those who urge the creation of food stocks. There is, however, seeming agreement that such stocks need to be distributed throughout the world, and that there should not be overdependence on a small number of countries in times of shortage. Reconstitution of U.S. stocks alone is thus not an adequate answer-and moreover would surely operate as it has done in the past, to lull others into believing that there was no need for them to act.

Costs of stocks also argue that all countries should be involved. Food stocks are expensive initially to purchase, and they are costly to store. Rough estimates of costs of storing grain stocks per month in the United States are $.60 per ton, exclusive of interest costs of money invested in the commodities or any allowance for deterioration of quality or physical losses. If one adds only the interest costs-at eight percent of a value based on grain prices 25 percent less than current U.S. market prices-one arrives at a figure of $21 for the annual carrying cost of one ton of wheat, or $14 for one ton of corn.

This, of course, leads to the question of how much needs to be carried. Any number of criteria or approaches might be developed. If price stabilization is the objective, the world might carry enough stocks to offset prospective declines of production in one, two, or more successive poor crop years. The prospective shortfall might be measured in terms of declines from previous years' production, from previous high production, or from trend; and the "required stocks" to meet shortfalls might be determined in terms of individual countries or the world, and in terms of individual commodities or in groups of commodities such as all cereals. For example, suppose it was decided that, internationally, cereal stocks should be equal to the largest amount in any one year of the past ten years by which world cereal production declined from the previous year. This would mean stocks of 38 million tons-involving an investment of $5 billion and annual carrying costs of over $600 million for years in which the whole amount was carried throughout the year. The U.S. share might be 20 percent (its proportion of world cereal production) or, it might be argued, 50 percent (its proportion of cereal exports)-meaning a capital commitment of $1-2.5 billion, and possible annual charges of $120-300 million. (There would also be an impact on the U.S. balance of payments through the loss of export sales for the amount contributed to the stocks.) Alternatively, if the U.S. share of world stocks was based on the largest amount in any one year of the past ten by which U.S. cereal production declined from the previous year, 18 million tons would be involved.

These calculations leave open, of course, what has become probably the most crucial question for the United States. Should the United States depend on private trade to carry the stocks or should they be held by the government? Evidence of the 1960s suggests strongly that the private trade will limit the stocks they carry if large stocks are carried by the U.S. government. How much they will accumulate and carry if the government does not have any stocks is not known. Serious consideration needs to be given to ways to enhance the carrying of stocks by private trade under both situations-with and without government stocks.

There are many other issues related to food stock programs. Questions as to timing and methods of building stocks are involved. For example, with food stocks low this past winter, prices high, and the prospective crop uncertain as discussed earlier, should stocks have been accumulated or should accumulation await lower prices? Similar questions arise with respect to disposal.

Another difficulty is the lack of public information on food stocks and on production, marketing and price developments. As already noted, the size of cereal stocks in Russia is not known; this type of secrecy would frustrate the effective planning and coördination of any international food reserve program. Statistics on production and marketing in many relatively advanced countries, much less the lower-income countries, are notoriously late, incomplete and inaccurate.

In sum, the cost and responsibility for any stockpiling plan present difficult problems. Any initial American act of leadership would involve short-term costs from withholding supplies in a ready market; and the creation of international stocks would require a new degree of constructive international action and one that would have to be made acceptable not only to the American Congress and public but to the complicated and different political constituencies of other countries.

For the United States, the issue comes down to the balance, or trade-off, among various factors. As long as the U.S. balance of payments is in doubt, the benefit from high export sales of agricultural products is bound to weigh heavily; on the other hand, it is possible that export averages would be enhanced if supplies to foreign customers could be assured from year to year at relatively stable prices. For dependability, an exporter of farm commodities may come to require not only supplies for which importers can bid but available supplies at relatively stable prices. Instability of food prices is already of priority concern to consumer organizations and labor unions. Farm interests, too, may become frustrated with the effects of instability. For the time being, the American farmer benefits from high prices; yet the day could come when U.S. farm producers would prefer, for example, cattle prices that stabilize at, say, $40, rather than $55 cattle one year and $30 cattle another.

Perhaps it is too early to say whether such a major international effort will be possible, and will commend itself to the nations that would have to take primary responsibility. Eventually, U.S. interests may dovetail with an international food stocking program. But an active search for ways to stabilize prices, such as stocking programs, is not likely until the degree of instability is known and the effects of instability felt.


We return to the special problem of the developing countries. They would benefit enormously from measures to limit the fluctuation in world food prices. But if such measures take some time in coming, and if they serve-as is likely-only to mitigate a general upward price trend, there remains the crucial question whether other nations, and specifically the United States, should take other steps to help developing countries obtain at least minimum essential levels of food.

In the past, the United States has clearly led the world in sharing its food with the poor. Since passage of the PL 480 food aid law in 1954, over $22 billion worth of U.S. farm commodities have been made available to other countries on concessional terms. In recent years, the cost of this program has been remarkably stable at a little more than $1 billion.

Under this program, food, and in some cases non-food products, have been made available to lower-income countries. The bulk of the commodities have moved under programs providing long-term dollar credit and, in earlier years, exchange for local currencies. Under recent dollar credit programs, recipient countries sold the commodities within their countries, invested the major portion of the proceeds in development projects, and assumed the obligation to repay the United States the dollar value on a long-term basis. Thus, PL 480 has been an important means for several countries to finance their economic development and to protect and in some cases enhance the food intake of their populations.

In addition, one-fourth to one-third of the commodities have moved under Title II donation programs, whereby the products were donated to the country and often to the individual recipients. School lunch programs and other food distribution programs have been involved. Voluntary U.S. agencies have played an important part in distributing the food in many of the recipient countries.

Against this record, what is the present outlook? While the United States is likely to continue to provide reduced but significant quantities of food under donation and emergency relief programs, the current prospect for long-term credit programs (Title I) is for sharp cutbacks. Admittedly these programs were extended by the 1973 Farm Bill, but quantities in the fiscal 1974 program will be only half of earlier levels-valued close to recent levels of $1 billion, but at prices that in some cases are more than double earlier prices. Moreover, partially at least in response to scarcer supplies and the related higher commodity prices, the United States during 1973 suspended procurement of commodities for even the Title II donation program for several weeks. Several individual country programs were terminated, and others sharply reduced. The smaller quantities of food available for long-term dollar credit programs were rationed among requesting countries, with priority given to countries such as Vietnam, Cambodia, Korea, and Pakistan which have been important for security reasons.

The reduction of international food sharing contrasts sharply with domestic food sharing. The FY-1975 Department of Agriculture food programs-child nutrition, special milk, and food stamp programs-were proposed in the January 1974 Budget Message of the President to be over $5 billion. This is a record level and represents almost two-thirds of the Department's budget. In contrast to domestic food programs, political support for PL 480 has been insufficient to offset higher commodity prices. Congress has paid scant attention to the decline of international food sharing.

In a larger sense, it can be reasoned that PL 480 has been a program for U.S. agriculture. At its start in 1954 and for several years, PL 480 programs were consistent with commercial objectives for agricultural exports. They permitted us to charge lower prices to poor countries without undercutting our prices to the richer countries. Through adjusting terms-use of the local currency and proceeds from sale of the commodities in the recipient countries, years of credit, interest rates, and commercial sales-effective prices were tailored to the customer's financial and security status.

With strong demand, negligible stocks, and high prices, it is not now advantageous to U.S. agriculture to move significant amounts of food under PL 480. The stark reality is that under present circumstances, it makes no more sense to U.S. economic interests to have a PL 480 food program than to have a PL 480 fertilizer or a PL 480 steel program. All of these commodities are needed desperately by the poor nations, but neither fertilizer nor steel has been in chronic oversupply with large stocks overhanging the market. We have not had concessional steel or fertilizer programs because supply situations were not conducive and because political power was not sufficient to generate them.

And so, as we do not have food surpluses and the related political pressure to move the surpluses, PL 480, as we have known it, may be passing away. I do not say that the United States should not or will not provide some and even significant amounts of food under the donation programs. But it is totally unrealistic to expect the quantity of food provided under long-term credits to be near the levels of recent years. The incentive for farm interests to push PL 480 has dropped sharply, and no major political force in the United States is embracing the food needs of most of the lower-income countries for whatever reason-charity, security, or economic self-interest.

To put it differently, neither we nor other rich countries are willing to forgo substantial foreign exchange earnings in the interest of feeding the poor, even though the developing countries have only limited resources to do it themselves. The experience of the International Wheat Agreement is instructive on how developed countries adjust to the economic realities of international markets. Provisions of the agreements specified obligations of member countries, but these obligations were changed successively in order to align them with the shifting commercial self-interests of the major members.

Thus, it is highly probable that commodity availability to the lower-income countries under PL 480 will be considerably less than it has been over the past five to ten years, leaving a significant gap to be filled by some other means.

One step in filling it is for the poor countries to give renewed emphasis to agricultural development. The cutback on PL 480 availabilities and high international prices should demonstrate conclusively the importance of giving priority to agricultural research and development. Surely finance ministers who have found it necessary to pay $200 per ton for wheat imports this year (instead of negotiating a PL 480 credit program) will be more sympathetic in the future to proposals for expenditures for agricultural programs, construction of fertilizer plants, and policies designed to increase domestic production. In these efforts they should give top priority to greater investment in agricultural research. The lower-income countries contain close to one-half of the world's agricultural lands (excluding China), yet have only 17 percent of the world's agricultural scientists and spend only 11 percent of the money devoted to agricultural research. Technology of the United States and other developed countries can help through technical assistance and training. Through effective linkages of national and international research centers, technology of the developed countries can be utilized in supporting the efforts of the lower-income countries to develop technology appropriate to their agriculture and societies. The challenge to the developed countries to support both academic and nonacademic training of lower-income-country scientists and agricultural program managers is of utmost importance. Trained human resources are an indispensable ingredient in an aggressive agricultural research and development program, and in improving the management and administration of programs aimed at assisting farmers in their production and marketing efforts.

But it is important that the input of the developed countries not be a substitute for investments by the developing countries themselves. We do service to ourselves and the lower-income countries when we recognize that, in the final analysis, improvement in the nutritional well-being of their people depends on how they organize and use their resources.

Finally, the world and the United States will need to evaluate trade-offs between food aid and other economic assistance. Most developed countries and international assistance agencies have limited but significant resources for assisting lower-income countries. Hitherto, they have never had to closely evaluate trade-offs between these programs and food aid programs, except occasionally on a recipient country basis. On a U.S. national level, such consideration could be avoided since the appropriations flowed from different congressional committees to different executive departments. PL 480 as a U.S. agricultural program preëmpted and relieved economic assistance agencies like the U.S. Agency for International Development and the International Bank for Reconstruction and Development. The international assistance agencies did not pick up food aid simply because it was in the U.S. self-interest to finance and implement a program of food assistance as a major adjunct to U.S. agricultural programs. It was mutually advantageous to have this division of labor. Resources for international assistance could be used for items other than food, and the Department of Agriculture could carry the cost of food aid.

Now, with the prospects dim for the Agriculture Department programs financing substantial food aid programs, assistance agencies and the lower-income countries themselves need to ask how the priorities for food aid and support of agricultural programs stack up with other development priorities. To a very significant extent, these agencies have increased the emphasis on improved agricultural production, but such emphasis should now be examined again. It is time for international agencies such as the World Bank to ask: "Shouldn't food aid be made an integral part of economic assistance programs?" And, more specifically, are the lower-income countries better off in times of food shortages using international aid availabilities to buy turbines, etc., or using the aid to buy grain to supplement their food supplies, with the proceeds from the domestic sale of this grain being invested in priority development activities in either the agricultural or nonagricultural sectors?

Indeed, poor countries face comparable questions with respect to use of their foreign exchange. The answers will vary. It is highly probable that the amount of food that seems wise under such programs will be much less than it has been under PL 480, but probably greater than it would be if the assistance agencies avoided the hard choice between food and non-food aid.

Admittedly, food programs under such an approach could not ignore U.S. agricultural interests in the case of our bilateral programs, nor agricultural interests of the developed countries in the case of international agencies such as the World Bank. However, these problems for food assistance should be no greater than they are for other items such as steel and fertilizer. Requiring purchases to be made in donor countries is a technique applied to other international assistance and would presumably be applicable to food assistance. The primary considerations would be the development and welfare of the lower-income countries, and food needs would be considered in the context of other needs.

As such choices are made, it is worth stressing that food assistance is not simply dissipated, but can be a form of investment. As with PL 480, the proceeds from the sale of food provided on a concessional basis can be used for investment in irrigation facilities, locally made machines, and production facilities-much as hard-currency loans can be used to provide foreign-made machines and perhaps with greater employment and productivity effects. Indeed the net effect of international assistance agencies embracing responsibility for food aid may lead to a very important synergistic relationship among priorities given to agricultural development, investments for agricultural production in lower-income countries, investments for nonagricultural production, and economic assistance. Integration of these concerns has not been addressed simply because, through PL 480, food was "priced" low, and the money once appropriated for food aid couldn't be switched to other assistance activities. Now the higher prices will make for more difficult and complex choices.


To sum up, the world food situation has changed drastically in the past two years and now promises to be seriously unstable for some years at least. To adjust to the new price situation is in itself a major challenge for the United States and other developed countries. Every aspect of our habits and policies must now be reëxamined. Americans must recognize that they have perhaps given themselves too much credit in the past for a generosity that in fact accorded with the market situation of American farm interests; so now they may appear to the world more to blame for hardships than a fair assessment would warrant.

But it is for the world as a whole to examine new approaches. The United States can play a major part, but better solutions to the food problem call for concerted action by many countries and by international organizations. Above all, the impact on the developing countries should be at the very top of our common concerns.


1 To take a variety of recent examples, red meat consumption went up in the 1960s by 25 percent in the European Community, 50 percent in Taiwan and Spain, and 150 percent in Japan.

2 Nitrogen Fertilizer Consumption and Trade


(thousand nutrient tons)

Consumption Trade

United States 7,372 + 946

U.S.S.R. 5,182 + 873

China 3,346 -1,506

India 1,761 - 761

France 1,525 - 108

Germany 1,131 + 190

+ Net exports

- Net imports

Source: FAO, Production Yearbook, 1972.

3 At the end of the 1974 crop year, U.S. stocks of wheat are expected to be four million tons, as compared with 38 million tons in the peak year of 1961. Feed grain stocks are estimated at 26 million tons in 1974, compared to 80 million tons in 1961. Very little of the total in 1974 will be owned outright by the government; in 1961, in contrast, practically all was government-owned.

4 In 1972, 60 million acres-almost one-sixth of U.S. crop land-was "set aside" and out of production. As a result of the complete removal of acreage controls, it looks now as if at least 47 million of these acres will be under cultivation in 1974.

5 To be more precise, a system of "target prices" ($2.05 for a bushel of wheat, for example) was established to insulate farmers from excessive downward movement of prices; if farm prices fall below this level, the farmer still markets his crop but receives a cash payment for the difference between the actual and target prices. Loan levels were set well below these target prices, so that only under severely depressed or surplus conditions, especially in relation to current prices, would there be any incentive for the farmer to stockpile.

You are reading a free article.

Subscribe to Foreign Affairs to get unlimited access.

  • Paywall-free reading of new articles and a century of archives
  • Unlock access to iOS/Android apps to save editions for offline reading
  • Six issues a year in print, online, and audio editions
Subscribe Now