AGRICULTURAL OUTLOOK                                           June 26, 1997
             Approved by the World Agricultural Outlook Board
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AGRICULTURAL OUTLOOK is published monthly (except January) by the Economic
Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. 
AO-242.  Please note that this release contains only the text of AGRICULTURAL
OUTLOOK--tables and graphics are not included.

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CONTENTS

IN THIS ISSUE

COMMODITY BRIEFS

Field Crops: Early Outlook Points to Smaller Cotton Crop...Cotton Marketing
Loan Program Shifts Away from Exports

Livestock, Dairy & Poultry: U.S. Meat Trade Picture Mixed

Specialty Crops: Sugar Crop Prospects Surmount Flooding

COMMODITY SPOTLIGHT 

U.S. "Green Industry" Faces Import Competition

WORLD AGRICULTURE & TRADE

U.S. Processed Food Trade Continues to Expand

FOOD & MARKETING

The Influence of Income on Global Food Spending

SPECIAL ARTICLE
China, Taiwan Accession to WTO: Potential Trade Impacts


IN THIS ISSUE...

CURRENT & FUTURE TRADE PROSPECTS BRIGHTEN AG OUTLOOK

Potential Benefits of China, Taiwan Accession to WTO

Integration of China and Taiwan into the World Trade Organization's (WTO's)
global trading system would significantly expand world trade and GDP,
according to analysis by USDA's Economic Research Service.  Both China and
Taiwan as well as the U.S. would benefit, mainly because the three countries'
resource endowments are complementary in the trade arena.   Both China and
Taiwan have applied for WTO membership.

Because of China's comparative abundance of labor, induction into the WTO
would permit it to further expand production of labor-intensive manufactured
goods, notably textiles and apparel.  China's net agricultural imports would
increase significantly as rising incomes stimulate demand for more varied and
higher quality foods, as labor and other resources shift out of farming to
labor-intensive manufacturing, and as textile production expands.  The U.S.,
with abundant arable land, would expand its food and agricultural exports,
particularly to China.  Nongrain crops (notably cotton) and processed foods
would gain the most.  U.S. exports of capital- and skill-intensive
manufactured goods would also increase. 

U.S. Processed Food Trade Advances

U.S. processed food and beverage trade rose to a record $58 billion in 1996
and is expected to record further gains in 1997.  Exports in 1996 surpassed
$30 billion, up 3 percent, even as global food safety concerns slowed exports
of beef in the latter half of the year.  But pork and poultry exports
continued their strong advances.  A healthy U.S. economy and strong demand for
a variety of food items drove imports to nearly $28 billion in 1996, an
11-percent gain over 1995. 

Income Levels Affect Global Food Spending

Knowledge of the forces that help determine food spending patterns can improve
predictions of future demand for agricultural commodities and of subsequent
shifts in international trade flows and price levels.  ERS studied 51
countries, home to 2.5 billion of the world's 5.8 billion people, to compare
spending and consumption patterns and their relationship to income. 
Comparisons confirmed that, as incomes rise, a smaller share of expenditures
is devoted to food.  The study data also confirmed the association of rising
incomes with more diverse diets, increase in caloric intake to a point of
satiation, and consumption of higher value foods such as meats.  

The level of per capita income explained most of the differences in food
spending patterns across  study countries.  However, even within income
groups, food expenditures varied considerably, due to large differences in
food prices, preferences for particular food items, and/or urbanization rates. 
Geographic location and culture also were contributing factors.  Over the next
decade and beyond, economic growth, coupled with high rates of population
growth and urbanization, is expected to fuel demand for food and stimulate
diet diversification in low- and middle-income countries, creating potential
opportunities for increased agricultural exports to these countries.

Cotton Exports Up in 1997/98, but Stocks Building

     
U.S. cotton exports are projected up slightly at 7.3 million bales, despite a
smaller U.S. crop, as reduced foreign supplies afford the U.S. additional
export opportunities.  Production is expected at 18.5 million 480-pound bales,
compared with 18.9 million in 1996/97.  Cotton stocks, projected at 4 million
bales at the end of the 1996/97 season, are the highest in 4 years and are
expected to increase again by the end of 1997/98 despite higher expected
domestic mill use and exports.

At the beginning of May, USDA suspended import quotas permitted under Step 3
of the U.S. marketing loan program, ending 80 consecutive weeks of Step 3
quotas.  During March-December 1996, cotton imports totaled more than 700,000
bales, compared with 1,000 to 20,000 bales per year during the preceding
decade. This was the result of an unusually high price premium for U.S. cotton
combined with additional import quotas under Step 3.  The 2-year jump in U.S.
cotton imports is expected to cease in 1997/98.

"Green" Industry Grower Receipts to Surpass $11 Billion

The U.S. leads the world in production and marketing of flowers, cut foliage,
potted plants, bedding plants and other nursery crops, and turfgrass--known
collectively as the "green" industry.  U.S. growers' cash receipts for these
floriculture and environmental, or landscape, products are projected to reach
$11.3 billion in 1997, an increase of 6 percent over last year.  For floral
and potted plants, the value of domestic production has grown only modestly
over the past decade compared with the value of imports, which have risen
sharply over the same period.  Since 1994, the value of imports of these
products at port of entry has increased about $100 million every year, driven
primarily by cut flowers.  

The U.S. ranks 12th in the world for per capita expenditures on indoor
flowers/plants.  However, Americans spend a far greater amount on outdoor
landscaping plants than do their counterparts in Europe or Asia.  Industry
analysts believe U.S. consumers are spending 2-3 times more on outdoor
plants/flowers than consumers in other developed countries.  And U.S.
consumers spend over twice as much as landscaping products than on
floriculture items at retail outlets ($37 billion vs. $16 billion projected
for 1997).


COMMODITY BRIEFS

Field Crops

Early Outlook Points to 
Smaller Cotton Crop

For the 1997/98 marketing year (August-July), cotton producers again focused
on market signals to determine how much acreage they would devote to cotton. 
With farm program planting flexibility in its second year under the 1996 Farm
Act, the price outlook this season for alternative crops was an important
consideration in farmers' planting decisions.  As a result, prospects are for
reduced U.S. cotton acreage, as early-1997 price expectations for competing
crops like corn and soybeans encouraged some cotton producers to switch
acreage to an alternative crop.

The March 31 Prospective Plantings report indicated that farmers intended to
plant nearly 14.5 million acres of cotton, compared with more than 14.6
million in 1996.  Although intentions suggest cotton area would be only
slightly less than last year's planted area, changes were noticeable on a
regional basis.  For upland cotton, which accounted for 98 percent of 1996
acreage, both the West and the Delta regions show 6-percent declines in cotton
area for 1997.  Nearly offsetting these declines, however, were higher
expected plantings in the Southeast and the Southwest.  Extra-long staple
(ELS) acreage was also expected to be lower in 1997.  A revised estimate for
both upland and ELS cotton area is provided in USDA's Acreage report, released
June 30.

Despite cool, wet weather which delayed cotton plantings in many areas across
the Cotton Belt this spring, U.S. plantings as of mid-June were 97 percent
complete, compared with the 5-year average of 95 percent.  Last year, 94
percent of cotton acreage had been planted by this time.  Meanwhile, the
condition of the overall crop is slightly better this year than in 1996.  As
of mid-June, 60 percent of the 1997 area was rated "good" or "excellent,"
compared with 57 percent a year ago.  At the same time, only 11 percent was
"poor" or "very poor" so far this year, compared with 19 percent in 1996. 
However, the very cool spring in the Southeastern and Delta regions is causing
concern about plant development and potential yield problems.

Although a portion of the 1997 U.S. cotton crop remains to be planted and most
has just started to develop, USDA's current production projection is for a
slightly smaller crop than in 1996.  In estimating projected harvested area,
1992-96 average acreage abandonment by state is considered, as well as the
Prospective Plantings report, and projected yield is based on 1967-96 state
trends, weighted by area.  With 1997 harvested acreage estimated at about 13.3
million acres, and a national average yield of 670 pounds, U.S. cotton
production in 1997 would reach 18.5 million 480-pound bales.  Final 1996
production was more than 18.9 million bales.  The first survey-based
production projection for 1997 will be released by USDA on August 12. 

Meanwhile, cotton stocks are projected at about 4 million bales by the start
of the 1997/98 marketing year (August 1), the most plentiful in 4 years. 
Imports of raw cotton into the U.S. during the 1997/98 season are expected to
be relatively small, particularly in comparison to 1995/96 and 1996/97 when
more than 400,000 bales were imported each year.  The large imports were
attributable to extremely low U.S. stocks and to increased quotas that allowed
more cotton to enter the U.S.  Based on current USDA projections, total U.S.
cotton supplies in the 1997/98 season are expected to be the highest since
1994/95, reaching nearly 22.5 million bales.

Total demand for U.S. cotton is also expected to rise in 1997/98, with both
domestic mill use and exports projected to expand.  Domestic mill use is
anticipated to increase slightly to 11 million bales from 10.9 million, as
continued competition from manmade fibers, particularly polyester, will likely
prevent cotton consumption from expanding at the rates experienced during the
first half of the 1990's.

In contrast, U.S. cotton exports are expected to rise 3 percent to 7.3 million
bales, accounting for an above-average share of world cotton trade of nearly
27 percent.  U.S. stocks have risen faster in the 1996/97 season than foreign
supplies, and U.S. cotton supplies will be readily available for export early
in the 1997/98 season.  In contrast, during the first 2 months of 1996/97,
stocks and exports were extremely low.  An expected decline in foreign
supplies in 1997/98 will provide the U.S. with additional export
opportunities.

Yet because demand for U.S. cotton is not expected to exceed production,
stocks will likely build further in 1997/98 U.S. cotton stocks in 1997/98
would increase 5 percent, with ending stocks on July 31, 1998 projected at
nearly 4.2 million bales, a stocks-to-use ratio of nearly 23 percent.

Preseason supply-and-demand projections are based on current conditions and
indications, and with the U.S. cotton harvest still several months away, the
crop remains vulnerable to weather and insects.  As crop conditions unfold and
worldwide demand for cotton consumption becomes clearer, the 1997/98 U.S. and
world cotton supply-and-demand picture will be in sharper focus.
Leslie Meyer (202) 501-8528
lmeyer@econ.ag.gov

Field Crops Brief

Cotton Marketing Loan Program 
Shifts Away from Imports

On May 8, 1997, USDA announced suspension of  special import quotas under Step
3 of the U.S. marketing loan program for upland cotton for the first time in
over a year, closing the chapter on an unusual period for U.S. and world
cotton markets.  Assisted by 80 consecutive weeks of Step 3 quotas, U.S.
cotton imports reached amounts unmatched in more than 70 years.  During
 March-December 1996, spanning the 1995/96 and 1996/97 marketing years, imports
totaled more than 700,000 bales, compared with 1,000 to 20,000 bales per year
during the preceding decade.

Step 3 alone was not sufficient to encourage significant import purchases--
which remained far below the millions of bales permitted under the quotas. 
Rather, import purchases were activated as the U.S. cotton price briefly
achieved an abnormally large premium of 7.5-15 cents per pound over the world
price.  However, long after the possibility of significant imports had faded
with shrinkage of the price premium, Step 3 quotas continued to open,
precluding the operation of other portions of the cotton marketing loan
program.

The marketing loan program for cotton has had a three-step procedure since
1990 to keep U.S. cotton competitive in domestic and foreign markets.  Step 1
allows USDA to reduce effective commodity loan repayment rates below the
adjusted world cotton price during periods of low prices.  This step has
seldom been implemented.

Step 2 requires USDA to make payments to exporters and domestic users of
cotton if the least expensive U.S. cotton available in Northern Europe exceeds
the price of the five least expensive cotton quotes on the world market by
more than 1.25 cents/lb. for 4 consecutive weeks.  Regardless of the
relationship between U.S. and world prices, no Step 2 payments are authorized
when the adjusted world price of cotton (excluding shipping costs from the
U.S.) exceeds the basic U.S. loan rate by more than 30 percent.  However, a
critical and more constraining program feature is that no Step 2 payments can
occur when conditions also permit opening Step 3 quotas.

Step 3 increases cotton import quotas when U.S. and world prices are high, by
effectively raising quotas for imports at low tariff rates.  Tariffs for
in-quota cotton range from 1.5 cents/kg to 4.4 cents/kg, versus 15.4-36.9
cents/kg for imports outside of quota.  Whenever the U.S. price exceeds the
world price by more than 1.25 cents/lb., plus the value of any Step 2
payments, for 10 consecutive weeks, USDA issues a special import quota under
Step 3 equal to 1 week's cotton consumption by U.S. mills.  These conditions
held for 80 consecutive weeks, ending May 1997.

Imports help lower cotton prices and assure the U.S. textile industry of
access to competitively priced cotton when U.S. supplies are unusually tight. 
Imports minimize price spikes and permit some U.S. mills to switch to foreign
cotton, releasing U.S. cotton for purchases by foreign mills that have come to
depend on U.S. cotton's fiber characteristics.

The use of Step 3 during 1995-97 was in marked contrast to 1991-94, which saw
Step 2 of the marketing loan program implemented during 131 weeks, making U.S.
cotton more competitive by authorizing payments to exporters and domestic
consumers rather than raising imports.

Large Step 2 payments were often made during the early 1990's as low-priced
Central Asian cotton poured into world markets when the Russian textile
industry collapsed and production and exports soared in Pakistan and China. 
Within a few years, disease and pest problems in Pakistan and China led to
record world prices, halting the use of Step 2.  While prices were high,
foreign importers drew on U.S. stocks, facilitated by U.S. infrastructure
which permits the rapid movement of quality cotton, and U.S. stocks fell from
4.7 million bales to 2.6 million.

By 1996, foreign production had rebounded, and the world price of cotton no
longer exceeded the loan rate by more than 30 percent.  However, the
combination of tight U.S. supplies and ample foreign supplies kept the U.S.
price higher than the world price by more than 1.25 cents/lb., continuing Step
3 quotas and ensuring that no Step 2 payments could be authorized.  During
much of 1997, high U.S. prices, which resulted in Step 2 payments during the
early 1990's, have maintained unused import quotas instead.  The quality,
reliability, and production costs of U.S. cotton ensure that a premium of 1.25
cent/lb. to its cheapest competitors is common, and the prospect of using
continued import quotas rather than payments to exporters to attempt to close
that gap has dismayed some segments of the U.S. cotton industry.

Following the recent break in the period of high U.S. price premiums that had
triggered Step 3 quotas for 80 weeks, Step 2 payments during the 1997/98
marketing year have now become a possibility.  This assumes the adjusted world
price remains within 30 percent of the base loan rate.  It is also possible
that Step 3 will be reactivated early next marketing year, since the
difference between the U.S. and world price currently exceeds 1.25 cents/lb.
for the new crop.

If Step 2 is implemented, recent regulatory changes aimed at reducing the
"bunching" of export sales during periods of peak Step 2 payments will reduce
the certainty of Step 2 payment levels for exporters.  This will probably
increase the proportion of Step 2 payments going to domestic mills and could
change the program's impact on U.S. and world prices.  Furthermore, the U.S.
cotton industry is proposing additional changes to these provisions, to
address concerns raised by recent events.
Stephen MacDonald (202) 219-1179
stephenm@econ.ag.gov

For further information, contact: Dennis Shields and James Barnes, domestic
wheat; Ed Allen, world wheat and feed grains; Allen Baker and Pete Riley,
domestic feed grains; Nathan Childs, rice; Scott Sanford and Mark Ash,
oilseeds; Steve MacDonald, world cotton; Les Meyer, domestic cotton.  All are
at (202) 219-0840.


COMMODITY BRIEFS

Livestock, Dairy & Poultry

U.S. Meat Trade
Picture Mixed

U.S. beef exports were weak during January-April as sales to Japan and Canada
fell.  Despite strong increases in sales to Mexico and Korea, total exports
remained below the same period in 1996.  However, if Japanese consumers regain
confidence in the safety of beef, increasing demand for beef in the second
half of the year, total U.S. exports could rise over second-half 1996. 
Weakness in the first half will limit exports to 1.9 billion pounds for the
year, about 2 percent above 1996.  A return to more stable consumption
patterns by consumers in Japan and Mexico could significantly boost U.S.
exports in 1998, although high U.S. cattle prices might temper U.S. sales.

Large inventories and high production in Canada have limited opportunities to
market U.S. beef there.  Canada's beef cycle peaked in 1996, and as Canada
enters its liquidation phase, imports from the U.S. likely will be limited by
large domestic supplies. 

Mexico and Korea have provided important alternate export outlets amid the
gloom of declining sales to two major U.S. beef export markets.  In Mexico,
continued economic growth and moderate U.S. beef prices in the first quarter
stimulated imports.  Mexican cattle herds remain at low levels following 3
years of drought (1994-96), and opportunities for domestic production to
supply growing needs remain limited in the short term.   

The late-April request by the Mexican Association of Cattle Feeders for an
anti-dumping investigation against U.S. beef will add uncertainty in the
Mexican market over the next several years.  The Mexican Secretariat of
Commerce and Industry (SECOFI) will issue a determination on whether to
proceed with the investigation.  Under Mexican law, if SECOFI proceeds, it
will first determine the degree to which dumping has occurred and can, if it
chooses, apply a provisional duty while determining if actual injury occurred. 
Based on previous anti-dumping investigations, however, it could be a year
between the beginning of the investigation and the announcement of any duties.

U.S. exports to Korea increased as demand recovered from dramatically reduced
levels in 1996 that had resulted from economic sluggishness and food safety
concerns.  Mandated increases in the Korean beef import quota and the
Simultaneous-Buy-Share (SBS) portion of the quota--the part allocated to
nongovernmental entities--should help boost market opportunities provided by
the increased consumption expected in 1997.  

Two factors constrain trade with Korea, however.  Any negative news concerning
food safety could again reduce consumer demand, and the falling value of
Korea's currency in relation to the U.S. dollar will make prices for U.S. beef
more expensive than domestic product.   The won fell 5 percent against the
dollar between January and April and has averaged 9 percent below its 1996
level.

U.S. beef imports, although well below levels of the early 1990's, were
somewhat higher in the first 3 months of 1997 than in first-quarter 1996, as
U.S. cow slaughter declined with the beginning of a rebuilding of the U.S.
cattle herd.  Imports for 1997 are likely to reach 2.3 billion pounds, about
13 percent above 1996 when U.S. cow slaughter was large.  

Large supplies of Canadian beef and a weakening of the Canadian dollar
encouraged a dramatic increase in beef imports from Canada.  In the last half
of 1996, Canada displaced Australia as the largest source of imported beef in
the U.S. and is expected to continue to outpace Australia through 1997.  As
U.S. domestic cow beef prices climb during the remaining two quarters of this
year, however, increasing quantities of beef will likely be imported from
Australia and New Zealand. 

Imports for 1998, which will continue increasing as U.S. cow slaughter
declines, could reach 2.4 billion pounds.  The rebuilding of the U.S. cattle
herd will encourage producers to retain cows and will likely push cow beef
prices higher through the year.  Large supplies of beef in Canada, as its
cycle turns, will encourage Canadian shipments, and if demand in Japan remains
weak through next year, the U.S. will provide a very attractive market for
Australian and New Zealand beef.  

Pork exports are projected to increase in 1998, possibly exceeding 1.5 billion
pounds, 17 percent more than the current 1997 forecast of 1.25 billion pounds. 
Export forecasts are based largely on assumptions of growing foreign incomes
and populations, stable-to-declining foreign production, and continued WTO-
mandated import market liberalization.  Increased U.S. pork supplies and the
absence of Taiwan in the world market as a result of its recent foot-and-mouth
outbreak, also support expectations for higher 1998 exports.  

U.S. pork imports could rise slightly in 1998, largely on the basis of ample
availability of rib cuts from Denmark.  Despite a sharp increase in production
in 1998, the U.S. is expected to remain a relatively attractive market for
pork because of continued high relative prices.

All of the main categories of U.S. poultry exports (broilers, other chicken,
turkeys, eggs, and egg products) are expected to increase in 1997 and again in
1998, although the rate of expansion is likely to be lower than in the last
several years.  Broiler exports in 1997 are forecast to reach 4.8 billion
pounds, an increase of nearly 10 percent.  Most of the growth is expected to
come from increased shipments to Russia and other countries of the former
Soviet Union.  Mexico is also expected to remain a growing market for broiler
products.  In 1998, broiler exports are forecast at 5 billion pounds, as
shipments to Russia, the largest U.S. market, begin to level off.

Turkey exports in 1997 are expected to be around 502 million pounds, about 15
percent above 1996.  Expanding shipments of turkey products to Mexico and
Canada and a rapidly growing market in Hong Kong are expected to offset
anticipated lower exports to Russia and Korea.  Export growth is forecast to
slow in 1998, with fractional expansion to 505 million pounds, as sales to
Mexico grow less rapidly.

For further information, contact:  Leland Southard, coordinator; Ron
Gustafson, cattle; Shayle Shagam, beef trade; Leland Southard, hogs; Mildred
Haley, pork trade; 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) 219-0713.

BOX--LDP BRIEF

Omission
Sophia Huang was a major contributor to the article on Taiwan's foot and mouth
outbreak that appeared in the June issue of Agricultural Outlook. 
Acknowledgment of her contribution was mistakenly omitted from the article. 
Sophia Huang is the principal contact at the Economic Research Service for
information regarding Taiwan, and may be reached at (202) 219-0679 or by e-mail
at sshuang@econ.ag.gov.


COMMODITY BRIEFS

Specialty Crops

Beet Sugar Crop to Outpace 
1996/97 Despite Flooding

The Red River Valley of Minnesota and North Dakota is the largest sugarbeet
producing area in the U.S., and the disastrous early spring 1997 floods at one
time threatened the region's not-yet-planted 1997/98 sugarbeet crop.  Two
sugarbeet factories had to close for a few weeks as well, delaying the
processing of remaining piles of beets until the water receded.  

By the end of April, however, the southern end of the Red River Valley was
drying out, and by mid-May, drying had progressed far enough downstream (to
the north) that virtually all cropland was ready for planting.  By late May,
while some water problems remained, statewide-average sugarbeet plantings in
Minnesota and North Dakota had moved ahead of last year's rate as well as the
5-year average.  

Total U.S. processed sugar production for 1997/98 (October-September) is
projected at 7.5 million short tons, raw value, up over 3 percent from
1996/97.  Beet sugar production is projected at 4.3 million tons, up 6 percent
from this year, while cane sugar production is projected at 3.2 million tons,
unchanged from 1996/97.

Planting intentions released in March indicated 1997/98 U.S. sugar beet
planted acreage would be 1.45 million acres, up over 6 percent from the
current year.  Acreage increases were indicated all across the country, with
the biggest increase in Michigan.  Last year many Michigan growers had turned
to alternative crops such as corn and beans when prices were high; in 1997,
sugarbeet prices look relatively strong, and both Michigan processing
companies have agreed to provide a higher share of returns to farmers.  In
1996/97, Ontario growers for the first time produced a small amount of sugar
beets for processing in Michigan, and they plan to plant more than 3,000 acres
in 1997/98, adding slightly to expected U.S. processed sugar production.

Over the last few decades there has been a gradual decline in the share of
national sugar beet acreage located in the irrigated, western growing areas. 
Most western beet acreage is in warmer climates (e.g., California), where the
lack of cold winters increases plant pests and shortens the beet processing
season.  Sugar beets deteriorate rapidly after harvesting unless they can be
frozen, restricting the processing season except in areas where early freezing
temperatures allow for inexpensive storage at processing plants.  

The share of national acreage in the nonirrigated, eastern growing region--
Minnesota, North Dakota, Michigan, and Ohio--was less than 25 percent in the
early 1970's, reached 30 percent in 1975 and 50 percent by 1986, and is now
approaching 60 percent.  A consequence of this shift will be greater
variability in U.S. beet sugar production, since nonirrigated agriculture is
more sensitive to weather variability.

Among cane sugar producers, Florida is forecast to produce 1.75 million tons
of sugar, 55 percent of U.S. cane sugar output.  After expanding in the
1980's, Florida's sugar acreage and production has been fairly steady for the
past 7 years, and acreage is projected to remain about the same next year.  

So far, Everglades restoration efforts have had little impact on sugarcane
acreage.  The South Florida Water Management District is currently purchasing
land in the East Coast Water Preserve Area and the Everglades Agricultural
Area as part of the restoration efforts.  Some of the funding for land
acquisition is provided by the 1996 Farm Act, some by state government, and
some from farmers in the Everglades Agricultural Area.  Under provisions of
Florida's 1994 Everglades Forever Act, these producers have been paying about
$25 per acre per year.

Louisiana sugar production in 1997/98 is forecast at 975,000 tons, down 7
percent from the near-record 1996/97 crop.  While Louisiana cane acreage will
be up in 1997, yields are expected to drop to normal from last year's
exceptional levels.  A new growing area of about 6,000 acres in western
Louisiana will be harvested this fall for seed cane to expand plantings; the
new plantings will be harvested in fall of 1998.  This new area may expand to
30,000 or more acres within a few years.  Nineteen mills will be processing in
Louisiana this fall, after which one mill is scheduled to close.

Sugar production in Hawaii has declined from over 1 million tons in the
 mid-1980's to a projected 340,000 tons in 1997/98.  Three mills closed in
1996,
and sugar production has now ceased entirely on the islands of Hawaii and
Oahu.  Three mills remain on Maui and three on Kauai.  Prospects are for a
return to better yields in 1997, after soil problems caused a poor showing in
1996.  There are some indications that the processing industry in Hawaii may
shrink further, although most of the current acreage will likely remain in
sugarcane for many years.  

Texas, after a poor crop in 1996/97, due in part to a 4-year drought in the
Rio Grande watershed, is projected to produce 110,000 tons of cane sugar in
1997/98.  Rains have helped replenish the reservoirs that provide water for
irrigation, although water supplies are still not likely to reach optimal
levels.  Puerto Rico is projected to produce 25,000 tons of cane sugar,
unchanged from 1996/97.

U.S. sugar deliveries for 1997/98 are projected to rise 1 percent to 9.75
million tons, raw value, about in line with the trend over the last decade. 
The estimate for 1996/97 deliveries has been trimmed to 9.65 million tons,
down from the January estimate of 9.9 million tons.  Continued strong prices
for refined sugar, increased imports of products containing sugar, and
heightened competition from corn-based sweeteners are the main reasons for
slower growth.

The U.S. raw sugar price averaged 21.8 cents a pound for the first 4 months of
1997, down from 22.21 cents for October-December 1996 and 22.63 cents for
October-December 1995.  Beginning in October 1995, when the prospect of
another poor beet crop became apparent, the wholesale refined beet sugar price
rose from about 25 cents a pound to 29 cents, where it remained for most of
1996 before falling to 28 cents a pound in late spring 1997.  Cane refiners'
margin (the difference between raw and refined price), low in 1995, was quite
high in 1996 and early 1997. 

During the last 2 years, refiners have periodically operated close to
capacity. There are signs, however, that refined sugar prices are softening,
as the market anticipates the possibility of a 1997/98 beet crop higher than
the previous 2 years.

The price of high-fructose corn syrup (HFCS) is reported at record lows.  U.S.
HFCS capacity increased more than 20 percent over the last 2 years, and with
U.S. demand growing only about 5 percent a year, the industry has been
operating well below capacity.  HFCS-55 (55 percent fructose, slightly sweeter
than liquid sugar and used primarily in soft drinks) is being contracted for
the coming year at prices below 13 cents a pound (dry basis, Midwest
delivery).  HFCS-42 (42 percent fructose, slightly less sweet than sugar and
used most often in confections and other processed foods) is priced below 11
cents a pound.  With refined sugar priced at 28 cents a pound, plus shipping
costs (HFCS prices include delivery), the temptation to use HFCS is very
strong when the switch is technically feasible.  

At one time it appeared that HFCS exports to Mexico might absorb a great deal
of the increased capacity, but export prospects are now clouded by an anti-
dumping investigation launched by the Mexican government.  A preliminary
determination on the merits of the case should be made by the Mexican
government in early July, followed by a hearing by a Mexican government panel
in late August, which will likely make a final determination in October.  In
the meantime, U.S. exports of HFCS to Mexico are rising.  HFCS-55 exports to
Mexico in January-March 1997 were 25,000 tons, dry basis, compared with 12,000
tons in the same period last year.  Exports for all of 1996 were 97,000 tons,
compared with 29,000 tons in 1995.
Ron Lord (202) 219-0888
rlord@econ.ag.gov

For further information, contact: Linda Calvin, Susan Pollack, and Agnes
Perez, fruit; Gary Lucier, vegetables; Ron Lord, sweeteners; Doyle Johnson,
tree nuts and greenhouse/nursery; Tom Capehart, tobacco; Lewrene Glaser,
industrial crops.  All are at (202) 219-0840.


COMMODITY SPOTLIGHT

U.S. "Green" Industry
Grower Receipts to Exceed $11 Billion

The U.S. leads the world in production and marketing of flowers, cut foliage,
potted plants, bedding plants and other nursery crops, and turfgrass--known
collectively as the "green" industry.  U.S. growers' cash receipts for these
products are projected to reach $11.3 billion in 1997, an increase of more
than 8 percent over last year.  U.S. consumers, businesses, and institutions
are expected to spend an estimated $53 billion for these products, including
the values of closely associated accessories and services, in 1997. 

The floriculture sector of the industry includes crops such as cut flowers,
cut cultivated greens, potted flowering plants, potted foliage plants, and
bedding and garden plants.  Preliminary estimates for grower cash receipts in
the floriculture production sector in 1996 is $4 billion, up 3 percent over
1995.  The 1997 outlook is for an additional increase of 2 percent. 

With the exception of bedding and garden plants, which are used by consumers
and businesses to beautify outdoor environments such as landscapes, gardens,
and patios, floriculture crops are generally for indoor use.  They are grown
mostly in glass or plastic greenhouses or semi-protected environments such as
shade houses, although they may also be grown outdoors--in the South and West
where climates are temperate, and in more northern climates in periods of warm
weather.  

The Environmental horticulture sector includes crops generally grown outdoors
and used primarily for landscaping purposes.  This sector includes a broad
category of nursery crops such as trees, shrubs, ground covers, turfgrass or
sod, bulbs, and planting stock (trees or plants used by commercial fruit and
vegetable growers, as well as seedlings grown for conservation or commercial
purposes, including Christmas trees).  Grower receipts for 1996 in the
environmental horticulture production sector are estimated at $6.9 billion, a
6-percent increase over the previous year, with expectations of an additional
7-percent increase in 1997.

Cut Flowers 
Drive Import Growth

The U.S. is a net importer of green products.  While consumer expenditures for
green products at the retail level are climbing moderately higher every year,
growth in domestic grower receipts, especially in the floriculture sector, has
slowed in recent years.  Increasing imports have played a role in slowing the
growth in domestic receipts.  

The value of domestic production for floral and potted plants has grown only
modestly over the past decade, compared with the value of imports, which have
risen sharply over the same period.  Since 1994, the value of imports at port
of entry has increased about $100 million every year, driven primarily by cut
flowers.  Imports of floral and potted plant products reached $700 million in
1996.  Other imported greenhouse and nursery products added about $250 million
in value in 1996.  For 1997, the total import value of all floriculture and
environmental horticulture products in 1997 is expected easily to exceed $1
billion. 

Exports this year will likely reach $250 million, only one-fourth of the
expected value of imports.  Although U.S. exports have been steadily
increasing, especially to Canada, Europe, and Asia, they are not expected to
climb rapidly, nor will they approach the value of imports in the near future. 

The U.S. imports potted flowering plants (mostly from Canada), foliage plants
(Canada, Mexico, Puerto Rico, Jamaica, and other Caribbean and Latin American
countries), cut greens (Mexico, Guatemala), and nursery crops (bulbs from
Holland, cuttings and young plants from Israel, Europe, and Western Hemisphere
sources).  However, imported products are predominantly cut flowers.  More
than 3 billion stems of cut flowers are imported annually from 45 different
countries, though most are from Latin America (primarily Colombia, Ecuador,
Mexico, and Costa Rica) and from Europe (primarily the Netherlands, which
resells from a number of different countries).  After a decline in 1995, U.S.
cut flower imports increased again in 1996 and are continuing to trend upward
in 1997.

About 78 percent of the cut flowers for the U.S. market pass through Miami,
most of them from Colombia.  Colombia ships nearly all of its cut flower
production through Miami International Airport (MIA).  Most of the product
remains in the U.S., but some is trans-shipped to Canadian and European
markets.  MIA is currently the world's second busiest cargo airport, and the
largest single product it handles is cut flowers.  On an average day, 30,000
boxes of flowers arrive at Miami's airport.     

The quantity of cut flower imports decreased in 1995, due primarily to a U.S.
anti-dumping action against Colombia.  Although that action was rescinded in
early 1996, growth in Colombian imports has slowed considerably in the wake of
decertification of Colombia's trade preference status (a result of the Andean
Nations Trade Agreement), as well as a freeze imposed on flight frequency and
cargo capacity out of Colombia into the U.S. in early 1996.  

The growth slowdown caused a rise in U.S. domestic grower prices for some
major varieties of cut flowers in 1996.  However, U.S. growers did not
anticipate the market, and overall they cut production area and sold fewer
flowers last year based on expectations of continued growth in import
competition similar to previous years.  

Generally, U.S. growers' intentions for 1997 indicate a further decline in
production area devoted to cut flowers.  Other countries are filling part of
the gap left by Colombia for some varieties, especially Ecuador with shipments
of roses. 

Landscape Product Sales
Top Floriculture Spending

Last year consumers spent about $8.2 billion on cut flowers and cut greens
($31 per capita), a 9-percent increase over 1995.  Cut flower and cut greens
expenditures this year are anticipated to rise 6 percent.  Expenditures for
potted plants (flowering and foliage) in 1996, on the other hand, were up only
2 percent from the prior year, to $7 billion ($26 per capita).  Consumers
purchased more foliage plants last year, but flowering plant sales, also up
slightly, remained ahead of foliage plants.  

Slower overall growth in potted plant sales stems from competition with cut
flowers for the consumer dollar.  Typically, strong flower sales tend to
moderate the amount consumers spend on potted plants.  Moreover, the slight
increase expected in potted plant expenditures from last year--2 percent for
flowering plants and 1 percent for foliage--reflects grower reluctance to
increase production in the face of stagnant or declining prices last year and
a market which is already large and adequately supplied. 

The rose is still the best selling individual flower, with more than 1.1
billion stems sold last year, about 4 stems per capita.  Retail florists
report that roses accounted for 17 percent of their floral item sales in 1996. 
Imports supplied 800 million stems, 73 percent of the total.   According to
the National Promoflor Council, floral arrangements lead in annual sales of
fresh cut flowers, with 55 percent, followed by bouquets/bunches (23 percent),
single stems (16 percent), loose boxed (3 percent), and corsages,
boutonnieres, and unspecified (3 percent).
 
U.S. consumers will spend almost $16 billion on floriculture products in 1997,
or $59 per capita, which ranks the U.S. as 12th highest in the world for per
capita expenditures on indoor flowers/plants.  Although per capita consumption
is less than Japan's, the total U.S. floral market still ranks well ahead,
with 1997 sales in Japan expected to be about $9 billion.

On a per capita basis, U.S. consumption of cut flowers/greens and potted
plants is well below many other developed countries.  Japan, as well as many
European countries, including Austria, Belgium, Denmark, Finland, France,
Germany, Netherlands, Norway, Sweden, and Switzerland, have higher per capita
consumption rates for floral and potted crops than the U.S.

But Americans spend a far greater amount on outdoor landscaping plants than do
their counterparts in Europe or Asia.  While global per capita expenditure
estimates for environmental horticulture are not available, industry analysts
believe U.S. consumers are spending 2-3 times more on outdoor plants/flowers
than consumers in other developed countries.  The U.S. is the world's largest
producer and market for outdoor landscaping flowers and plants, trees, shrubs,
ground covers, turfgrass, and bedding and garden plants.  In 1997, U.S.
consumers will spend $37 billion on environmental horticulture products, or
about $138 per capita. 

In 1994, when growth in floriculture sales was robust, environmental
horticulture sales were lackluster.  Higher interest rates slowed housing and
business construction and other economic activity that directly impacts the
nursery, turfgrass, and landscaping industries.  

When economic conditions improved in 1995 and 1996, housing and other
construction began to increase again, but sales of environmental horticulture
products were slow to recover.  Most landscaping is not done until
construction is completed, creating a 6-12-month lag in sales of landscaping
plants behind construction startups.  Negotiation periods for landscaping
contracts may also make recovery slower than for floriculture products.  By
the same token, when the general economy slows significantly, decline in sales
of environmental horticulture products will be delayed for at least 3-6 months
as landscaping contracts are fulfilled and construction activity winds down. 

Sales and shipments of environmental horticulture products may also be
affected by weather.  Unlike floriculture products, environmental horticulture
products are often field-grown, and producers must wait until field/soil
conditions are right for removal.  In order to react more quickly to market
conditions and improve products and operation efficiencies, many nursery crop
growers have shifted to producing containerized plant materials that can be
relocated to greenhouses and other winter-protected sites and marketed readily
at later and more economically beneficial times.

Despite wetter- and/or colder-than-normal production and marketing conditions
for the past several years in many areas of the country, the environmental
horticulture sector has experienced growth in sales on a par with growth in
the general economy.  Last year, the sector recorded about 4 percent more in
grower sales than the previous year, and 1997 sales are projected to be
slightly better.  This strong activity in the environmental sector may
continue well into 1998.
     
Opportunities in both the floriculture and environmental horticulture sectors
appear excellent in both domestic and international markets for the next
several years.  The total market in floral and potted plants alone in 23 key
countries is predicted to grow from $46.5 billion in 1995 to $60.5 billion in
the year 2000.  Export opportunities appear most promising in countries like
Germany, France, the Netherlands, Italy, and Canada.  Although the potential
is huge in Asia, these markets have not been developed by U.S. green industry
exporters.  

Product categories with strong export potential include fruit and nut trees;
ornamental trees and shrubs including rose plants, azaleas, and rhododendrons;
cut flowers; cut greens; flowering potted plants and indoor foliage plants;
bulbs; cuttings for propagation; and perennials such as hostas and cacti. 
Given the strong competition from other countries, U.S. growers must continue
to adopt new technologies, produce a wider variety of new crops, and
aggressively market their crops through individual and industry promotion
efforts in order to continue gains in sales and profits. 
Doyle Johnson (202) 501-7159
djohnson@econ.ag.gov


WORLD AGRICULTURE & TRADE

U.S. Processed Food
Trade Continues to Expand

Total U.S. trade in processed foods and beverages continued to expand in
calendar year 1996 to a record $58 billion.  Exports reached $30.1 billion,
about 3 percent higher than in 1995, while imports rose 11 percent to $27.8
billion.  As a result, the 1996 trade surplus, while well below 1995's record
$4.4 billion, was still the third largest on record.  

Export Growth Slower
Than Recent Years 

Relatively slow export growth for processed foods--3 percent compared with a
9-percent annual average for the previous 3 years--coincided with a slowdown
in global meat consumption, relatively high U.S. prices for agricultural
commodities, and a higher dollar value against many of the world's major
currencies.

The value of U.S. processed food exports grew only $726 million during 1996,
well below the $2.1-billion annual average increase for the previous 5 years. 
Of the 10 major processed food groups, meat product exports (including
poultry) remain the largest, accounting for nearly 30 percent of total U.S.
export value of processed foods.  Grain products and fats and oils are the
next-largest industry groups, together accounting for over one-quarter of the
export total.  Sugar and confections and miscellaneous commodities (including
items such as coffee, pasta, and food preparations) had the largest percentage
increases in 1996, while exports declined for dairy products, fats and oils,
beverages, and fish.

Of the 49 separate industries that make up the 10 processed food groups,
poultry slaughter and processing has been among the fastest growing in recent
years.  Poultry exports have averaged 31-percent annual growth for the past 3
years, and in 1996 exports jumped 23 percent to a record $2.6 billion.  More
than 60 percent of the 1996 increase was due to soaring poultry exports to
Russia.  Russian purchases of U.S. poultry rose from $84 million in 1993 to
$914 million in 1996 (AO January-February 1997).

Other growth industries in 1996 were salted and roasted nuts, rising 25
percent to $1.2 billion, and miscellaneous food preparations (for example tea,
spices, and yeasts), which rose 23 percent, also reaching $1.2 billion.  Some
smaller export industries increased their exports considerably in 1996.  Wine
and brandy exports increased 34 percent to $330 million, and prepared flour
mixes and dough increased 28 percent to $139 million.

The slowdown in overall export growth can be attributed largely to reduced
exports of meat, and fish and seafood.  Meat packing (primarily beef, pork,
and by-products, including hides) is by far the largest U.S. processed food
export industry.  Meat packing exports jumped 21 percent to $6.1 billion in
1995, but fell $100 million last year.

The 1996 decline can be traced to a stronger dollar, lower U.S. meat prices
that offset volume gains, and a number of food safety fears that reduced
global demand for beef, especially the outbreak of BSE (bovine spongiform
encephalopathy) in Europe and E. coli problems in the Japanese food system. 
Meat packing product exports to Japan, the largest U.S. market, fell 3 percent
to $2.9 billion. 

Sales to South Korea fell 17 percent to $860 million, due primarily to
economic sluggishness in South Korea and the strength of the dollar against
the South Korean won.  Mexico was a bright spot for U.S. meat packing product
exports, as exports jumped more than 50 percent to $470 million in 1996, after
plunging 50 percent in 1995 following the peso devaluation.

The drop in U.S. exports of fresh/frozen fish and seafood--$230 million,
dropping to $2.5 billion--was even more sizeable than for meat packing
products.  A decrease in the value of Japanese imports of U.S. fish accounted
for most of the decline, as both the price and quantity of salmon exports
contracted.  Fish and seafood exports dropped below poultry exports in 1996
for the first time.

Exports of animal and marine fats and oils fell to $889 million in 1996 after
surpassing $1 billion the previous year.  Industries with the largest
percentage declines were manufactured ice, creamery butter, bottled and canned
soft drinks, and cottonseed oil, but these four industries are relatively
small, accounting for just over 1 percent of U.S. processed food exports.

On the import side, the 11-percent growth in U.S. processed food purchases in
1996 was the strongest in recent years.  A 2-percent increase in U.S. real per
capita disposable income, following 1995's 2.6-percent rise, boosted consumer
spending.  In addition, the value of the dollar, weighted by countries' share
of U.S. exports, rose approximately 7 percent during 1996, effectively
reducing prices of foreign goods for U.S. consumers.

Most of the 10 processed food groups registered double-digit import growth,
led by sugar and confections at 30 percent, grain mill products at 23 percent,
and fats and oils at 21 percent.  Only meat products and fish lost ground, and
each only slightly.  

At the industry level, double-digit increases were common, with 33 of the 49
industries increasing imports by 10 percent or more.  Many of these
industries, however, rose from a fairly small 1995 level.  Among the larger
industries, cane sugar imports surged 58 percent to nearly $1.2 billion,
becoming a "billion-dollar" import industry for the first time as U.S. sugar
production fell significantly from 1995.  Imports of a number of consumer food
items such as beer, canned fruit and vegetables, chocolate and cocoa, and wine
and brandy, also recorded strong gains in 1996.

Major Markets & Sources 
For U.S. Processed Foods

U.S. exports of processed food are highly concentrated in a few major markets. 
The top 10 markets accounted for 70 percent of total 1996 U.S. processed food
exports, and Japan, Canada, and Mexico are leading markets in every major food
group.

At $7.2 billion, Japan is by far the largest export market for U.S. processed
foods, accounting for 24 percent of the total in 1996.  More than 60 percent
($4.5 billion) of exports to Japan was meat and fish.  NAFTA partners Canada
and Mexico were second and third at $4.5 billion and $2 billion, a combined 22
percent of total U.S. processed food trade.  Others in the top 10 included
three Asia Pacific Rim nations (South Korea, Hong Kong, and Taiwan), three
western European nations (Netherlands, United Kingdom, and Germany), and
Russia.  Russia recorded the largest export growth of any major market, as
exports reached $1.3 billion, a 32-percent increase over 1995.

The mix of import sources is more varied than export destinations.  Canada
dominates as a source for U.S. processed foods imports.  Its $5.7 billion in
1996 exports to the U.S. captured more than one-fifth of the market.  Canada
exports more than three times as much as Mexico to the U.S., and is the second
leading source country at $1.8 billion.  The U.S. imported $2 billion worth of
meat and fish and seafood from Canada in 1996, nearly a third of food imports
from Canada.  Other leading imports from Canada were vegetable oils, distilled
spirits, and chocolate products.  Fish, malt beverages, and frozen fruits and
vegetables are the principal imports from Mexico.

The U.S. also imports more than $1 billion in processed food commodities from
Thailand, France, and Italy.  The United Kingdom, Netherlands, Brazil, New
Zealand, and Australia round out the top 10.  The leading imports are fish and
seafood from Thailand, wine from France and Italy, distilled spirits from the
United Kingdom, and beer from the Netherlands.  The main import from Australia
and New Zealand was meat packing products.  These 10 countries supplied 57
percent of U.S. imports of processed foods.  

Among the top 10 countries, Brazil and Italy were the fastest growing import
sources, with increases of 23 and 22 percent over 1995.  Orange juice and cane
sugar imports from Brazil and wine and olive oil from Italy contributed to the
rise.  Only two countries in the top 10, Thailand and Australia, decreased
their shipments to the U.S. in 1996.

What's Ahead 
For 1997?
 
The combination of slow U.S. export growth and higher-than-average import
growth in 1996 was probably an exception rather than the start of a trend. 
Exports from meat packing plants had grown 13 percent in 1994 and 20 percent
in 1995 before falling sharply in the latter part of 1996.  Food safety
concerns about beef  in Japan appear to be abating, and with lower Japanese
beef tariffs, exports are expected to pick up moderately in 1997.

In addition, U.S. pork exports could surpass their strong 1996 performance, as
they are expected to fill some of the void created by Taiwan's suspension of
pork exports in March 1997 following an outbreak of foot-and-mouth disease (AO
June 1997).  Similarly, declines in exports of soybean oil and meal, animal
and marine fats and oils, and vegetable oils in 1996, following exceptionally
large export gains in 1994 and 1995, likely reflect temporary supply-and-demand 
conditions, especially high commodity prices in 1996.

Increases in U.S. imports in 1996 were the result of a healthy U.S. economy
combined with continued strong demand for a variety of food items.  Sustained
growth in the U.S. economy during the early months of 1997 suggests that
import demand for processed foods will remain strong.  Global demand for U.S.
products is expected to increase as well, raising total processed food trade
above $60 billion in 1997 and increasing the trade surplus to $3 billion or
more.

Fred J. Ruppel (202) 219-0883, Charles R. Handy (202) 219-0859, and Margaret
A. Malanoski (202) 219-0041
fruppel@econ.ag.gov 
chandy@econ.ag.gov 
malanosk@econ.ag.gov

FOOD & MARKETING--BOX

Food Industry Classification System to Change

Starting in January 1998, the U.S. will collect data on industry
establishments according to a new system of industry definitions.  USDA's
Economic Research Service (ERS) currently uses the U.S. Standard Industrial
Classification (SIC) system to analyze U.S. exports and imports of processed
foods.  The SIC assigns each U.S. establishment or plant to an industry
category based on its principal activity.

Processed foods, beverages, and related products are currently assigned to
SIC-20.  The industries within SIC-20 can be further disaggregated into three-
and four-digit SIC codes.  At the three-digit level, there are 9 major
processed food groups, but ERS has removed fish from the miscellaneous group,
creating 10 major groups for its analysis.  Comprising the 10 groups of the
SIC-20 are 49 individual food processing industries.

For example, SIC-2011 identifies the meat packing industry.  The first two
digits place the industry within SIC-20, while the third digit indicates the
major industry group--meat products-- and the fourth specifies the industry--
meat packing.

In January 1997, the U.S. adopted a new industry classification system--the
North American Industry Classification System (NAICS)--to replace the SIC,
with implementation planned for 1998.  NAICS is a production-oriented
classification system developed in cooperation with Statistics Canada and
Mexico's Instituto Nacional de Estadistica Geografia e Informatica (INEGI). 
It provides common industry definitions for Canada, Mexico, and the U.S.,
facilitating economic analysis covering these countries.  

The structure of NAICS is similar to the SIC, but changes in the definition of
industry groups and of industries precludes complete correspondence between
SIC and NAICS.  Industries previously classified as SIC-20 processed foods
will be separated into two major groups.  The majority of food processing
industries will be assigned to Food Manufacturing (NAICS-311).  However, 
SIC-20 beverages other than dairy or fruit beverages will be assigned to
Beverage
and Tobacco Manufacturing (NAICS-312).

NAICS contains 47 food manufacturing industries and 6 beverage manufacturing
industries.  While this is an increase from the 49 industries in SIC-20, only
33 of the 49 SIC-20 industries correspond to NAICS U.S. national industries. 
The remaining SIC-20 industries have been reclassified or combined into U.S.
national industries that do not correspond closely to an individual SIC-20
industry.  The U.S. plans to publish data on national industries which are
equivalent to four-digit SIC industries in most cases, and this should allow
for continued evaluation of trade in processed food and beverages equivalent
to the level of detail currently available.

FOOD & MARKETING

The Influence of Income
On Global Food Spending

Food spending patterns vary widely around the world.  Geographic location and
culture help to explain part of food expenditure variations across countries. 
Economic conditions such as per capita income, food prices, and urbanization
rates also provide critical information for explaining consumer expenditure
behavior and for predicting trends in food spending, consumption, and trade.  

Knowledge of the forces contributing to food spending patterns can help to
improve predictions of future demand for agricultural commodities and of
subsequent shifts in international production patterns, trade flows, and price
levels.  USDA's Economic Research Service studied 51 countries, home to 2.5
billion of the world's 5.8 billion people, to compare spending and consumption
patterns and their relationship to income.  The countries were divided into
three groups based on their 1993 per capita gross domestic product (GDP): high
income (per capita GDP exceeding US$9,000), middle income (per capita GDP
between $770 and $9,000), and low income (less than $770). 

Economic theory offers several guidelines for measuring and predicting food
spending behavior when controlling for noneconomic factors.  Engel's Law--an
empirical "rule" of consumption--states that the proportion of a nation's
income spent on food is a good index of the nation's welfare.  The lower the
proportion, the more prosperous the nation.

Comparisons across the study countries are consistent with Engel's Law--as
incomes rise, a smaller share of expenditures is devoted to food.  High-income
countries in the sample spent an average of 16 percent of their private
consumption expenditure (PCE) on food, while middle-income countries spent 35
percent and the low-income group spent 55 percent.  Of the countries included
in the study, the U.S. spent the smallest share of its PCE on food at
home--only 
9 percent--while Tanzania, with the lowest per capita income, spent the
highest share--71 percent.  

While the share of PCE spent on food at home reflects the prosperity or
poverty of a country's citizens, it also hints at differences in the
composition of their diets.  The study data confirmed that rising incomes are
associated with more diverse diets, and that as incomes rise, caloric intake
increases to a point of satiation.  People with very low incomes are forced to
spend most of their income on food simply to subsist.  As a result, they tend
to focus purchases on low-cost, high-calorie foods.  As incomes rise, they
will almost always buy more food and add more costly items (e.g., meats) to
their diets.  

While absolute spending on food may increase as incomes move up, its share of
total PCE declines.  As basic food needs are satisfied, extra income will be
spent on other consumer goods, such as clothes or entertainment.  

The numbers presented here refer only to food consumed at home.  Data on food
eaten in cafeterias, restaurants, fast-food outlets, and other eating places
are not available for some countries and were therefore not included.  The
U.S. is among the countries where spending on food eaten away from home is
significant, amounting to one-third or more of total food spending.

In most developing countries, food expenditure data do not capture the total
amount of food available to the average household because they exclude food
grown for personal use in individual gardens and on subsistence farms.  As a
result, for households with significant at-home food production, the food
share of PCE tends to understate the value of food consumed.  

In low-income countries, there is substantial home food production in rural
areas, where an average of 73 percent of the population live.  For example, a
1991 study of the "Rural Sierra" region of Peru indicated that 51 percent of
all food consumed was produced at home.  This included large shares of
vegetable, meat, and dairy product consumption, whereas grains and oils were
mostly purchased. 

Income: Primary Factor 
In Food Spending Behavior

The level of per capita income explains most of the differences in food
expenditure shares among countries.  However, even within each income group,
food expenditure shares differed considerably.  Among the 24 countries in the
high-income group, 5 spent more than 20 percent of their PCE on food, with the
highest share held by Israel (22 percent).  On the other hand, residents of
Canada, Luxembourg, the United Kingdom (U.K.), and the U.S. spent less than 12
percent of their PCE on food. 

For the 18 middle-income countries, the share of PCE spent on food ranged from
a low of 26 percent in Thailand to a high of 55 percent in the Philippines. 
For all 9 low-income countries, the share of PCE spent on food exceeded 40
percent.  Tanzania, Nepal, and Sierra Leone allocated over 67 percent of their
PCE to food.  

Within an income category, large differences in a country's food spending
patterns are associated with differences in food prices, preferences for
particular food items, and urbanization rates.  Food prices vary for a number
of reasons.  While supply relative to demand is critical to price formation,
food prices are also influenced by the efficiency of food production and
marketing systems, import conditions, and/or the level of government-provided
food subsidies. 

Efficiencies in meat production and marketing, for example, help to lower the
marketing margin, and ultimately the retail price of meat, for consumers in
the U.S.  For decades, industrial countries in North America and Europe have
enjoyed low-priced tropical foods imported from Latin America and Africa under
preferential trade terms.  In the countries of the former Soviet Union and
Eastern Europe, food subsidies during the Soviet era (and some that survive
today) helped to keep prices for meat and other basic foods relatively low.

The role of food preferences in per capita food expenditures is well
illustrated by comparing the U.K. and Italy.  In the U.K., food accounts for
only 12 percent of PCE, compared with 18 percent in Italy.  A closer look at
diets indicates that U.K. residents eat four times the amount of potatoes--an
inexpensive food item--as people in Italy.  Italians consume almost twice as
much of other, more expensive vegetables and fruits, and per capita meat
consumption is higher in Italy than in the U.K.

As countries develop, changing rates of urbanization are also expected to
affect decisions on food expenditures.  As urbanization accelerates, diets
tend to diversify.  One reason for this is the wider variety of foods
available in urban markets compared with rural areas.  Another is the
increasing likelihood of employment of women in urban areas; as the
opportunity cost of a woman's time rises, so will demand for foods that
require less preparation time.  

Since 1980, urbanization rates have increased steadily in low- and middle-
income countries.  According to the World Bank, the urban population rose from
22 to 28 percent of total population between 1980 and 1994 in low-income
countries, and from 52 to 61 percent in middle-income countries.  These
population shifts are expected to result in more highly diversified diets and
therefore changes in food expenditures.

Food Intake Precariously 
Low in Many Countries 

A high share of PCE spent on food does not translate into high consumption--
the opposite is generally the case.  Sierra Leone, for example, with a
68-percent food share of PCE, consumes less than 1,700 calories per capita.  On
the other hand, the U.S., with the lowest share of PCE spent on food, has one
of the highest per capita daily calorie consumption levels in the world--3,732
calories.  

High-income countries average 3,364 calories a day, 50 percent more than low-
income countries, whose consumption as a group is less than 2,200 calories a
day.  This is only slightly more than the 2,100 calories the United Nations
recommends as a minimum to sustain life without allowing for work or play, and
it is less than the 2,300 calories that the U.S. Agency for International
Development (USAID) designates as a threshold level to determine food aid
needs.  

These recommended calorie levels represent guidelines for national averages
and should not be confused with personal intake recommendations as provided by
USDA for U.S. consumers.  The data on per capita calorie consumption represent
actual disappearance, not intakes, because they include food that was
available but ended up being wasted.  In high-income countries, some food ends
up as trash; in low-income countries, food may spoil because of inadequate
transportation and storage facilities.

The eight middle-income countries with per capita GDP above $2,800 average
almost the same level of calorie consumption as high-income countries--close
to 3,300 calories a day.  However, four middle-income countries--Peru,
Guatemala, the Philippines, and Bolivia--fall below 2,300 calories, even
though the average for the middle-income group is near 2,800. 

In the low-income group, only Egypt, Honduras, and India have per capita daily
consumption above 2,300 calories.  Egypt's consumption of 3,335 calories per
capita per day is extraordinarily high considering its yearly per capita GDP
of $697.  This high value results from government subsidies that keep food
prices low and provide a safety net for low-income people.  

Consumption in almost 20 percent of the 51 countries studied is below the
USAID's suggested nutritional requirement of 2,300 calories.  In Ethiopia, the
average daily consumption of 1,610 calories per capita in 1992 was 30 percent
below the threshold, even though the country received 1 million tons of
cereals in food aid.  Ethiopia's extremely low calorie consumption was
reflected in all nutrition indicators.  For example, almost half of Ethiopian
children were underweight, and life expectancy at birth was just 48 years. 
The Tanzanian population, with the highest proportion of their PCE allocated
to food, averaged only 2,018 calories per capita per day in 1992, and
malnutrition affected 28 percent of children under 5 years of age. 

Quantity & Quality
In Food Consumption

While high-income countries spend a lower share of their PCE on food, the
absolute amount they spend on food is much higher than expenditures by low-
income countries.  In 1993, the Japanese spent an average of $4,071 per capita
a year on food at home, more than 80 times the $49 spent by Tanzanians. 
Yearly U.S. at-home food spending averaged $1,427 per capita in 1993.

Higher absolute spending on food translates into higher cost per calorie. 
High-income countries spent 16 cents per 100 calories on average--8 times as
much as the average cost in low-income countries--while the per capita GDP in
high-income countries was almost 60 times greater on average.  In middle-
income countries, the average cost per 100 calories was 6 cents. 

High-income countries can afford to consume larger amounts of costly and more
nutritious meat and fish, dairy products, fruits, vegetables, and processed
foods.  France consumes the highest share of meat and fish, which account for
19 percent of daily calorie consumption.  In the U.S., meat and fish account
for 16 percent of daily calories.  In contrast, cheaper cereals and root crops
make up three-quarters of the daily diet in Tanzania, Nepal, and Ethiopia.

People in Algeria and Mexico consume almost twice the amount of cereals per
capita as U.S. residents, but only half the amount of vegetables.  Per capita
milk consumption in the U.S. is 2.5 times that in Algeria and Mexico. 
Vegetable oils, a relatively expensive food item, are another important source
of calories in high-income and middle-income countries.  Annual per capita
meat consumption is only 40 pounds in Algeria and 89 pounds in Mexico, far
below the 223 pounds in France or the 264 pounds in the U.S. 

High costs per calorie can also result from high domestic food prices.  In
Japan, for example, high farm production costs, import tariffs, and
manufacturers' traditional control of retail prices have contributed to food
prices that are among the highest in the world.  Rice, the staple in Japan,
and meat and fruit, are very expensive and constitute a large part of food
spending.  Moreover, the high value of the Japanese currency in recent years
results in even higher prices when the yen is converted into U.S. dollars for
comparison. 

Over the next decade and beyond, economic growth, coupled with high rates of
population growth and urbanization, is expected to fuel demand for food and
stimulate diet diversification in low- and middle-income countries,
particularly those in East Asia, Latin America, North Africa, and the Middle
East.  As incomes rise, these countries are likely to replace some of the
grains, roots, and tubers in their diets with high-value products (HVP's) such
as meat, milk, vegetable oil, fruits, and vegetables.  

While most developing countries tend to produce meat domestically rather than
rely on imports, demand for imported feed is expected to rise.  Most other
HVP's are generally not produced domestically.  Diet diversification stemming
from strong income growth in developing countries may create opportunities for
increased agricultural exports to these countries.
Birgit Meade (202) 219-0632 and Stacey Rosen (202) 501-8445
bmeade@econ.ag.gov; slrosen@econ.ag.gov

FOOD & MARKETING BOX 1

Private Consumption 
Expenditure Defined

The United Nations defines private consumption expenditure (PCE) as the sum of
spending by resident households and private nonprofit organizations serving
households.  Resident household spending consists of expenditures on food,
clothing, rent, fuel, furniture, household operation, medical care and health,
transportation, communication, recreation and entertainment, education and
cultural services, personal care, and miscellaneous other items.

Expenditures by private nonprofit organizations consist of spending on
research and education, and on medical, health, and welfare services by
religious, professional, and labor organizations.

Expenditure data for this study are derived from the United Nations' System of
National Accounts and from supporting World Bank data.  Absolute spending on
food was calculated in constant 1993 U.S. dollars for each country in the
study.

FOOD & MARKETING BOX 2

Japan & Ireland: 
Exceptions to the Rule

Rising incomes do not always translate into purchase of larger quantities of
food.  Japan, the nation with the highest per capita GDP, is at the bottom of
the high-income group in calorie consumption, with less than 2,900 calories
per capita per day.  Ireland, one of the poorest of the high-income countries,
has the highest calorie consumption--3,837 calories per capita per day.  At
the same time, the two countries allocate a similar share of their PCE to
food.

Japan's per capita consumption is almost one-quarter lower than Ireland's. 
Part of this discrepancy can be explained by differences in diet.  In Ireland,
the amount of calories derived from animal products is twice as much as in
Japan.  Beef, pork, and butter, all high in fat (which contains more calories
per gram than protein or carbohydrates), are particularly popular in Ireland. 
The Japanese prefer fish and seafood, which have a lower fat content.  Milk,
another important source of calories, is consumed four times more per capita
in Ireland than in Japan.  Vegetable products, which consist mainly of
carbohydrates, account for almost 80 percent of the Japanese diet but less
than 70 percent of the Irish diet.


SPECIAL ARTICLE

China, Taiwan Accession to WTO:
The Potential Trade Impacts

Integration of China and Taiwan into the World Trade Organization's (WTO's)
global trading system would significantly expand world trade.  Both China and
Taiwan as well as the U.S. would benefit, mainly because of the three
countries' complementary resource endowments.  The U.S., for example, is rich
in capital and arable land, while China has an abundance of unskilled labor.  

With China and Taiwan in the WTO, world exports of all products would expand
by an estimated $78 billion annually (1992 prices), and global consumption by
$45 billion, according to analysis by USDA's Economic Research Service (ERS). 
Global competition in the production of labor-intensive products would
intensify, driving down prices.  The demand for capital- and skill-intensive
manufactured goods would increase, benefiting industrialized countries such as
the U.S.  

China's net agricultural imports would increase by over $8 billion annually as
rising incomes stimulate demand for more varied and higher quality foods, as
labor and other resources shift out of farming to labor-intensive
manufacturing, and as textile production expands.  Total U.S. food and
agricultural exports would increase by over $2 billion annually, with nongrain
crops (notably cotton) and processed foods gaining the most.

China was a founding member in 1948 of the WTO's predecessor, the General
Agreement on Tariffs and Trade (GATT).  However, the country withdrew in 1950
after its communist revolution established the People's Republic.  In 1986
China applied to re-enter the GATT.  Taiwan, separated from the rest of China
during the revolution, applied for admission in 1990.  Taiwan's admission to
the World Trade Organization (WTO) is very likely to coincide with China's.

The difficulties of bringing China's formerly command-driven economy into line
with the market-oriented principles of the GATT and WTO have so far stymied
agreement on terms for re-entry.  The issues concerning Taiwan--which is
rapidly becoming a mature market economy--are more tractable, although a
number of contentious matters remain outstanding.  Nevertheless, it remains
highly unlikely that Taiwan's admission will be put to a vote until China's
entry problems are solved.

The British Crown Colony of Hong Kong currently has a major role in world
trade as a transit port, especially for goods going to and from China.  Hong
Kong is reverting to Chinese control on July 1, 1997 as a special autonomous
region and will retain its separate WTO status. 

Since China and Taiwan will likely be admitted to the WTO at about the same
time, the effects of enlarging the WTO are analyzed here in terms of their
combined admission.  In addition, the ERS study assumed that Hong Kong remains
a free port and independent tariff territory (as required by the Basic Law
governing the reunification of Hong Kong with China), with tariffs applied
only when goods cross the border from Hong Kong to the rest of China.  

Resource Endowments 
Influence Trade Patterns

Differences in factor endowments--i.e., resources available for use as inputs
in a country's various production processes--are important for understanding
the direction of net trade flows.  Removing trade barriers allows a country to
export more of those goods which it produces relatively efficiently, with the
proceeds applied to import more of the goods it produces less efficiently. 
This expansion of trade in both directions increases real incomes for all
trading countries. 

This study divided factors of production into four groups--unskilled labor,
skilled labor, land, and capital.  The different countries and regions of the
world were classified into three groups--scarce, intermediate, and abundant.

In China, South Asia, and Southeast Asia, capital is scarce and expensive
relative to labor.  The reverse is true for the countries in the five
high-income 
industrial regions--the U.S., Canada, the European Union (EU), Japan,
and Australia/New Zealand.  The newly industrialized economies of Korea, Hong
Kong, and Taiwan fall somewhere in between--their labor costs are only a third
or a fourth of those in high-income countries, but much higher than labor
costs in low-income developing regions.

Japan, Korea, Taiwan, and China are poorly endowed with arable land relative
to labor.  Conditions are just the opposite in the U.S., Canada, and
Australia/New Zealand where land is abundant and cheap.  The EU, South Asia,
and Southeast Asia have intermediate amounts of arable land per capita. 

The level of land intensity greatly influences the direction of net trade
flows in food and agricultural products.  The U.S., Canada, and Australia/New
Zealand--the land-abundant regions--are net exporters of all food and
agricultural product categories.  Japan, Korea, Hong Kong, and Taiwan--the
land-scarce regions--are net importers of all such products.  The EU, South
Asia, and Southeast Asia, with intermediate land endowments, are each net
exporters and net importers of different agricultural product categories.  The
EU is a net exporter of wheat, feed grains, and processed food, but a net
importer of rice, nongrain crops, and livestock.  South and Southeast Asia are
net exporters of rice and nongrain crops, but net importers of wheat, other
grains, meat and dairy products, and livestock.

China is the only exception to this pattern.  A land-scarce country, it
imports wheat while being a net exporter of rice, feed grains, and nongrain
crops; and it is largely self-sufficient in livestock products.  China's
aggregate surplus in agricultural trade is a consequence of its government's
food self-sufficiency policies rather than the result of taking best advantage
of its factor endowments.

The general correspondence between capital intensities and the direction of
net trade flows for different kinds of manufactured goods is also apparent. 
High-income industrial countries are net importers of labor-intensive
manufactured goods (textiles and apparel, and other light manufactured goods),
and net exporters of capital- and skill-intensive manufactured goods
(machinery and equipment, and manufactured intermediates such as fertilizer
and steel).  

The trade patterns of labor-abundant regions such as China, Southeast Asia,
and South Asia are mirror images: they are net exporters of labor-intensive
manufactured goods and net importers of capital-intensive manufactured goods. 
At an intermediate level of capital intensity, Korea, Hong Kong, and Taiwan
are net buyers and sellers of different skill- and capital-intensive
manufactured goods, while remaining net exporters of labor-intensive
manufactured goods.

Because of China's comparative advantage in labor-intensive products, it has
gained more than a 10-percent share of world exports of labor-intensive goods,
even without the privileges of WTO membership.  After induction into the WTO,
China could further expand production of labor-intensive manufactured
products, notably textiles and apparel.  

To supply its mills, China would have to import more cotton and wool.  The
expansion of labor-intensive manufacturing also would cause resources to be
bid away from farming.  This would reduce China's agricultural exports and
increase its food and agricultural imports.  U.S. farmers--especially feed
grain, wheat, and cotton growers--would benefit.  

The South and Southeast Asian regions, which compete with China in exporting
labor-intensive manufactured products, would face increased competition and
lowered prices for their industrial exports.  As a result, they would likely
experience declines in market share and export revenue from labor-intensive
manufacturing. 

Both China and Taiwan, with scarce arable land, would increase their imports
of grain over time.  Taiwan's farmers would adjust by cutting production of
land-intensive crops like grains, while expanding their output of high-value
products like meats, fruits, and vegetables.

The U.S. and China are generally not competing economically for international
trade, at their current relative stages of development.  Instead, their
different factor endowments make their trade complementary.  South and
Southeast Asian countries compete with each other, and with China, to sell
labor-intensive goods in industrialized countries, and to attract foreign
direct investment from these countries.  Similarly Japan, the EU, and the U.S.
compete to meet the demand for technology- and capital-intensive goods in
China and other Asian developing countries, and to benefit from investment
opportunities there.

U.S. & Global 
GDP to Rise

If the Uruguay Round agreement had been in full effect in 1992 (the latest
year for which a reasonably complete data set is available) without the
participation of China and Taiwan, U.S. consumers would have been able to
purchase an estimated additional $20 billion of goods and services (over 0.3
percent of 1992 U.S. GDP).  Full implementation of the Uruguay Round with
Chinese and Taiwanese participation would have raised U.S. GDP by nearly $28
billion (almost 0.5 percent of 1992 GDP).  Thus, the study suggests that the
admission of China and Taiwan to the WTO would increase U.S. real GDP by more
than $7 billion (slightly more than 0.1 percent)--i.e., the difference between
the "with" and "without" scenarios.

At the global level, the estimated increase in real consumption from Uruguay
Round implementation in 1992 would have been about $167 billion with present
WTO membership, plus an additional $46 billion (or 0.2 percent of 1992 world
GDP) with Chinese and Taiwanese participation. 

By far the largest benefits of WTO enlargement, when measured as a portion of
national income, would accrue to the new members.  The gains result from China
and Taiwan undertaking reforms when joining the WTO, thereby improving
resource allocations and increasing economic efficiency.  

Annual GDP would rise by nearly 5 percent (or about $23 billion) in China and
Hong Kong combined.  Annual GDP would be more than 2 percent (over $4 billion)
greater in Taiwan.  Real GDP in all other regions would rise by about 0.2
percent or less.  The admission of China and Taiwan to the WTO would slightly
reduce trade liberalization gains for South and Southeast Asia, as competition
would intensify in world markets for labor-intensive manufactured exports like
textiles and apparel, shoes, and toys.

U.S. & World Ag 
Trade Would Expand

The admission of China and Taiwan to the WTO would increase agricultural
exports (including processed food) from almost all regions of the world, with
the important exception of almost a $3-billion reduction in Chinese exports. 
Along with an increase of nearly $6 billion in China's imports, this would
result in an increase of over $8 billion in China's net agricultural imports.

China would increase its net imports of grain by nearly $600 million, and
Taiwan by almost $100 million. Canada would supply most of the additional
wheat, while the U.S. would furnish most of the additional feed grains. 
Reduced rice exports from China to global markets would be replaced by
increased exports from other regions, principally South and Southeast Asia.

Taiwan's net food imports would rise by more than $0.6 billion, as increases
in agricultural imports would more than offset an increase of over $1 billion
in agricultural exports.  More than half of Taiwan's export expansion would
consist of processed food, following a restructuring of its agricultural
sector away from production of land-intensive crops like feed grains (down by
60 percent), and toward high-value crops and processed food.  

Agricultural imports would increase most in China and Taiwan, as described
above, followed distantly by Japan ($0.5 billion).  Hong Kong and Korea would
experience insignificant increases.  Agricultural imports would decline by
$0.5 billion or less in the South and Southeast Asian regions, as well as in
the Rest of the World region (which consists mainly of Latin America, Eastern
Europe, and Africa).  Reduced production of labor-intensive manufactured goods
in these regions, following increased Chinese competition in world markets,
would leave them with more resources in agriculture, and a reduced need for
food, fodder, and fiber imports.

The admission of China and Taiwan to the WTO would augment total annual U.S.
food and agricultural exports by over $2 billion (more than 3 percent), while
raising U.S. agricultural imports by only $100 million.  Almost all of the net
increase in U.S. exports would go to China and Taiwan, each importing about an
additional $1 billion from the U.S.  Additional exports would go to Japan,
Korea, and Hong Kong, replacing products that they previously imported from
China.

The composition of increased U.S. agricultural exports going to China and to
Taiwan would be quite different.  In Taiwan, nongrain crops would account for
60 percent of the increase, and processed food for an additional 30 percent. 
The increase in U.S. exports to China would consist mainly of processed food
products (79 percent).  Livestock products, nongrain crops (such as cotton),
and grains would make up the remaining 21 percent.  These estimates, however,
are sensitive to the details of trade concessions, which have yet to be
negotiated.

Overall, U.S. agricultural exports would see the greatest expansion in the
processed food sector, followed by feed grains and nongrain crops, and
livestock products.  As a result of the increase in global demand, export
prices (f.o.b.) for U.S. food and agricultural products would increase in
every sector, raising farm incomes.
Michael Lopez (202) 219-0683 and Zhi Wang (202) 219-0993
mlopez@econ.ag.gov 
zwang@econ.ag.gov

SPECIAL ARTICLE BOX #1

The Model & Assumptions
Behind the Results

To calculate the effects of China's and Taiwan's joining the WTO, ERS used a
computable general equilibrium (CGE) model of world production and trade.  The
model divides the world into 12 regions, and classes all goods and services
into 14 sectors, produced by 4 categories of production factors--unskilled
labor, skilled labor, land, and capital.  

The major data source for the model was the Global Trade Analysis Project
(GTAP) database, Version 3 Prerelease.  The model was implemented using the
General Algebraic Modeling System (GAMS) software.  A detailed description of
the structure of the model and of the estimated changes induced by WTO
enlargement are in USDA Technical Bulletin No. 1858.

Starting from the actual situation in 1992 (the last year for which a
reasonably complete data set is available), global income and trade
calculations were made under the assumption that the Uruguay Round accord had
already been completely implemented, but without China and Taiwan's
participation.  A second set of calculations was made assuming that the
Uruguay Round accord had been fully implemented with China and Taiwan as full
members.  The difference between these two hypothetical scenarios--Uruguay
Round implementation with and without Chinese and Taiwanese participation--
yields the estimated impact of China's and Taiwan's accession.

The analysis has some limitations.  First, neither China nor Taiwan have
finalized the terms of entry to the WTO.  The size of their trade concessions,
the timing of the start of trade liberalization, and the length of the phase-in 
period are all unknown.  This analysis guessed at the likely size of trade
concessions, and finessed the issue of timing by assuming the phase-in period
had been completed by 1992.  

Second, there are uncertainties about the size of parameters, such as
elasticities of substitution between commodities or the effective rates of
border protection, especially for China's pervasive nontariff barriers like
quotas and state trading.  Finally, the model is a highly stylized
simplification of the world economy that is far from perfect.  Therefore, the
results should be interpreted with caution and viewed as rough estimates, not
as precise measurements.

SPECIAL ARTICLE BOX #2

The Steps in 
WTO Accession

The Uruguay Round of the General Agreement on Tariffs and Trade (GATT)
established the World Trade Organization (WTO) on January 1, 1995.  The WTO is
the legal and institutional foundation for the multilateral trading system and
provides the forum for trade negotiations through collective debate,
negotiation, and adjudication.  The Uruguay Round also brought agriculture
into the general discipline of the GATT through substantive reductions in
export subsidies, internal support, and import barriers. 

A country requesting membership must submit a memorandum to the WTO which
details its trade policies as they relate to WTO laws.  Interested WTO members
form a working party to evaluate the policies of the applicant country.  The
working party requests additional information on existing policies and
assesses commitments by the acceding country to liberalize its trade position. 
After interested WTO members are satisfied that the applicant government's
trade policies conform with the laws of the WTO, the accession is put to the
full membership for approval.  

As of March 27, 1997, 131 countries had become WTO members.  An additional, 28
countries have requested permission to join the WTO. 
Karen Ackerman (202) 501-8511
ackerman@econ.ag.gov

END_OF_FILE