
AGRICULTURAL OUTLOOK                                           March 24, 1997
             Approved by the World Agricultural Outlook Board
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CONTENTS

IN THIS ISSUE...
AGRICULTURAL ECONOMY
     U.S. Agricultural Outlook for 1997
     USDA's 1997 Baseline: The Global Outlook to 2005
     USDA's 1997 Baseline: The Domestic Outlook to 2005
COMMODITY SPOTLIGHT
     Exporters Target U.S. Asparagus Market
FOOD & MARKETING
     Food Prices Forecast Up 2.5-3 Percent in 1997
FARM FINANCE
     Farm Credit Use Up for 5th Straight Year
          Market Strong for Farm Lenders
          Ample Credit Available in 1997
SPECIAL ARTICLE
     Market Stability and World Food Security
          Food Needs for the 21st Century
          World Food Security: A USDA Perspective
          Curbing Price Swings in Global Food Markets
          Role of Research in the World Food Outlook


IN THIS ISSUE...

U.S. FARM SECTOR TO ECHO STRONG GLOBAL DEMAND THRU 2005

U.S. Agricultural Outlook in 1997

The U.S. agricultural economy is in a relatively strong position following
record farm cash receipts of nearly $200 billion in 1996.  Positive
macroeconomic conditions continue to provide a supportive backdrop in 1997. 
The farm sector balance sheet is expected to improve again in 1997, as asset
values rise more than debt increases.  Total receipts are likely to decline
slightly from last year's record, and overall production expenses, while held
in check by lower feed costs, will rise modestly.  Consequently, net cash farm
income is forecast to decline to about halfway between the $57 billion of 1996
and the $49 billion of 1995. 

The pieces of several puzzles must come together before the final outcome will
be determined.  How low will wheat prices fall?  What mix of field crops will
farmers plant this spring?  What are the risks of the downhill phase of the
cattle cycle?  And is price volatility becoming more of an issue today?  

Fast Forward to 2005--Globally...

Robust growth in global import demand for agricultural products--driven by
strong economic growth in developing and transition economies, market-oriented
policy reforms, and rising per capita meat consumption in developing
countries--will be the major force in international commodity markets through
2005.  

In USDA's global baseline analysis, U.S. exports of high-value products,
including meats and horticultural products, will continue to show strong
growth, generally outpacing bulk exports and accounting for a growing share of
U.S. farm exports.  Strong U.S. export growth is also projected for bulk
commodities in these years, particularly feed grains and wheat, driven largely
by prospects for solid economic growth in developing countries.  International
bulk commodity supplies will tighten, slowing the long-term downward trend in
inflation-adjusted prices.  The extent to which global supplies will respond
in an environment of firmer prices is a key uncertainty in the outlook. 

...and Domestically

Since the U.S. is the world's leading grain exporter and a significant meat
exporter, it stands to benefit from projected gains in international grain
demand and higher commodity prices through 2005.  And greater market
orientation in the domestic agricultural sector under the new farm legislation
puts U.S. farmers in a favorable position to compete in the global
marketplace.  As a result, the positive international outlook is echoed, for
the most part, in the U.S. agricultural sector.

U.S. net farm income, in nominal terms, falls for 2 years from recent highs in
1996, then rises through 2005.  This implies a steady outlook for real farm
income--a definite change from recent trends.  The agricultural sector relies
increasingly on the marketplace for its income, as direct government payments
fall through 2002 and represent less than 3 percent of gross cash income
beyond 2000.  

USDA's baseline scenario builds on recent trends and policy actions.  A set of
clearly defined assumptions underlies the projections, although events might
occur that could greatly alter the actual outcome.  Four principal assumptions
interact to support the optimistic scenario: strong growth in demand;
continuation of current domestic policy; multilateral and unilateral trade
policy reform in other countries; and structural change in U.S. agriculture.

Food CPI to Climb 2.5-3 Percent

The Consumer Price Index (CPI) for food in 1997 is forecast to rise 2.5-3
percent, down from last year's 3.3-percent gain.  Overall inflation (as
measured by changes in the all-items CPI) is forecast to increase just over 3
percent.  This should keep a lid on costs of food production and
marketing--e.g., labor, packaging, transportation, and advertising--which
account for
about 75 percent of retail food costs.  The away-from-home CPI is forecast to
rise 2-3 percent in 1997, with the at-home component up 2.5-3.5 percent. 

5th Year of Rising Farm Credit Use

Demand for farm credit is expected to increase again in 1997 after growing
since 1992.  Total farm business debt--real estate and nonreal estate loans--is
forecast to reach about $160 billion by the end of 1997, up about 2.7
percent from 1996 and the highest since 1985.  Continued economic growth,
relatively strong field crop prices, and increased farm incomes in 1996 are
behind much of this year's expected expansion.  

Credit availability should be ample for agriculture and rural business
borrowers in 1997, while general interest rates may rise slightly by the
second half of 1997.  Commercial banks in the first quarter of 1997 have
continued to ease credit standards for business lending, including credit
standards for small firms.  Likewise, for the fourth quarter of 1996, roughly
half of rural banks heavily involved in agricultural lending had
loan-to-deposit ratios lower than desired.  The easing of credit standards and
the
desire to expand business lending has led to a narrowing of business lending
spreads (the difference between the loan rate charged by the bank and the
bank's cost of funds) as well as greater availability of funds for business
lending. 

Exporters Target U.S. Asparagus Market

The U.S. is one of the world's largest producers and consumers of fresh
asparagus.  In the past, fresh asparagus was consumed in the U.S. only in the
first half of the year, when domestic product was available.  Thanks to
soaring imports (mostly from Mexico and Peru)--up 74 percent in the
1990's--fresh asparagus is now available year-round.  But imports arrive not
only
during the off-season.  They also come in during the U.S. season beginning in
January, reducing the early-season price premium.  Because the U.S. market is
mature and demand flat, the growth of fresh (and processed) asparagus imports
poses serious challenges to the U.S. industry. 

U.S. asparagus production has declined since 1989, due in part to some
California producers switching to more profitable annual crops.  U.S.
production is expected to increase  in 1997, however, and recent plantings in
California are maturing, further boosting supply in the next few years.  Under
these conditions, U.S. producers should expect downward pressure on prices. 


AGRICULTURAL ECONOMY

U.S. Agricultural 
Outlook for 1997

Well into 1997, the U.S. agricultural economy is in a relatively strong
position.  Farm cash receipts set a record of nearly $200 billion in 1996,
with crop receipts rising substantially above the average of the 1990's and
livestock receipts close to the average.  This year, total receipts are likely
to decline slightly from the record, as lower grain receipts reduce the total
return to crops.  But livestock receipts will rise as cattle more than offset
the decline in dairy.

Overall production expenses, while held in check by lower feed costs, will
rise a little.  Consequently, net cash farm income is forecast to decline to
about halfway between the $57 billion of 1996 and the $49 billion of 1995,
making it about equal to the average of the 1990's.  Areas of concern continue
to be those farming regions affected by bad weather, and the financial
pressures on cattle and dairy producers who have had to reduce cash balances
or incur debt in 1996.  

The farm sector balance sheet is expected to improve again in 1997 as asset
values rise more than debt increases.  Farm real estate values have risen
every year since the mid-1980's, and a 5-percent increase is expected in 1997. 
Farmers will take on more debt for the fifth year in a row, but the overall
debt-to-asset ratio is expected to decline to a healthy range of 14.5-15
percent.

Taxpayers will see stability in farm program costs, with direct government
payments forecast at $7.6 billion for 1997, which would account for only 3.5
percent of gross farm income.  By the time the 1996 Farm Act expires in 2002,
government payments are expected to drop to 2.6 percent of gross farm income.


Consumers will see a year of modest food price increases in 1997.  Meat and
dairy product prices will restrain food price increases, keeping them in the
range of 2.5-3 percent.  In 1996, food prices rose 3.3 percent above the 1995
level but below what many expected given the record-high levels of grain and
milk prices. 

The Macroeconomy 
Bodes Well For Agriculture

One can go a long way in assessing the prospects for agricultural markets by
knowing how strong world food demand will be and how global crop yields will
turn out.  Although little is known yet about 1997 crop yields, it is possible
to learn something about underlying demand by looking at its two major
determining factors: global incomes and prices.

Global incomes appear to support strong food demand in 1997, which is good
news for food exporting nations such as the U.S.  Real global Gross Domestic
Product is expected to grow nearly 3 percent--roughly the same as last year's
2.9 percent, but up sharply from the 1.9-percent annual growth during 1990-95. 
This should help to keep global food demand strong despite high commodity
prices. 

Almost every major country in the world is expected to have positive real
growth in 1997.  Each of the 28 OECD economies is expected to grow for the
first time in 10 years.  The only drag continues to be the Newly Independent
States of the former Soviet Union and the Baltics, where positive growth is
still a couple of years away.  

From a consumer's viewpoint, global commodity prices also look favorable. 
U.S. farm product export prices have fallen substantially from their
second-quarter (1996) peaks and should continue to do so as grain supplies
rebuild in
1997.  

One price factor to watch in 1997 is exchange rates.  The dollar is now about
20 percent stronger against the yen than in 1995.  That has the effect of
raising U.S. export prices and will partly offset some of the U.S. crop price
declines in 1997.  It will especially hurt meat and other high-value exports
whose prices are not dropping in 1997.  The stronger dollar will also add to
the overall U.S. trade deficit, which will be a restraining factor in U.S.
economic growth.  Even so, the U.S. economy is expected to grow at about 2.5
percent during 1997.  

Some positive news for U.S. exporters is that, although the dollar is
strengthening generally, its real value--in agricultural trade-weighted
terms--is now only moderately above the level of the past 2 years when measured
against West European and Asian currencies, excluding Japan.  And the Mexican
peso continues to show stability at about 7.9 pesos per dollar. 

Two key factors influencing farmers' costs are energy prices and interest
rates.  Farmers faced 11-percent-higher fuel costs in 1996, spending a total
of $6.3 billion as crude oil prices rose from $17 a barrel in 1995 to more
than $22 in late 1996.  Fuel spending will be up a little in 1997, but crude
oil prices are expected to drop back down toward $20 as the year unfolds.

Interest rates could be slightly higher in 1997, reflecting the above-trend
growth in the U.S. Gross Domestic Product of the past few quarters and the
tighter labor market.  However, the outcome will depend on the Federal Reserve
Board, which will be considering the offsetting effects of lower expected food
and energy price increases and lower prices for imports due to the strength of
the dollar.   Farmers' total interest expenses will likely be a little over
$13 billion, about the same as in the past 2 years. 

Behind the aggregate farm-sector numbers are varying circumstances across
commodities that shape near-term conditions in agricultural markets and the
U.S. farm economy.  In addition, the pieces of several remaining puzzles must
come together before this outlook becomes a certainty.  These involve grain
prices, planting flexibility, ethanol production, the cattle cycle, and price
volatility.

Crop Market 
Developments

A year ago, this forum was deeply concerned about the looming shortage of
grains and the prospect of a major disruption of livestock production and
escalating consumer food prices.  Corn, wheat, and soybean prices had seen a
10-16-month runup, and further price increases were anticipated.  Grains did
turn out to be in short supply, and prices soared to levels not predicted at
this forum or anywhere else, as grain stocks reached record or near-record
lows and domestic and export demand was strong.

A year later, the moderating effect of larger 1996 crops is evident.  Monthly
average farm-level wheat prices fell steadily from last May's record high to
below $4 per bushel in January--a 31-percent drop.  Corn prices declined by
about 41 percent from the record high last July, leveling out to $2.63 per
bushel in December and January.  In contrast, soybean prices, while they
declined 12 percent through November from their August peak, have increased
since then to $7.16 per bushel in January.

Wheat prices are expected to remain under considerable pressure as U.S. and
global carryover stocks rise, although not to high levels by historical
standards.  Last year's high wheat prices caused foreign wheat acreage to
expand by 5 percent, resulting in a harvest of record or near-record crops. 
That was the largest annual increase in foreign wheat area recorded in the
USDA database, which starts in 1960.  

Reduced yields in the U.S. made it the only major wheat exporter with a
decrease in wheat supplies in 1996/97.   As a result, U.S. exports declined. 
U.S. wheat sales have plummeted in recent months as foreign exporters such as
Argentina and Australia have traded aggressively.  U.S. sales are expected to
remain slow through this summer because of continued large exportable supplies
in competing countries.

For the 1997/98 season, U.S. wheat production is expected to be similar to
this year.  However, smaller crops are expected in all the major exporting
countries except the European Union (EU).  This should provide an opportunity
for a recovery in U.S. exports from the reduced level of 950 million bushels
expected this season.  However, the degree of recovery will depend on the size
of the U.S. crop, and on whether China's wheat imports bounce back from the 4
million tons expected this season to something nearer the 10-million-ton
average of the previous 5 years.

This year's corn prices may be relatively firmer than wheat.  While corn
carryover stocks are expected to more than double by September, they are still
expected to be relatively tight, below 1 billion bushels.  Feed and industrial
uses are rising.  However, exports will be down this season, as corn from
Argentina, South Africa, and China, and barley from Canada and the EU, are
providing increased competition.  In 1997, U.S. production is forecast to rise
again, but higher exports and domestic use during the 1997/98 marketing year
are expected to limit the increase in carryover stocks to only about 300
million bushels by September of 1998.

Soybean stocks are declining, in contrast to wheat and corn.  By this
September, U.S. soybean stocks are projected to be the lowest in 20 years,
which will mean an increase in farm-level soybean prices in 1996/97.  What is
going on?  

First, Brazil had a reduced crop last year, which opened markets globally for
the U.S. and even made Brazil a U.S. customer this past fall.  Second, China
imported record quantities in October-December--950,000 tons of soybean meal
compared with zero the year before.  That is nearly 8 percent of total world
trade purchased in one calendar quarter by one country.  

However, China's needs appear to be met, and record soybean production in both
Argentina and Brazil has started coming to market.  As a result, U.S. exports
are expected to slow during the March-September period.  In 1997, a modest
increase in U.S. production and a return to a more typical export level is
expected, which should raise 1997/98 carryover stocks and reduce prices.

For cotton, extremely tight U.S. stocks last summer led to imports of 800,000
bales, making the U.S. a large cotton importer.  However, imports have slowed
to a trickle since completion of the second-largest U.S. cotton harvest ever. 
Stocks will rise 80 percent by August, despite larger U.S. mill use buoyed by
the continuing strong economy and increased cotton textile exports.  

Raw cotton exports continue to decrease in the face of 10 straight years of
flat global demand and reduced imports by China.  In the Western Hemisphere,
cotton use continues to grow, but elsewhere in the world, growth in textile
demand is increasingly being met by manmade fiber, a challenge the U.S. cotton
industry must deal with if exports are to grow in the future.

The rice outlook has taken a surprising turn, reflecting reduced returns to
planting under the 1996 Farm Act.  Production and exports were down in 1996 as
expected.  However, late harvests in Asia and tight long grain supplies
worldwide boosted international prices in December and January.  As a result,
U.S. rice area may actually increase in 1997.

For sugar, the major development is the level of imports under the tariff rate
quota in 1996/97.  That level is now expected to total 2.27 million short
tons, after the January tariff-rate-quota allocation of 220,000 tons was
canceled because the forecast U.S. stocks-to-use ratio was above 15.5 percent. 
(The March allocation has been authorized.)  Imports remain well above the
legislated trigger of 1.5 million tons.  Thus price support loans will
continue to be nonrecourse.

Among fruits and vegetables, the recent Florida freeze demonstrates weather
will play a critical role in production.  Sharp losses of snap beans, squash,
tomatoes, and peppers have boosted prices and will likely cause the consumer
price index (CPI) for fresh vegetables during January to June to be more than
double the pre-freeze expected increase.

Livestock & Poultry 
Market Developments

One of the most startling developments in the recent outlook has been in the
cattle market.  First, the cattle cycle turned, and second, the export boom
went flat.  Over the past year and a half, drought, record-high feed grain
prices, high hay prices, low cattle prices, and adverse winter weather have
persistently forced cows to slaughter.  In 1996, both calf and beef cow
slaughter rose 24 percent.  

Although large late-summer and fall placements into feedlots are keeping beef
supplies up now, the January 1, 1997 U.S. cattle inventory showed the impact
of ranchers' efforts to reduce herds.  Cattle on farms and ranches totaled
101.2 million at the start of 1997, down more than 2 percent from the 103.5
million at the start of 1996 and the first decline in the U.S. cattle
inventory since 1990.

Adding to the grief of ranchers, exports declined about 12 percent year-to-year
during the second half of 1996 after growing a robust 20 percent above a
year earlier in the first half.  Exports had increased at an annual average
rate of 16 percent fom 1991 to 1995.  In Japan, where more than half of U.S.
beef exports went in 1996, concerns over E. coli and BSE appear to have slowed
consumption.  In 1997, U.S. beef exports are expected to rise, especially in
the second half, particularly to countries like Mexico and South Korea and to
Japan, although the rising dollar is a new factor that could limit increases.

The hog inventory, like cattle, is down compared with a year ago, and pork
production in early 1997 will likely be below last year's level.  Producers
indicated plans to increase farrowings in the first quarter of 1997, then pull
back during the second.  If they follow through, pork production would pick up
by the third quarter, but for the year as a whole would remain about the same
as in 1996.  With production stable and increased exports expected, hog prices
may average about $2 per cwt over the 1996 average of about $53.50 per cwt.

Broiler exports, fueled by economic growth around the world, have been a
remarkable story in the 1990's that will continue in 1997.  Exports were equal
to 6 percent of U.S. production in 1990 and over 17 percent in 1996. 
Record-high broiler prices in 1996, declining feed costs in 1996/97, and firm
meat
prices in 1997 suggest a 6-percent rise in broiler production this year. 
Poultry will account for all of the increase in 1997 U.S. meat production. 
Exports are forecast up again to major buyers--Russia, Hong Kong, China, and
Japan.

Turning to the dairy market, U.S. farmers' milk receipts were a record $23
billion in 1996, making milk one of agriculture's major commodities.  Although
many producers enjoyed record-high incomes, many did not--particularly those
facing high feed costs, poor forage, and low productivity.  In addition, milk
prices fell sharply between September--when a record high was reached--and
December.  In January 1997, the all-milk price was $13.60--40 cents below a
year earlier and well below the 1995/96 record $14.42.  

The all-milk price has been declining the past couple of months.  Dairy
producers are expressing concern over the decline and calling for various
forms of Federal action.  Given underlying conditions, however, it is likely
that the market will improve for dairy producers.  

Milk production for calendar-year 1997 is forecast to rise only 1 percent over
1996, which was down 1 percent from 1995.  So the market is in balance, with
milk production rising with population, and government surplus removals on a
milkfat basis are expected to be about 0.6 billion pounds, the second lowest
in the last 27 years.  In that environment, the all-milk price is expected to
rise this spring and average $13.70 for the calendar year, the second highest
in the past 16 years.
Keith Collins 
Chief Economist, USDA

Outlook Puzzle Number 1:
How Low Will Wheat Prices Go?   

Averaged over the 1980-95 period, farm prices for wheat bottom out in July at
about 94 percent of the season-average and peak in May at 106 percent.  Based
on the forecast season-average price for wheat of $3.45 per bushel for
1997/98, monthly prices would reach a low of $3.25 per bushel in July and rise
to $3.65 by May 1998.  

However, in years of significant stock growth since 1980--that is, when stocks
rose 20 percent or more from the previous year--wheat prices exhibited a
different pattern, starting higher and declining earlier in the crop year and
reaching a trough in late summer before generally rising through early May,
but remaining below the price-pattern average across all years.  Under this
stocks-growth pattern, 1997/98 wheat prices would bottom out at about $3.35 in
September and rise to $3.55 in May 1998.  

Outlook Puzzle Number 2:
Will Ethanol Perform?  

High corn costs led corn used in ethanol to fall to 396 million bushels in
1995/96, down 26 percent from a year earlier.  Corn costs will be lower this
year and gasoline prices a little higher than in recent years, so a recovery
to 440 million bushels is expected for 1996/97.  Further gains are expected in
1997/98, but it will likely be at least another year before corn use for
ethanol reaches 1994/95's 533 million.  

The peak ethanol production period is in the fall and early winter when
high-fructose corn syrup (HFCS) production is down and the winter oxygenate
program
is in effect.  But ethanol production this past fall did not snap back
sharply, limiting this season's prospects, although year-over-year production
increases are likely as the year progresses.  

While corn used in ethanol between 1994/95 and 1996/97 is expected to drop by
about 90 million bushels, corn for HFCS and beverage alcohol is expected to
rise about 60 million.  Increasing HFCS and beverage alcohol exports will help
support corn industrial use while ethanol recovers. 

Outlook Puzzle Number 3:
What Will Farmers Plant This Spring?  

In 1996, 335 million acres was planted to principal crops, the highest level
since 1986 and up nearly 17 million acres from 1995.  With producers
responding to rising prices, corn and wheat acreage accounted for 90 percent
of the increase.  Sorghum and soybean acreage was also up, while rice, cotton,
and minor oilseed acreage was down.

The amount of cropland available for 1997 planting to principal crops is as
large as last year, and as much as 1 to 2 million acres withdrawn early from
the Conservation Reserve Program (CRP) in 1996 might be planted. About 22
million acres currently enrolled in the CRP are under contracts that expire at
the end of September, and some of that acreage is likely to be available for
1998 planting.

Planted acreage this year is likely to be down slightly from 1996, largely
because of plantings of other crops on failed wheat acres last year.  Land
that is planted to wheat, then replanted to another crop such as sorghum, is
counted twice in the planted acres total.  Total wheat acreage is expected to
be down because of the 7-percent decline in winter wheat acreage and lower
price expectations than a year ago for spring wheat plantings.  

Corn and soybean acreage is likely to increase, capturing some of the wheat
land.  Corn could total 81 million acres, near where it might have been last
year had planting weather not been bad.  Soybeans, with current favorable
prices, could reach 64.5 million acres or even exceed 65 million, the highest
since 1984.  Rice acreage may increase marginally to 2.9 million with
favorable prices, and cotton acreage could decline slightly to 13.8 million,
as feed grains and soybeans look attractive.

Although larger stocks of wheat and corn than a year earlier will be carried
into 1997/98, U.S. grain stocks are relatively tight, and soybean stocks are
the lowest since 1976.  With normal weather, 1997/98 could see wheat
production match 1996's 2.28 billion bushels and stocks rise toward 550
million bushels.  Corn production could total close to 9.6 billion bushels,
the second highest ever, and stocks could rise to more than 1.2 billion
bushels.  

Soybean production could total 2.5 billion, and with lower exports, stocks
could rise to 220 million bushels.  Season-average prices would be below
1996/97 and export supplies would rise.  But U.S. crops will face especially
strong competition, given large competitor supplies. 

Outlook Puzzle Number 4:
What Are the Risks of the 
Downhill Phase of the Cattle Cycle?

The 101-million-head inventory on January 1 marks the start of the downturn in
the cattle cycle.  Cattle cycles over the past several decades have averaged 6
years of cattle-number building, followed by 4 years of declining.  

So for some time into the future, fewer calves will be born, fewer heifers
will be retained, fewer feeder calves will be available to feedlots, fewer
steers will be fed and slaughtered, and lower retail supplies of beef will be
available.  This could go on for several years.  In 1996, beef production was
up 1.2 percent.  In 1997, a slight decline is expected, and in 1998, a decline
of 4 to 5 percent.  

Feedlots will have to pay more for a reduced supply of feeder cattle.  If corn
prices come down, feedlots will want feeder cattle even more.  Feeder cattle
prices could become quite strong next fall and into 1998.  By late 1997, fed
cattle could be over $70 per cwt, as they were this past fall, but feeder
cattle could be in the mid-$70's, compared with the mid-$60's this past fall.  

This will mean better news for cow-calf producers.  After taking losses
estimated at $18 per cow in 1995 and $39 in 1996, returns, although still
negative, could improve in 1997.  By 1998, returns should be strongly
positive, which would provide an incentive to rebuild herds.   But once that
decision is made, the biological lags mean another 2-3 years before cattle
inventories stop the decline.

Combine this story with the fact that grain stocks, particularly corn and
soybean, remain relatively low.  A bad weather year in 1997 could again cause
high feed prices, resume the heavy herd liquidation, halt rebuilding of the
hog breeding inventory, and set the stage for a serious increase in retail
beef and other meat prices in 1998.  Because meat and poultry accounts for 15
percent of the at-home CPI for food, such a scenario would be a concern for
consumers.

Outlook Puzzle Number 5:
Is Price Volatility Really 
More of An Issue Today?

With low and capped marketing loan rates, minimal government stocks, and the
elimination of acreage reduction programs, some are concerned that
agricultural commodity prices will be more volatile.  This concern has been
amplified by tight grain stocks and the runup and decline in grain prices over
the past 2 years.  This, in turn, has affected livestock, poultry, and milk
markets.  A common premise is that prices will be more volatile without
government intervention and with privately held stocks that are smaller than
past levels of stocks owned or supported by the government.

Are prices now more volatile than in the past?  For corn and wheat, both farm
and futures prices were more volatile in 1996 than over 1991-95.  Was this
volatility indicative of an inherently less stable agricultural sector
structure or, instead, the result of year-specific external factors such as
weather?  Further, whether this is indicative of more volatile prices in the
years ahead remains to be determined.

Farmers and first buyers have reason to be concerned.  Greater planting
flexibility, trade liberalization, and more private stockholding tend to be
stabilizing forces.  But several factors suggest greater variability in the
future.  These include smaller government stocks and greater exposure to
foreign policy shifts and foreign supply shocks as trade liberalization
becomes more important.

From a producer perspective, more volatile prices than in the past could
signal a need for risk management tools to deal with price and income
variability.  Moreover, producers can no longer transfer price risks to the
government through high nonrecourse loan rates and storage subsidies. 
Instead, they will rely on private-sector risk management mechanisms.

In 1997, U.S. agriculture will continue to adjust to the increasing risks that
accompany changes in domestic farm and trade policy as well as the profusion
of emerging technologies and marketing arrangements.  These risk-creating
changes will also provide the chance to lower costs, improve products, shift
risks, and open new markets internationally.

AGRICULTURAL ECONOMY  BOX--1

The projections and discussion presented in this article are drawn from a
presentation at USDA's 1997 Agricultural Outlook Forum held in Washington,
D.C. on February 24-25, 1997.  Near-term numbers reflect official USDA data as
of February 24, 1997, the date of presentation at the Forum.  Long-term
numbers were prepared in October through December 1996 and were published in
USDA's Agricultural Baseline Projections to 2005, Reflecting the 1996 Farm
Act, released in February 1997.  

AG ECONOMY BOX--2

What is USDA's Baseline?

Simply stated, USDA's annual baseline is a set of long-run, policy-dependent
projections.  The 10-year baseline is not a "forecast" in the traditional
sense of the word.  Few analysts, particularly those who worked on this
baseline, would say with great confidence that wheat prices will average $4.80
per bushel 9 years from now, a number that is in the baseline.  Rather, the
baseline projections are intended to outline the path the agricultural sector
will take under a given set of assumptions. 

The baseline provides a neutral backdrop, a reference scenario for assessing
impacts of alternative developments.  Baseline projections reflect current
law, a specific set of  macroeconomic assumptions, a continuation of current
agricultural policy, and "normal" weather--no shocks to the system are
assumed.  From a traditional forecasting perspective, it is this "no shocks"
assumption which most differentiates the baseline from a forecast.  Most
analysts would accept the notion that unforeseen changes will occur sometime
during the baseline period.

A USDA interagency product, the baseline is a tool for departmental decision
making regarding long-term budget estimates, agricultural policy
implementation, alternative policy scenarios, and other agricultural issues. 
It allows for performance of sensitive policy analysis--e.g.,what is the
impact of an expanded European Union?  or what is the impact of rapid economic
growth in China? 
  Gerald A. Bange, Chairperson, World Agricultural Outlook Board, USDA



AGRICULTURAL ECONOMY

USDA's 1997 Baseline: 
The Global Outlook to 2005

Robust growth in global import demand for agricultural products will be the
driving force in international commodity markets through 2005.  In USDA's
global baseline, U.S. exports of high-value products (HVP's), including meats
and horticultural products, will continue to show strong growth, generally
outpacing bulk exports and accounting for a growing share of U.S. farm
exports.  

Strong export growth is also projected for bulk commodities, particularly feed
grains and wheat, driven largely by prospects for solid economic growth in
developing countries.  U.S. bulk commodity exports are projected to expand
more rapidly than during the 1985-95 period, helping to keep U.S. farm exports
on a steady path of growth.  International bulk commodity supplies will
tighten, slowing the long-term downward trend in real prices (measured over
the 1970-2005 period).  The extent to which global supplies will respond in an
environment of firmer prices is a key uncertainty in the outlook. 

Macro Outlook
Positive for Agriculture

Prospects for stronger economic growth in developing and transition economies,
a consistent scenario across most vendors of global macroeconomic forecasts,
are a key driver of USDA projections.  Economic growth rates in Asia, the
largest global and U.S. market for agricultural commodities, are expected to
continue to lead the world through 2005.  China and Southeast Asia are likely
to remain the fastest growing areas of the world, fueling sustained rapid
expansion of per capita incomes, food demand, and diet diversification. 
Although growth is likely to slow somewhat in East Asia--Hong Kong, Japan,
South Korea, and Taiwan--it will remain sufficient to yield steady gains in
demand for an increasingly diverse diet.

While strong Asian growth is not new to the outlook, the substantially
improved economic prospects in other developing areas sets the 1997-2005
outlook apart from projections of the past 10-15 years.  Significantly faster
income growth is anticipated in Latin America (including Mexico), North
Africa, and the Middle East during 1997-2005.  This favorable outlook is
supported by progress made in implementing and sustaining economic and
institutional reforms in many countries across these regions.  At the same
time, it is heavily dependent on the continuation of reforms.  For the Middle
East and parts of North Africa, improved prospects are also linked to the
forecast of strengthening real petroleum prices.

Another important factor distinguishing the next 10 years from the last is the
restoration of positive rates of economic growth in the transition economies
of the Newly Independent States (NIS)--the 12 republics of the former Soviet
Union--and the Baltic states, and, particularly, Central and Eastern Europe
(CEE).  The variability and eventual collapse of effective demand in these
countries was a key influence on global markets during the last 10 years. 
Restoration of positive, if slow, rates of income growth should halt the
declines in food demand and stabilize trade.  And especially  in the NIS and
Baltics, increased market orientation and constrained budgets should reduce
volatility in both economic growth and food trade.

Developing Countries 
Shape Ag Demand Prospects

The relationship between per capita income growth and the pattern of consumer
demand in developing countries is the most critical demand relationship
influencing the long-term food outlook.  Particularly important is the
relatively strong growth in meat and feed demand that typically occurs in
developing countries with per capita incomes of $500-$5,000--e.g., Brazil,
China, Malaysia, Mexico, and Thailand.  The sustained rapid economic growth
projected in Asia, combined with improved growth in Latin America, North
Africa, the Middle East, and CEE, will lead to robust expansion of per capita
meat consumption and demand for feeds. 

Since most countries, and particularly developing countries, tend to produce
meat domestically rather than import it, most of the trade impact of this
feed-livestock expansion will be in energy and protein feeds.  Also, many of
these countries are at the stage of economic growth where food demand for
wheat and vegetable oils tends to increase most rapidly.

Developing countries play a key role in boosting longer term prospects for
agricultural commodity demand.  Developing countries' demand growth will
exceed world demand growth for all major commodities except rice.  Demand
growth in developing countries is highest in feeds, meats, and vegetable oils. 
Compared with growth in developed countries, demand growth in developing
countries is sharply higher for feed grains and meals.

A key uncertainty in the global food outlook is China's large and dynamic
economy, specifically its future demand (and supply) prospects.  With its
large population, dynamic growth, uncertain future policies, weak data, and
diverse food sector, China's long-term outlook is likely to remain uncertain.  

However, China provides a dramatic example of the pattern of food demand
growth that occurs at a certain stage in developing countries.  Food grain
demand has shown little growth in per capita terms since the mid-1970's, while
per capita demand for meats, feeds, and vegetable oils has soared.  This
pattern is expected to continue through 2005, with slower but still rapid
growth in per capita meat and feed demand and little or no growth in per
capita food use of wheat or rice.  

Grain Area Up,
Yield Trends Uncertain 


Firmer prices and supportive policies are expected to lead to a recovery in
global grain area during 1997-2005.  In developed countries, the decline in
grain area during 1980-95 was associated with sluggish global demand and
supply management policies, primarily in the U.S. and the European Union (EU). 
During 1997-2005, grain area in developed countries is projected to rise with
market incentives, increased planting in the U.S., and reduced land set-asides
in the EU.  

The transition economies--NIS and Baltics, and CEE--saw the largest declines
in grain area during 1980-95.  In these countries, grain area stabilizes and
grows moderately during 1997-2005, predicated primarily on recovery of
domestic, rather than foreign, demand.  In general, the recovery in crop area
is consistent with the pace of institutional and policy reform and occurs
fastest in the Visegrad countries--Poland, Hungary, Czech Republic,
Slovakia--and to a lesser extent, Russia. 

In developing countries, the expansion of grain area slowed during 1980-95,
but did not show the decline evident in other regions.  Cropped area in
developing countries is likely to continue to expand in areas where climate
and water availability support additional intensive cultivation.  Firmer
prices are expected to contribute to grain area increases in both importing
and exporting developing countries. 

By commodity, the global crop area projections reflect the pattern of demand,
with the strongest increases in coarse grain and wheat area.  Rice area
continues to reflect the slow upward trend in rice demand.  Oilseed area
growth is projected to slow as strengthening grain prices increase competition
for land, slowing growth in soybean area and pulling some area out of rapeseed
and other oilseeds.

Future trends in crop yields are probably the major uncertainty in the
long-term outlook.  Global yield growth appears to have slowed, although
performance has varied by region, commodity, and time period.  But how will
investment in both variable and fixed inputs respond and raise yields in the
longer term as prices strengthen?  

The impact of increasingly market-oriented farm policies in the U.S., other
developed countries, and developing countries is unclear.  In Latin America
and other developing regions, it is unclear how the improving macroeconomic
climate will affect agricultural investment and productivity.  Further, it is
increasingly difficult to predict the pace of development and adoption of 
biotechnology-related advances that will be coming into use in the future.

Qualified by these uncertainties, the NIS and Baltics, and CEE, are assumed to
undergo a significant recovery in yields for major crops.  Somewhat slower
aggregate yield growth occurs in both the developed and developing regions. 
Globally, wheat yield growth is projected to match the 1985-95 performance,
and corn yield growth is projected faster, but these results are predicated
largely on the anticipated, but highly uncertain, rebound in the transition
economies.  However, yield projections for the NIS and Baltics, and CEE,
remain cautiously below historical highs, due in large part to uncertainty
about the pace of reforms and prospects for productivity gains. 

China is also expected to experience important yield growth.  Official Chinese
data indicate that yields for many crops, including wheat and corn, are high
by world standards and suggest limited potential for future growth.  However,
there is also evidence to suggest that yields calculated from official data
are biased upward because area harvested is significantly underestimated.  The
bias is judged to be particularly large for corn.  As a result, USDA
projections allow for substantial future yield growth from a lower level than
indicated by official data.  Results from China's agricultural census,
currently underway, should help to clarify this issue.

Trade Prospects
By Commodity

A summary of historical and projected growth rates in global imports shows
that although growth is projected slower for several commodities, particularly
some meats, projected demand remains strong for meats generally, and for feeds
and wheat.  Particularly important to the U.S. trade outlook is the stronger
expected growth in import demand for coarse grain, wheat, and to a lesser
extent, cotton. 

Coarse grains.  Broad-based growth in coarse grain import demand will support
the expanding feed-livestock sectors across developing regions, including
China, South and Southeast Asia, Latin America, North Africa, and the Middle
East.  China's coarse grain imports are projected to rise more than 10 percent
annually, and South and Southeast Asian imports, about 9 percent annually.  

Annual growth in other developing regions is expected to be more modest, in
the 3-4-percent range.  East Asia, by far the largest regional feed grain
market, is expected to show very little growth, as trade reforms make local
meat production uncompetitive and a rising share of meat consumption is
imported.  EU imports are also likely to remain relatively flat, due to
sluggish growth in domestic meat demand and to export constraints imposed by
Uruguay Round (UR) export subsidy limits.

The NIS and Baltics, a key source of instability in global coarse grain trade
during the 1980's and early 1990's, are expected to be a small player in the
market during 1997-2005.  Meat demand and production recovers slowly, and
domestically produced meat remains uncompetitive with imported meats in key
markets.  With a smaller market presence and severe financial constraints, the
NIS and Baltics are unlikely to be as large a source of instability in global
coarse grain markets during the projection period.

The U.S. is expected to maintain its dominant two-thirds share of the global
coarse grain market.  EU competition, primarily barley, is likely to be
constrained by the UR export subsidy limits throughout the projection period. 
While Argentina is expected to boost its corn exports, other traditional
competitors are expected to be restrained by competition for cropland.  The
transition economies, primarily in CEE, are expected to be emerging
competitors after 2000 when gains in U.S. corn area slow and prices
strengthen.

Soybeans and meal.  The long-term expansion of feed-livestock sectors in
developing Asia, Latin America, North Africa, and the Middle East is expected
to drive steady, robust growth in demand for soybeans and meal.  Developing
Asia, particularly China and Southeast Asia, is expected to be the fastest
growing market, with imports expanding about 8 percent annually.  Gains in
these developing regions are projected to more than offset sluggish growth in
feed demand in East Asia and the EU-15.  

As was the case during the early 1990's, U.S. soybeans and meal are expected
to maintain market share against South American competitors, with the U.S.
share averaging 43-44 percent.  Large gains in U.S. soybean yields relative to
Argentina and Brazil are expected to continue to underpin U.S. supplies and
competitiveness, particularly during the next 5 years. 

Wheat.  As with feeds, income gains in developing countries are expected to
drive stronger growth in wheat trade during 1997-2005.  In many developing
countries, per capita wheat consumption remains responsive to rising incomes
and urbanization, while capacity to produce wheat efficiently is limited.  

In China, although per capita wheat consumption is not expected to grow,
imports are expected to expand about 4 percent annually as water shortages
continue to inhibit yield gains.  The North Africa and Middle East market,
also expected to sustain 4-percent annual import growth, is another key to
wheat trade prospects.  Wheat demand will respond to faster income growth in
most of North Africa and the Middle East. 

 Limited production gains are expected in some countries because of limited
potential for area or yield gains, and because market-oriented reforms are
reducing government support.  As with coarse grains, the NIS and Baltics will
be a relatively small player in the global wheat market during 1997-2005, with
much less scope to be a source of instability.

The U.S. wheat market share will recover from its 1996 decline and remain near
its recent average of 34 percent through 2005.  Prospects for U.S. wheat
market share are closely linked to EU policy developments.  EU market share is
expected drop until about 2001, as its exports are constrained by UR export
subsidy limits, but then rise when world prices are high enough to permit
unsubsidized exports.  

Gains in EU market share after 2000 are expected to come at the expense of
less competitive emerging exporters, rather than U.S. sales.  This scenario
assumes a 12-percent EU land set-aside for 1998-2005, moderate appreciation of
the European Currency Unit against the dollar, and limited changes to the
administration of existing EU wheat intervention policies to permit internal
market prices to drift below the intervention price (EU farm support price).  

A smaller EU set-aside could increase its competitiveness after 2001, but
would likely lead to rising supplies of barley that would be uncompetitive
with wheat for domestic feed use and not exportable under UR export subsidy
limits.  A change in the EU Common Agricultural Policy to reduce the wheat
intervention price would also increase EU competitiveness, but is considered
unlikely outside of a formal enlargement agreement with CEE countries. 

Rice.  World rice trade expanded sharply during the early 1990's, in part
because Japan and South Korea began importing rice under the terms of the UR
agreement, and also because two large markets--China and Indonesia--increased
their purchases.  These markets will grow slowly from their new levels.  In
addition, import demand in Latin America, and particularly North Africa and
the Middle East, will also respond to stronger income growth.  

The higher level of rice trade during the early 1990's was supplied, to a
large extent, by uncharacteristically large exports from Vietnam and India. 
Both of these countries, along with Burma, will sustain their higher market
shares through 2005.  U.S. market share is expected to decline because of
rising domestic consumption and lower planted area expected under the 1996
Farm Act.

Meats.  The long-term outlook for global beef, pork, and poultry trade is
largely dependent on developments in three large markets: East Asia, the NIS
and Baltics, and for poultry, China.  East Asian meat imports, dominated by
Japan (beef, pork, and poultry) and South Korea (beef), expanded rapidly
during the 1980's in response to strong consumer demand and negotiated
increases in market access.  

Based on already ratified multilateral trade agreements, East Asian meat
import demand will grow steadily, as imports continue to substitute for
relatively high-cost local production.  However, import growth will remain
slower than during the 1980's and early 1990's unless additional market access
is negotiated.

Large imports by the NIS and Baltics, principally Russia, were also a
significant feature of world meat markets during the 1980's.  The collapse of
inefficient domestic production, combined with the availability of credits and
subsidies for imports from the EU and the U.S. was the  key factor in this
trade.  For 1997-2005, NIS and Baltics import demand will grow steadily, based
on very modest growth in consumer demand combined with very slow progress in
the development of beef, pork, or poultry sectors that can compete effectively
with imports.  A decline in the availability of subsidized meat exports from
the EU will be a significant constraint on growth in NIS and Baltics pork and
beef imports.

Imports by China, both direct and via Hong Kong, have been a source of rapid
poultry trade expansion during the early 1990's.  The rate of future growth in
this trade is very unclear, in part because of uncertainty about how Hong
Kong's accession to China will affect the administration of trade via Hong
Kong.  It is also possible that limitations imposed by inadequate refrigerated
transport and storage may eventually slow trade growth.  China's poultry
imports slow from recent rates, but continue to show strong (10-percent)
annual growth.

U.S. beef, pork, and especially, poultry have been very competitive in world
markets, capitalizing on new market opportunities to grow more than 20 percent
annually in volume during 1985-95.  U.S. meat products are expected to remain
highly competitive during 1997-2005, but given the outlook for slower growth
in imports by East Asia, the NIS and Baltics, and China, and the baseline
assumption of no new market access agreements, U.S. meat export growth is
projected to slow significantly.  U.S. meat export volume grows about 6
percent annually, with value growing somewhat more slowly, as lower quality
products continue to account for a growing share of U.S. exports.

Cotton.  After showing little growth from 1985 to 1995, world cotton trade is
projected to expand about 1.2 percent annually during 1997-2005, the result of
strengthening developing-country demand and prospects for slow production
growth in the NIS and Baltics, and China.  Import demand in more developed
regions, including East Asia, will continue to slide, as spinning moves to
lower cost regions.  These declines are expected to be more than offset by
rising imports in Southeast Asia, Latin America, and China.  Slow growth in
both imports and exports is expected for the NIS and Baltics, as demand
gradually strengthens and only limited production gains are achieved. 

The U.S. is projected to remain the largest exporter of raw cotton,
maintaining roughly a 25-percent market share, while many competitors reduce
raw cotton exports and channel supplies into consumption or exports of
textiles and value-added products.

U.S. Export Outlook 
Remains Robust

The nominal value of U.S. farm exports grows at a robust 4-percent annual rate
during 1995-2005, reaching nearly $80 billion by 2005.  High-value products
(HVP's) continue to lead the growth in U.S. agricultural exports, expanding
about 5 percent annually.  U.S. bulk commodity exports are also projected to
show strong gains--more than 3 percent per year.

Each of the major categories of U.S. HVP exports--meats, fruits, and
vegetables--is expected to show strong, steady annual growth of 5-7 percent in
value terms.  These U.S. products are expected to remain highly competitive in
their major markets, primarily East Asia, Canada, and Mexico.  However, U.S.
exports of these products are unlikely to sustain the rapid pace of the past
10 years, particularly since no new market access agreements are assumed to
occur.  During 1985-95, market opening agreements with East Asian countries
and NAFTA partners made these markets the key sources of U.S. HVP export
growth.

Significantly stronger annual growth in the value of bulk commodity exports is
expected to be a key source of strength in the U.S. trade outlook, and in the
rural economy.  Faster growth and firmer prices than during the last 10 years
are projected for U.S. exports of most bulk commodities, particularly for
coarse grains, wheat, and cotton.  However, unlike HVP exports, which
generally depend on the more stable income and food demand growth of higher
income markets, bulk commodity demand and prices will be closely linked to the
more fragile prospects for economic growth in developing and transition
economies.
Rip Landes (202) 501-8549 
mlandes@econ.ag.gov

AGRICULTURAL ECONOMY  BOX--3

The projections and discussion presented in this article are drawn from a
presentation at USDA's 1997 Agricultural Outlook Forum held in Washington,
D.C. on February 24-25, 1997.  Long-term numbers were prepared in October
through December 1996 and were published in USDA's Agricultural Baseline
Projections to 2005, Reflecting the 1996 Farm Act, released in February 1997. 
A companion report, International Agricultural Baseline Projections to 2005,
providing country-by-country details of USDA baseline trade data, is
forthcoming.

AGRICULTURAL  ECONOMY  BOX--4

USDA Agricultural 
Baseline Assumptions

USDA's 10-year baseline projections cover agricultural commodities,
agricultural trade, and aggregate indicators such as farm income and food
prices.  The projections in the current report, Agricultural Baseline
Projections to 2005, Reflecting the 1996 Farm Act, were completed in December
1996 and reflect a composite of model results and judgmental analysis of the
agricultural sector through the year 2005.  The projections reflect major
agricultural policy decisions made through mid-November 1996 and include
short-term projections from the November 1996 World Agricultural Supply and
Demand Estimates. 

The baseline projections incorporate provisions of the 1996 Farm Act and
assume the new law is extended through the end of the baseline in 2005.  These
projections provide a starting point for discussion of alternative farm
policies.  The categories of critical long-term assumptions in the baseline
include: U.S. and international macroeconomic conditions; U.S. agricultural
and trade policies; funding for U.S. agricultural export programs; foreign
economic, agricultural, and trade policies; growth rates of U.S. and foreign
agricultural productivity; and normal (average) weather.

Changes in any of these assumptions can significantly alter the projections,
and actual conditions that emerge will alter the outcomes.  Among the more
critical assumptions are those involving agricultural policy and macroeconomic
conditions.

The Conservation Reserve Program (CRP) is reauthorized in the 1996 Farm Act. 
Maximum CRP area is set at 36.4 million  acres.  The new law permits the
Secretary of Agriculture to re-enroll current land at contract expiration and
to enroll new land to replace acreage leaving the CRP through expired
contracts or early termination. 

Over 20 million acres of CRP contracts expire in 1997.  Enrollments in 1997
are assumed to keep the CRP from falling below 30 million acres.  Enrollments
in subsequent years are assumed to gradually increase the CRP to over 36
million acres by 2001.    

The baseline assumes full compliance with all bilateral and multilateral
agreements affecting agriculture and agricultural trade.  Projections assume
full compliance with the internal support, market access, and export subsidy
provisions of the Uruguay Round GATT Agreement.  The baseline assumes no
accession to the World Trade Organization by the Newly Independent States
(NIS) of the former Soviet Union, the Baltics, China, or Taiwan; no
enlargement of the European Union (EU) beyond its current 15 members; and no 
expansion of the North American Free Trade Agreement.  Agricultural and trade
policies in individual foreign countries are assumed to continue to evolve
along their current paths.   

The baseline assumes that no new bilateral or multilateral agreements occur
during the 1997-2005 period.  Although a number of such agreements could
emerge, given the World Trade Organization (WTO) mini-round scheduled for 1999
and potential agreements on WTO accession and  EU-15 enlargement, the
provisions and timing of potential agreements are uncertain.  

Annual quantity and expenditure levels for the Export Enhancement Program
(EEP) are assumed to be in compliance with GATT reductions, which require that
by 2000, subsidized exports be reduced by 21 percent in volume and by 36
percent in budget outlays from 1986-90 levels.  However, the 1996 Farm Act
reduced total EEP funding during fiscal years 1996-99 from the maximum levels
permitted under the GATT agreement.  The 1997 Agriculture Appropriations Act
further lowered the fiscal 1997 EEP level.  

The 1996 Farm Act authorizes P.L. 480-Title I agreements with private entities
in addition to foreign governments and broadens the range of commodities
available for P.L. 480 programs.  Total P.L. 480 program levels are assumed
constant in the baseline for fiscal 1998 and later years.  Program levels for
other trade promotion and credit programs, including the Market Access Program
and the GSM-102 and GSM-103 credit guarantee programs, are assumed constant in
the baseline.  
 
Domestic macroeconomic assumptions include deficit reduction that balances the
Federal budget by 2002.  This results in lower interest rates, higher
productivity, and stronger growth in Gross Domestic Product.

Baseline global economic growth averages about 3 percent annually over the
next decade, well above growth during the first half of the 1990's. 
Macroeconomic growth in developed countries averages about 2.5 percent through
2005 as these economies rebound from growth slowdowns in the mid-1990's.  

Market reforms lead to projected economic growth for the NIS and Baltics, and
the countries in Central and Eastern Europe, following years of economic
decline during the transition from centrally planned economies.  Aggregate
growth for developing countries over the next 10 years is projected to average
about 5.5 percent, somewhat faster than over the past decade.  
Paul Westcott (202) 219-0609
westcott@econ.ag.gov


AGRICULTURAL ECONOMY

USDA's 1997 Baseline: 
The Domestic Outlook to 2005

Strong U.S. export growth is the principal impetus for relative prosperity
projected for the U.S. crop and livestock sectors from 1997 to 2005.  World
economic growth and trade liberalization provide increased opportunities for
U.S. exports during this period.

In USDA's 1997 baseline, U.S. exports rise from this year's forecast of $56
billion to $80 billion by 2005.  Exports of high-value products increase
faster than bulk exports and account for a growing share of U.S. farm exports. 
In particular, meat and horticultural export values rise significantly through
2005.  

Strong export growth is also projected for bulk commodities, particularly feed
grains and wheat.  U.S. bulk commodity exports expand more rapidly than during
the 1985-95 period, helping to propel total U.S. farm exports to an average
annual growth rate of about 4 percent through 2005.  The export share of U.S.
farm-product use grows significantly for corn, grows slightly for wheat and
soybeans, and drops for rice and cotton, which experience rapidly growing
domestic demand in the face of only marginal area gains.  

Since the U.S. is the world's leading grain exporter and an important meat
exporter, it stands to benefit from projected gains in international grain
demand and higher commodity prices.  And greater market orientation in the
domestic agricultural sector under the new farm legislation puts U.S. farmers
in a favorable position to compete in the global marketplace.  As a result,
the positive international outlook is echoed, for the most part, by the U.S.
agricultural sector.

U.S. Demand to Rise
For Major Crops

Strong growth in U.S. grain use leads to rising prices and greater acreage
planted to most major field crops.  Except for rice, exports are the major
factor in this growth.  

Productive capacity for U.S. crops is projected to rise due to increases in
resource and input use and in productivity.  Planted area for major crops
rises 10-15 million acres above average plantings of the past 5 years.  The
increased area is drawn into crop production, based on market incentives, from
acreage that producers previously chose to idle.  For most crops, yields are
projected to rise at or near their long-term trends.  These gains in part
reflect the acquisition of some agricultural land by larger, generally more
efficient farms, continuing a long-term trend.

Conservation Reserve Program (CRP) acreage drops temporarily from the recent
level of 33 million acres to about 30 million as land enrollment falls short
of contract expirations, but then rebounds to over 36 million acres by 2001. 
However, with the CRP remaining above 30 million acres, the balance between
productive capacity and projected demand tightens significantly as the land
base is pressured.  Most land enrolled in the CRP is in areas traditionally
planted to major field crops, thus limiting the response of planted acreage to
rising prices and net returns.  This, together with strong world demand,
pushes grain prices up. 

In the near term, food and feed grain prices drop from the abnormal highs of
recent months, but the outlook over the longer term is for a slow rise in
prices.  Big productivity gains occur for U.S. soybeans and other oilseed
crops, maintaining a U.S. edge over other major producing countries.  Gains in
productivity and efficiency lead to lower production costs, leaving the U.S.
well-positioned to meet the strong growth in demand projected for the oilseed
sector. 

For U.S. cotton, yield and acreage gains will provide the production needed to
meet the strong growth in demand--particularly domestic demand--over the next
decade.  For cotton to compete successfully with other crops for more acreage,
prices will have to follow those of grain and oilseeds.  The U.S. specialty
crops sectors also thrive, and the U.S. becomes a net exporter of fruits by
2000.

Domestic demand for most crops is projected to grow slightly faster than
population.  Notably stronger growth in domestic use of rice reflects a
greater emphasis on dietary concerns as well as the increasing numbers of
Americans of Asian and Latin American origins.  

Livestock Stabilizes,
Poultry Booms

U.S. livestock production will continue to undergo adjustments over the next
few years in response to recently high feed costs, although differences in
biological production lags among livestock sectors affect the pace of these
adjustments.  Nonetheless, the outlook for lower feed prices than in 1995/96,
replenishment of forage supplies, continued low inflation, and domestic and
export demand strength point to positive producer returns, encouraging
increasing red meat and poultry supplies.  However, as feed costs accelerate
after 2000, gains in meat production slow, particularly red meats. 

Cattle herds will likely stabilize beyond the year 2000 at about 97 million
head, although shifts toward a breeding herd of larger cattle and heavy
slaughter weights partially offset the need for expanding cattle inventories
to previous levels.  Beef production continues to be dominated by fed beef, to
satisfy domestic and foreign demand for higher quality beef.

The U.S. pork sector will continue to evolve into a more vertically
coordinated industry.  Larger, more efficient pork producers will market a
greater percentage of the hogs over the next 10 years.  Pork production grows
slowly from just under 18 billion pounds in 1995 to nearly 20 billion by 2005. 
However, accelerating feed grain prices beyond 2000 reduce producer returns
and curb gains in hog inventories and production.  The U.S. becomes an
increasingly important net pork exporter over this period.

U.S. poultry production continues to expand as broiler meats gain an
increasing share of total meat consumption.  Poultry meat will be less
expensive than other meats, so consumers can purchase more poultry meat per
dollar.  Production gains for turkey follow projected growth in the domestic
and export market for processed products.  Continued competition in the world
poultry meat market holds U.S. poultry exports to moderate gains.

The price situation for meats and livestock is similar to that of
crops--moderate growth in nominal terms but with real prices dropping.  Over
the
longer term, feed prices will rise at rates similar to the general inflation
rate.  As a result, livestock producers do not experience any real
(inflation-adjusted) increase in feed prices.  At the same time, increases in
feed
efficiency, coupled with other production and marketing efficiency gains, push
down real livestock production costs.  The net result is that efficiency gains
offset real farm-price declines for livestock, benefiting livestock producers. 

Record total meat supplies are projected through 2005, although red meat
production gains are small.  Consumers purchase more meat, but a larger
proportion is poultry, as per capita consumption of red meats declines. 
Declining real meat prices, along with increases in real disposable income,
allow consumers to buy more total meat with a smaller proportion of disposable
income.

U.S. Farm Income
Stabilizes

In light of the commodity-specific highlights, the U.S. farm income outlook is
quite optimistic.  Net farm income, in nominal terms, falls from recent highs
to $36 billion in 1998, then rises through 2005.  This implies a steady real
farm income outlook--a definite change from recent trends.  The agricultural
sector increasingly relies on the marketplace for its income, as direct
government payments fall through 2002 and represent less than 3 percent of
gross cash income beyond 2000.  

Both crop and livestock receipts are up, due to larger production and higher
prices.  However, production expenses also rise, with expenses for
nonfarm-origin inputs rising faster than expenses for farm-origin inputs. 

Farm asset values increase less rapidly than in the early 1990's, mainly
because of slowing gains in agricultural land values.  Increases in farm debt
are not beyond the ability of farmers to service the debt.  Farm lenders have
largely recovered from the problems of the 1980's, so the availability of
credit will not be a major concern.  Debt-to-asset ratios remain flat at close
to 15 percent, well below levels of the mid-1980's.  With asset values
increasing more than debt, farm equity rises slowly.  

After declining from recent high levels, increasing nominal farm income,
combined with rising farm equity, means relative stability in the financial
condition of the farm sector.  However, the sector will be highly competitive,
and the trend toward fewer but larger farms continues.  

Consumers benefit as food inflation grows more slowly than general inflation
(continuing a long-term trend), even though disposable income spent on food is
influenced by a continued trend of substantial purchases of food away from
home.  By 2005, expenditures for meals eaten away from home account for almost
half of total food spending.

Behind the Projections

The outlook's general picture of growing international demand and
strengthening global prices in the 1997-2005 period has direct implications
for the welfare of the whole range of stakeholders in the domestic
agricultural sector.  Because of the diversity and interdependence of
different players in U.S. agriculture, it is rare that an outlook scenario
suggests that both producers of crops and livestock, as well as consumers, are
well off or better off.  Typically, for example, if grain prices are high (a
good outlook for grain producers), livestock producers are likely to be hurt. 
Or if prices received by farmers for livestock products are high, consumers
pay higher prices at the retail level.

Tradeoffs across subsectors and market participants are the rule.  However,
this year's domestic outlook for the 1997-2005 period reflects the exception
to that rule.  Farmers--whether crop producers or livestock producers--and
consumers appear better off.  Four principal factors interact to create this
optimistic projection.

First, strong growth in export demand is the catalyst for the rapid increases
in commodity use and the steady increase in nominal commodity prices.  Reduced
trade barriers under the GATT agreement, combined with strong global economic
growth, particularly in developing countries, are behind the rise in world
agricultural trade and U.S. crop exports.  

Second, domestic policy and policy assumptions support a positive agricultural
outlook.  Planting flexibility introduced by the 1996 Farm Act facilitates the
market's response to changing demand for U.S. agricultural commodities.  In
addition, USDA's baseline operates under the assumption that production
flexibility contract payments (program payments) to farmers continue beyond
the expiration of current legislation in 2002.  This helps to explain why crop
producers are better off, in the aggregate, despite lower real prices. 

Third, trade agreements and unilateral trade policy reform in other countries
allow U.S. farmers to better realize competitive gains from their comparative
advantage in many agricultural products, while reinforcing the advantages of
freedom to respond to market signals.

Fourth, structural change in U.S. agriculture continues, via consolidation and
concentration, and provides economies of scale that increase efficiency above
and beyond technological change.  In addition, increases in vertical
coordination of several activities in the food production and marketing chain
help to explain why consumers will face lower real food prices.

What Are the Uncertainties?

In creating a baseline scenario that builds on recent trends and policy
actions, USDA is not saying that the "everyone wins" outcome will truly come
to pass.  The baseline is not a forecast.  Any number of events might occur
that could greatly alter the actual outcome.  For example, the assumption that
production flexibility contract payments continue is not a forecast that they
will.  Since future policy is unknown, the baseline assumes no change as a
simplification.  By keeping assumptions clear and straightforward, baseline
users can easily adjust the projections to fit different versions of the
underlying assumptions, which is particularly useful in areas of strong
uncertainty.

Weather, as always, is the wild card.  But several other factors play an
important role in determining the direction and outcome of the U.S.
agricultural sector into the next century.  For example, government policy can
take almost as many wild turns as weather.  No change is assumed in current
U.S. agricultural policy beyond 2002. 

Unilateral foreign policy change is another big source of policy uncertainty. 
For example, the European Union (EU) could establish larger cropland set-aside
rates than was assumed.  Such a scenario would likely reduce EU grain exports
and as a result, support international grain prices and improve U.S.
competitiveness in international grain markets.

Multilateral or regional trade agreements could determine future directions
for agriculture.  Whether this would bode well or poorly for various U.S.
stakeholders depends on the nature of any agreement's development.  For
example, EU enlargement could significantly decrease export demand for some
U.S. agricultural commodities and food products.  But accession of a few major
countries, such as China, to the World Trade Organization could expand U.S.
market access by increasing the number of countries playing by the same
international trade "rules" as the U.S.

Strong income growth in developing economies is a major reason for the
optimistic scenario outlined by the international baseline.  Weaker growth
would mean lower global trade, lower U.S. exports, and lower agricultural
commodity prices.

Supply response, both domestic and international, determines the agricultural
sector's performance in responding to market signals.  Yield assumptions do
not explicitly account for changes that could occur as a result of
biotechnological breakthroughs.  In addition, potential productivity changes
that may result from the 1996 Farm Act are excluded, principally because a
good deal of uncertainty remains about how domestic supply is going to respond
in the absence of acreage reduction programs and deficiency payments.   There
is even greater uncertainty about the nature of foreign supply response. 
Experience in the recent past suggests that foreign supply can be highly
responsive to price signals and can adjust very rapidly.  

Energy prices and their stability over time are a perennial concern.  However,
there is no empirical basis for assuming a new energy crisis or anything other
than a trend extension for energy prices.  If energy price instability occurs,
it could have a big impact on the outlook.

The prospect of declining U.S. and global grain stocks has generated
considerable uncertainty, particularly since enactment of the 1996 Farm Act. 
Following several years of adjustments from recent unusually tight market
conditions and high prices for many crops, long-term trends in supply and
demand balances imply tightening stocks-to-use ratios and strengthening
nominal prices for crops, especially beyond 2000.  In particular, U.S. and
global grain stocks-to-use ratios tighten relative to historical standards, as
budgetary pressures and a continued commitment to market forces encourage
governments to refrain from financing large grain stocks.  

What this means for the outlook with respect to price volatility and food
security remains uncertain.  On the one hand, a range of factors--e.g.,
globalization of markets, trade and agricultural policy liberalization, and
advances in telecommunications that allow electronic trade and link foreign
and domestic futures markets--suggest that stocks have become less important
to price stability.  On the other hand, price levels are inversely related to
stock levels, and as stocks decline, higher prices might make food security
harder to assure in low-income countries.  

In addition to the above uncertainties, a variety of issues that are currently
central to the domestic agricultural economy--e.g., income risk management and
sustainability--are not addressed in the baseline.  The 1996 Farm Act's
removal of traditional income safety-net mechanisms effectively transfers
income variability risk from the government to farmers.  Although baseline
projections assume no shocks, normal variations in supply and demand will
occur in the future.  U.S. farmers will have to make strategic use of risk
management alternatives to buffer a portion of this potentially greater income
volatility.  

Some farmers will expand their use of  futures and options markets, possibly
using new instruments such as yield contracts.  Many producers continue to use
crop insurance for yield protection and may expand coverage using revenue
insurance now available in some areas.  Other alternatives to manage risk
include diversification of production, contracting in advance for the future
sale of the commodity, integrated ownership, and involvement with more
value-added processing beyond the farm gate.  The baseline does not address
which risk management mechanisms farmers will adopt or what their adoption
will mean for production or average income levels.

The economic, ecological, and social conditions underlying the baseline
analysis, or implied by the resultant outlook, may or may not continue.  This
consideration introduces more uncertainty about whether pathways suggested by
the current outlook can be maintained over time. 

In summary, the baseline is a "conditional scenario analysis," designed for
comparative purposes.  Whether or not an individual agrees with the underlying
assumptions, the baseline serves as a clear reference tool from which
alternate outcomes may be derived by changing those assumptions.  
Katherine R. Smith (202) 219-0700 
ksmith@econ.ag.gov

AGRICULTURAL ECONOMY BOX--5

The projections and discussion presented in this article are drawn from a
presentation at USDA's 1997 Agricultural Outlook Forum held in Washington,
D.C. on February 24-25, 1997.  Long-term numbers were prepared in October
through December 1996 and were published in USDA's Agricultural Baseline
Projections to 2005, Reflecting the 1996 Farm Act, released in February 1997. 
USDA's 1997 baseline estimates are also fully accessible via the Internet at:
             http://www.mannlib.cornell.edu/data-sets/farm/94005


COMMODITY SPOTLIGHT

Exporters Target
U.S. Asparagus Market

The U.S. is one of the world's largest producers and consumers of fresh
asparagus.  In the past, fresh asparagus was consumed in the U.S. only in the
first half of the year when U.S. product was available.  Now, thanks to
soaring imports--up 74 percent in the 1990's--fresh asparagus is available
year-round.  

But imports arrive not only during the off-season.  They also come in during
the U.S. season beginning in January, reducing the early-season price premium. 
Because U.S. demand is flat, the growth of fresh and processed asparagus
imports poses serious challenges to the U.S. industry.  Total per capita
asparagus consumption has been nearly constant in the 1990's at 1 pound--0.6
pound fresh consumption. 

In 1980, the U.S. imported just 8 percent of the fresh asparagus supply, but
by 1996 that share had increased to 40 percent.  Mexico has always been the
largest source of U.S. imports, but many new countries are entering the
market.  Asparagus is a labor-intensive, high-value crop that is very
attractive to countries with ample labor supplies and the appropriate growing
conditions.  Peru, in particular, has become one of the world's largest
producers and exporters of asparagus.  Recent investment in China hints at
considerable growth potential there too.  

U.S. asparagus production has declined since 1989, due in part to some
California producers switching to more profitable annual crops.  U.S.
production is expected to increase  in 1997, however, following poor weather
in 1995 and 1996 which reduced production in California.  Also, recent
plantings in California are starting to mature, further boosting supply in the
next few years.  Under these conditions, U.S. producers should expect downward
pressure on prices.  With the rapid growth of asparagus imports from other
countries, off-season suppliers may also experience downward price pressure.   

U.S. Output Trends
Are Lower

In 1996, U.S. asparagus production was nearly 200 million pounds, 20 percent
below the record 250 million in 1989.  About 56 percent of U.S. asparagus
production was marketed in fresh form last year, compared with only 37 percent
from 1975 to 1979.  During the 1990's, the relative shares of processed and
fresh production have remained fairly constant.  

California has traditionally been the largest U.S. asparagus producer, but
weather problems over the last 2 years allowed Washington to surpass it as the
nation's leading producer.  In 1996, Washington accounted for 42 percent of
total production compared with California's 38 percent.  Michigan's share was
15 percent.  New Jersey, Illinois, Indiana, Maryland, Minnesota, and Oregon
accounted for a combined 6 percent of production.

With the exception of 1992, U.S. asparagus production has declined steadily
from 1989 to 1996, due mostly to lower output in California.  Acreage in
California's Imperial County, with the earliest U.S. asparagus production,
declined as production grew in the neighboring Mexican state of Sonora, which
has an overlapping shipping season (January to March).  Between 1989 and 1996,
imports during the month of January almost doubled, lowering early-season
prices and putting competitive pressure on producers.  

The Imperial County industry appears to have stabilized, however, with acreage
virtually unchanged in the last 3 years.  In the Salinas area, asparagus
acreage has declined as farmers switched to more profitable annual crops.  

The Stockton-Delta area, with 57 percent of the state's expected harvested
acres in 1997, is expected to remain the leading growing region in California,
due to lower production costs relative to the Salinas area and Imperial
County.  Recent plantings in the Stockton-Delta area could raise total
California harvested area to about 34,000 acres in 1998 (when current
plantings mature), up 18 percent from 1996. 

California is the most important state for fresh production, with virtually
the entire crop sold in the fresh market, accounting for two-thirds of total
U.S. fresh production in 1996.  Washington accounted for almost one-fourth of
fresh production, while New Jersey and Michigan each accounted for about 3
percent.  

The bulk of California's crop is shipped to the fresh market from late
February through May, with the largest shipments in March and April.  Small
amounts of asparagus are available beginning in January from Imperial County. 
California producers receive higher returns than those of other states because
they sell more to the fresh market and are the earliest domestic producers. 

Processed output includes canned (35 percent of total production) and frozen
(9 percent).  Washington State is the largest producer of asparagus for the
processed market, with 64 percent of the total processed asparagus pack in
1996.  Michigan accounted for most of the rest.

Agronomic conditions for asparagus are very good in Washington, and average
state yields are high.  Producers depend on high yields rather than on the
early season that gives their Californian counterparts an edge in the fresh
market.  About 55 percent of Washington's crop is canned, and less than 10
percent is frozen.  Washington specializes in whole spears, which command a
higher value in the marketplace but are more labor-intensive than other
processed products.

Most Michigan production is processed, with about two-thirds of the processed
asparagus canned and one-third frozen.  Michigan is second to Washington in
canned production, but recently surpassed it as the largest producer of frozen
asparagus.  Unlike Washington's processed asparagus, most of Michigan's 
asparagus is processed into cuts and tips, which are lower value and less
labor-intensive products.  


Higher Fresh Imports 
Keep Consumption Steady

With the exception of 1984 and 1994, U.S. imports of fresh asparagus have
grown each year since 1980, turning the U.S. from a net exporter up through
1982 to a net importer by 1990.  Since the late 1980's, increasing imports of
fresh asparagus have offset declining U.S. fresh-market production, while
exports have been flat.  Domestic consumption of fresh asparagus has been
fairly constant, fluctuating between 148 and 153 million pounds.  The rise in
consumption that occurred in the off-season merely offset the decline in
consumption during the traditional spring season.  Seasonal demand has
flattened somewhat in recent years, but consumption still peaks in the spring. 
If California output rebounds in future years, prices will be lower and spring
consumption may return closer to the 1990 level.   

Imports usually peak in February, when the supply from Mexico is at its
highest level.  Imports drop sharply during the spring as U.S. production
picks up, then begin increasing again in July when most U.S. supplies dry up. 
Shipments from the Bajio region of Mexico's state of Guanajuato are at peak
levels in late summer.  Imports from Peru are strongest from September through
December, but continue into the new year.  Imports from Chile peak in October.

Traditionally, most fresh asparagus imports come from Mexico.  In 1980, almost
all imports came from Mexico, but its share has trended downward, sinking to
53 percent in 1996 as Peru and Chile began filling the off-season void.  Most
of Mexico's export production is shipped from the northwestern state of Sonora
from December through early April.

In 1996, just over half of Mexico's fresh asparagus exports to the U.S. were
in February and March.  Once the Stockton Delta area of California reaches
full production and U.S. prices fall, Mexican exports decrease drastically. 

U.S. fresh asparagus imports from Mexico have varied over the last few years. 
In 1994, imports from Mexico fell as disease problems in the Bajio curbed
output and an overvalued currency raised prices to U.S. buyers.  With the peso
devaluation in late 1994, exports increased in 1995 but fell again in 1996 due
to the Bajio's chronic disease problems.  

Mexico's sizable shipments to the U.S. occur despite relatively high U.S.
tariffs.  The North American Free Trade Agreement (NAFTA) should improve
Mexico's position as a source of U.S. imports.  Before implementation of
NAFTA, the U.S. assessed a 25-percent tariff on fresh green asparagus imports
from Mexico.  Now the tariff schedule varies by time of year.  For the month
of January, the tariff was reduced immediately in 1994 to 17.5 percent from 25
percent and is being phased out over 15 years.  For February 1 to June 30, the
most sensitive period for U.S. producers, the 25-percent tariff declines to
zero over a 15-year period.  From July 1 to December 31, the 25-percent tariff
is being phased out over 5 years.  

Mexico has a transportation advantage over other countries and will eventually
be on the same tariff footing as most other foreign competitors who pay no
duty (i.e., countries benefitting from the Caribbean Basin Initiative and
Andean Trade Preference Act).  Chile and Argentina are the only other Latin
American asparagus exporters that still pay duties.  In 1996, the duty on
asparagus from these countries was 23.8 percent during most of the year.  The
only exception was a 5-percent duty accessed on asparagus arriving by air
between September 15 and November 15. 
 
Peru is the second-largest foreign supplier of fresh-market asparagus to the
U.S.  Between 1989 and 1996, U.S. imports of fresh asparagus from Peru grew
from 2 million pounds to 23 million, reaching 31 percent of total U.S. fresh
asparagus imports.  Three-quarters of Peru's fresh exports to the U.S. are
shipped during September through December when there is very little U.S.
production.

Peru has rapidly emerged as one of the world's largest producers and
exporters, aided by climatic conditions permitting year-round asparagus
production.  Peru also enjoys duty-free access to the U.S. market under U.S.
trade concessions under the Andean Trade Preference Act, which was implemented
for Peru in 1993.  Total Peruvian asparagus exports to all countries grew from
10 million pounds in 1980 to 187 million in 1996.  Export growth is expected
to slow now that there are more competitors for the maturing U.S. off-season
market.
 
Peru's green asparagus dominates production in the Ica region south of Lima,
while white asparagus predominates in La Libertad on the northern coast. 
("White" asparagus is produced by covering the plant with soil, preventing
sunlight from reaching it.)  Most of Peru's asparagus production is
exported--primarily canned white asparagus packed in glass, sold mainly to the
European
market.  Fresh green exports have grown rapidly, destined mainly for the U.S.
and representing 18 percent of Peru's total asparagus export volume in 1996. 
The frozen industry is also growing rapidly, with more green frozen product
being shipped to the U.S. market.

Chile is the third-largest supplier to the U.S.  In 1989 Chile provided 12
percent of U.S. fresh asparagus imports, slipping to just 8 percent in 1996. 
Chile's competitiveness declined due to rising labor costs and the
appreciation of its currency relative to the dollar.  Furthermore, among the
major suppliers only Chile is still subject to the full duty during most of
the year.  In 1996, 87 percent of Chile's asparagus shipments to the U.S.
arrived during the September 15-November 15 period when the duty is only 5
percent.  

After a reduction in Chile's asparagus acreage earlier in the 1990's, acreage
is expanding again, in part because asparagus complements the labor-use
patterns of fruit producers and because its relative profitability is now
higher.  If NAFTA were extended to Chile, the change in tariff regime would
improve Chile's competitive position. 

Other Latin American countries such as Colombia, Guatemala, Ecuador,
Argentina, and Costa Rica have also increased exports to the U.S.  Colombian
exports of fresh asparagus to the U.S. grew from 8,800 pounds in 1990 to 2.7
million in 1996.  Despite rapid growth in these countries, their shares of the
market remain very small.  Collectively they accounted for only 8 percent of
imports in 1996.

Most South and Central American fresh asparagus enters the U.S. through Miami. 
Season-average wholesale prices in Miami dropped from $21.87 per box in
1991/92 to $18.49 during the 1995/96 season.  At this level, most exporters
are reportedly barely breaking even.  When the U.S. tariff  (during July
1-December 31) on Mexican imports is removed in 1998, South and Central
American
exporters will likely face additional competitive pressures. 

While the U.S. fresh asparagus import profile has changed dramatically in
recent years, the export market has seen less change.  After rapid export
growth in the 1980's, U.S. fresh asparagus exports showed modest increases
from 1991 to 1994 but dipped in the last 2 years as California production
declined.  Japan and Canada are the most important markets, accounting for 44
and 32 percent of U.S. exports. 
 
Peru & China Vie for
Processed Markets

Only 9 percent of the U.S. asparagus crop was frozen in 1996.  While
production declined from an average of 23 million pounds in the 1980's to 20
million in the 1990's, average imports increased from 1.2 million to nearly 4
million pounds,  keeping consumption relatively constant at 0.1 pound per
person.  Imports accounted for 25 percent of domestic consumption in 1996,
compared with an import share in the 1980's averaging only 5 percent.

U.S. frozen asparagus imports totaled 3 million pounds in 1996, with Peru the
dominant supplier at 61 percent of total imports.  During the 1990's, Peru
rapidly developed as a major player in the global frozen green asparagus
industry.  Since Peru's green asparagus industry is a dual usage industry,
firms can divert product from the fresh to frozen market when fresh-market
prices are low.  Washington State has become uncompetitive relative to Peru in
the production of frozen whole spears.  Michigan may soon face similar
competition from Peru, eroding the position of the entire U.S. frozen
industry.  

Peru's position in frozen green asparagus strengthened in the 1990's at the
expense of Mexico (now at 10 percent of total imports) and Chile (6 percent). 
On the other hand, China, which accounted for 23 percent of U.S. imports in
1996, looms on the horizon with great potential.  Japanese investment in
China's asparagus sector is providing an infusion of new technology and
capital for both canned and frozen product, which may have important
competitive implications for the global processed asparagus market by the turn
of the century.  In addition, many industry observers feel China has the
potential to develop a fresh green asparagus export industry.

U.S. exports of frozen asparagus, which totaled 0.5 million pounds in 1996,
are destined primarily for Canada (88 percent of total exports).  Other
markets include Sweden, Australia, Japan, and South Korea.  The U.S. has
become less competitive in the Japanese market as Peru's frozen asparagus
exports have soared.  

Just over one-third of U.S. asparagus was used for canning in 1996.  Canned
production has trended up slightly from an average of 68 million pounds in the
1980's to 73 million in the 1990's.  During this period, lower imports and
higher exports offset gains in U.S. production, with domestic consumption
marginally lower.  Per capita consumption of canned asparagus has remained
relatively constant during the 1990's at an average of 0.3 pounds.

The U.S. is a net exporter of canned asparagus, all green, while canned
imports are primarily white (white asparagus is more labor-intensive).  U.S.
trade in canned asparagus is relatively small.  In the 1990's, only 4 percent
of canned asparagus consumption was imported, down from 8 percent during the
1980's.  China is the primary source of U.S. canned asparagus imports, with a
57-percent share in 1996 compared with Peru's 19 percent.  Canada and New
Zealand were the third- and fourth-largest sources of imports, with shares of
7 and 4 percent.  

Canned exports have increased from 5 percent of total U.S. canned supply in
the 1980's to 7 percent in the 1990's.  In 1996, U.S. exports totaled 7
million pounds, the highest level of canned asparagus exports since 1970. 
During the 1990's, Australia developed into the largest market for U.S. canned
asparagus exports, absorbing 33 percent of the total in 1996, while England
moved into second place.  Other markets include Japan (9 percent of total
exports), Iceland (8 percent), and Canada (4 percent).   

Outlook for 
The U.S. Industry  

The U.S. asparagus industry faces a mature domestic market and a global
industry with strong competitors in fresh and frozen product and potential
competitors in canned product.  The U.S. industry's share of global production
declined in the 1990's, due to an acreage decline and weather problems in
California.  An expected acreage increase this year, combined with a return to
more normal weather patterns, should help California production rebound in the
near term.  However, increased volume should generate lower prices which may
cause acreage to decline again.

Given the proliferation in fresh produce items now available to consumers--the
average U.S. supermarket handles 340 fresh produce items--increased investment
in promotion and product innovation may be essential to stimulate demand for
fresh asparagus relative to the attractive substitutes.  Promotion and product
innovation are complicated, however, when there are several domestic and
foreign suppliers to a market.  When one producing group invests to expand
consumer demand, all suppliers, including importers, may benefit.
Linda Calvin (202) 501-8449 and Roberta Cook, University of California-Davis
(916) 752-1531
calvin@econ.ag.gov; rlcook@ucdavis.edu


FOOD & MARKETING

Food Prices Forecast 
Up 2.5-3 Percent in 1997

The Consumer Price Index (CPI) for food in 1997 is forecast to rise 2.5-3
percent, down from last year's 3.3-percent gain.  The 1996 increase was the
largest since 1990 when food was up 5.8 percent, and was slightly above the
2.9-percent increase for all goods and services.  

The away-from-home component of the CPI is expected to increase 2-3 percent in
1997, compared with 2.5 percent in 1996.  The higher Federal minimum wage,
which went into effect in fall 1996, had minimal impact on the away-from-home
index that year.  While some upward pressure on the away-from-home index was
expected, competition among restaurants and fast-food establishments remained
strong and prevented the pass-through of higher wage and raw material costs to
consumers.  The at-home component of the CPI is expected to increase 2.5-3.5
percent in 1997, down from the 3.7-percent rise in 1996.

In spite of high grain prices last year, four major factors prevented a large
runup in food prices in 1996 and should keep a lid on the impact of any
commodity price advances this year.  First, overall inflation (as measured by
changes in the all-items CPI) remained stable at 3 percent in 1996 and is
forecast to increase just above 3 percent in 1997.  This means that costs
related to food production and marketing--e.g., labor, packaging,
transportation, and advertising--which account for about 75 percent of retail
food costs, are not expected to increase substantially.

Second, the farm-value proportion of the U.S. food dollar, which has been on a
declining trend and which stood at 22 cents in 1995, is expected to be about
the same in 1996 and 1997.  With a lower farm-value proportion (compared with
37 cents in 1973), retail food prices are determined less by farm commodity
prices and more by market conditions for labor, packaging, and advertising, as
well as by competition among firms.

Third, the trend of increasing economies of size in the agricultural sector is
expected to continue.  In particular, larger and more specialized pork,
poultry, and beef (feedlots) operations have led to slower rising per-unit
production costs.

Fourth, the away-from-home food sector, primarily restaurants and fast-food
establishments, is much larger than two decades ago.  Purchases of food away
from home accounted for 47 percent of total food dollars spent in 1995, up
from about a third in 1973, and are expected to be about the same in 1996 and
1997.  A large away-from-home sector lessens the impact of rises in grain or
other farm commodity prices on the overall food price index.  

Changes in prices for away-from-home items are influenced more by developments
in the nonfarm markets and by competition among restaurants and fast-food
establishments, than by increases in farm commodity prices.  The away-from-home
food market has been very competitive since the recession of the early
1990's.

Rising grain prices from late 1995 through summer 1996 affected feed costs as
well as retail prices for beef, pork, poultry, eggs, dairy products, and
cereal and bakery products.  Because these food categories account for over a
third of the at-home food dollar, price changes for these items can have a
significant impact on the at-home CPI, which measures prices of purchases
primarily from grocery stores and supermarkets.  Although retail prices
increased for most food categories in 1996, prices actually fell for three
food categories--beef and veal, fresh vegetables, and nonalcoholic beverages.

Large beef supplies along with weakened export demand provided U.S. consumers
with plentiful supplies, leading to the beef and veal CPI falling 0.3 percent
in 1996.  Beef production is expected to be about the same in 1997, which
should push up the CPI for beef and veal by 1-3 percent.

Retail pork prices increased nearly 10 percent in 1996, due to lower pork
output, fast-paced exports in the first half of the year, and brisk demand for
bacon in the fast-food industry.  With 1997 pork production likely to remain
near 1996 levels and export demand strong, the CPI for pork is expected to
increase 3-5 percent in 1997.

Prices for other meats increased 3.6 percent in 1996 and are expected up 1-3
percent in 1997.  Other meats include highly processed food items, with prices
influenced more by the general inflation rate than by the cost of the meat
inputs. 

Continued strength in domestic and export demand along with higher feed prices
boosted poultry prices 6.2 percent in 1996.  Slower production increases in
1997 for broilers and turkeys, and lower production for total red meat during
first-quarter 1997, should contribute to higher broiler prices.  The CPI for
poultry is expected to increase by 2 percent in 1997.

In 1996, prices for the major fish items (i.e., tuna, salmon, and shrimp)
remained flat, and the CPI for fish and seafood went up 0.9 percent.  It is
expected to rise 2-4 percent in 1997 due to increased restrictions on foreign
fish harvesting and disease problems with foreign farm-raised shrimp.  Imports
account for about 40 percent of U.S. fish consumption. 

Egg prices were sharply higher in 1996, jumping almost 18 percent.  Strong
domestic demand, especially from the fast-food industry, and foreign demand,
especially for egg products, kept retail prices higher throughout the year. 
Continued increases in production during fourth-quarter 1996 and into 1997
should result in average 1997 prices below the high levels of 1996.  The CPI
for eggs should be level or decline slightly in 1997. 

Strong domestic and export demand for dairy products, coupled with lower
output, increased the milk products CPI by 7 percent in 1996.  Milk production
in 1996 was restrained by high feed prices and forage quality problems. 
Production in 1997 is forecast to increase fractionally.  The  modest gain,
along with the possibility of lingering damage from winter storms in the
western states of California, Washington, Idaho, and Oregon, is expected to
lead to a 2-4-percent rise in the CPI for dairy products in 1997.

Retail prices for fats and oils increased 2.4 percent in 1996 and are expected
to repeat this rise in 1997.  Price changes for these highly processed food
items are influenced more by the general inflation rate than by the cost of
the raw commodities, which include soybeans, corn, and canola.

Weather and growing conditions in the major fresh vegetable growing areas,
especially California, Florida, Arizona, and Texas, were nearly perfect during
most of 1996.  The result was minimal disruption in the fresh vegetable
market, with the CPI falling 2 percent in 1996.  This year started out
differently, however, with a severe Florida freeze in January damaging several
fresh-market vegetables--squash, snap beans, bell peppers, eggplant, and
tomatoes.  The impact on retail prices for these items will likely last
through April.  The bulk of most other fresh-market vegetables is grown in
other states and was not affected by the freeze (AO March 1997).  Although the
fresh-vegetable CPI is expected to increase 6-7 percent the first 6 months of
1997, the annual increase should return to trend levels, at 3-5 percent.

Large supplies of oranges and western U.S. apples and should moderate fresh
fruit prices in first-half 1997.  The fresh-fruit CPI is expected to rise 3-5
percent in 1997, after posting a 7-percent increase last year.  

Domestic sugar production declined about 7 percent in 1996, as high prices for
alternative crops and lower grower returns caused some producers to reduce
sugar beet plantings.  Along with lower sugar output, price increases for
high-fructose corn syrup contributed to higher retail prices for selected
sugar-related food items in 1996, boosting the CPI for sugar and sweets by 4.5
percent.  With total sugar supplies expected up slightly in 1997, the CPI for
sugar and sweets is expected to increase 2-4 percent in 1997. 

Cereal and bakery products account for a large portion of the at-home food
CPI--almost 15 percent.  While higher grain prices helped push up retail
prices for selected bakery products, retail price reductions for breakfast
cereals tempered gains in the cereal-and-bakery CPI to just 3.9 percent in
1996.  The CPI for cereal and bakery products is expected to rise 3-5 percent
in 1997.

Only a small portion of the cost of producing cereal and bread--less than 10
percent--stems from the cost of ingredients, which include flour, sugar, and
oil.  Most of the cost is for processing and marketing.  Competition for
market share among the three leading breakfast cereal manufacturers led to
retail price cuts for four consecutive months in 1996--an example of how the
effect of market competition on retail prices can be stronger than commodity
prices. 

The CPI for nonalcoholic beverages fell 2.4 percent in 1996 due to retail
price reductions for both coffee and carbonated beverages during part or all
of the year.  Coffee retail prices during the first 8 months of 1996 were down
19 percent compared with this period the year before.  Competition between the
leading soft drink companies during the 1996 summer Olympic games led to lower
retail prices during the peak demand season, curtailing price gains for the
entire year.  

In 1997, however, the CPI for nonalcoholic beverages will likely increase 2-4
percent, due to higher wholesale coffee prices in the world market.  The rise
in wholesale prices has been triggered by a smaller-than-expected crop in
Brazil and labor unrest in Colombia, the two major coffee producing countries.

Miscellaneous prepared foods are highly processed and are affected largely by
changes in overall inflation.  However, higher ingredient and raw material
prices in 1996 did cause some manufacturing price increases in selected
prepared foods, boosting the CPI for other prepared foods 3.4 percent in 1996. 
Competition among products should dampen further retail price increases in
1997, with the CPI for other prepared foods expected up 2-4 percent.

Annette Clauson (202) 501-6552
aclauson@econ.ag.gov

FOOD & MARKETING BOX

Consumer Price Index Overstates 
Food Price Inflation

The Advisory Commission to Study the Consumer Price Index (CPI) presented its
final report to the Senate Finance Committee in December 1996.  The report
asserts that the overall CPI has overstated changes in the cost of living and
that persistent and large overstatements have existed since the 1970's.  The
Commission's best estimate of the historic overstatement is 1.1 percentage
points per year (adjusted for changes already made in the index), which
results from four kinds of bias. 

       New product/quality improvement bias results from a failure to account
       for quality improvements associated with new products.  The Commission
       attributed somewhat more than half of the overall bias in the total CPI
       to new product bias, a problem that is very difficult and time-consuming
       to solve.  
 
  Formula bias results from an inappropriate aggregation of price changes.
 
  Substitution bias results from lags in adjusting to changes in consumer
  expenditure patterns, particularly in response to changes in relative
  prices. 

       Outlet bias results from failure to account for the price effects of
       changes in retailing.  The CPI includes price changes only within retail
       outlets, not across outlets. 

The bias in the food-at-home CPI is higher than for the overall CPI--probably
closer to 1.9 percentage points per year--and is due primarily to the last
three sources of bias.  The Bureau of Labor Statistics (BLS), which publishes
the CPI and has done much of the research identifying the sources of bias, is
introducing changes that will have a noticeable effect on the food-at-home
CPI.

In January 1995, BLS made a technical change in the way new price observations
are introduced to the index.  The previous method attached too much importance
to items whose prices were rising and not enough importance to items whose
prices were falling.  The likely effect on the food-at-home CPI is to reduce
its growth by 0.4 percentage points per year, starting in 1996. 

BLS also began publishing experimental versions of the index, aimed at better
handling other formula bias issues.  The experimental indexes appear to reduce
growth in the overall CPI by 0.25 percentage points per year, growth in the
food-at-home CPI by 0.7 percentage points per year, and growth in the fresh
fruit and vegetable index by 4.5 percentage points per year.  The agency will
begin publishing the experimental series in early 1997, and there is a good
chance the new approach will be included in the official CPI by 1998. 

Steps could be taken to handle substitution bias in the CPI, but that would
require additional funding to substantially expand annual household
consumption surveys.  Further, the adjusted index would be published with a
lag.  Because of the expense and the publication time lag, such steps are less
likely.

Outlet bias is estimated to have added 0.25 percentage points to the
food-at-home CPI over the last decade.  This estimate may decline if structural
change
toward larger and lower priced food stores slows.
James M. MacDonald (202) 501-6551
macdonal@econ.ag.gov


FARM FINANCE 

Farm Credit Use Up for 5th Straight Year

Article #1
Market Stronger
for Farm Lenders

Demand for farm credit is expected to increase again in 1997 after growing
since 1992.  Total farm business debt--real estate and nonreal estate loans--is
forecast to reach about $160 billion by the end of 1997, up about 2.7
percent from 1996 and the highest since 1985.  This marks the seventh annual
increase in the last 8 years, which followed 5 successive years of net debt
retirement.  Continued economic growth, relatively strong field crop prices,
and increased farm incomes in 1996 are behind much of this year's expected
expansion.

At the end of 1996, total farm business debt was $155.5 billion, up 3.1
percent from a year earlier.  The increase in 1996 is the second-largest
annual percentage gain in outstanding loans since 1982 and pushes the debt
level to about $17.6 billion above the 1989 low.  Since 1993, farm debt has
expanded faster than the rate of inflation, unlike the previous 4-year period.

The recent increase in farm debt is important to watch, but not a particular
cause for concern because the overall farm sector is in good financial health. 
On average, farmers are expected to take on just 60 percent of the debt that
could be supported by projected incomes.  In addition, total farm debt at the
end of 1996 is still a solid 20 percent below 1984's peak.  In percentage
terms, increases in total farm debt in the 1990's have been well below the
double-digit expansions of the 1970's.

Continued growth in loan demand contributed to the strong financial condition
of most commercial agricultural lenders in 1996, and these lenders are
expected to be in a strong position in 1997.  However, changes in loan volume
and the composition of loan portfolios vary among each of the four
institutional farm lenders--commercial banks, the Farm Credit System (FCS),
the Farm Service Agency (FSA), and life insurance companies.

Together, these four classes of lenders accounted for about 77 percent of all
farm loans in 1996.  The remaining share of farm credit comes from individuals
and from nontraditional lenders, primarily input and machinery suppliers,
cooperatives, and processors.  Outstanding loan volume for all farm lenders
increased in 1996, except for the government "farm lender of last resort"--the
Farm Service Agency (FSA)--which accounted for 6 percent of all farm business
loans in 1996.

Commercial banks are the largest source of farm business credit, accounting
for 39 percent of all farm loans in 1996.  Total outstanding farm loan volume
by commercial banks reached $61.2 billion in 1996, up $2.5 billion, or 2
percent, from 1995.  The FCS--a collection of federally chartered
borrower-owned credit cooperatives that lend primarily to agriculture--held
total farm
business loans of $39.9 billion at the end of 1996, up 6.8 percent from a year
earlier.  For life insurance companies, which are active in farm real estate
mortgage lending, total farm loans rose just 0.8 percent during 1996, but are
expected to grow about 2 percent in 1997. 

Nonreal & Real Estate 
Loans Are Up

Agricultural lenders generally found the demand for farm credit strengthened
across the board in 1996.  Real estate, nonreal estate, and total outstanding
loan volume categories each increased just over 3 percent.  

Nonreal estate loan volume rose $2.3 billion, or 3.2 percent, in 1996. 
Nonreal estate loans, typically used for farm inputs, equipment, and
machinery, accounted for about 50 percent of the total 1996 growth in farm
loan value--a change after lagging behind real estate loan growth rates in
recent years.  Outstanding FCS nonreal estate loan volume increased $1.3
billion, or 10 percent, compared with $157 million, or 0.4, percent for
commercial banks.  

Demand for nonreal estate farm loans should increase 3-4 percent in 1997. 
Farmers are expected to increase expenditures on inputs--fuel and seed prices
will be up from 1996.  Partially offsetting is an expected decline in area
planted to major crops because of lower prices at planting time.  Total
planted acres for the eight major crops (wheat, rice, corn, sorghum, barley,
oats, soybeans, and cotton) are expected to decrease by about 5 million acres
in 1997.

Strong farm machinery sales help maintain the demand for short- and
intermediate-term farm loans.  Sales of farm tractors, combines, and other
farm machinery were strong in 1996.  Tractor sales are forecast to be up again
in 1997, but by a smaller margin, and overall demand for machinery is
anticipated to be steady to higher.  A rising share of loans for farm
equipment and machinery is now met by "captive" finance companies owned by the
machinery companies, rather than by traditional institutional lenders.  

Real estate farm loan volume increased $2.5 billion, or 3.1 percent, in 1996. 
Outstanding FCS real estate loans accounted for $1.3 billion of the increase,
while commercial banks gained $1 billion.  FCS long-term real estate loans
increased 4.1 percent during the year ending September 30, 1996, reflecting
increased demand following a period of decline or stagnation for its mortgage
credit. 

Farm real estate loan volume should increase 2-3 percent in 1997.  Brisk
activity in the land market should create stable demand for mortgage loans in
1997.  Per-acre U.S. farmland values increased 7 percent in 1995 and rose an
estimated 6 percent in 1996.  Values are expected to advance 5.5 percent in
1997, marking 11 straight years of U.S. farmland value increases.

From 1987 to 1991, growth in U.S. farmland values had lagged the rate of
inflation.  But since then, farmland values increased 25 percent compared with
a 10-percent rise in overall prices.  Moreover, the 1992-96 increases
represent the strongest yearly gains, both in nominal and real terms, since
the farm-sector recovery began in 1987.   

FCS Market Share 
Has Rebounded

While farm credit has risen during most of the 1990's, substantial changes
have occurred in farm business debt market shares among the four classes of
institutional farm lenders, as well as in the composition of loans made by
each class.  The interplay between two important lender classes--commercial
banks and the FCS--is particularly notable.

The FCS has demonstrated financial strength in recent years after undergoing
massive restructuring of its organization and procedures.  The FCS has access
to national money markets and can help provide needed farm credit at
competitive rates.  

Commercial banks' total farm loan portfolio grew 49 percent during 1987-96,
while the FCS portfolio dropped 45 percent from a 1982 high to a 1993 low. 
The farm financial crisis of the early 1980's adversely affected the FCS,
causing many farmer-borrowers to leave because of fear they could lose their
stock in failed FCS units.  Commercial banks also experienced financial stress
but were able to compete effectively in the aftermath of the crisis to build
market share.  

FCS operating costs and net interest margins (i.e., the difference between
rates charged to borrowers and FCS's cost of funds) have remained high
compared with the pre-crisis level.  But FCS market share increased both in
1995 and 1996 after trending downward since 1982.  Commercial bank share, on
the other hand, declined in 1996 following a 14-year increase.  During 1994-96,
FCS farm lending grew 11 percent ($4.1 billion) while commercial bank farm
loans increased only 6 percent ($3.4 billion). 

For real estate debt, the value of outstanding loans held by commercial banks
more than tripled ($15.7 billion) between the 1982 low and 1996.  As banks
required higher loan collateral in the wake of the 1980's farm financial
crisis, new bank farm credit lines were backed by real estate, which shifted
some production loans to the real estate category.  

In contrast, FCS real estate loans decreased 47 percent ($22 billion) from
their 1984 high to a 1994 low.  The FCS real estate loan portfolio has
declined in 9 of the last 12 years while the FCS market share of these loans
fell from 44 percent in 1984 to 31 percent in 1995.  But in 1996, the FCS's
real estate lending market share increased for the first time following an
11-year decline to 32 percent. 

The nonreal estate loan portfolio of the FCS increased 57 percent ($5 billion)
from the 1988 low to 1996, and commercial banks' nonreal estate loans
increased 37 percent ($10.3 billion) from their 1987 low.  This growth was the
result of a recovery in demand as the farm sector grew following the farm
financial crisis.  In 1996, the FCS held 19 percent and commercial banks held
51 percent of total nonreal estate debt.  

The FCS has shown recent gains, however, vis-a-vis the commercial banks.  FCS
nonreal estate market share has grown for 3 consecutive years, while
commercial banks' share of the market has declined for 2 years.  During
1993-96, FCS nonreal estate lending increased 30 percent ($3.2 billion), while
commercial banks' increased only 8.5 percent ($3 billion).

In 1997, FCS total farm business debt is forecast to increase about 5.5
percent following a rise of almost 7 percent in 1996.  FCS mortgage debt is
expected to rise about 4 percent in 1997, the first significant gain since
1984, and FCS nonreal estate loans are forecast to rise over 8 percent in
1997.

Lenders Respond
To Heightened Demand

Farm lenders have responded to the increased demand for loans that began in
1993.  From year-end 1992 through year-end 1996, total farm debt grew $16.4
billion, or 12 percent.  Commercial banks led with $9.5 billion, followed by
the category of individuals and others, with $6.6 billion, and the FCS, with
$4.1 billion. 

The recent growth in farm loan demand experienced by commercial banks is
reflected in their loan-to-deposit ratio, a common measure of a bank's lending
capacity--the lower the ratio, the greater the bank's lending capacity. 
Average loan-to-deposit ratios grew to 67.4 percent for agricultural banks at
the end of fiscal 1996, up from 59.7 percent 3 years earlier.  Average
loan-to-deposit ratios reported by the Federal Reserve System for agricultural
banks increased in five of the eight reporting Federal Reserve districts.  The
Minneapolis and Kansas City ratios are the highest in 15 years, and the
Chicago ratio is the highest since the late 1970's.

The growing demand for farm loans and increasing farm loan-to-deposit ratios
at agricultural banks might appear to have taken much of the slack out of the
farm lending system.  But this has not generally been the case.  High
loan-to-deposit ratios do not necessarily constrain the origination of new
loans. 
Commercial banks have many nondeposit sources of funds, and profitable,
well-managed banks often have very high loan-to-deposit ratios.

Not all lenders will be able to expand credit to farmers in all loan
categories.  The FSA has authority for both direct farm lending, predominantly
for operating loans, and loan guarantees.  Under a guaranteed loan, FSA agrees
to guarantee repayment of up to 90 percent (95 percent in some cases) of an
approved loan made by a commercial lender.  

FSA-guaranteed lending volume was $1.85 billion in fiscal 1996, down 4.5
percent from 1995, and accounted for 69 percent of the agency's farm lending
activity.  Direct lending was $832 million--low compared with direct loan
levels before fiscal 1990.  Adjusted for inflation, direct lending is now the
lowest since the predecessor Farmers Home Administration was created in 1946.

The availability of direct FSA loans to family-sized farmers unable to obtain
credit elsewhere continues to fall as the agency emphasizes guaranteed loans. 
FSA's predecessor agency began to emphasize guaranteed over direct government
loans in the early 1980's.  During fiscal 1995-96, outstanding direct loan
volume fell by almost $1 billion, while outstanding guaranteed volume rose by
$427 million.  Direct loan authorities continue to be under added budget
restraint, and the direct loan portfolio should continue to shrink for the
foreseeable future.  

FSA's direct lending program market share of total farm debt is now at the
1977 level.  The decline in FSA's direct loan market share was largely the
result of large loan writeoffs and reduced new lending activity. 

FSA's loan demand in 1997 is difficult to predict because it depends in part
on the extent of adverse weather as well as on economic conditions that affect
the farm sector.  FSA total farm loan authority is up 6.8 percent in fiscal
1997 and should be sufficient to meet demand for most programs.  Guaranteed
loan authority is up 22 percent to $2.5 billion.
Jerome Stam (202) 219-0722 and James Ryan (202) 219-0796
jstam@econ.ag.gov; jimryan@econ.ag.gov

FARM FINANCE  

Article #2 
Ample Credit 
Available in 1997 

Credit availability should be ample for agriculture and rural business
borrowers in 1997, while interest rates may rise slightly by the second half
of 1997.  Farmers and other rural borrowers are benefiting from rural lenders'
increased willingness to grant loans as well as a continued relatively stable
interest-rate environment.  

Because commercial banks are the largest category of lenders to agriculture
and small businesses, the availability and cost of bank loans to agriculture
and rural small businesses is an important factor in determining the near-term
outlook for rural growth.  The Farm Credit System also appears well
capitalized and is willing to lend to creditworthy farm borrowers.  

Stable interest rates and greater debt-fund availability benefits rural
business by reducing their financial risk and cost of borrowing money.  When
there is uncertainty in the cost and availability of debt, business firms that
borrow money are exposed to increased financial risk.  As a firm's use of debt
rises, overall fixed expenses increase, and when interest rates fluctuate,
this leads to greater variability of net income.  In the event of a sharp
contraction in operating income or the ability to finance existing debt,
business firms are more vulnerable to the risk of less credit availability and
higher costs for obtaining and maintaining debt and equity capital. 

Fortunately for agricultural and rural borrowers, credit availability has
continued to improve in 1997.  The Federal Reserve Senior Loan Officer Survey
indicates commercial banks in the first quarter of 1997 have continued to ease
credit standards for business lending, including credit standards for small
firms.  Likewise, for the fourth quarter of 1996, roughly half of rural banks
heavily involved in agricultural lending had loan-to-deposit ratios lower than
desired, according to the Federal Reserve survey of these banks.

The easing of credit standards and the desire to expand business lending has
led to a narrowing of business lending spreads as well as greater availability
of funds for business lending.  Business lending spreads are measured as the
difference between the loan rate charged by the bank and 1) the base lending
rate the loan is tied to (often the prime rate) or 2) a bank cost of funds
(e.g., the Federal funds rate or a large certificate of deposit rate).  Last
year's trend toward smaller lending spreads and greater credit availability
for business lending is expected to continue through 1997.  

Lower lending spreads in 1997 for rural bank lending are due in part to strong
profitability for agriculture and other rural industries in 1996, which
strengthened business balance sheets and the value of their loan collateral. 
Because of stronger rural borrower balance sheets and increased bank
willingness to lend, risk premiums on rural bank loans are likely to continue
to fall in 1997.  A continued slowdown in the growth and availability of
consumer credit from commercial banks is expected, due to continued high and
rising consumer debt burdens and consumer loan default rates.  This should
further expand bank funds available for business lending.

Lending Rate Volatility
Declines in the 1990's

Agriculture lending rates from commercial banks have been less volatile in the
1990's than in the 1980's, which has been beneficial for both farm borrowers
and farm lenders.  Both farmers and lenders make decisions based on expected
capital costs, risk, and expected levels and movements in interest rates.  For
farmers, such decisions include whether to invest in new farm capital now or
later.  For lenders, business decisions might include the amount and type of
debt capital to raise.  Borrowers must decide whether to finance assets
primarily with long-term debt, such as long-term fixed rate loans, or with
short-term or variable rate loans. 

Large unanticipated movements in interest rates can have large impacts on the
financial well being of borrowers and lenders.  But in a relatively stable
interest rate environment like the present one, movements in interest rates
are likely to be relatively small, with fairly small forecasting errors that
generate relatively small impacts on borrowers and lenders.  Furthermore,
periods of stable interest rates with low inflation tend to increase the
volume of long-term financing and reduce its cost.  

Lenders benefit in periods of relatively stable interest rates--there is lower
risk of sharp changes in the market value of existing bank assets and
liabilities.  Interest-rate stability also reduces the cost of lending in
general, and farm lending in particular, by reducing the need to learn and
apply complicated interest-rate-risk strategies (such as more closely matching
the maturity of assets and liabilities or using derivative securities) or to
engage heavily in the very inexact art of interest rate forecasting.  Because
larger financial institutions are more able to afford and implement these
asset and liability risk management strategies, a relatively stable
interest-rate environment reduces the relative advantage large lenders have
over small
rural lenders. 

Farm Interest Rates 
May Rise Slightly in 1997

Although risk premiums on agricultural and rural loans are determined
primarily by profitability and risk in the agricultural sector, the sector is
also influenced by the general level of interest rates.  While accurate
projection of interest-rate movements is extremely difficult, many analysts
are forecasting a slight upward movement in the economywide interest rates in
the second half of 1997.  However, any increase in farm and rural lending
rates at commercial banks and through the Farm Credit System is likely to be
small.  

Slower growth in credit demand in the nonfinancial sector (e.g., borrowing by
consumers and by nonfinancial businesses) in the second half of 1996 should
moderate upward pressures on interest rates in 1997.  Nonfinancial credit grew
at an annual rate of 5.8 percent in the first half of 1996, but slowed in the
third quarter to 5.1 percent.  Consumer credit growth slowed from 9 percent in
the first half to 6.3 percent in the third quarter.  Fourth-quarter
nonfinancial credit grew just 4.5 percent as the growth in nonfinancial
business borrowing slowed to 3.6 percent, and consumer credit growth slowed to
5.6 percent.  

The direction of Federal Reserve policy is also uncertain in 1997, but
Chairman Greenspan's late-February report to Congress pointed toward an
increased likelihood of tightening monetary policy in 1997.  The Chairman's
testimony illustrated continuing Federal Reserve concerns over tight labor
markets and very high stock market values that could generate increased
inflationary pressures.  But a substantial tightening of monetary policy is
not likely in 1997 as long as economic growth slows and any increases in
inflation are small.     

Any increase in interest rates facing farm and rural borrowers is likely to be
small in 1997 for several reasons.  First, any increase in open market
interest rates as a result of Fed action is likely to be small. 

Second, rural banks are heavily dependent for loan funds upon consumer-type
deposits which typically adjust slowly to changes in open market interest
rates.   How aggressively banks compete for funds in times of rising interest
rates depends upon many factors, including the strength of bank loan demand,
the size of banks' surplus of loanable funds, banks' capital position, and
whether the rise in open market interest rates is likely to persist. 

Third, bank lending spreads are expected to continue to narrow in 1997. 
Fourth, the Farm Credit System has also shown a general reluctance to raise
farm lending rates to match a rise in open market interest rates, especially
in the short term.  
Paul Sundell (202) 501-8446 and Ted Covey (202) 219-0345
psundell@econ.ag.gov; tcovey@econ.ag.gov


SPECIAL ARTICLE

Market Stability 
& World Food 
Security

This article presents excerpts from a session at USDA's 1997 Agricultural
Outlook Forum held in Washington, D.C. on February 24-25.  The authors
represent the World Bank, USDA, the Organization for Economic Cooperation and 
Development (OECD), and the International Food Policy Research Institute
(IFPRI). They offer comments on several aspects of food market stability and
world food security: 
  an overview of the past, present, and future of world food needs, with
  suggestions for continued progress; 
  the USDA perspective, with a review of recommendations agreed to at the
  recent World Food Summit; 
  the changing market picture faced by importing countries and the mutual
  obligations of food importers and exporters in a freer global trading
  system; and 
  the case for increased support of research, particularly agricultural
  biotechnology, to meet the future food security needs of developing
  countries.  


Food Needs for The 21st Century

Ensuring food security for all is a challenge with many dimensions.  Issues of
food security exist at the household, national, and international levels, and
the focus of policy intervention clearly changes as the time frame lengthens. 
In the short term, reducing hunger clearly must focus at the household level;
globally there is little to do except provide emergency food aid if it is
available.  In the long term, however, productivity enhancement, adequate
global supplies, and a well-functioning trading system are critical.

Performance to 
Date (1960-96)

The world did remarkably well in expanding food production over the 30-year
period 1960-90, despite periodic predictions of imminent shortages (1965-66,
1972-74, 1988).  World cereal production more than doubled, per capita food
production increased 37 percent, calories supplied increased 35 percent, and
real food prices fell by almost 50 percent.   

Regionally, average calories available per day increased significantly in the
Near East and North Africa, East Asia, and Latin America, to levels of 2,700
calories per day or higher.  South Asia grew more slowly, however, and still
is a region with significant undernutrition, while Sub-Saharan Africa
experienced a decline in per capita food availability.  

The increases in production came from three sources--biological yield
increases, land-use intensification (irrigated acreage in developing countries
doubled), and expanded area.  Between 1994 and 1996, however, world wheat,
corn, and rice prices increased 70-100 percent and the stocks-to-use ratio
plummeted to its historical low (13.2 percent).  Concerns surfaced about
whether this was the beginning of demand finally outrunning supply or simply a
short-term deviation.  

Those arguing the case for a prolonged period of shortages and rising prices
cited declining growth rates on yields in the 1990's, losses of land from
production, and water and environmental constraints as powerful indicators for
the future.  Others argued the market was simply overreacting to a short U.S.
crop in 1995 and to policy changes in the European Union and the U.S. that
lowered farm prices and reduced stocks.  

A 7.5-percent increase in production globally in 1996 caused wheat and corn
prices to drop sharply to pre-1994 levels by early 1997.  Thus for the moment,
those arguing that 1994-96 was only a spike, not a change in long-term trends,
seemed to win the day. 

The Future 
(2010-20)    

Three recent simulation studies done at the International Food Policy Research
Institute IFPRI), the Food and Agriculture Organization (FAO), and the World
Bank have projected global cereal or food balances to 2010 and arrived at
similar conclusions.  They project grain yields to increase 1.5-1.7 percent
per year, area harvested to increase modestly, global grain demand to grow
more slowly, and trade in grains to increase.  They expect real grain prices
to remain constant or decline.  

World food supply is expected to meet global demand, although regional food
problems are expected to persist in South Asia and especially Sub-Saharan
Africa.  The studies identify rising yields as key to future food supplies,
which will require continued investment in agriculture, including research.

IFPRI's study also made projections to 2020, which show a relatively healthy
global food supply-and-demand balance that year.  Real grain and meat prices
are projected to continue falling (20 percent and 10 percent between 1990 and
2020).  Trade is projected to expand substantially, with imports by developing
countries doubling.  Food problems are projected to persist in Sub-Saharan
Africa, where imports are projected to triple, likely beyond the region's
capacity to pay for them. 

A view that contrasts with these three studies has been presented by the
Worldwatch Institute, which argues that there is little backlog of unused
agricultural technology, that fish production has reached its biological
limits, and that rangeland carrying capacity has been exceeded.  Worldwatch
further argues that the demand for water is pressing hydrological limits, that
fertilizer responsiveness is declining, and that much cropland (especially in
China) is being lost to degradation, urbanization, and industrialization.  The
resulting conclusion is quite pessimistic, with the only possible solution
being greatly expanded trade, which the Institute sees as doubtful.  

Both sets of views agree, however, that continued investment in agricultural
research should be pursued, and that farming systems must increase the
efficiency of resource use and must not degrade the environment.  IFPRI's
study examined an alternative scenario, in which investment in agricultural
research is lower, and income growth slower.  According to these projections,
a decline in public investment in agricultural research would have severe
consequences for the global food situation, causing real prices to rise and
malnutrition to increase.  

In the long run, food security can be achieved if we can accomplish four
tasks: 1) develop sustainable production systems capable of nearly doubling
output; 2) put in place domestic and international policies and institutions
that do not favor industrial development over agricultural development and
that provide appropriate incentive to farmers around the world; 3) continue to
invest in public agricultural research through such organizations as the
Consultative Group on International Agricultural Research (CGIAR); and 4)
persist in removing distortions to free agricultural trade in all countries.   


These are four big "ifs," but they must be met--for without them the long-term
prospects are not very pleasant to contemplate.  
Alex F. McCalla, Director, Agriculture and Natural Resources Department, The
World Bank


World Food Security: A USDA Perspective

The challenges, concerns, and uncertainties of future world food security
brought representatives from about 180 nations to the World Food Summit in
Rome last November.  From the U.S. point of view--a view apparently widely
shared--the  Summit was a good start.  

It focused needed attention on  those who suffer chronic hunger and
malnutrition around the globe.  Nations undertook a renewed commitment to
alleviate hunger, setting as a goal the reduction by half of the number of
people currently suffering from undernutrition, no later than the year 2015.  

Equally important, the Summit Plan of Action helped define the steps needed to
improve food security and reduce hunger, taking a comprehensive approach that
requires actions by both developing and developed nations, as well as by the
international community and multilateral institutions.  

Three areas addressed in the Plan of Action deserve particular attention. 
First, food security can be achieved only through appropriate policies within
individual countries.  Food-importing developing countries can get help from
outside, but their problems cannot be solved from outside.  Leaders in these
countries need to enact the internal policy reforms necessary to release
private-sector initiative and help pull their countries out of poverty and
dependence.  The countries that have demonstrated the most progress in
achieving  economic development and food security are those that have
seriously pursued market-oriented policy reform.  

Second, future food security depends on continued and even stronger emphasis
on agricultural research and development at the national, regional, and
international level.  And this must include policies that encourage both the
transfer of new technologies to developing countries and their subsequent use
in those countries.

Third, trade liberalization is one of the most critical, most fundamental,
keys to greater world food security.  U.S. efforts helped ensure that this
view was incorporated as one of the core commitments in the Summit Plan of
Action.  A fair, open, market-oriented trading system is the best suited to
aligning supply with demand, maximizing output over time, and reducing wide
swings in production.  

Freer trade provides importing countries with a wider choice of suppliers and
allows them to take full advantage of the world market to make up for
shortfalls in domestic production.  The variability of production is almost
always lower at the global level than at the country level.  

Of course, freer trade involves obligations.  It requires that food exporting
nations remain consistent, reliable suppliers.  Export embargoes and taxes
undermine the foundations of an open market.  But importing countries also
have an obligation.  If farmers in exporting countries are going to rely on
market signals to determine what and how much to produce, those signals should
not be interrupted or distorted.  Exporters need to know the markets will be
there--they need reliable buyers and buying patterns they can count on.  

Nations need not fear freer trade from a food security standpoint.  In a world
where trade flows freely across borders, food security is not constrained by
the limitations of self-sufficiency.  It is  not measured by food-aid budgets. 
It is not a function of how much each nation produces, but rather of global
production, freedom of  movement in products, and affordability--the ability,
year after year, of developing and developed countries alike to buy the food
they do not produce. 

Coupled with internal policy reforms, development assistance, support for
agricultural research, and food aid where needed, freer markets can contribute
substantially to a more food-secure community of nations.  By embracing these
objectives, the World Food Summit Plan of Action provides a solid,
well-balanced set of recommendations that can be useful to individual nations
and the international community in addressing the problems of hunger and food
security.  But the Summit was only a start.  The full measure of its
contribution--its ultimate success--will depend on the political will that
countries demonstrate, individually and in concert, in the follow-up this year
and over the years to come.  
Christopher E. Goldthwait, General Sales Manager, Foreign Agricultural
Service, USDA


Curbing Price Swings in Global Food Markets

Importing countries in international markets share similar interests.  They
want assured access to supplies of grain of acceptable quality at "reasonable"
prices.  Being economically rational, they wish to obtain grain at the lowest
possible cost.  For the most part, they do not care whether this results from
subsidies by exporters.  However, importing countries tend to be particularly
concerned about the possibility that prices will be "unreasonably" high, and
especially that they may face rapid increases in prices.

The greatest change affecting the potential variability of international
prices over the past few years has been the virtual elimination of public
stocks of grain in OECD countries.  By the end of the 1995/96 season, stocks
of wheat in OECD countries had fallen to roughly 19 percent of production,
compared with an average of 29 percent during the preceding 5 years.  

In an era of budget restraint, governments are increasingly unwilling to fund
stockholding and expect this to be undertaken by the private sector.  It is
difficult to determine the extent to which the reduction in the role of the
public sector will be replaced by private stockholding in OECD countries, but
some increase in private stocks seems likely.  At the same time, stocks in the
non-OECD area have largely been maintained, and consequently their share of
the world total has increased.

Public stocks of grain, particularly those in major exporting countries such
as the U.S., have provided an important buffer against weather-induced
fluctuations in production.  While the acquisition and release of public
stocks in the U.S. can hardly be said to have been driven by the desire to
reduce fluctuations in international prices, to a large extent the amount of
stocks has varied inversely with international prices on a year-to-year basis.

The stocks-to-use ratio provides an important indicator of when the world is
at risk of experiencing rapid increases in grain prices. If stocks are low
relative to consumption, there is clearly a greater risk of a runup in prices
when production is below average. But it is important to note that the ratio
at which price spikes are likely to occur is not fixed, as is sometimes
assumed.  In fact, this ratio has been declining over time.  The three major
episodes of sharp upward price movements in wheat since 1975 occurred with
substantially different stocks-to-use ratios.  For example, in 1979 a runup in
world wheat prices took place with a stocks-to-use ratio of 30 percent,
whereas a broadly similar price runup in 1995/96 occurred when the ratio was
less than 20 percent.

An explanation for this decline in the sensitivity of prices to the level of
stocks is not hard to find. The last 20 years have witnessed an enormous
increase in efficiency in the functioning of international grain markets. 
Information on availability and demand has become more accurate, and easier
and faster to obtain.  Improvements in infrastructure in many countries mean
that available supplies can be moved to market positions more rapidly.  The
revolution in communications technologies and computing has made a significant
contribution to efficiency. Fewer stocks are tied up in government programs. 
In some cases domestic markets have become more open, allowing more of the
adjustment to a short global crop to be reflected in
consumption.  Thus the world can expect to have less variable grain prices
with lower levels of stocks.  This is good news, since storage is expensive
and few in the private sector are prepared to absorb the costs of holding
significant grain stocks from year to year.

Further progress in reducing trade barriers, and the consequent globalization
of markets, would help to increase the collective capacity to adjust to
shocks.  But policy reforms that do not lead to closer integration of domestic
and international markets can actually increase the potential variability of
international prices. What is required is a reduction in tariffs to levels
that result in the effective transmission of changes in international prices
to domestic markets.  The resulting market integration would contribute much
toward greater price stability at a global level.  Until such integration
occurs, it is inevitable that policies and policy interventions will continue
to have a potentially destabilizing effect on international prices.

The second area in which changes could be achieved is through the growth of
private-sector mechanisms for managing price variability and risk.  In many
countries in which domestic grain prices have largely been controlled by the
government, agents (producers, intermediaries, and consumers) have limited
experience with strategies for dealing with price variability.  When the
government guarantees prices, farmers or merchants have little need to develop
a marketing plan for their grain, to decide when to sell or to store, whether
to contract forward, or whether to use futures or options as part of a risk
management strategy.  When the government steps out of the grain marketing
picture, there is a need for agents to develop such skills and to be able to
take advantage of the private mechanisms that exist for risk management.

The world as a whole can best cope with unanticipated variability in prices
due to the weather by working to ensure the full integration of domestic and
international grain markets.  This will require further reform of agricultural
and trade policies to ensure true globalization and greater sharing of the
burden of adjustment.  Importing countries can best cope with the effects of
such integration by facilitating the development of private mechanisms for
risk management.

Price variability is a natural part of market adjustment and a normal feature
of efficiently functioning agricultural markets.  In the main, government
intervention has not been particularly successful in reducing such
variability, or if it has, this has come at a considerable cost to the country
concerned or to others affected by the results of its actions.

Poor countries that import significant quantities of grain on commercial terms
may experience economic and social problems if prices rise too sharply.  Their
special needs were recognized in the Uruguay Round agreement and reaffirmed at
the recent Singapore summit meeting of the World Trade Organization.  In the
short term, the world community can use targeted assistance to best cope with
the implications for poor countries of allowing prices to signal abundance or
scarcity.  In the longer term, the solution lies in addressing the root cause
of food insecurity--poverty.
David Blandford, Economist, Directorate for Food, Agriculture and Fisheries,
OECD


Role of Research In the World Food Outlook

Science has made major contributions to food security in recent decades,
through enhanced knowledge and improved technologies for food and agriculture. 
But existing technology and knowledge will not be sufficient for production of
the food needed to assure a food-secure world in the years to come.  

Research has a key role to play in maintaining and raising yields in the more
favorable agricultural areas where significant gains have already been
achieved.  At the same time, the balance between these areas and less
favorable areas--those with limited and unreliable rainfall and fragile
soils--must be redressed.  

The less favorable areas comprise much of the cultivable area in many
developing countries and are home to many of the world's food-insecure and
poor people.  The more favorable areas will remain important sources of
expanded food production in the future and, by minimizing the need to exploit
new lands, will help to reduce pressures on the natural resource base.  But a
continuation of past low priority on the less favorable areas is inappropriate
and insufficient to assure sustainable food security. 

Agricultural biotechnologies such as genetic engineering are among the most
promising developments in modern science for helping to meet world food
security needs.  Used in collaboration with traditional or conventional
breeding methods, they can raise crop yields or productivity, increase
resistance to pests and diseases, and enhance the durability of products
during harvesting or shipping.  

Yet, with the exception of a very limited amount of work by the centers of the
Consultative Group on International Agricultural Research (CGIAR), little
research in agricultural biotechnology is taking place in or for developing
countries.  Most biotechnology research is occurring in private firms in
industrialized countries, focuses on the plants and animals produced in
temperate climates, and aims to meet the needs of farmers and consumers in
industrialized countries.  

Low-income developing countries are constrained in their pursuit of
agricultural biotechnology research by limited public- and private-sector
funding and by shortages of trained personnel.  They can address these
constraints, however, by providing incentives to the private sector to engage
in such research, by collaborating with international research programs, and
by seeking private- and public-sector partners in industrialized countries.  

Agricultural biotechnology research that is relevant to the needs of farmers
in developing countries, and to conditions in those countries, is essential,
and the benefits of that research should be transmitted to small-scale farmers
and consumers in those countries at affordable prices.  Otherwise, developing
countries will not only fail to share in the benefits of agricultural
biotechnology, but will be seriously hurt as synthetic alternatives to their
products are developed in industrialized countries, a situation already
happening with cocoa and vanilla.

A more fundamental constraint to the use of agricultural biotechnology in and
for developing countries is the attitude toward risk among the nonpoor in both
industrialized and developing countries.  Considerable resistance to
agricultural biotechnology has arisen on the grounds that it poses significant
new ecological risks and that it has unacceptable social and economic
consequences.  Although no ecological calamities have yet occurred, some
observers  fear that transgenic crops will develop troublesome new weeds or
threaten crop genetic diversity.  

Of course, any new products that pose such risks should be carefully evaluated
before they are released for commercial development.  But by raising
productivity and food production, agricultural biotechnology will reduce the
need to cultivate new lands and could therefore help conserve biodiversity and
protect fragile ecosystems.  To address concerns about ecological risks,
developing countries can adopt regulations that provide a reasonable measure
of biosafety without crippling the transfer of new products into the field.

As for the social and economic consequences of biotechnology, there is some
concern that large-scale and higher income farmers will be favored because
they will have earlier access to and derive greater benefits from agricultural
biotechnology.  These concerns are remarkably similar to those raised about
the Green Revolution.  Whatever the shortcomings, real or alleged, of the
Green Revolution, it did avert widespread starvation and helped many millions
of people escape hunger once and for all.  Similarly, agricultural
biotechnology can contribute to feeding many more people in a sustainable way. 


If we are to produce enough food to meet increasing and changing food needs,
to make more efficient use of land already under cultivation, to better manage
our natural resources, and to improve the capacity of hungry people to grow or
purchase needed food, we must put all of the tools of modern science to work. 
In a world where the consequence of inaction is death for thousands of
children daily and persisting hunger for millions of people, we cannot afford
to be philosophical or elitist about any possible solution, including
agricultural biotechnology.  Modern science by itself will not assure food for
all, but without it the goal of food security for all cannot be achieved.
Per Pinstrup-Andersen, Director General, and Rajul Pandya-Lorch, Special
Assistant, International Food Policy Research Institute

SPECIAL ARTICLE--BOX

This article represents a diversity of viewpoints and includes non-USDA as
well as USDA authors.  While the contributions of non-USDA authors broaden the
debate and provide additional perspective, their statements do not necessarily
reflect the views or projections of the Department of Agriculture.


END_OF_FILE
