AGRICULTURAL OUTLOOK                                September 22, 1998
            Approved by the World Agricultural Outlook Board
October 1998, AO-255
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AGRICULTURAL OUTLOOK is published monthly by the Economic Research Service, 
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CONTENTS:

BRIEFS
Livestock, Dairy, & Poultry
Cattle Prices to Rebound in 1999

Specialty Crops
U.S. Pear Production Down

COMMODITY SPOTLIGHT
Onions: The Sweet Smell of Success

WORLD AGRICULTURE & TRADE
U.S. Ag Exports: Volume Up, Value Down in Fiscal 1999
Ag Export Rankings by State Changed Little in 1997

POLICY
Low Prices Test 1996 Farm Act

FOOD & MARKETING
Rise in Food Prices in 1998 and 1999 To Be Lowest Since Early 1990's

FARM & RURAL COMMUNITIES
Status Report: Hired Farm Labor in U.S. Agriculture

RESOURCES & ENVIRONMENT
The Clean Water Action Plan: Implications for Agriculture

SPECIAL ARTICLE
Cuba's Agriculture: Collapse and Economic Reform

IN BRIEF

U.S. Ag Exports: Volume Up, Value Down in Fiscal 1999        

The value of fiscal 1999 U.S. agricultural exports is projected at $52 billion, 
down $2.5 billion from the revised 1998 forecast.  While overall volume is 
projected to increase nearly 5 percent, total value is declining because prices 
for a number of key commodities are forecast lower.  The value of bulk exports 
is forecast at $18 billion in 1999, down $2 billion from 1998.  Behind the drop 
in prices and total export value are three major factors: large world supplies, 
weak global demand, and a strong U.S. dollar.  

Low Prices Test 1996 Farm Act

This year's significant decline in prices for many crops has raised questions 
about policy tools for  counteracting current low prices.  Payment rates for 
the new production flexibility contract (PFC) payments under the 1996 Farm Act 
are fixed and not related to prevailing market conditions, unlike income 
support payments under previous legislation.  The countercyclical policy 
response under current law is provided by two other key policy tools--
nonrecourse marketing assistance loans and loan deficiency payments. With 
declining commodity prices, farmers are taking advantage of these two programs. 
 

Food Price Rises in 1998, 1999 Lowest in 5 Years

Large supplies of meats and a low general inflation rate in 1998 are benefiting 
and will likely continue to benefit consumers.  With 8 months of Consumer Price 
Index (CPI) data already collected, the annual average food CPI is 2.1 percent 
above the first 8 months of 1997.  Food prices are forecast to increase only 2 
percent in 1998 and 2-2.5 percent in 1999.  Such modest increases have not been 
seen since 1992 and 1993, when food prices increased only 1.2 and 2.2 percent.

Cuba's Agricultural Trade Potential

Cuba has responded to its current economic crisis in part by beginning to open 
its economy to market forces and to pursue more open trade with other countries 
in the region.  Cuba dominates the Caribbean in terms of land area, population, 
and agricultural production.  If Cuba joins the global market economy, its 
economic influence could increase significantly.  Should U.S.-Cuba trade open, 
Cuba has the potential to become a new source for U.S. agricultural and food 
imports--particularly sugar, vegetables, tropical and citrus fruits, seafood, 
and tobacco--and a destination for U.S. investment.  Cuba could also become a 
major market for U.S. agricultural exports as well as a competitor for U.S. 
producers. 

Onions: Sweet Smell of Success

Onions rank fourth among U.S. vegetables in per capita consumption as well as 
in value (behind potatoes, tomatoes, and lettuce).  Onion consumption in 1997, 
at 18.8 pounds per capita, was just under the record of 18.9 pounds set in 
1995.  From 1995 to 1997, farm cash receipts for onions averaged $711 million--
5 percent of receipts for all vegetables--with an estimated retail value of 
over $2 billion.  Output and per capita use of the two major categories of bulb 
onions grown in the U.S.--storage onions and the milder spring/summer 
varieties--have increased during the 1990's.  The U.S. is a net exporter of 
fresh and processed onions, with exports totaling $169 million in 1997 and 
imports at $131 million.

Hired Farm Labor in U.S. Agriculture

In 1997, the Department of Labor certified that U.S. workers were unavailable 
to fill 23,352 farm jobs, mostly in the Southeast, opening them to temporary 
foreign guestworkers through the H-2A  provisions of the Immigration and 
Nationality Act.  The number is up from 17,557 in 1996 and 12,173 in 1994.  
Increased enforcement of immigration laws has led many farm employers to fear 
the loss of much of the current labor supply in agriculture--estimates of the 
share of fraudulently documented workers in the domestic hired farm labor force 
range from 25 to 75 percent.  In response, the U.S. Senate passed a bill in 
July to streamline the current H-2A procedures, leading to intensified debate 
over the need for foreign guestworkers to supplement the domestic hired farm 
labor force. 

Clean Water Action Plan To Affect Agriculture

An ambitious Federal proposal for improving and protecting water quality could 
affect the way farmers manage their land in many parts of the country.  Issued 
in February, the Clean Water Action Plan (CWAP) is a guidepost for future 
national water quality policy involving a fundamental shift to emphasize 
control of nonpoint sources of pollution.  Runoff from cropland and feedlots in 
agriculture is among the largest contributors of nonpoint-source water 
pollution in the U.S.  On September 17, the Administration announced a major 
national strategy for managing livestock waste, as part of the CWAP. 

BRIEFS

Livestock, Dairy, & Poultry

Cattle Prices to Rebound in 1999

Record high average slaughter weights and continued beef herd liquidation of 
both cows and heifers this spring and summer have pushed this year's beef 
production to near-record levels, resulting in weak cattle prices. But 1999 
will mark a dramatic change, with sharply curtailed feeder cattle supplies and 
a large decline in beef production. Lower supplies will lead to stronger prices 
and a much-awaited return to profitability for producers, but beef's share of 
the retail market will decline. Resuming its long-term trend, consumption is 
expected to drop to near 63 pounds per person (retail weight) in 1999 and even 
lower in 2000, after rising to near 69 pounds in 1998. 

Improved fall forage conditions in the Southern Plains and much of the 
Southeast remain critical to ending the liquidation phase of the present cattle 
cycle, which has lasted longer than expected. As grazing conditions 
deteriorated this summer, producers reduced cow herds, retained fewer 
replacement heifers, and weaned this year's calf crop at lighter weights. Herds 
will have to be cut further if sufficient forage is not accumulated by late 
fall to carry the reduced beef cow inventory through the winter.

The midyear cattle inventory report indicated that producers continue to delay 
the beginning of female retention for herd expansion, ensuring that beef 
production will decline sharply for at least the next 2 years. Many beef 
replacement heifers were sold and placed in feedlots this spring, reflecting 
the deteriorating forage conditions. 

The current cattle cycle began in 1991 as inventories began expanding from a 
cyclical low of 95.8 million head on January 1, 1990. After peaking at 103.5 
million head in 1996, the cattle inventory declined to 99.5 million head on 
January 1, 1998. The inventory will continue to decline for the next couple of 
years, almost certainly falling below 97 million head by January 1, 2000. 

The July Cattle report indicated a decline of about 2 percent for the July 1 
total cattle inventory and for beef cows, with the 1998 calf crop also 
estimated to drop 2 percent. The beef cow inventory is the smallest since 1992, 
while the projected calf crop would be the lowest since 1951. Perhaps the most 
telling sign of future declines in the cattle inventory is the 6-percent 
decline in beef replacement heifers. In addition, heifers on feed on July 1 
were up from a year earlier and up sharply from 2 years ago. If rebuilding of 
the cattle herd were underway, many of these heifers would have been bred this 
summer to calve during the first half of 1999. The next opportunity to increase 
the calf crop will be to retain heifers from this year's calf crop for breeding 
next summer and calving during 2000. 

Also down is the supply of feeder cattle outside feedlots, off nearly 2 percent 
from a year earlier and the lowest on July 1 since 1993. Supplies will only get 
tighter over the next couple of years as calf crops decline and as some heifers 
are retained for herd replacement. Feeder cattle imports will show little 
increase over the next few years as Mexican and Canadian cattle inventories are 
also being reduced. 

Beef production is expected to drop sharply in 1999, reflecting the sharply 
reduced cattle inventory. Production for the year is expected to decline about 
7 percent, with even sharper declines occurring next summer as heifer retention 
begins. Slaughter is expected to decline about 2 million head in 1999, with 
commercial dressed weights dropping to near 713 pounds per head, still above 
the previous record of 710 pounds set in 1994. Production in second-half 1999 
is expected to decline 5 to 9 percent, with similarly large declines in 2000. 
The extent of the production decline in 2000 will be mostly a function of how 
many heifers are retained over the next couple of years. 

But before production begins to sputter, a new record for commercial beef 
production will be set in 1998. (The 1976 record for total beef production-
based on 42.7 million head-will remain because farm slaughter and production is 
considerably less now.)  This year's record will be based on commercial cattle 
slaughter of about 35.6 million head, with average commercial dressed slaughter 
weight at 721 pounds. 

Beef production is expected to remain large through mid-fall, with average 
slaughter weights remaining at record levels-near the August record average 
weight of 740 pounds for federally inspected dressed carcasses. Weights usually 
rise seasonally through mid-fall, but are likely near their peak at present as 
slaughter of heifers (lighter weight) will comprise a relatively larger share 
of the total through fall. Even though dressed weights will likely set a record 
for this fall, fourth-quarter production will be down slightly from a year 
earlier as slaughter finally falls below a year earlier.

Fed cattle prices likely hit their lows this summer, averaging a little below 
$60 per cwt in July and August. Prices will remain under pressure through mid-
fall, but expectations of reduced production by late fall (and throughout the 
next several years) should cause fourth-quarter prices to reach the low to mid-
$60's, up from nearly $60 this summer. Fed cattle prices are expected to rise 
to the low- to mid-$70's in 1999. Highest prices are likely to occur in late 
spring to midsummer as the summer barbeque season encounters the tightest 
supplies since 1993. Reduced world beef supplies will lead to a resurgence of 
prices for beef trimmings from a lower supply of lighter-weight fed cattle 
slaughter. 

Per capita beef consumption is projected at 68.0 pounds (retail weight basis) 
in 1998, up from 67 pounds last year and the largest since 1989. Prices for 
Choice beef at retail are expected to average about $2.76 a pound, down from 
1997's $2.80 average. 

In 1999, choice retail beef prices are expected to average near $2.84 a pound, 
the highest since 1993's record $2.93 a pound. Although beef prices are 
expected to rise as supplies plummet, large supplies of lower-priced competing 
meats will limit beef price gains. Consumption is expected to decline to 63 
pounds per capita in 1999, the lowest since well before the advent of the 
commercial cattle feeding industry in the 1960's. Consumption of other meats is 
forecast at about 150 pounds in 1999, resulting in a 2-percent year-over-year 
drop in beef share of total meat consumption.
Ron Gustafson (202) 694-5174 
ronaldg@econ.ag.gov

For further information, contact: 
Leland Southard, coordinator; Ron Gustafson, cattle; Leland Southard, hogs; 
Mildred Haley, world pork; Jim Miller, domestic dairy; Richard Stillman, world 
dairy; Milton Madison, domestic poultry and eggs; David Harvey, poultry and egg 
trade, aquaculture. All are at (202) 694-5180. 

Specialty Crops

U.S. Pear Production Down

The 1998 U.S. pear crop is forecast at 1.8 billion pounds, down 12 percent from 
the previous year's near-record production, primarily due to reduced production 
in the Pacific Coast region. Pacific Coast production of Bartlett pears is 
expected to be down 15 percent, while output of other varieties in the U.S. is 
forecast down 9 percent. Bartlett pears (a summer variety) are primarily used 
for canning, although some reach the fresh market, especially early in the 
season. Other varieties (fall and winter pears) are intended mostly for fresh 
use. 

Over the last 3 years, California, Washington, and Oregon production of 
Bartlett pears averaged 53 percent of total U.S. pear production. As a result 
of hail damage, cooler temperatures, and above normal rainfall during the 
spring, California-which produces more than 50 percent of the Pacific Coast 
Bartlett pear crop-is expected to see production drop 4 percent  compared with 
1997. Washington and Oregon are expecting even greater declines-27 and 20 
percent. In addition, the unusually cool spring has slowed development of the 
crop, so most growing areas have started harvesting later than usual.

Reduced production of pears this year indicates higher prices for fresh-market 
pears in the 1998/99 marketing year. However, abundant supplies of apples-which 
compete with pears in the fresh-fruit market-and increased fresh pear 
inventories from last year's record production could keep prices from rising 
sharply, especially later in the season. 

Monthly grower prices for fresh-market pears during the first 6 months of 1998 
averaged sharply lower than a year ago, reflecting record fresh-market 
production in the fall of 1997. In spite of monthly fluctuations, prices 
generally moved up-from 12.7 cents per pound ($253 per ton) in January to 17.7 
cents per pound ($353 per ton) in June-as the 1997/98 season came to a close. 

With the beginning of the 1998/99 marketing season, grower prices in July and 
August  rose to an average of about 22 cents per pound ($431 per ton), 28 
percent higher than the same period in 1997, reflecting the expected smaller 
1998 crop and a late-starting California Bartlett pear harvest. While expected 
stronger than last year, prices could decline seasonally in the next few 
months, particularly as production in Washington and Oregon overlaps with some 
of California's production.

Increased production in 1997 led to lower U.S. imports of fresh pears during 
the 1997/98 season. Imports from July 1997 to June 1998 totaled 149.6 million 
pounds, down 13 percent from the previous season. Meanwhile, U.S. exports of 
fresh pears jumped 38 percent to a record 363.2 million pounds. 

In addition to record U.S. production of fresh-market pears, good fruit quality 
from the U.S. crop and smaller exportable supplies from the European Union (EU) 
helped boost exports in 1997/98. Canada and Mexico together account for over 
half of U.S. fresh pear exports, and the EU, Brazil, and Taiwan are also 
important markets for U.S. pears. Exports to Canada, Mexico and the EU were up 
sharply, while shipments to Brazil and Taiwan dropped 3 and 15 percent. Exports 
to much smaller markets in Asia-such as Malaysia, Indonesia, the Philippines, 
and Vietnam-also fell sharply, reflecting the currency devaluations in these 
countries, while exports increased markedly to Hong Kong and Japan. The Asian 
financial crisis will likely continue to slow shipments of U.S. pears to many 
Asian markets in 1998/99, and along with the expected smaller fresh-market 
production in 1998, will likely curtail exports in 1998/99. 
Agnes Perez (202) 694-5255
acperez@econ.ag.gov  


COMMODITY SPOTLIGHT
Onions: The Sweet Smell of Success     

Onions rank fourth among U.S. vegetables in per capita consumption as well as 
in value (following potatoes, tomatoes, and lettuce, ). Onion consumption in 
1997 was, at 18.8 pounds per capita, just under the record high of 18.9 pounds 
set in 1995. From 1995 to 1997, farm cash receipts for onions averaged $711 
million-5 percent of receipts for all vegetables-with an estimated retail value 
of over $2 billion. The U.S. is the world's third-largest producer of onions, 
with production up 46 percent between 1985-87 and 1995-97. 

Onions' prominent role may seem surprising, since onions are not major plate 
vegetables and lack the visibility of commodities like potatoes and tomatoes. 
But onions frequently work in the background, adding flavor and texture to a 
wide variety of dishes. 

Onions are a versatile vegetable used in fresh, canned, frozen, and dehydrated 
forms. In addition 
to use as a cooking ingredient in countless recipes, onions are frequently used 
as a condiment, sandwich ingredient, side dish, and appetizer. Fresh onions can 
be barbecued on shish kebabs, stuffed and roasted, or used to flavor meat 
dishes. 

While the fresh market accounts for the largest share of onion use, other forms 
account for a significant share. Most onions used in canning and freezing are 
taken from fresh-market varieties while dehydrated products use varieties with 
high solids content. Onions in frozen form are estimated to account for close 
to 10 percent of all onions consumed.

Both fresh and dehydrated onions appear in a wide variety of canned and frozen 
products such as salsa, soups, stews, salad dressings, and pickled products. 
Some fast-food hamburgers are topped with dehydrated (reconstituted 
diced/minced) onions. Dried and dehydrated onion products are manufactured for 
both domestic and export markets. 
Onion Use Is Up

Two major categories of bulb onions, which the industry refers to as 
spring/summer varieties and storage varieties, are grown in the U.S. Both 
storage and spring/summer onion types can be yellow, white, or red. 
Spring/summer varieties are characterized by their juiciness, fragility (a 
thin, light-colored skin), sweet, mild flavor (less pungent with a higher sugar 
and water content), and shorter shelf life. Among the familiar trade name 
varieties of spring/summer onions are Vidalia, Walla Walla Sweets, Sweet 
Imperials, Nu-Mex Sweet, and Texas 1015 (1015 refers to the October 15 planting 
date).

Storage varieties (including those used for processing), which are harvested 
during the late summer and fall, account for three-fourths of the U.S. onion 
market. These varieties tend to have a stronger, more pungent flavor and are 
well suited for longer-term storage and processing. The Northwestern States 
(Washington, Oregon, and Idaho) produce 48 percent of the U.S. fresh-market 
storage onion crop.

Under proper conditions, these onions can be stored for later marketing for up 
to 8 months. Some shippers keep onions in climate-controlled refrigerated 
storage where the ideal temperatures are 32 degrees F (onions freeze at 30.6 
degrees F). On average, about 15 percent of the storage crop is lost to 
shrinkage (moisture loss) and sorting loss (defects found while packing). 

For most of the year, the storage onion crop sets the pricing tone for the 
market. Since storage onions represent a majority of the crop, shipping-point 
prices tend to be lowest around the peak of harvest in September and October. 
Onion prices then begin to rise from this low, reflecting the costs of storing 
the crop as well as other factors, and reach a peak in April when marketing of 
the storage crop is complete and mild spring/summer onions are just coming onto 
the market. Over each of the past three decades, April prices have averaged a 
third higher than the annual average, while October prices have been a fifth 
below the annual average. 

Per capita use of onions has been expanding since the 1970's. Fresh use (which 
also includes freezing and canning) is currently at a record-high 17.9 pounds 
per person, with use of dehydrating onions at 0.9 pound (fresh-weight basis). 
Fresh use is 38 percent above the average of the 1980's and 66 percent above 
the 1970's. Dehydrated use equals the average of the 1970's but is down 10 
percent from the 1980's. These  trends may reflect the overall move toward 
fresh and frozen produce in the foodservice industry over the last decade. 

Consumption of the spring/summer onion varieties-sweet and less pungent-is 
undoubtedly up strongly this decade. These varieties are popular for use in 
salads and on sandwiches but have not been the primary driving force behind the 
rise in overall onion consumption. The more pungent storage varieties, which 
tend to impart more flavor to cooked dishes and have a longer shelf life, still 
dominate the onion market. Consumers, food manufacturers, and food-service 
operators base their onion purchases largely on the intended use. 

Onion demand during the 1970's rode the increasing popularity of fast-food 
hamburger chains that featured onions on burgers and onion rings as side 
orders. In the 1980's, the booming popularity of salad bars added another layer 
to onion demand. By the end of the decade, onion demand was gaining from the 
growing popularity of pizza, pasta, salsa, and other ethnic cuisine. The 
booming economy of the 1990's has propelled demand for away-from-home foods, in 
many of which onions play a role. 

The shortages and high costs of urban labor in the 1990's has likely increased 
demand for yet another onion product. Food manufacturers and restaurants are 
finding it economical to purchase onions and other produce in pre-prepared 
forms. Whole-peeled onions and various sliced, diced, and chopped products save 
time and labor costs for end-users. Demand for these products provides jobs and 
boosts the economy of rural areas where much of the processing takes place. 

During the 1990's, some restaurant chains added a specially sliced fried onion 
appetizer to their menus. Made largely from storage varieties, these products 
have apparently increased the demand for the larger-sized onion bulbs. 
Foodservice operations have always preferred the larger-sized onions since they 
are easier to chop and slice. Output of storage onions, which account for a 
majority of the fresh dry-bulb market, is up 41 percent between 1985-87 and 
1995-97. 

Onions also have natural qualities that make them attractive to consumers, 
particularly in today's health-conscious market. For centuries, onions have 
been thought to have certain medicinal and disease prevention powers; modern 
science has begun to show that there may be some fact in the ancient lore. 
Onions contain an antioxidant (quercetin), which according to some studies may 
be capable of inhibiting growth of certain cancer cells. Onions also contain 
compounds that reportedly reduce blood cholesterol levels. At the same time, 
onions are low in calories and are a source of dietary fiber. Bulb onions also 
provide vitamin C, with one medium onion providing 15 to 20 percent of the 
daily requirement. 

Four Federal market orders exist for onions-Georgia Vidalia onions, Walla Walla 
Valley (Washington/Oregon) onions, Idaho/Eastern Oregon onions, and onions 
grown in south Texas. Each of these orders, funded through assessments on onion 
shippers, authorize promotion, paid advertising, and research and development 
in production and marketing. In addition, the Walla Walla order regulates the 
markings placed on onion containers, while the Idaho/Eastern Oregon and South 
Texas orders authorize grade, size, quality, maturity, and pack or container 
regulations. The minimum grade, size, quality, and maturity regulations also 
apply to imported onions when the Idaho/Oregon and South Texas orders are in 
effect (early June-early March for Idaho/Oregon and March to early June for 
South Texas.).

Western States 
Dominate Onion Market

U.S. output of both spring/summer and storage onions has increased during the 
decade. Production of storage onions has become more geographically 
concentrated. California, Oregon, and Washington produced 62 percent of the 
storage crop (including onions for processing) during 1995-97, compared with 57 
percent during 1985-87. Production has been shifting to western States, with 
Mountain and Pacific States producing 87 percent of the U.S. storage onion crop 
during 1995-97, compared with 81 percent in 1985-87. 

Fertile soils, irrigation, and fewer cloudy days (more sunlight) make higher 
yields possible in many western States. While western production has been on 
the rise, output in New York has changed little over the past decade, although 
the State's market share of storage onions fell from 8 percent to 5 percent of 
the national total. 

Output of spring/summer onions is up significantly, but gains have not been 
shared equally. The industry has experienced strong increases in Georgia, New 
Mexico, and Arizona, but has shown no growth in other areas. In Georgia, the 
fastest-growing area, onion area has expanded from less than 2,000 acres in 
1987 to over 16,000 acres in 1997, the result of successful national promotion 
of Vidalia onions. 

California is the leading U.S. producer of onions, averaging 25 percent of the 
crop over the past 3 years. California produces most of the onions destined for 
dehydration, with smaller volumes coming from Oregon and Nevada. About half of 
the onions grown in California are for manufacture into dehydrated products 
like onion powder, flakes, and minced and chopped pieces. A few large firms 
dominate the California onion dehydration industry, producing a  wide variety 
of other dried products as well. California ships fresh-market storage onions 
in the fall and ships mild spring/summer onions from April to June. Over the 
past 3 years, California has been the third leading producer of mild 
spring/summer onions.

Oregon is the second leading onion-growing State, accounting for 16 percent of 
the U.S. crop. It is also the leading producer of fresh-market storage onions, 
growing 21 percent of the total. About 70 percent of the state's crop is grown 
along the Snake River in the Treasure Valley, a fertile area known for the 
production of large onions. Onions are shipped August through April from Oregon 
.

Washington accounts for 12 percent of U.S. onion production, making it the 
third leading producer. About 95 percent of the State's onions are of the 
storage type. Washington's storage onion industry has been expanding, with 
production in 1997 up 187 percent since 1990 and nearly six times greater than 
during 1980. A combination of excellent growing conditions, high yields, and 
favorable port access for export to Asian markets have been key. Washington 
ships onions from July to April.

Idaho ties with Colorado for fourth place in onion production, each accounting 
for 9 percent of the Nation's crop over the past 3 years. Colorado plants twice 
the acreage of Idaho, which has a substantial advantage in per-acre yields. The 
third largest producer of storage onions, Idaho, like Oregon, raises the 
trademark variety Spanish Sweets. The Idaho industry shares the same 
characteristics (varieties, yields, shipping season) as producers across the 
Snake River in Oregon. 

About an eighth of Colorado's production is grown from transplants rather than 
from seed. Although costs are higher, this allows Colorado to begin onion 
shipments earlier in the season when there is less competition and the 
potential for higher prices exists. Onion harvest begins in late July, with 
shipments from storage completed in April.

Other States account for significant onion production. Texas grows 6 percent of 
the U.S. crop, with New York and New Mexico each holding 5 percent of the U.S. 
market, and Georgia 4 percent. Texas, New Mexico, and Georgia produce primarily 
mild spring/summer onions, with Texas the leading producer of these varieties, 
with 27 percent of production. Onions are shipped from Texas from March through 
August. 

Georgia's crop is centered in a 20-county area around Vidalia, which gives its 
name to the mild variety produced there. These onions are shipped primarily 
during April to June. However, some growers place onions in controlled-
atmosphere storage (similar to the apple industry) and sell during late summer 
and fall when few mild onions are available in the market. Georgia's mild onion 
crop has slowly been carving out an enhanced profile in the marketplace with a 
combination of innovative marketing and promotional efforts. Vidalia onions are 
probably the most widely known trademark variety. 

The U.S. Is a 
Net Exporter of Onions

U.S. onion production is surpassed only by China's and India's. The U.S. 
accounts for 8 percent of world onion output, well behind China's 25 percent 
and India's 11 percent. 

Global per capita use of onions averaged 13.5 pounds during 1994-96, according 
to data from the Food and Agriculture Organization (FAO) of the United Nations. 
Kuwait's per capita use is highest, at 63 pounds. Turkey, the fourth leading 
onion producer, has the second highest reported consumption at 59 pounds per 
person, followed by Turkmenistan at 48 pounds. The U.S. is 37th . 

The U.S. is a net exporter of fresh and processed onions-in 1997, exports 
totaled $169 million while imports were $131 million. Imports accounted for 12 
percent of the fresh-market onions consumed in the U.S. in 1997, while exports 
took 8 percent of available supplies. Most imports are fresh-market onions, 
while both fresh and dried onion products are major components of exports. 
Three-fourths of all fresh-market onion imports enter the U.S. market during 
the winter months, when fresh-market onion exports reach a seasonal lull. 

Over 80 percent of fresh-market onion imports come from Mexico, while Canada 
and Japan are major markets for U.S. exports. Exports of fresh-market onions 
are sensitive to weather in major onion-consuming nations (especially in Asia), 
and  exports tend to show the largest gains in years of poor weather. West 
coast shippers, given their proximity to ports that can easily serve Asian 
markets, tend to dominate the onion export market. 

An estimated 70 percent of the U.S. dehydrated onion crop is exported. In 1997, 
the U.S. shipped $78 million in dried and dehydrated onion products to 60 
different countries, with Canada, Japan, and the United Kingdom the top U.S. 
markets. 

With strong exports earlier this year and weather-related damage and planting 
delays in some States, shipping-point prices for onions have continuously 
averaged well above the low levels of a year earlier. The U.S. spring/summer 
crop this year was up about 8 percent from a year earlier as higher output in 
New Mexico, Texas, and Arizona offset weather-induced reductions in California 
and Georgia. 

However, the fall storage onion crop is expected to be 7 percent below a year 
ago, due to reduced acreage and lower yields. Hail and rain damage in New York 
earlier this summer resulted in a 43-percent cut in output for that State. For 
the U.S. as a whole, the smaller overall onion crop and continued strong 
domestic and export demand should keep prices above year-earlier levels for the 
remainder of the year.
Gary Lucier (202) 694-5253
glucier@econ.ag.gov  
 
COMMODITY SPOTLIGHT BOX
Onion Roots & Relatives

Onions are classified as members of the Amaryllidaceae (amaryllis) family but 
are also sometimes included as members of the lily family. Onions, Allium cepa, 
are a cool-season crop (tolerant of frost) botanically related to shallots, 
garlic, leeks, and chives. Onions are believed to have originated in the 
regions around Iran and Pakistan, and ancient Egyptian tombs contain references 
to onions. Onions made their way into Europe during the Middle Ages, eventually 
reaching the U.S. 

The various types of onions include subcategories of the major bulb onion 
categories as well as onion relatives. 

Boiler/creamer-small-sized common bulb onions between 1 inch and 1 7/8 inches 
in diameter; popular as boiled onions and in onion cream sauces.

Picklers-small-sized common bulb onions not greater than 1 inch in diameter.  

Green onions-common bulb onions, also knows as scallions, that are harvested in 
the green immature stage prior to formation of a large bulb; used in salads and 
Chinese dishes; the green tops are high in vitamins A and C. 

Pearl onions-small (less than 0.63 inch in diameter) white, red, or golden 
yellow bulbs popular for pickling, shish kebabs, and casseroles; bulb is 
botanically different from the common onion but has a crisp texture and mild 
onion flavor.

Leeks-related to the pearl onion but generally without a bulb; mild flavor is 
less pungent than most onions; popular in stir-fry, soups, salads, and 
vichyssoise. Popular in Europe, leeks are a national emblem of Wales.

Shallots-related to the onion family and have the appearance of small onions; 
mild taste resembles that of garlic; usually sold dried and used for boiled or 
sauce onion dishes; green shallots available during the summer. 

Chives-long, thin, delicate green herblike plants, used primarily as a garnish 
and a flavoring agent;  generally form no bulbs; also grow in the wild in the 
U.S. 

Onion sets-vegetative small bulbs (not seeds) used to establish a planting; 
generally produced in the fall and planted in late winter/early spring for 
production of green onions or dry-bulb onions; popular with home gardeners.

Dehydrating onions-dry-bulb storage onions intended for manufacture into 
various dried products; generally contain higher soluble solids than those 
intended for the fresh market.

Onion juice-also known as onion oil, an extract of storage-type onions used 
largely by food manufacturers to enhance flavors; produced in very small 
quantities.


WORLD AGRICULTURE & TRADE
U.S. Ag Exports: Volume Up, Value Down in Fiscal 1999        

The value of fiscal 1999 U.S. agricultural exports is projected at $52 billion, 
down $2.5 billion from the revised fiscal 1998 forecast. While overall volume 
is projected to increase by 6.7 million tons to 148.7 million tons, total value 
is declining because prices for a number of key commodities are forecast to be 
lower. Three major factors are behind the drop in prices and total export 
value: large world supplies, weak global demand, and a strong U.S. dollar. 

All of the expected increase in export volume is in the bulk category, which 
will be the first increase in bulk volume since fiscal 1995. Wheat and corn 
account for the entire gain; exports of soybeans and cotton are expected to 
fall. Bulk export value is forecast at $18 billion in 1999, down $2 billion 
from 1998.

The value of high-value products (HVP's) is forecast virtually unchanged at $34 
billion in 1999. Small gains in the value of red meat and vegetable exports are 
offset by lower prices and lower values for soybean meal exports. The HVP share 
of U.S. agricultural export value continues to rise to a new record 65 percent.

The value of U.S. agricultural imports are forecast up $1.5 billion to a record 
$39.5 billion, the 12th consecutive record. But the rate of growth in imports 
is expected to slow from 6 percent in 1998 to only 4 percent in 1999. As a 
result, agriculture's export surplus in fiscal 1999 is expected to be the 
smallest since 1987, just $12.5 billion. 

The growth in imports in fiscal 1999 is expected to be led by horticultural 
products, the fastest-growing import. Gains are expected in wine, malt 
beverage, vegetable, fruit, and juice imports. The stronger U.S. dollar (which 
results in lower import prices) is key to higher imports in 1998 and 1999. U.S. 
consumers are turning to higher-valued imports, such as Canadian beers and 
Australian wines, as well as to more specialty items, such as colored peppers 
and hydroponically grown tomatoes. 

Bulk Export Value To Decline,
But Volume To Rise

Bulk export value is projected to slip 10 percent in 1999 to $18 billion as 
prices continue very weak, particularly for soybeans, corn, and wheat. But 
volume of bulk commodity exports is expected to rise 7 million tons to 104.5 
million tons as shipments of wheat and corn increase. 

Reduced competition from Canada and Argentina (from smaller crops)  is expected 
to boost U.S. wheat and flour exports in fiscal 1999. With the larger export 
volume, wheat is the only major bulk commodity expected to also increase in 
value in 1999. Projected wheat and flour export value rises $400 million to 
$4.2 billion. However, wheat prices will remain under pressure, reflecting 
larger supplies in the U.S. and most major competitors, especially Australia 
and the European Union (EU), as well as continued weak import demand. 

U.S. rice exports in fiscal 1999 are projected at 2.7 million tons (down 
400,000 tons) and $1 billion (down $100 million). Production in Central and 
South America is expected to return to normal after a weather-related downturn 
in 1998, reducing the region's demand for U.S. rice. More normal production is 
also expected in South and Southeast Asia in 1999. Value will fall less than 
volume because the share of lower-valued rough rice is likely to decline from a 
high level in 1998.

U.S. corn exports for 1999 are projected up 3 million tons from 1998, but 
further price declines should reduce export value. Projected larger U.S. 
supplies and reduced competition from China, Argentina, and Eastern Europe will 
contribute to increased corn export volume in 1999. Prices of corn will remain 
under pressure because the second largest U.S. crop on record will lead to 
rising stocks. 

Slow global demand for oilseed meals is likely to reduce U.S. exports of 
soybeans and soybean meal in 1999. Fiscal 1999 soybean exports are projected 
down 200,000 tons to 23.3 million tons and down $1.1 billion to $5.1 billion. 
With South American soybean carry-in stocks building (following record or near-
record production in 1998) and prospects for large U.S. production, world 
prices are down sharply.

Among bulk commodities, U.S. cotton exports are expected to drop the most in 
1999. Export volume is projected down 500,000 tons to 1.1 million tons as the 
drought across the largest Southern cotton-producing States reduces expected 
U.S. production to a 9-year low of just 13.6 million bales. This will be a 28-
percent decrease in U.S. production, and export availabilities are expected to 
shrink correspondingly. In addition, China is expected to switch from large net 
importer to net export competitor for the first time in 6 years, sharply 
reducing global demand. U.S. export value is projected down $900 million to 
$1.7 billion.

HVP Export Value To Remain Strong
Despite World Economic Difficulties 

HVP exports are expected to remain relatively stable in fiscal 1999, slipping 
just a little more than 1 percent to a forecast $34 billion. Soybean meal 
exports are expected to decline, falling $400 million to $1.5 billion. 
Partially offsetting this drop will be gains in red meats, projected up $200 
million, and vegetable exports, up $100 million.

Continued weak demand in Asia and Russia is likely to be a major factor 
limiting 1999 gains in U.S. HVP exports. Major Asian markets for U.S. products 
are expected to remain in recession in 1999. Asia's downturn will cut overall 
foreign Gross Domestic Product growth from 3.2 percent in 1997 to 1.9 percent 
in 1998. 

Japan is the key to recovery in Asia. Japan's contracting economy and weak 
currency is delaying Asia's potential drive toward recovery and could increase 
the pressure on China to devalue its yuan. Russia's currency devaluation and 
financial crisis will have the greatest impact on the other countries of the 
New Independent States and its neighbors around the Black Sea.

Relatively weak demand prospects and rising foreign soybean carry-in stocks 
will constrain U.S. soybean meal exports in 1999. Soybean oil shipments, 
however, should remain strong at 1.3 million tons valued at $800 million. 
Global stocks of palm oil-a major competing vegetable oil-are expected to 
remain low with prices strong, as several years will be required to revive 
production from drought in Malaysia.

Red meat exports are expected to rise to $4.3 billion in 1999, up from the $4.1 
billion estimated for 1998. Gains are expected in pork volume and beef prices. 
Pork shipments are being boosted by continued low pork prices. Beef export 
volume is expected to remain flat, hampered by recessions projected for Asia, 
but some recovery in beef prices is anticipated as world supplies decline. 

Poultry exports are projected flat at $2.4 billion in 1999. Russia, which 
accounted for 40-45 percent of all U.S. exports of poultry meat in 1997, is the 
greatest source of uncertainty for 1999. On the one hand, Russia's current 
financial crisis is likely to limit its imports. But on the other, poultry is 
the least expensive meat in Russia and its vastly shrunken domestic poultry 
industry is probably not capable of expanding quickly to meet demand.

U.S. horticultural exports are forecast unchanged at $10.6 billion for fiscal 
1999. Relatively strong prospects for economic growth in North America, coupled 
with reduced trade barriers under the North American Free Trade Agreement, are 
helping boost vegetable exports to Canada and Mexico, offsetting the weakened 
prospects for exports to Asia. Vegetable exports are projected up slightly to 
$2.9 billion in 1999. Exports of fruits, wine, nuts, and other beverages also 
have remained strong in 1998, despite the weakness in Asian demand and the 
strong U.S. dollar, and are expected to retain this buoyancy in 1999. Fruit 
exports are projected at $3.3 billion and nuts at $1.3 billion, both about the 
same as in 1998. 
Carol Whitton (202) 694-5287 
cwhitton@econ.ag.gov  

WORLD AG & TRADE BOX
Ag Export Rankings by State Changed Little in 1997       

In fiscal 1997, California continued to be the largest exporting State and led 
in exports of four commodity groups-fruits, vegetables, tree nuts, and seeds. 
Nine of the top 10 leading agricultural export States-California, Iowa, 
Illinois, Nebraska, Texas, Kansas, Minnesota, Washington, and Indiana-remained 
the same as in 1996. However, Nebraska moved ahead of Texas and Arkansas moved 
up from 11th place in 1996 into 8th place in 1997, as a poor wheat crop pulled 
down total exports of several States, including 1996's 10th exporter, North 
Dakota. The top 10 leading States accounted for 58 percent of total U.S. 
agricultural export value, unchanged for the last 2 years. But as the total 
value of agricultural exports declined, exports from most of the major 
exporting States, with the exception of California and Arkansas, decreased in 
1997. 

The Economic Research Service (ERS) estimates export shares based primarily on 
State production shares of exported commodities. The data sources are crop and 
livestock production and slaughter estimates from the National Agricultural 
Statistics Service and merchandise export data from the Bureau of Census. The 
census export data are reported on a free-along-ship  (f.a.s.) basis by customs 
district and country of destination, but no State of origin is reported in the 
data set. In some cases, supplemental data-such as the Census of Agriculture, 
1992 and the Department of Commerce's Exports from Manufacturing 
Establishments: 1990 and 1991-were used to estimate export shares. 

The estimated export value for each State should not be interpreted as actual 
measurements of a State's exports. An agricultural commodity is likely to pass 
through several States before being exported, and the State of origin is lost 
as commodities move from farmgate to port. To help compensate for this, class-
specific production data are used to calculate export shares when available. 
For example, export figures from States in the Pacific Northwest reflect white 
wheat exports (the share of white wheat production that is exported is larger 
than for other classes of wheat). A similar procedure is used for cotton and 
rice. Product use data (i.e., fresh-market and processed) are employed for 
fruits and vegetables. 

The detailed commodity breakdown by State is available on the ERS Autofax 
System at 202-694-5700. Request documents number 16010 (12 pages, 5 years of 
data for all commodity groups in  all States), number 16020 (a 1-page summary 
of top 10 States by commodity), and number 16021 (a 1-page summary of 5 years 
total agricultural exports, all States).


POLICY
Low Prices Test 1996 Farm Act

This year's significant decline in prices for many crops has raised questions 
about which policy tools are available to counteract current low prices.

In the last year, farm prices for several major crops have dropped sharply and 
are much lower than at any time in the recent past. The decline is due to large 
U.S. and foreign supplies, lackluster export demand due to weak economic 
performance in many foreign countries, and a strong U.S. dollar. From August 
1997 to August 1998, the average farm price fell nearly a third for wheat (the 
lowest monthly price in 7 years) and one-fourth for corn (lowest in 10 years) 
and for soybeans (lowest in 4 years). 

Prior to the 1996 Farm Act, farmers who participated in farm programs for major 
field crops received deficiency payments from the government when prices dipped 
below a certain level under the old target price/income support program. 
Deficiency payments rose when prices fell, and the intended effect was to 
stabilize farm income and  provide some offset to declining prices. 

The recent decline in crop prices likely would have led to higher 1998 income 
support payments under the old law than are scheduled to occur under current 
law. Unlike under the old law, payment rates for the new production flexibility 
contract (PFC) payments under the 1996 Act are fixed and not related to 
prevailing market conditions. 

Assuming current loan rates and with USDA's September 1998 projected market 
prices, deficiency payment rates in 1998 for corn and wheat under the old law 
would have been about double the 1998 payment rates for production flexibility 
contracts. However, deficiency payments for corn and wheat would not have been 
double the actual PFC payments, largely because of lower program participation 
under old law. During the first 2 years of the 1996 Act when crop prices were 
high, actual PFC payments to farmers exceeded levels that would have occurred 
under old law. The 1996 Farm Act, in decoupling farm prices from program 
payments, intended that farmers make planting decisions according to the market 
conditions for particular crops. 

What can help farmers get over the financial hump during this downturn in 
prices as the market works down its large supply?

Perhaps the most visible policy response is early disbursement of fiscal 1999 
farm program payments. Under legislation signed into law in August 1998, 
participating farmers will have the option to receive their entire fiscal 1999 
payments as early as October 1998, rather than receiving half in mid-December 
or mid-January and the rest by September 1999 as had been provided under the 
1996 Act. Total PFC payments will amount to about $5.65 billion for fiscal year 
1999, typically representing about 10 percent of farm net cash income. Shifting 
a portion of these payments to earlier in the fiscal year under the new 
legislation will inject cash into farmers' bank accounts at a time when market 
prices are low. 

Two other key policy tools are nonrecourse marketing assistance loans and loan 
deficiency payments (LDP). These farm programs, which predate the 1996 Act, 
provide a countercyclical policy response when prices decline. Farmers are 
taking advantage of these programs, and money is flowing into the agricultural 
sector. 

Loans & LDP's Shore Up
Contract Payments

Nonrecourse marketing assistance loans provide interim financing to eligible 
producers of wheat, corn, grain sorghum, barley, oats, soybeans, minor 
oilseeds, rice, upland cotton, and extra-long staple cotton. Instead of selling 
the crop, farmers pledge the crop as collateral and use the loan proceeds to 
cover short-term cash needs. Loans may be taken out at any time following 
harvest through the following March or the following May, depending on the 
crop. However, most loan placements occur shortly after harvest when prices 
tend to be seasonally low. Farmers may repay the loan (plus interest) anytime 
prior to maturity and then sell the crop in the marketplace, or they can 
forfeit the collateral to the government as full payment when the loan matures 
in 9 months (10 months for cotton). 

The loan program provides an effective per-unit revenue floor for farmers who 
put their crops under loan, with a countercyclical effect occurring once prices 
drop below the loan rate. For example, the national loan rate is $2.58 per 
bushel for wheat. Excluding adjustments for quality and location (each county 
where wheat is stored has a loan rate), farmers will receive at least this per-
unit amount on average for their wheat, minus interest charges.

The loan repayment rate may actually be less than the loan rate (plus interest) 
if the local price-called the posted county price or PCP-falls below the loan 
rate. (The PCP-calculated each day the federal government is open-is based on 
terminal market prices and a fixed differential to each county, largely 
reflecting transportation and other marketing factors.)  When a farmer repays 
the loan at a lower PCP, the difference between the loan rate and the PCP is 
called a marketing loan gain. In addition, any accrued interest on the loan is 
waived when the PCP is under the county loan rate on the day the producers 
repays the loan. 

The marketing loan repayment feature prevents a costly buildup of publicly-
owned stocks that would occur if many farmers forfeited their grain to the 
government as repayment of loans. Without the marketing loan feature, farmers 
would forfeit their grain if prices did not rise to at least the loan rate 
during the 9-10 month loan period. Under the marketing loan program, farmers 
may effectively receive a net per-unit revenue equal to the loan rate.

While the loan program provides a per-unit revenue floor for producers, it does 
not establish a floor for market prices since commodities can enter the market 
at prices below the loan rate (hence the phrase "marketing loan"). A price 
floor in the domestic market would prevent U.S. prices from following foreign 
price declines, and thus could reduce international competitiveness for U.S. 
commodities (as was the case when loan rates were high and marketing repayment 
features were not available in the early 1980's).

If the PCP is below the loan rate, eligible producers may opt for a loan 
deficiency payment (LDP) for commodities in lieu of securing a loan. The LDP 
rate is the amount by which the loan rate exceeds the PCP and is calculated 
each day the federal government is open. (The crop cannot go under loan once an 
LDP is paid.)  This option is attractive if the producer thinks that market 
prices have bottomed out and the LDP rate has reached its maximum. LDP's may 
also be attractive to producers because by taking the LDP and immediately 
selling their crop, they effectively receive a per-unit revenue equal to the 
loan rate, partly from the market and the rest from the government. After an 
LDP is accepted, the farmer can sell the crop to avoid storage expenses or hold 
it in the expectation of a price rally. 

Loan deficiency payments are final, unlike the regular deficiency payments 
under the old target price/income support program. Under the old income support 
program, farmers were required in some instances to return all or part of their 
advanced deficiency payment (but not loan deficiency payments) once final 
payment rates were calculated, which was after the marketing season concluded.

Government Payments
Increase Rapidly

As of mid-September 1998, posted county prices for corn, soybeans, oats, and 
barley were below loan rates in all producing regions. In addition, PCP's for 
all wheat classes (except durum), grain sorghum, and oil-type sunflowerseed 
were below county loan rates in most producing counties.

Sinking wheat prices have forced a groundswell of farmer participation in the 
government's loan deficiency payment and loan programs. Almost 1.2 billion 
bushels of the 1998 wheat crop were either under loan (230 million bushels 
placed) or had received an LDP (959 million bushels), together representing 
over almost half of 1998's estimated production of 2.56 billion bushels. As of 
mid-September, wheat producers had received about $250 million under the LDP 
program for 1998 wheat (compared with a negligible amount in 1997), with an 
average loan deficiency payment of 26 cents per bushel. 

Wheat accounts for the greatest proportion of overall activity so far in 1998 
because it is a major crop and is harvested relatively early. For other early-
harvested crops, LDP payments through mid-September were $20.8 million for 
barley and $4.1 million for oats. As the fall harvest advances, outlays for the 
later-harvested crops, particularly corn and soybeans, will grow and likely 
surpass those for wheat. With fall harvest just underway, corn LDP's totaled 
$13.3 million as of mid-September. Sorghum payments were $3.5 million, and 
soybean payments totaled $681,000.

As expected, major winter wheat producing States topped the LDP list for 1998 
crops, as of mid-September. Kansas ranked first with $50 million, followed by 
Washington with $23 million. North Dakota, Colorado, Montana, Oklahoma, and 
Idaho each tallied $17 million. South Dakota and Texas each totaled $14 
million.

Loan Rates vs. 
Market Signals

Revenue earned by farmers in excess of variable costs is used to cover fixed 
costs, and any amount left over goes toward other economic costs and profit. 
For farmers to have a short run incentive to plant a crop, expected revenue 
from the crop must at least match their variable costs. 

Current loan rate levels cover variable production costs for most producers. 
For example, about 89 percent of the U.S. wheat crop is produced at variable 
costs below the loan rate of $2.58 per bushel. Comparable numbers are 94 
percent for corn (loan rate is $1.89) and 97 percent for soybeans (loan rate is 
$5.26). However, farmers with variable costs above the loan rate-or those with 
high fixed costs such as high debt service-are clearly undergoing financial 
stress. The question for policymakers is whether or not the level of income 
support provided by the current policy tools is sufficient. A number of 
legislative options are currently under consideration.

Barring an unexpected runup in prices, planting incentives for many 1999 crops 
(including wheat, corn, and soybeans) will be sharply lower than in recent 
years in both the U.S. and abroad. If farmers act on these market signals, they 
may pull back on plantings of those crops, reducing total crop acreage or 
possibly shifting some land to more profitable competing crops. This could 
reduce production prospects next year for those crops with currently low prices 
and lead to a price upturn in the next season. 

As policymakers consider options for addressing the impact of low prices, they 
will be weighing the impacts of these measures on the workings of supply and 
demand in the marketplace.
Dennis A. Shields (202) 694-5331 and Paul C. Westcott (202) 694-5335
dshields@econ.ag.gov 
westcott@econ.ag.gov  

More information on nonrecourse marketing assistance loans and loan deficiency 
payments is available from  USDA's Farm Service Agency at 
http://www.fsa.usda.gov/pas/backgndrs.htm. The latest figures on loan and 
payment activity are available at 
http://www.fsa.usda.gov/dafp/psd/ under online reports.

Production cost estimates are from Economic Research Service analysis of data 
from the Farm Costs and Returns and the Agricultural Resource Management 
surveys-soybeans for 1990; wheat, 1994; and corn, 1996.


FOOD & MARKETING
Rise in Food Prices in 1998 and 1999 To Be Lowest Since Early 1990's

Large supplies of meats and a low general inflation rate in 1998 are benefiting 
and will likely continue to benefit consumers. With 8 months of Consumer Price 
Index (CPI) data already collected in 1998, the annual average food CPI is 2.1 
percent above the first 8 months of 1997. Food prices are forecast to increase 
only 2 percent in 1998 and 2-2.5 percent in 1999. Such modest increases have 
not been seen since 1992 and 1993, when food prices increased only 1.2 and 2.2 
percent. The general inflation rate for the all-items CPI is forecast to be 
only 1.7 percent in 1998 and 2.5 to 3 percent in 1999. 

The sluggish export market for higher-price meat products and an end to El 
Nino's influence on fruit and vegetable prices have also contributed to lower-
than-expected retail prices in 1998. Fruits and vegetables, which account for 
about 15 percent of the at-home component of the food CPI, are expected to 
increase 4-5 percent in 1998 due to weather-related fresh vegetable price 
increases, but this increase is lower than originally anticipated because of an 
earlier-than-expected end to El Nino-related weather patterns. 

In the overall food CPI for 1998, fruit and vegetable price increases are 
mitigated by smaller increases and even decreases in other food categories. 
Cereals and bakery products, 16 percent of the at-home index, are forecast to 
increase 2 percent. Nonalcoholic beverages, 11.2 percent of the at-home index, 
are forecast to fall 0.7 percent in 1998 due to the larger coffee crop. Beef, 
pork, and poultry prices, which account for 19 percent of the food-at-home 
index, are forecast to fall about 2 percent.

Food accounts for 15 percent of the all-items CPI, and is among the most 
volatile of the consumer goods tracked by the Federal Government. Retail food 
price changes are underpinned by general economic factors and the relative 
shares of farm and marketing costs. In recent years, food price increases have 
been small because of the low general inflation rate; the larger share of the 
food dollar going to away-from-home purchases of food and the continued decline 
in the farm value share of the retail price for most food items-both of which 
increase the share of food costs, like wages, transportation, and marketing, 
that are most influenced by the general economy; and increasing economies of 
size in the farm sector.

The CPI for food measures both food purchased for preparation at home (at-home 
component) and purchases of food that is prepared away from home, usually at 
restaurants or fast-food establishments (away-from-home component). The at-home 
component of the CPI, which increased 2.6 percent in 1997, is forecast to 
increase as little as 1.5 percent in 1998 and only an additional 1-2 percent in 
1999. The away-from-home component of the CPI, which increased 2.8 percent in 
1997, is forecast to increase 2.6 percent in 1998. 

Because the away-from-home component includes the costs of food preparation as 
well as the food items themselves, wages and other business expenses play a 
larger role in away-from-home prices. Higher wage costs in early 1998, 
influenced by a tighter than usual labor market, may have caused the away-from-
home component to increase more than the 2.6 percent expected based on its 
steady climb since the minimum wage increases in 1996 and 1997. However, away-
from-home food prices were held down by lower raw material and food costs, by 
competition among restaurants and fast-food establishments, and by Home Meal 
Replacement (fully or partially prepared foods) or meal solutions offered by 
supermarkets. In 1999, the away-from-home CPI is expected to increase at about 
the same rate, between 2.5 and 3 percent.

The smaller increases expected for the at-home food CPI in 1998 and 1999-less 
than 2 percent-are influenced primarily by agricultural factors rather than by 
the performance of the general economy. Large supplies of meats and a sluggish 
export market for higher-price meat products is dampening meat prices; adequate 
supplies are keeping the prices of fresh fruits and vegetables down; increased 
sugar production is slowing price growth for sugar and sweets; lower grain 
prices are affecting the prices of cereals and bakery products; and near-record 
Brazilian coffee production and strong competition in the soft drink and 
prepared food industries are keeping down prices for nonalcoholic beverages.

Meats. Total U.S. meat production is expected to increase about 1.5 percent in 
1998, following a 2.7-percent increase in 1997. Production is also forecast up 
slightly again in 1999. Large meat supplies- combined with currency 
devaluations around the world, the changing composition of the meat trade, and 
the need to find alternatives to sagging Asian markets-are challenging U.S. 
meat exports in global markets, and in some cases, making the U.S. a more 
attractive market for foreign exporters. Meanwhile, the large supplies and 
reduced prospects for exports of higher-price meat products in 1998 and 1999 
are exerting downward pressure on U.S. livestock and poultry prices. 

Beef and veal. Large supplies of competing meat should hold prices steady in 
1998, following a 1.7-percent increase in the beef CPI in 1997. After a 
forecast record beef production of 25.8 billion pounds in 1998, beef production 
is expected to drop about 7 percent in 1999. Reduced beef production in 1999, 
reflecting the sharply reduced cattle inventory, will result in higher retail 
beef prices. The CPI for beef and veal is expected to increase close to 3 
percent in 1999, as large supplies of pork and poultry hold down a larger beef 
and veal price increase.

The retail beef market has grown increasingly competitive as efforts by chicken 
and pork producers to provide larger cut sizes, improved palatability, 
convenient packaging, and consistency of product for both white-meat chicken 
and pork loins make it difficult for beef producers to raise prices. Still, per 
capita beef consumption on a retail weight basis will be 68 pounds this year, 
up from 67 pounds last year and the largest since 1989. However, consumption is 
expected to drop to 63 pounds per capita in 1999, while expected per capita 
consumption of other meats will reach 150 pounds, another 2-percent gain in 
share of the meat market.

Pork. Commercial pork production is expected to be about 18.8 billion pounds in 
1998, up 9 percent from a year earlier. With plentiful supplies of pork and 
competing meats throughout 1998, pork retail prices are expected to fall almost 
5 percent in 1998, following a 5.2-percent rise in 1997. Although competing 
beef production is expected to drop sharply next year, continued large supplies 
of pork and poultry will likely moderate the decline to 2-3 percent in 1999. 
With abundant pork and reduced beef supplies, retailers will likely favor pork 
over beef for featuring at supermarkets. U.S. per capita pork consumption on a 
retail-weight basis may reach 52 pounds in 1998, with a record 54 pounds 
forecast for 1999. Large U.S. pork supplies and lower wholesale prices also 
boosted 1998 and 1999 export forecasts. The U.S. is expected to export 1.25 
billion pounds of pork in 1998, an increase of 19 percent over the previous 
year. The forecast for 1999 is 1.3 billion pounds. The composition of exports, 
however, is shifting to lower-valued products.

Poultry. The CPI for poultry may fall up to 1 percent in 1998 and fall slightly 
or show no change in 1999, following an increase of 2.8 percent in 1997. 
Broiler production is expected to increase 2 percent in 1998, following a 3.5-
percent increase in 1997. Production is forecast to increase 5 percent in 1999, 
to 28.9 billion pounds. Turkey production is expected to decline in 1999 after 
3 years of negative returns for turkey producers, with some turkey production 
facilities converting to chicken production. 

Broiler producers are expected to remain cautious when making production 
decisions, as there will continue to be very large domestic meat supplies and 
uncertainty in the export market. U.S. poultry exports to Hong Kong are 
forecast to rebound in 1999 from the reduced levels of 1998, but they will 
likely remain below 1997. Poultry producers will face strong competition from 
U.S. pork exports-pork and poultry exports compete as a prime ingredient in 
processed products and sausage-and from foreign poultry producers.

Poultry is a cheaper source of meat protein than beef, and growth in poultry 
consumption has been especially strong in China, Russia, and Mexico in recent 
years. Even in a developed market such as the U.S., consumers are buying more 
poultry. Lower prices relative to red meats, the convenience of processed 
poultry products, and promotions of poultry products in the fast-food industry 
have all contributed to this trend. The fast food market has been an area of 
growth for U.S. poultry producers, especially for wings and skinless, boneless 
breast meat. Per capita broiler consumption on a retail basis will be 72.5 
pounds in 1998 and could reach 76 pounds in 1999.

Other meats. The price movements of the highly processed meat items (hot dogs, 
bologna, sausages), and lamb and mutton, that make up this category are 
influenced by the general inflation rate as well as the cost of the meat 
inputs. Given lower meat prices and low general inflation, retail prices of 
these products are expected to show no change in 1998, after a 2.8-percent 
increase in 1997. Price increases for beef products and a higher expected 
inflation rate in 1999 should lead to an increase of 2-3 percent in the prices 
of these products in 1999.

Fish and seafood. Over the last decade, U.S. per capita seafood consumption has 
remained relatively flat, at around 15 pounds, roughly 2 to 3 pounds less than 
turkey consumption. During this time, the source of supply has begun to shift 
away from wild harvest toward aquaculture (AO May 1998). Larger imports of 
shrimp, tilapia, and salmon, along with slower growth in U.S. catfish output, 
should lead to an increase of 2.8 percent in the fish and seafood retail price 
index for 1998. In 1999, the fish and seafood CPI is forecast up 3-4 percent.

Eggs. Retail egg prices have fallen this year due to a nearly 3-percent 
increase in  production in 1998. During the summer months, a heat-related 
increase in production of medium eggs and a resulting temporary shortage of 
large eggs did not induce any significant retail price increases. 

Egg production is expected to continue increasing in 1999, but at a slower rate 
of 2 percent. The CPI for eggs is expected to be down 3.3 percent in 1998, with 
another price decrease of 2 percent in 1999. Per capita egg consumption is 
forecast at 242.9 eggs in 1998 and 244.5 eggs in 1999. Egg exports are expected 
to reach 243 million dozen in 1999, up 3 percent from 1998's forecast of 232 
million dozen. Higher projected shipments to Canada and rebounding exports to 
Hong Kong are expected to provide most of the increase.

Dairy products. Milk production rose only about 1 percent in the first half of 
1998, hampered by poor quality hay and alfalfa conditions. Declines in milk cow 
numbers, however, were mitigated by a continued increase in milk per cow. 
Strong demand for milkfat products such as cheese and ice cream led to higher 
consumer prices during the spring and summer and an expected 3.5-percent 
increase for the dairy products CPI in 1998. With milk production forecast to 
increase 2-3 percent next year, retail prices for dairy products are expected 
to increase less in 1999, from 0 to 2 percent.

Fats and oils. The December 1997 BLS revision to the CPI item structure (AO 
April 1998) transferred butter from the dairy products category to the fats and 
oils category. As a result, the volatile movement of butter prices during the 
summer caused upward pressure on the CPI for fats and oils, which are expected 
to increase 2.6 percent in 1998, following a modest rise of 0.9 percent in 
1997. 

Butter and margarine are now combined into one category, comprising 31 percent 
of the fats and oils index. The other components of the index-vegetable oils, 
salad dressings, and peanut butter-are highly processed food items. Their price 
changes are influenced more by movement in the general inflation rate and U.S. 
and world supplies of oil products than by farm product input costs. The CPI 
for fats and oils is expected to increase 3-4 percent in 1999, reflecting 
expectations for the general inflation rate.

Fresh fruits. Heavy rains in February and hailstorms in late March and early 
April affected the 1998 production of stone fruits, especially plums and 
nectarines, in California- a major production region for peaches, plums, and 
nectarines. Additionally, a 3-day freeze in South Carolina and Georgia during 
the second week of March brought significant bloom damage to early peach 
varieties in these key producing States. Smaller peach shipments from the 
Southeast, coupled with delay in all stone fruit development in California, 
pushed up retail prices during the early part of the stone fruit season. 

However, 1998 fall apple supplies are likely to be up and should keep the 
increase in the 1998 fruit CPI to 2.8 percent. Weather has been favorable for 
the Western and Central U.S., particularly in Washington, which produces about 
half of the Nation's apples, and in Michigan, the largest apple-producing State 
in the Central region. Apples account for almost 19 percent of the fresh fruit 
index.

In addition, citrus fruit acreage has expanded as replantings in Florida 
following the late-1980's freezes have begun to bear fruit. These trees, 
including oranges and grapefruit, will produce increasingly larger crops into 
the early 2000's. California has also expanded its orange production area. 
California's oranges are mostly for fresh use, while Florida's oranges are 
mainly used for juice. Citrus fruits comprise over 21 percent of the fresh 
fruit index. Bananas account for over 19 percent of the fresh fruit index, and 
supplies are ample in 1998. 

U.S. demand for fresh fruit is expected to continue strong and exports are 
projected to rise. As a result, the fresh fruit index is expected to increase 
2-4 percent in 1999, on top of an increase of 2.8 percent in 1998.

Fresh vegetables. Growing conditions were mixed in 1998 as a result of El Nino-
related weather patterns. Torrential rains in Florida during the last quarter 
of 1997; rain and cold in the desert areas of California, Arizona, and Texas; 
and an unusual December 1997 freeze in west Mexico reduced fresh vegetable 
supplies and boosted retail prices early in 1998. Prices in the first half of 
the year were 14.6 percent higher than a year earlier. U.S. growers also 
reduced harvested area from a year earlier for some fresh-market vegetables and 
for potatoes as a result of lower grower prices in 1996 and 1997, contributing 
to shorter supplies and stronger retail prices.

Subsequent plantings of normal acreage and improved weather during the 
remainder of the year will mitigate much of that early price rise. However, 
weather-related delayed harvests are expected to lead to higher prices for 
potatoes, which cannot be replanted, contributing to an increase in the fresh 
vegetable CPI of 8 percent in 1998. With normal weather and growing conditions 
in 1999, supplies should become abundant again, leading to a forecast change in 
the fresh vegetable CPI for 1999 of no more than 2 percent.

Processed fruits and vegetables. Retail prices for processed fruits and 
vegetables in 1998 and 1999 are largely determined by the previous year's 
production and resulting supplies. Vegetable production for processing declined 
8 percent in 1997, mostly due to reduced processing tomato output. Contract 
acreage for the five leading processing vegetables (tomatoes, sweet corn, snap 
beans, green peas, and cucumbers) was down 3 percent in 1997, but is expected 
to be up 1 percent in 1998 to 1.4 million acres. 

Total supplies of canned vegetables have been down the last 2 years because of 
lower wholesale prices, which have discouraged processors from increasing 
contract acres. Although frozen vegetable supplies increased 2 percent in 1997, 
the resulting larger stocks led to lower wholesale prices for frozen vegetables 
in the first half of 1998. Although processed vegetable supplies were less in 
1998, abundant supplies of processed fruits kept the CPI increase for processed 
fruits and vegetables to 3.8 percent for 1998. The expected increase for 1999 
is 2-4 percent.

Sugar and sweets. Domestic sugar production was up 9 percent in 1997/98 because 
of acreage increases for sugarbeets. Although U.S. sugar consumption has grown 
by about 1.9 percent per year since 1985/86 and industrial use of sugar has 
risen, the increased production, along with a lower general inflation rate, 
held the 1998 sugar and sweets CPI to a 1.6-percent increase. Continued growth 
in sugar deliveries to the expanding bakery and breakfast cereal sector should 
offset or exceed the 1998/99 sugar production increase of 1 percent, leading to 
a 1999 CPI increase for sugar and sweets of 1-3 percent.

Cereals and bakery products. This food category accounts for a large portion of 
the at-home food CPI-almost 16 percent. With grain prices lower this year and 
inflation-related processing costs at low levels, the CPI for cereals and 
bakery products increased only 2 percent in 1998. Most of the costs-more than 
90 percent in most cases-to produce cereal and bakery products are for 
processing and marketing, making grain and other farm ingredients a minor cost 
consideration. Competition for market share among the leading breakfast cereal 
manufacturers led to decreases in the cereal CPI in 1996 and 1997, with a small 
increase of 1 percent expected in 1998. While competition among producers and 
consumer demand for bakery products is expected to continue, the 1999 CPI is 
forecast to increase 2-4 percent due to higher inflation next year.

Nonalcoholic beverages. Coffee and carbonated beverages are the two major 
components of this category, accounting for 28 and 38 percent of the 
nonalcoholic beverage index. Competition in the soft drink industry resulting 
in lower consumer prices continued throughout 1998, and lower coffee prices 
during the last half of 1998 are due to a projected near-record coffee crop in 
Brazil. 

The largest producer of Arabica coffee beans, Brazil's annual production has 
alternated between good and bad years since 1994. Coffee trees have finally 
recovered from the effects of a freeze in 1994, and the current crop has 
benefited from excellent weather for growth and maturing of the beans. The 
current large Brazilian crop is forcing other coffee-producing countries to cut 
prices, possibly leading to lower U.S. retail prices for coffee next year. In 
the U.S. market, price and country of origin are important factors for coffee 
importers, as coffee consumers have shifted toward higher-quality coffee. 

With retail coffee prices on the decline and soft drink prices lower throughout 
this year, the CPI for nonalcoholic beverages should fall slightly in 1998 and 
remain unchanged in 1999.

Other foods. Items in this category are highly processed and primarily affected 
by changes in the all-items CPI. These products include soups, frozen dinners, 
pizzas, snacks, baby food, and precooked frozen meats. Although demand for 
prepared products continues to increase, competition among these products and 
from the away-from-home food market should lead to an increase in the CPI for 
these foods of 2.8 percent in 1998. Continued growth in this category next year 
would indicate a CPI increase of 2-4 percent in 1999.
Annette Clauson (202) 694-5373
aclauson@econ.ag.gov  


FARM & RURAL COMMUNITIES
Status Report:  Hired Farm Labor in U.S. Agriculture

Labor supply remains a persistent issue for farm employers who need large 
amounts of nonfamily labor during particular periods of the growing season, a 
need complicated by the unpredictable nature of agricultural production. Hired 
farmworkers account for about one-third of the production workforce in U.S. 
agriculture-operators and their unpaid family members account for the remaining 
two-thirds-and labor costs range from about 4 percent of inputs on livestock 
operations to 45 percent for horticultural specialty farms. 

The match between supply and demand for labor has always been a critical issue 
in agriculture. When U.S. workers are not available to meet the demand for 
hired farmwork, employers have traditionally looked to foreign workers for 
temporary relief. Currently, nonimmigrant foreign workers can be employed 
temporarily in agriculture under the H-2A provisions of the Immigration and 
Nationality Act. 

Employers must meet requirements to ensure that efforts to recruit domestic 
labor at have been made and that employment of guestworkers will not adversely 
affect the wages and working conditions of domestic farmworkers in the area- 
employers wishing to hire workers under the H-2A program must offer domestic 
workers a guaranteed minimum wage and period of employment equal to the average 
wage, housing and transportation benefits, and employment period provided for 
guestworkers under H-2A requirements.

Both employers and domestic farmworker advocates have found fault with the H-2A 
program, however. Despite their importance to agriculture, U.S. hired 
farmworkers as a group experience low wages, seasonal employment, and limited 
participation in the nonfarm labor market, leading many in the debate to insist 
there is a surplus of farm labor and that no supplemental labor program is 
needed. Others insist that shortages frequently do occur at particular times 
and places, and the current supplemental labor program cannot meet those needs 
in a timely way. 

Legislation has been introduced periodically, most often in conjunction with 
immigration reform, either to replace the H-2A program with a new guestworker 
program or to promote better options for matching domestic labor supply with 
demand. These efforts have increased in the last few years as stepped-up 
enforcement of immigration laws has led many employers to fear the loss of the 
current labor supply in agriculture-estimates of the share of fraudulently 
documented workers in the total hired farm labor force range from 25 to 75 
percent.

USDA's Economic Research Service produces an annual demographic and economic 
profile of domestic hired farmworkers, which includes immigrant workers not 
hired as temporary guestworkers. The annual profile tracks trends in the hired 
farm workforce based on annual averages of data collected by the U.S. Census 
Bureau in its monthly Current Population Survey (CPS). The information provided 
by these annual profiles has been useful in informing policy discussions about 
both farm labor supply and the economic conditions of the hired farm workforce. 

Number of Hired Farmworkers Remains Stable in 1997

Hired farmworkers include people 15 years and older who reported their primary 
occupation during the week of the CPS as farmworkers engaged in planting, 
cultivating, and harvesting crops or attending to livestock (86 percent); farm 
managers (8 percent); supervisors of farmworkers (4 percent); and nursery and 
other workers (2 percent). The annual average number of hired farmworkers 
employed per week in 1997 remained about the same as the previous year at just 
under 900,000.

The demographic profile of hired farmworkers has changed little during the 
1990's. Hired farmworkers tend to be younger and less educated than the average 
for all wage and salary workers, and are more likely to be male, Hispanic, and 
noncitizens.

Demand for hired farmworkers varies by type of crop and livestock, length of 
growing and harvesting seasons, extent of mechanization, and scale of 
production. As a result, the number of hired farmworkers varies significantly 
by region-ranging from 370,000 in the West (41 percent of all hired 
farmworkers) to 57,000 in the Northeast (6 percent of all hired farmworkers). 
Livestock production predominates as the source of employment for hired 
farmworkers in the Midwest, whereas crop production-typically fruit, vegetable, 
and horticultural crops-predominates in the West. 

The demographic characteristics of hired farmworkers also vary by region. The 
proportion of women in the hired farm labor force is greater in the Northeast 
than in other regions. Hispanics are only 3 percent of the hired farm workforce 
in the Midwest, compared with 17 percent in the Northeast, 35 percent in the 
South, and 67 percent in the West.

Hired Farmworker Earnings Remain Low 

Hired farmworkers continued to earn significantly less than most other workers, 
influenced by their relatively low skill level. Full-time hired farmworkers 
received median weekly earnings of $277 in 1997, 55 percent of the $500 median 
weekly earnings for full-time wage and salary workers economywide. Only private 
household workers, at $206, received lower median weekly earnings than hired 
farmworkers. Real median weekly earnings for full-time farmworkers have 
declined 6 percent since 1990, compared with a 1-percent increase from 1990 to 
1997 for all wage and salary workers.

The number of employed farmworkers varies widely by season-from 589,000 during 
the survey week in January 1997 to 1,117,000 in July. The seasonality of farm 
employment, low weekly earnings, and limited access to additional nonfarm work 
combine to make hired farmwork one of the lowest paid occupational groups. Not 
only is income from farmwork limited, but family income of hired farmworkers 
from all sources ( including jobs; businesses, farms, or rents; pensions, 
dividends, interest, and social security payments; and any other money income 
received by family members 15 years or older) falls significantly below that of 
all wage and salary workers. More than 70 percent of hired farmworker families 
had annual income below $30,000 in 1997, with 23 percent below $10,000. In 
contrast, only 38 percent of all wage and salary workers had family income 
below $30,000, with 15 percent below $10,000.

Nonimmigrant Guestworkers Supplement U.S. Labor

In addition to these nearly 900,000 U.S. farmworkers, employers have begun 
hiring increasing numbers of temporary foreign farmworkers through the H-2A 
program. In 1997, 23,352 jobs were certified for temporary foreign 
guestworkers-i.e., the Department of Labor determined no domestic workers were 
available to fill them-up from 17,557 in 1996 and 12,173 in 1994.

H-2A workers are predominantly used in tobacco and apple production-62 percent 
of 1997 certifications were for tobacco and 18 percent for apples. Other work 
for which relatively large numbers of jobs were certified included sheepherding 
(7 percent), custom combining (3 percent), fruits and vegetables (2 percent), 
and irrigation (1 percent). Other uses (6 percent) included 
nursery/horticulture, sugarcane, beekeeping, and machine operators.

Nine States (North Carolina, Virginia, Kentucky, New York, Connecticut, 
Massachusetts, Tennessee, Idaho, and Texas) accounted for 80 percent of 
guestworker certifications. North Carolina led in 1997 with over 6,000 jobs 
certified, mostly for work in tobacco and vegetables. Virginia followed with 
over 3,000 certifications, nearly all for tobacco and apples. Kentucky and New 
York each had more than 2,000 jobs certified-for tobacco in Kentucky and apples 
in New York. Connecticut and Massachusetts, each with about 1,000 
certifications, also requested workers primarily for tobacco and apples. Texas 
and Idaho each received certifications for about 500 workers, primarily for 
jobs in custom combining and sheepherding, respectively. 

Despite recent increases in the use of H-2A workers, farm employers contend 
that the program is too cumbersome to provide needed workers in a timely 
manner. U.S. farmworkers and their advocates counter that the program is not 
needed at all, given that repeated investigations of domestic farm labor supply 
have found no shortage of workers available for farm work. They contend that 
improved wages and working conditions would attract an adequate supply of those 
workers when and where needed. Employers respond that many of those available 
workers are fraudulently documented, leaving their employers vulnerable to a 
sudden loss of workers through Immigration and Naturalization Service (INS) 
enforcement activities.

Efforts supported by farm employers to reform or replace the H-2A program 
during consideration of the 1996 Immigration Reform and Control Act were 
unsuccessful, but a provision of the legislation directed the General 
Accounting Office (GAO) to examine the operations of the H-2A program and 
report their findings and recommendations for consideration by Congress. 
In a December 1997 report, GAO found INS enforcement efforts unlikely to 
significantly reduce the number of unauthorized farmworkers, thus there 
appeared no likelihood of a widespread shortage of farmworkers. The report 
acknowledged that there might continue to be local shortages in specific crop 
areas. GAO concluded that the current H-2A program was sufficient to respond to 
such shortages. 

GAO's evaluation of the H-2A process, however, suggested that processing delays 
and late applications interfered with the ability of farm employers to fill 
certified jobs with foreign workers. But GAO recommended improvements to the 
efficiency of the program-streamlining and better monitoring the application 
process-rather than replacement. Further recommendations were for new 
Department of Labor authorities to require wage guarantees and to enforce labor 
standards and contracts. 

In their responses to GAO's report, both USDA and the Department of Labor 
agreed that there was no national farm labor shortage at this time and that the 
H-2A program, with some procedural changes, was adequate. USDA emphasized the 
localized shortages and the difficulty of matching qualified domestic farm 
laborers with jobs at the times and in the places they are needed, as well as 
procedural problems with the H-2A program that make it cumbersome for growers, 
particularly the long lead time (60 days) required for certifying jobs. 

Department of Labor, conversely, emphasized its interpretation that farm labor 
was actually in surplus, not shortage, based on such evidence as high 
unemployment in agricultural areas and persistent underemployment of 
farmworkers, as well as on the anticipated effects of new work requirements 
under welfare reform. Labor also agreed with GAO's assessment that INS 
enforcement efforts were unlikely to cause significant reductions in farm labor 
supply, regionally or nationally.

USDA expressed opposition to accepting a farm labor policy based on 
availability of an illegal labor force and noted that the original intent of 
the H-2A program had been to provide for a legal method of supplementing the 
U.S. farm labor supply with foreign workers whenever short-term, local 
shortages occurred. USDA pointed out that the H-2A program included safeguards 
to protect jobs, wages, and working conditions of domestic workers, whereas 
acceptance of undocumented and fraudulently documented workers in the farm 
labor force allowed uncontrolled competition from foreign labor that could keep 
wages low and working conditions poor.

Reform of H-2A Program Pending

Many farm employers remain dissatisfied with the current temporary guestworker 
program, despite the GAO findings. A number of bills to redesign the temporary 
nonimmigrant worker program for agriculture have been proposed in Congress 
during the current session. The U.S. Senate passed one of these (S. 2337), 
which would reform the current H-2A program, as an amendment to the Commerce, 
Justice, and State Departments Appropriations Act in July. 

The new legislation, still to be considered by the House, proposes the creation 
of a voluntary national registry, maintained by Department of Labor, through 
which available, eligible farmworkers and employers seeking to hire farm labor 
would be matched. Use of this job registry would replace the current employer 
recruitment requirements of the H-2A program. If the Department of Labor 
register could not provide the number of workers required, the employer would 
be entitled to receive visas for temporary foreign workers.

The legislation also would reduce the lead time for growers to request workers 
from 60 days to 21 days, and allow them to request visas for foreign workers 
only 7 days before they are needed. Changes are also proposed in the method for 
determining the minimum wage rate (involving greater participation by State 
employment services and employers), and in employer requirements for housing 
workers (allowing employers to provide vouchers to pay for rental housing, 
rather than providing housing on site).

Supporters of the legislation maintain the job registry would offer U.S. 
farmworkers the opportunity to assure first access to H-2A jobs, and that other 
changes would bring the program more in line with prevailing local and regional 
farm employment conditions. Farmworkers and their advocates generally oppose 
the changes in the H-2A program. They believe the proposals in the new 
legislation would lead to the hiring of large numbers of seasonal guestworkers 
by reducing both domestic labor recruitment requirements and the costs of 
hiring H-2A workers. 

The use of foreign labor in U.S. agriculture has been a perennial source of 
debate, beginning with the advent of large commercial agriculture operations in 
the last century. Farms employers want access to a supply of skilled labor 
available in the numbers and at the times needed with relatively short notice. 
They compete in a global marketplace that rewards low-cost producers and puts 
downward pressure on the wages and benefits they can provide.

Farmworkers and their advocates counter that without easy access to guestworker 
programs, farm employers would be forced to implement labor management 
strategies to train and retain skilled workers who would be available for 
employment when and where needed. They contend increased wages and improved 
working conditions could be easily absorbed into retail prices for farm 
products, since costs at the farm gate are such a small component of food 
prices.

Historically, Federal programs like the H-2A program have attempted to bridge 
the gap by offering a legal means for securing temporary foreign workers when 
needed while making an effort to ensure domestic workers do not lose jobs, 
wages, and benefits through competition with nonimmigrant workers. But opposing 
positions on the issue present little opportunity for consensus or compromise. 
Responses to the legislation currently under consideration suggest that this 
debate will not end soon.
Anne B. W. Effland (202) 694-5319 and Jack L. Runyan (202) 694-5438
aeffland@econ.ag.gov
jrunyan@econ.ag.gov 

FARM & RURAL COMMUNITIES BOX
Using the Current Population Survey 
To Profile Hired Farmworkers

For its annual profile of hire farm labor, USDA's Economic Research Service 
(ERS) uses the Bureau of Census' Current Population Survey for several reasons. 
The data provide information on the total number of hired workers in 
agriculture, rather than a single sector of the industry. They also provide 
data on both demographic and earnings characteristics of hired farmworkers, 
because they survey individual workers rather than employers. And they allow 
for direct comparisons between the hired farm workforce and all wage and salary 
workers, since the CPS collects data on a representative sample of the entire 
U.S. population living in civilian, noninstitutional households.

The CPS has several limitations as a source of data on the hired farm 
workforce. The survey classifies employed persons according to the job at which 
they worked the greatest number of hours during the survey week. As a result, 
hired farmworkers who spent more time during the survey week at their nonfarm 
job than at their farm job would not be included in the primary employment 
count as hired farmworkers. They would be counted instead as having hired 
farmwork as their secondary employment.

The CPS may also undercount Hispanics in the hired farm workforce. Because the 
CPS is based on a survey of households, it may undercount farmworkers not 
living in traditional types of housing, many of whom are likely to be Hispanic. 
In addition, undocumented or fraudulently documented foreign farmworkers may, 
because of their illegal status, avoid survey enumerators.

Access to Nonfarm Jobs Limited 
For Crop Production Workers

Many hired farmworkers seek nonfarm jobs to supplement their incomes. However, 
their low education and skill levels often limit their ability to compete for 
higher wage, nonfarm jobs. Annual averages derived from the CPS cannot capture 
information about the number of farmworkers who combine farm and nonfarm work 
within a year. Using data from a survey conducted by the Department of Labor, 
the National Agricultural Workers Survey (NAWS), however, can provide some 
information on such efforts by crop production workers to supplement seasonal 
farm income. 

The Department of Labor conducts the NAWS three times each year, gathering data 
on the demographic and earnings characteristics of a sample of workers employed 
in seasonal agricultural services, primarily crop production. Hired farm 
workers employed in the livestock industry are not included in this survey. 
(Readers should note that the NAWS survey sample is entirely different from 
that of the CPS so data from the two surveys are not statistically comparable.)

During 1994-1995, NAWS found that about one-fourth of crop production workers 
also did nonfarm work. Workers born in the U.S. were much more likely to hold 
nonfarm jobs than were foreign-born workers (41 percent and 19 percent), and 
younger workers, ages 18-35, were somewhat more likely to do nonfarm work than 
workers 35 years and older (29 percent and 21 percent). Opportunities for 
nonfarm work appeared to be more plentiful in the Midwest and Western Plains, 
where 43 percent of the sample held nonfarm jobs during the year. Much smaller 
proportions of farmworkers held such jobs in other regions (Southeast, 24 
percent; Northwest, 20 percent; Northeast, 16 percent; and West, 8 percent).


RESOURCES & ENVIRONMENT
The Clean Water Action Plan: Implications for Agriculture 

An ambitious Federal proposal for improving and protecting water quality could 
affect the way farmers manage their land in many parts of the country. The 
Clean Water Action Plan, a guidepost for future national water quality policy, 
involves  a fundamental shift in policy to emphasize control of nonpoint 
sources of pollution. 

A basic premise of the Clean Water Action Plan (CWAP) is that, while existing 
approaches to water quality protection have resulted in many successes, they 
are inadequate for achieving the goals of fishable and swimmable water for all 
Americans. The plan proposes a change in the direction of water quality policy 
to focus on watersheds that are water-quality- impaired, and a coordinated 
effort to address both point and nonpoint sources of pollution. These sources 
include agriculture.

The centerpiece of U.S. water quality policy has been the Clean Water Act 
(CWA), passed in 1972, with several subsequent reauthorizations. While the CWA 
has resulted in a great number of successes, many water quality problems 
remain. Instead of looking for needed changes in water quality policies through 
a reauthorization of the CWA, the Administration decided to develop new 
initiatives within the context of existing laws and programs for more complete 
water quality protection.

In October 1997, Vice President Gore instructed the U.S. Environmental 
Protection Agency (EPA) and USDA to develop a strategy for fulfilling the 
original CWA goal of fishable and swimmable waters for all Americans. After 4 
months of work, and with assistance from other Federal agencies, the Clean 
Water Action Plan (CWAP) was issued and put into action.
The CWAP recognizes the accomplishments since passage of the CWA in 1972, and 
considers what has worked well, what can be improved, and what remains to be 
done. Because agriculture has been identified as a major contributor of many 
remaining water quality problems, any attempts to further improve national 
water quality will involve agriculture. 

The CWAP addresses three major goals:
enhanced protection from public health threats posed by water pollution, 
more effective control of polluted runoff, and
promotion of water quality protection on a watershed basis 

The first goal has been an important consideration in past water quality 
programs, but more can be done to protect people from pathogens and toxic 
materials. The latter two goals, which have been less prominent in past 
programs, are vital for achieving further water quality improvements in a cost-
effective manner. The initiatives proposed to address these goals cover the 
complete range of water quality issues, including improved water quality 
monitoring and reporting, improvements in the way industries are monitored, new 
approaches for protecting water resources and wetlands, improved stewardship of 
both public and private lands, and involvement of local citizens and other 
stakeholders.

An Overview of 
U.S. Water Policy

Some background on U.S. water quality policy may clarify the rationale for the 
Clean Water Action Plan. The 1972 Clean Water Act (along with reauthorizations 
in 1977, 1982, and 1987) established goals of fishable and swimmable water for 
all rivers, lakes, and streams, and put in place a regulatory structure for 
controlling discharges from factories, sewage treatment plants, and other 
"point" sources of water pollution. 

Point source pollution enters water bodies through pipes or other discrete 
conveyances. Such pollution is easy to observe and to measure, making 
regulatory approaches for control relatively easy to implement.

But point-source pollution is not the only kind. Nonpoint-source pollution 
enters water diffusely in the runoff or leachate from rain or melting snow, and 
is often a function of land use. Examples of nonpoint-source pollution include 
runoff from cropland, feedlots, forests, pastures, and city streets, and 
atmospheric deposition. Nonpoint-source pollution is very difficult and often 
too costly to observe and to measure and therefore much more difficult to 
control. 

Under the CWA, the States took the lead in controlling nonpoint-source 
pollution, and the law did not specify the means of controlling it. States have 
implemented nonpoint source pollution programs that are largely voluntary, 
relying on landowners to implement practices that reduce water pollution. 
States sometimes provide landowners with financial assistance for implementing 
alternative management practices, and commonly depend on technical assistance 
from conservation districts and from USDA's Natural Resources Conservation 
Service. 

The different approaches for dealing with point sources (federally based 
regulations) and nonpoint sources (locally based, largely voluntary) have led 
to improvements in some aspects of water quality, but not in others. Many 
problems resulting from point source pollution have been addressed, 
particularly around urban areas. 

No longer are there news stories of the Cuyahoga River catching fire, or of 
Lake Erie being biologically dead. Instead there are reports of increasing 
recreational use of major rivers such as the Potomac, Delaware, and Hudson, 
even near major urban areas. While the number of people served by municipal 
sewage treatment plants has more than doubled since 1972, discharge standards 
have reduced the discharge of toxic materials by billions of pounds per year. 
Today, 60 to 70 percent of assessed waters meet State water quality goals 
(measured by miles for rivers, and by area for lakes and estuaries). 

However, water quality problems remain, most attributed to pollution from 
nonpoint sources. According to the most recent EPA Water Quality Inventory, 36 
percent of surveyed rivers, 39 percent of surveyed lakes, and 38 percent of 
surveyed estuaries are impaired for one or more uses. About half of the 
Nation's 2,000 watersheds are in need of restoration or protection. Recent, 
well-publicized incidents include microbe-related fish kills in nutrient-
enriched waters; the closing of shellfish beds due to bacterial contamination; 
the presence of pesticides in drinking water; degradation by nutrients of 
national resources such as the Gulf of Mexico, Chesapeake Bay, and the 
Everglades; and the deaths of more than 100 people in Milwaukee when the city's 
water supply became contaminated with the microorganism Cryptosporidium.

Nationally, agriculture is believed to be a source of the pollutants in 70 
percent of impaired river and stream miles, and 49 percent of impaired lake 
acres. A U.S. Geological Survey (USGS) study of agricultural land in watersheds 
with poor water quality estimated that, in the watersheds where 71 percent of 
U.S. cropland (nearly 300 million acres) is located, concentrations of at least 
one of four common surface-water contaminants (nitrate, phosphorus, fecal 
coliform bacteria, and suspended sediment) are above instream criteria for 
supporting water-based recreation activities. 

Well-water sampling by EPA and USGS found widespread evidence of pesticides and 
nitrogen from agriculture entering groundwater resources, possibly threatening 
water supplies in some areas. Comprehensive estimates of damages from 
agricultural pollution are lacking, but soil erosion alone is estimated to cost 
water users $2-$8 billion annually.

The Role of Agriculture

The CWAP lays out 10 principles to guide clean water protection efforts.
ostrong standards for clean water
ostronger efforts to protect human health
o    watershed management as the basis for water quality policy
orestoration of watersheds not meeting CWA goals
olinks between water quality and natural resource programs
oresponse to growth pressures on sensitive coastal waters
oprevention of polluted runoff
ostewardship of Federal lands and resources
oimprovement of water information for citizens
oensuring compliance, and fair protection of all citizens. 

The principles are to be carried out through 111 key action items that 
represent the issues to be addressed by Federal agencies over the next year. 
To the extent that they are carried out, these principles have important 
implications for agriculture.

Among the 10 CWAP principles, those with particular importance for agriculture 
are watershed management, setting strong standards for cleaner water, 
preventing polluted runoff, and improving citizen awareness and involvement by 
providing information on water quality. The principle of watershed management 
presupposes the other three.

Watershed management is important because the effects of water pollution are 
generally felt within the watershed in which pollutants originate. The 
management process begins by determining and setting appropriate water quality 
standards or goals for the region. Water quality standards (numeric, instream 
limits on pollutants) have been important tools for guiding policies aimed at 
point sources. However, standards for agricultural pollutants such as nitrogen 
and phosphorous have never been set. The CWAP proposes the use of water quality 
standards for nitrogen and phosphorous to protect human and ecological health. 
Such standards provide a means for identifying watersheds that are in need of 
protection, as well as the level of improvement required to achieve water 
quality goals.

Watershed management will likely foster the identification of water bodies most 
affected by pollution, and the sources of those pollutants within the 
watershed. Sources that can be controlled at least cost can then be addressed 
first. 

The CWAP principle of preventing polluted runoff focuses on the most important 
source of remaining water quality problems in the U.S. Given the extent to 
which point source discharges have been reduced over the past 25 years, it 
would be difficult and costly to further improve water quality in impaired 
watersheds solely by imposing tighter controls on point sources. Research 
suggests that further water quality improvements can be achieved at least cost 
by focusing efforts on controlling polluted runoff, since nonpoint sources of 
pollution have not been strongly controlled in the past. Agriculture is likely 
to be a primary focus in many watersheds with impaired waters because it is a 
major source of polluted runoff and remaining water quality problems.

Nutrient runoff results from both crop and livestock production. The CWAP 
places particular emphasis on the management of animal waste. Recent trends in 
the livestock industry have resulted in larger, more concentrated operations. 
The huge amount of animal waste generated by these facilities has raised 
concerns at the local level over environmental quality and health. Problems 
arise when waste is improperly handled at the site, or when it is spread on 
land at rates that exceed agronomic standards. Improper management can result 
in risk of ecological damage to streams and threats to human health. 

Public concerns about animal waste have prompted some States to focus efforts 
on reducing environmental threats from animal feeding operations (AFO's). On 
the Federal level, the CWA includes two items that address these concerns. 
First, EPA will use current regulatory authority to address standards and 
permits for the larger animal operations. Second, EPA and USDA will develop a 
unified national strategy to minimize the environmental risk and public health 
impacts of AFO's. 

On September 21, the draft unified strategy was published in the Federal 
Register to solicit public comment for a period of 120 days. The draft strategy 
covers voluntary programs under USDA as well as regulatory efforts that EPA 
carries out for larger operations through State agencies. 

The CWAP is not specific as to how runoff from crop production will be 
addressed; however, improved management of both commercial fertilizer and 
animal waste applied to cropland may become a major program goal in many areas. 
Nutrient management can be encouraged through a variety of means, including 
education, financial incentives, and regulation. 

The approach that provides the most cost-effective level of control depends on 
the presence of other sources of nutrients (including point sources) as well as 
the characteristics of agriculture (e.g., crops grown, soil resource base) and 
of farmers (e.g., income, management skills). If EPA and the States believe 
that regulatory policies are necessary, controls will have to be carefully 
designed and based on factors that are easily observable, such as input use or 
management practices.

Cost-effective control of runoff on a watershed basis requires coordination 
between programs and policies offered by all levels of government. Existing 
water pollution control programs are not well coordinated. Currently, these 
programs exist at the Federal, State, and local levels and include the point-
source permit program under the Clean Water Act, the individual State nonpoint-
source management programs developed under the Clean Water Act, coastal zone 
nonpoint-source programs under the Coastal Zone Management Act, and separate 
State programs to deal with unique local problems. 

In addition, USDA and State departments of agriculture currently provide 
financial, technical, and educational assistance for nonpoint-source pollution 
control through a variety of conservation programs as resources permit. 
Examples are USDA's Environmental Quality Incentive Program and the 
Conservation Reserve Program.

Coordinating and integrating existing programs managed by State and local 
governments could increase the effectiveness of the programs and reduce 
administrative costs by pooling resources, ensuring consistency, and 
eliminating redundancies in authority. The CWAP  recognizes a need for 
enforceable authority as part of a watershed management program to ensure that 
adequate pollution controls are in place if voluntary efforts are not fully 
successful.

The Clean Water Action Plan acknowledges USDA's key role in national water 
quality policy. USDA has considerable experience in working with farmers, and 
has a long history of working on a watershed basis. Specifically, USDA will 
play a role in developing watershed protection goals and water quality 
protection strategies along with EPA. 

In addition, USDA will be a major source of education, technical assistance, 
and financial assistance to landowners developing comprehensive management 
plans to protect water quality. Current USDA programs such as the Environmental 
Water Quality Incentive Program, Conservation Reserve Program, Wetland Reserve 
Program, and Wildlife Habitat Incentive Program can all provide incentives to 
farmers for addressing water quality concerns. The CWAP proposes increased 
funding for USDA to support water quality efforts.

Finally, in keeping with the concept of watershed management, the CWAP suggests 
that citizens take a more active role in water quality protection so that 
program agencies and responsible parties may react to local concerns. To 
promote such involvement, the plan calls for improvements in water quality 
monitoring and reporting of water quality information to keep citizens informed 
of the quality of the water they drink or come into contact with through 
recreation. The knowledge that water contains undesirable materials will likely 
increase citizen demand for additional protection of water quality. Recent 
actions to reduce the impacts of animal waste are a reflection of effectively 
communicated grassroots concerns.

The Clean Water Action Plan  portends greater scrutiny of agricultural 
production practices in the future. While all its components may not be carried 
out, farm operators can expect to see increased use of financial, technical, 
and educational assistance, and enforceable mechanisms to reduce polluted 
runoff in watersheds that are impaired by agricultural pollutants.
Marc Ribaudo (202) 694-5488 and Richard Horan (202) 694-5474
mribaudo@econ.ag.gov
rhoran@econ.ag.gov  


SPECIAL ARTICLE
Cuba's Agriculture: Collapse and Economic Reform                

Cuba has responded in part to its current economic crisis by beginning to open 
the economy to market forces and to pursue more open trade with the other 
countries in the region. From the perspective of land area, population, and 
agricultural production, Cuba dominates the Caribbean. If Cuba chooses to join 
the global market economy, its economic influence could significantly increase. 
If U.S.-Cuba trade opens, Cuba has the potential to become a new source for 
U.S. agricultural and food imports,a destination for U.S. investment, a major 
market for U.S. exports as well as a competitor for U.S. producers 
(particularly those in Florida), and an attraction for U.S. tourists.

Collapse of the Cuban Economy

Cuba's recent economic history can be broken into three periods delineated by 
two major events:  the 1959 communist revolution, and the collapse of the 
centrally planned economies of Eastern Europe in 1989 and of the Soviet Union 
in 1991.

In the pre-revolutionary period, Cuban resources were concentrated in the hands 
of a few. Eight percent of the landowners controlled more than 70 percent of 
the land, and U.S. owners controlled 25 percent of Cuban land. U.S. investments 
were diversified throughout the economy. In agriculture, many large U.S. 
companies had investments in sugar, cattle, and tobacco. In this era, the Cuban 
and U.S. sugar economies were tightly integrated, and over half of Cuban sugar 
exports went to the U.S.,  providing over one-third of U.S. sugar imports.

Castro's revolution broke up the concentration of resources and nationalized 
much of the economy. Relations with the U.S. deteriorated. The U.S. broke off 
diplomatic relations with Cuba in 1961 and imposed a trade and financial 
embargo in 1962. The embargo was tightened by the Cuban Democracy Act of 1992 
and the Cuban Liberty and Democratic Solidarity Act of 1996 (Helms-Burton). The 
1992 legislation penalized other countries if their ships stopped in Cuba. The 
1996 Act limited trade by third-country subsidiaries of U.S. companies, allowed 
the President to impose sanctions on countries trading with Cuba, barred 
officials of companies doing business with Cuba from entering the U.S., and 
codified an Executive Order-based embargo into law.

The embargo forced Cuba to rely on the more distant suppliers and markets in 
Europe and Asia. Since ships engaged in Cuban trade were unable to enter U.S. 
ports, Cuba was also forced to use high-cost Cuban vessels or pay higher 
freight charges to cover empty back hauls to non-U.S. ports. All this led to 
increased import costs. This, in turn, led to higher costs and lower levels of 
production, high food prices, and chronic food shortages, exacerbated in 1998 
by drought.

Also following the revolution, Cuba's economy became heavily dependent on 
Soviet support. Cuba's sugar-dependent economy relied on Soviet economic 
assistance and on markets in the USSR and Central and Eastern European 
countries. The Soviets bartered crude oil and refined products at below-market 
prices in exchange for Cuban sugar at relatively high price levels (51 cents 
per pound in 1986 compared with a world market price of 6 cents). Cuban sugar 
production ranged from 4 to 8 million tons throughout the 1960's, 1970's, and 
1980's. Soviet assistance served to offset most of the negative impacts of the 
U.S. embargo, and accounted for as much as one-fourth pf Cuba's national income 
in some years. 

With the 1989 collapse of the centrally planned economies of Eastern Europe and 
the 1991 dissolution of the Soviet Union, Cuba lost both its major markets and 
its primary source of foreign assistance. As a result, the Cuban economy 
collapsed, and the full effect of the U.S. embargo became evident. The loss of 
cheap Soviet oil also triggered a Cuban energy crisis. Cuban foreign trade fell 
75 percent, and economic output fell 50 percent.

By 1994, agricultural production had fallen 54 percent from 1989 levels. 
Particularly hard hit were sugar and tobacco production. Food consumption fell 
36 percent. Daily caloric intake fell from 2,908 calories per day in the 1980's 
to 1,863 calories per day in 1993. (The USDA-recommended minimum is 2,100-2,300 
calories per day.)  For those most dependent on state rations-the very old and 
the very young-consumption fell to 1,450 calories per day. 

Government Reforms 
Begin Economic Recovery

The Cuban Government responded to this economic crisis with a major program of 
reforms. Initiating market-oriented reforms, allowing foreign investment, and 
promoting a diversified export program have set the stage for Cuba's economic 
recovery. 

In 1990, Cuba announced a "Special Period in Peacetime" economic austerity 
program to counter the loss of Soviet support. The program rationed food, fuel, 
and electricity and gave priority to domestic food production, development of 
tourism, and biotechnology. The collapse of the sugar sector and its poor 
prospects emphasized the need to diversify agricultural production.

In 1993, the Cuban Government established a new form of cooperative-the Basic 
Unit of Cooperative Production, or UBPC- initiating the process of breaking up 
large state farms. While  land title remains with the state, these cooperatives 
have the right to use the land and make production and resource decisions. 
State enterprises still provide marketing, technical assistance, production 
services, and agricultural inputs. Producers are allowed to sell surplus 
production after delivering a contracted monthly quota to the state.

In 1994, the Government established farmers' markets, where producers' surplus 
production can be sold at free-market prices. Farmers' markets now handle 25-30 
percent of the farm products available to Cuban consumers.

Cuba also fostered the establishment of foreign "economic associations" (joint 
ventures, international contracts) to allow increased foreign investment in the 
tourism, mining, telecommunications, manufacturing, and construction sectors of 
the Cuban economy. To date, foreign investment in agriculture is relatively 
small, although associations have been created for citrus, tobacco, sugar, and 
rice. Cuba is also encouraging foreign investment in nonexport crops to support 
its growing tourist industry.

Since the initiation of reforms, GDP growth, consumption, and production are 
showing signs of recovery. Major growth areas in the Cuban economy are tourism, 
nickel and ore production, fisheries, manufacturing, tobacco, and vegetables. 
Cuban exports are growing and becoming more diversified (50 percent to Europe, 
25 percent to Canada and Latin America, and 20 percent to Asia). Seafood has 
become a major source of export earnings.

Growth in tourism has been  rapid. Cuba has natural resource advantages that 
should continue to spur tourist industry expansion. Tourism is now Cuba's 
biggest source of gross foreign exchange, earning $1.4 billion in 1996, 
compared with $900 million earned by sugar, Cuba's largest export. However, 
about 70 percent of this tourism foreign exchange is used to purchase inputs 
needed by the tourist industry.

While Cuba's economic recovery has started, severe problems remain. The Cuban 
trade deficit continues, foreign exchange problems persist, and energy is still 
in short supply. Agricultural production has not completely returned to pre-
crisis levels. Industry infrastructure remains in poor condition, and 
investment resources are still in short supply. Problems are still serious 
enough to keep Cuba's economic austerity program in place.

Cuba's Agricultural Export Prospects

A number of Cuban-produced commodities have been identified as likely 
candidates for export and/or investment once commercial relations between Cuba 
and the U.S. resume. The commodities are sugar, citrus, vegetables, tropical 
fruits, and fisheries, according to a University of Florida-University of 
Havana study of Cuba's agricultural and fisheries economy. The work of this 
ongoing study was reported at a workshop sponsored by the University of 
Florida's International Agricultural Trade and Development Center and the 
National Center for Food and Agricultural Policy. Held on March 31, 1998, the 
workshop addressed the Role of the Agricultural Sector in Cuba's Integration 
into the Global Economy and its Future Economic Structures: Implications for 
Florida and U.S. Agriculture. 

Sugar. For most of this century, the Cuban sugar industry has been subsidized 
by foreign countries. Until 1960, the U.S. received more than 33 percent of its 
sugar needs from Cuba under the U.S. Sugar Act. From 1960 through 1991, the 
Soviet Union bartered low-priced oil for high-priced sugar. Thus, until 1992, 
the Cuban sugar economy enjoyed guaranteed markets at premium prices-with 
little incentive to improve efficiency.

After the 1959 revolution, Cuban leadership blamed the sugar industry for the 
country's underdevelopment. When the Government abandoned care of sugarcane 
fields and shifted land to other agricultural products, the sugar industry 
infrastructure deteriorated. Sugar production fell from an average annual 
volume of 5.6 million metric tons in the 1950's to 5.2 million metric tons in 
the 1960's. In the 1969-70 sugar season, a policy change declared sugar to be 
the backbone of the economy. Sugar production rebounded to an annual average of 
6.4 million metric tons in the 1970's and 7.7 million metric tons in the 
1980's. After the loss of Soviet support, sugar production collapsed from 8.1 
million metric tons in 1989 to 4 million metric tons in 1993-96). CubaNews (May 
1998) reports that 1998 may bring one of the poorest sugar harvests ever, with 
production at about 3 million metric tons.

Cuba's sugar market problem is an issue of production, not export demand. Most 
Cuban sugar is produced as raw sugar for further refining in the countries that 
import it. Cuba has historically been a low-yield, high-cost sugar producer and 
an inefficient manager. Production costs averaged 90 percent above world market 
prices in 1986-90 and 50-70 percent above in 1996-97. The industry is 
characterized by small, inefficient mills. Ninety percent of the sugar mills 
were built before 1925. 

The sugar industry has been particularly hard hit by the lack of foreign 
exchange to purchase needed production inputs (fertilizer, oil, parts and 
equipment). The related energy crisis has also led to a breakdown of the 
transportation system which causes a further reduction in sugar refining.

In reaction to the severe production drop, Cuba created sugar UBPC's and opened 
the sector to foreign capital investment to help modernize and expand crushing 
capacity (principal, interest, and a portion of profit are paid in sugar). 
Given economic incentives and increased investments in the industry, Cuban 
sugar production, and therefore exports, could rebound. However, current world 
market conditions and the unsettled situation in Cuba make the likelihood of 
major, long-term investment flows into Cuba's sugar industry remote.

Citrus. Cuba is the third major grapefruit producer in the world, behind the 
U.S. and Israel. Cuban citrus is sent to both fresh and processed export 
markets. Fifty percent of processed fruit in Cuba is grapefruit. Oranges (60 
percent) and grapefruit (36 percent) comprise nearly all of Cuba's citrus 
production. 

The Cuban grapefruit harvest starts in mid-August. If the embargo is lifted, 
this early harvest could put grapefruit (particularly red seedless grapefruit) 
in U.S. markets in August-September when U.S. supply is small.

Cuban oranges are Valencia (like Florida's) and, because of seed content and 
external appearance, would not compete in the U.S. fresh market with either 
California varieties or even Florida Valencias. Most are exported to Western 
Europe.

Cuba also produces Persian limes, for which U.S. fresh demand is growing and 
U.S. production is small. Mexico is the current major U.S. supplier, but Cuban 
Persian limes could be competitive in the U.S. market if U.S.-Cuba trade were 
initiated.

In addition, processing industry byproducts-such as essential oils, lime juice, 
and pectin-could enter and compete in an opened U.S. market. Conversely, 
Florida has the potential for becoming a major supplier of inputs and 
technology to Cuba's citrus industry.

Vegetables and tropical fruits. Fruits and vegetables are a key component of 
Cuban agricultural production. Much of the produce  is consumed fresh in the 
domestic market. However, the seasonality of production creates demand for 
processed products.

Production fell in 1993, and that year the large state farms were converted to 
UBPC's and the cooperatives were allowed to sell a portion of their production 
in farmers' markets at market prices. This improved environment for potential 
earnings is resulting in increased production.

Nevertheless, the processing industry has been hampered by production declines 
of the 1990's, as well as by diminished investment, reduced energy supplies, 
and lack of foreign exchange to support purchase of imported inputs 
(particularly containers).

There is some potential to expand tropical fruit and fresh vegetable production 
for export, particularly to fill niche markets. However, lack of storage and 
transportation infrastructure are significant limiting factors. Because of 
resource constraints, Cuba has had to rely on organic methods of production 
rather than agrochemical inputs. As a result, Cuban agriculture is already 
heavily organic and could supply a significant part of the U.S. niche market 
for organic products. 

Any exports to the U.S. would be subject to compliance with U.S. sanitary and 
phytosanitary regulations. Organic products would  have to satisfy U.S. 
guidelines for organic certification.

Fisheries. The fishing industry, which  also suffered serious declines in the 
early 1990's, is now making a comeback and is an important source of foreign 
exchange for Cuba.

In the late 1970's, most nations in the hemisphere imposed 200-mile limits for 
territorial waters and denied Cuba access to these waters. Cuban fleets, which 
were designed to ply these waters, were forced to operate in more costly open-
ocean waters. This left Cuba with a high-cost fleet that had to target the low-
value fish from distant waters. This fleet was highly dependent on subsidized, 
low-cost Soviet oil, and the collapse of the Soviet Union caused a virtual 
shutdown of Cuba's high-seas fishing fleet.

Cuba's remaining fisheries industry has primarily targeted near-shore high-
value species. As with agriculture, Cuba's post-collapse policy reduced 
government oversight of fishing operations. Fisheries cooperatives were formed, 
in which the Government continued to own the vessels and set budget and 
production quotas, but excess production could generate monthly bonuses.

Cuba has a production and shipping cost advantage compared with other Caribbean 
Basin countries that trade with the U.S. Growing U.S. demand offers a potential 
market for Cuban seafood, such as spiny lobster, pink shrimp, and reef fish 
(snapper, grouper). 

Cuban spiny lobster production averages 19.7 million pounds annually, compared 
with Florida's of 7.2 million pounds. Currently, Cuban spiny lobsters are 
exported to Japan and the European Union. Since 40 percent of Cuban spiny 
lobster production occurs during Florida's closed season, Cuba could readily 
capture a significant portion of the U.S. lobster tail market without directly 
competing with Florida's industry. In addition, the U.S. market could easily 
absorb Cuban shrimp and reef fish production.

Tobacco.  Tobacco is Cuba's fifth leading foreign exchange earner. Cuban 
tobacco is famous for its quality and aroma. It is used extensively in cigar 
manufacturing. As with other agricultural commodities, both tobacco production 
and cigar output fell drastically after the collapse of the Soviet Union. 
Continuing shortages of inputs and energy have restricted recovery. Cuba 
estimates that it now meets only  about one-fourth of world demand for Havana 
cigars.

Spain, France, and the United Kingdom currently have investments in the Cuban 
tobacco industry. Opening the U.S. market would create a new, large, high-
income market for both Cuban cigars and Cuban unmanufactured tobacco for 
blending with U.S. tobacco in the manufacture of cigars.

Potential U.S.-Cuba 
Agricultural trade

Once Cuba has a transition government committed to economic and political 
reform and the establishment of a fully democratic, pluralistic society, the 
U.S. will begin normalizing relations and providing assistance to support 
Cuba's transition. Economic sanctions would then be  suspended and negotiations 
would be initiated to promote bilateral trade.

The most likely candidates for Cuban export to the U.S. are sugar, citrus, 
vegetables and tropical fruits, seafood, and tobacco. While Cuba is a potential 
competitor in some of these commodities, particularly those produced in 
Florida, many Cuban exports would be either complementary or seasonally 
noncompetitive. 

Cuba continues to import a significant amount of agricultural products. Its 
foreign food needs are primarily temperate-zone products that have become 
staples in their diet and cannot be easily produced domestically. The general 
consensus is that U.S. agricultural exports to Cuba could be about $1 billion 
annually. This estimate takes into account U.S.-Cuba trade before the 
revolution, U.S. trade with other Caribbean countries with comparable 
resources, and Cuba's production potential. 

The bulk of U.S. food exports would be rice, coarse grains, beans, wheat flour, 
and animal products. Before the revolution, Cuba had a livestock sector with 
substantial U.S. investment, and there is potential for relatively large-scale 
livestock production to resume. A recent U.S. Grains Council study concluded 
that Cuba would import about 500,000 tons of feed grains annually if U.S. 
sanctions on trade were lifted.

Cuba's sugar, rice, and tobacco crops are dependent on imported inputs in order 
to sustain yields. Fuel and petroleum imports are also critical for maintaining 
Cuba's productive capacity. Potential U.S. agricultural input exports to Cuba 
include fertilizer, herbicides, pesticides, agricultural machinery, and other 
technology. 

Increased trade is, in part, dependent on increased foreign investment in the 
Cuban economy. In addition to providing opportunities to the firms that invest, 
this would increase Cuba's economic growth, generating greater consumption and 
a corresponding growth in Cuban import demand.

During the 1990's, Cuba significantly increased the number of foreign economic 
associations. These associations consisted of one or more national investors 
and one or more foreign investors forming either joint production ventures or 
joint international economic association contracts to produce goods or provide 
services for profit. Over $5 billion in foreign investments in Cuba have been 
announced since the policy reforms, but only about $1 billion has been 
invested. More than 90 percent of this investment has come from Mexico, Canada, 
Australia, Spain, South Africa, the Netherlands, Brazil, and Chile. Major areas 
of investment are tourism, mining, telecommunications, and basic manufacturing.

Foreign investment in agriculture has been relatively small to date. Only about 
10 percent of all foreign investment in Cuba has been in agriculture. Lifting 
U.S. sanctions on trade and financial relations could lead to a significant 
amount of U.S. capital investment flowing into Cuba, particularly from Florida. 
U.S. foreign investment in Cuba's agriculture would most likely target Cuba's 
export industries and its vegetable production activities. In addition to 
direct investments, imports of agricultural inputs would likely generate a 
significant amount of financial credit to Cuba and Cuban industry, with much of 
it likely provided by U.S. sources.
William Kost (202) 694-5226
wekost@econ.ag.gov  

SPECIAL ARTICLE BOX
Cuba's Economic Geography

Cuba, the largest country in the Caribbean, is 90 miles south of Key West, 
Florida.  It has a tropical climate, moderated by trade winds, with a landscape 
of flat to rolling plains and rugged hills and mountains in the southeast.  The 
natural resource base includes cobalt, nickel, iron ore, copper, manganese, 
salt, timber, and silica.  The leading sources of foreign exchange, in order of 
importance, are tourism, sugar, nickel, seafood, and tobacco.

Cuba has about 11 million people and its annual population growth rate is 0.4 
percent.  Sixty percent of the Cuban people were born after the 1959 
revolution, and the average age is 23.  The literacy rate is more than 95 
percent.

Cuba has nearly as much land area as the rest of the Caribbean islands 
combined.  Its 11 million hectares make Cuba about the same size as Ohio or 
about three-fourths the size of Florida.  About 60 percent of the land is in 
agriculture.  Seventy percent of the agricultural land is tilled and 20 percent 
of the tilled land is irrigated.  Due to extensive deforestation, high 
freshwater withdrawal rates, heavy mineral concentrations, and pollution, Cuba 
faces problems with its water supply.

About 40 percent of the tilled land is planted to sugarcane and about 11 
percent to vegetables.  The sugar industry has been one of Cuba'ss major 
industries, particularly through the 1980's, employing about one-sixth of the 
population and consuming about one-third of Cuban resources.  Sugar products 
represent about 80 percent of the value of Cuban exports and contribute about 
10 percent of Cuba's GDP.

END_OF_FILE
