NOTE: AO has 10 issues in 2001.  Please note that reports are released in one
month, BUT THE ISSUE DATE IS FOR THE FOLLOWING MONTH; e.g., the May 2001 issue
is released in April.

AGRICULTURAL OUTLOOK -- SUMMARY                        December 20, 2000
January/February 2001, ERS-AO-278
     Approved by the World Agricultural Outlook Board
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This SUMMARY is published by the Economic Research Service, U.S. Department
of Agriculture, Washington, DC 20036-5831. The complete text of the 
report will be available electronically 2 working days following this summary
release.    
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SUMMARY
                         
Slower Growth for U.S. Economy in 2001
     U.S. economic growth slowed markedly in the second half of 2000.
From a breakneck rate of 6 percent in the first half of 2000, forecast
growth in Gross Domestic Product (GDP) decreased significantly in the
second half of 2000, resulting in an average annual growth rate
expected at 5.2 percent. In 2001, GDP growth is expected to drop
further, averaging 3 percent, owing to continued tightness in labor
markets, a slowing of consumer income growth, and tightening credit
that will slow business investment. Despite these trends, the U.S.
economy will probably not experience a recession, because of overall
increases in productivity and investment, a reduced trade deficit, and
continued gains in consumer income and jobs. Inflation rose moderately
in 2000 to 2.3 percent and will increase slightly in 2001 to around 2.5
percent due to higher labor and energy costs. David A. Torgerson (202)
694-5334; dtorg@ers.usda.gov

Surging Demand Pulls Dairy Industry in New Directions
     Growth in milk output is expected to ease slightly in 2001, which
may allow prices for milk and dairy products to recover in calendar
2001. Since late 1999, very large supplies have put prices under
pressure, even as the strong economy generated the strongest demand in
many decades. With the economy projected to expand in 2001, although
more slowly, consumer income and spending should continue to gain.
Thus, demand for dairy products--especially those used by restaurants
or as ingredients in prepared foods--is expected to stay strong. James
Miller (202) 694-5184; jjmiller@ers.usda.gov

Global Agricultural Negotiations at the WTO
     Global trade negotiations on agriculture, which the World Trade
Organization (WTO) opened in Geneva in March 2000, are expected to
address three areas of national agricultural policy: market access
limitations (tariffs, tariff-rate quotas, and other trade barriers),
domestic support to agricultural producers, and export subsidies. These
policies cause world agricultural prices to be about 12 percent below
the level they would otherwise be, according to recent analysis by
USDA's Economic Research Service.
     Nearly 80 percent of world agricultural price distortions are
accounted for by developed economies. Reform commitments implemented by
developed-country WTO members during 1995-2000 include: reducing
tariffs by 36 percent and converting most nontariff barriers to tariffs
or to tariff-rate quotas; reducing aggregate levels of domestic support
by 20 percent; and placing declining ceilings on the value and volume
of subsidized exports. Over the long term (about 15 years), full
elimination of agricultural price distortions would lead to an increase
in world welfare, or consumer purchasing power, of $56 billion
annually, with nearly one-fourth accruing to the U.S. alone. Mary E.
Burfisher (202) 694-5235; burfishr@ers.usda.gov

EU Enlargement: Negotiations Give Rise to New Issues
     The European Union (EU) continues active negotiations with 10
countries of Central and Eastern Europe (CEE) for membership in the EU.
Negotiations that began in March 1998 with five CEE's (Poland, Hungary,
Czech Republic, Slovenia, and Estonia) expanded to five others in
October 1999--Latvia, Lithuania, Slovakia, Bulgaria, and Romania.
Cyprus and Malta--two non-CEE states--are also candidates for
membership.
     Several recent developments could dramatically alter the impact of
accession on agriculture in Europe. Accession will most likely be
delayed from earlier expectations and will probably include a
transition period. EU negotiators have also expressed reluctance to
grant CEE farmers the full range of Common Agricultural Policy support
immediately on accession. In addition, depreciation of the euro since
1999 means that the gap between CEE and the generally higher EU prices
has narrowed considerably, and that higher prices anticipated by CEE
producers upon accession may not materialize. Nancy J. Cochrane (202)
694-5143; cochrane@ers.usda.gov

Hired Farm Labor in the U.S. & Mexico
     U.S. farmers are holding their own in competing for workers and
providing wage increases that generally keep pace with the cost of
living. However, foreign-born workers--mostly from Mexico--make up an
increasing share of U.S. hired farm labor. The movement of Mexican
workers to U.S. farms largely reflects wage differentials between the
U.S. and Mexico, as well as differences in employment prospects. Taking
into account seasonal fluctuations, U.S. agriculture employed an
average of 890,300 hired farmworkers in 2000, with an average wage of
$8.29 per hour compared with $13.69 for nonfarm jobs. In contrast,
Mexican agriculture employed about 2.3 million hired laborers over 12
years old in 1998, with an average 8-hour wage of about $3.60, although
the wage differential is somewhat overstated because the cost of living
is lower in Mexico. Availability of hired farm labor in both countries
is likely to influence production and trade of labor-intensive
commodities such as greenhouse and nursery products and fruit and
vegetables. Steven Zahniser (202) 694-5230; zahniser@ers.usda.gov

Cigarette Consumption Continues to Slip
     U.S. smokers are projected to consume about 430 billion
cigarettes, down from 435 billion in 1999 and 450 billion in 1998.
Behind the continuing drop in consumption lie spiraling cigarette
prices, greater awareness of health risks, and continuing restrictions
on smoking areas. Two years ago, manufacturers boosted wholesale prices
to cover the expenses incurred from the 1998 tobacco agreement with
state attorneys general. In 2000, a rise of 10 cents per pack in the
Federal excise tax pushed up cigarette prices further. Thomas Capehart,
Jr. (202) 694-5311; thomasc@ers.usda.gov
     
     
Approved by the World Agricultural Outlook Board
Full text of Agricultural Outlook will be available 12/21 at
http://usda.mannlib.cornell.edu/reports/erssor/economics/ao-bb/2000/

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