AGRICULTURAL OUTLOOK               February 21, 2002
March 2002, ERS-AO-289
             Approved by the World Agricultural Outlook Board
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CONTENTS
IN THIS ISSUE

COMMODITY SPOTLIGHT
Peanut Farmers Incomes Lower Despite Rebounding Consumption
Snap Beans: No Strings Attached

WORLD AGRICULTURE & TRADE
Food Aid: How Effective in Addressing Food Security?
Middle East/North Africa Region: A Major Market for U.S. Feeds

POLICY
Farm Income, Finance, & Credit Outlook for 2002

SPECIAL ARTICLE
Safety Nets: An Issue in Global Agricultural Trade Liberalization 


IN THIS ISSUE

Safety Nets: An Issue in Global Agricultural Trade Liberalization 

Global trade liberalization is expected to benefit many countries, 
including those developing countries that are net agricultural exporters 
and are able to respond to expanded market opportunities.  Other low-income 
countries, however, could experience greater food insecurity as trade 
liberalization leads to higher and perhaps more variable prices for some 
food commodities.  The international safety nets that presently exist, 
including food aid, are inadequate to stabilize food supplies for 
vulnerable countries.  New safety net proposals are being assessed that 
could help stabilize grain import prices or manage import costs.  Recent 
estimates of selected proposals suggest that the costs could be much less 
than those of current programs.  Improving international safety net 
programs may not only temper food security concerns, but also generate 
support among low-income countries for further trade liberalization. 
Michael Trueblood (202) 694-5169; trueb@ers.usda.gov

Food Aid: How Effective in Addressing Food Security? 

How effective have food aid programs been in addressing the needs of 
recipient countries?  What does this imply for future effectiveness?  
Analysts at USDA's Economic Research Service (ERS) evaluated food security 
situations in 67 developing countries by first projecting the gaps between 
estimated food consumption and several consumption targets through the next 
decade. The ERS food security assessment took into account each country's 
physical access to food (ability to produce and import) and economic access 
(ability to purchase). ERS then calculated the food gaps that would remain 
after food aid allocations, using the most recently available food aid data 
for the projections. Among the findings is that food aid is most effective 
in reducing the "distribution gap," which captures the impact of unequal 
purchasing power in the countries studied, and estimates the number of 
people consuming below consumption targets. Stacey Rosen (202) 694-5164; 
slrosen@ers.usda.gov

Peanut Farmers Incomes Lower Despite Rebounding Consumption

In the U.S., most peanuts are consumed either directly for food or 
indirectly as peanut products. Food use has rebounded from a decline in the 
early 1990s, and is forecast at record levels in 2001/02.  Even so, new 
challenges since the mid-1990s have placed downward pressure on average 
farm prices and brought cash receipts in 1999 and 2000 to the lowest levels 
in almost two decades.  These challenges include increased access for 
peanut imports under trade agreements, strong competition in export markets 
(notably from China), and changes in domestic support policy under the 1996 
Farm Act. The prospect of major changes to the peanut program under new 
farm bill proposals is also a source of uncertainty for peanut producers.  
Erik Dohlman (202) 694-5308; edohlman@ers.usda.gov

Middle East/North Africa Region: A Major Market for U.S. Feeds

The 20 countries of the Middle East and North Africa region (MENA) provide 
a substantial market for U.S. coarse grains, oilseeds, and meals. Prospects 
are for this market to continue growing.  During the 1990s, the MENA region 
became increasingly dependent upon feed imports to support its expanding 
livestock and poultry production.  In 2000, MENA was the largest foreign 
market for U.S. barley and soybean meal and the second-largest market for 
U.S. corn.  Feed imports are expected to expand further in the future for 
most MENA countries because of population and income growth coupled with 
restrictions on imports of red meat and poultry. The U.S. will continue to 
be a major supplier, but will face price competition from other countries, 
notably Argentina and Brazil. Fawzi Taha (202) 694-5178; ftaha@ers.usda.gov

Farm Income, Finance, & Credit Outlook For 2002

The overall financial state of the U.S. agricultural sector is sound, as 
evidenced by continuing increases in asset values and equity levels. Net 
cash income before government payments is expected to increase for the 
third straight year and exceed $40 billion for the first time since 1998. 
The level of government payments will have a large impact on the economic 
outlook for 2002. The article includes an analysis of payment levels above 
those implied by current law, estimating their potential impact on 2002 
farm income. Mitchell Morehart (202) 694-5581; morehart@ers.usda.gov 

Snap Beans: No Strings Attached
On any given day, about 2 percent of Americans consume fresh snap beans, 
popularly known as green beans or string beans. Per capita use of fresh-
market snap beans has been on the rise over the past decade, reaching 2.1 
pounds in 2000.  Fresh-market production, which has risen during the 1990s, 
accounted for about 25 percent of the 2.1 billion pounds of snap beans 
produced in the U.S. during 1998-2000. Spurred by strong demand, 
particularly from the fresh market, total snap bean production in 1998-2000 
was higher than in 1988-1990. Consumer interest in nutrition and healthy 
lifestyles should support further growth in fresh snap bean consumption. 
Gary Lucier (202) 694-5253; glucier@ers.usda.gov

COMMODITY SPOTLIGHT

Peanut Farmers Incomes Lower Despite Rebounding Consumption

Peanuts and peanut products (peanut butter, ball park nuts, peanut candies, 
and salted peanuts) are a familiar and longstanding staple in the American 
diet. Peanuts are also valued when crushed--as high-protein animal feed and 
as vegetable oil preferred for its long shelf life and cooking qualities. 
In the U.S., though, most peanuts are consumed directly (as peanuts or 
peanut products), so the edible non-oil food-use category of demand for 
peanuts is vital to income prospects for peanut farmers. This is especially 
the case since the U.S. peanut program provides a relatively high price 
support level for U.S. peanuts allowed to be marketed for domestic food use 
("quota" peanuts). This quantity depends on anticipated demand for the 
following year, and is adjusted annually by USDA. All peanuts produced 
beyond this level ("additionals") must be channeled into lower valued 
export or crush markets, and are only eligible for a much lower support 
rate. 

Food use has rebounded from a decline during the early 1990s, and is 
forecast at record levels in 2001/02. Nevertheless, U.S. peanut farmers 
have faced new challenges since the mid-1990s, putting downward pressure on 
average farm prices and bringing cash receipts in 1999 and 2000 to the 
lowest levels in almost two decades. These challenges include changes in 
domestic support policy under the 1996 Farm Act, increased access for 
peanut imports under trade agreements, and strong competition in export 
markets. The prospect of major changes to the peanut program under new farm 
bill proposals is also a source of uncertainty for peanut producers.

In the U.S., the dominant source of demand for peanuts--about 70 percent of 
total domestic consumption--is direct consumption (food use). Food use of 
peanuts is comprised of two main categories. Shelled peanuts include those 
used for peanut butter (about 45 percent of peanut food use), snack peanuts 
(23 percent), and peanut candy (21 percent). Roasted in-shell peanuts 
account for about 9 percent of U.S. peanut food use. The proportion of 
peanuts crushed for animal feed and vegetable oil is small, especially when 
compared with other oilseeds (e.g., soybeans). Lower quality peanuts 
("pickouts") used for crushing make up only 18 percent of domestic 
consumption. Seed and residual uses account for the remaining 12 percent. 

In 1989, domestic food use of peanuts peaked at 2.32 billion pounds (in-
shell basis), or about 9.4 pounds per person. But, in the early and mid-
1990s, prospects did not look good. A steady decline in demand reflected 
demographic trends (such as the smaller number of children among the baby-
boomer generation), health and dietary concerns about fat content in 
peanuts, and competition from lower priced snack products. 

From its peak in 1989, domestic food use declined 15 percent by 1995, to 
just over 2 billion pounds (in-shell basis). Press reports of severe 
allergic reactions to peanuts among a small number of consumers may also 
have reduced household and institutional (e.g., by airlines and schools) 
demand during this time. 

U.S. peanut consumption has turned around since 1995 as food use rose 
almost without interruption to a projected record of 2.34 billion pounds in 
2001/02. The cause of the revival is not entirely clear. Some observers 
have attributed it to reduced concern about fat in foods, a growing 
awareness of studies linking peanut consumption to improved health, the 
introduction of new products (e.g., flavored in-shell peanuts), and 
increased retail promotion by peanut product manufacturers and industry 
associations. Promotional efforts have highlighted the fact that peanuts, 
while relatively high in fat, are also a good source of protein, contain no 
cholesterol, and are low in saturated fats--the type most associated with 
coronary heart disease. 

Despite higher peanut consumption, farm-level income from peanuts in 
2000/01 was below $1 billion for the second straight year--at $896 million. 
Gross farm income from peanut production in 1991/92 (a record crop year) 
was nearly $1.4 billion, and had not been below $1 billion since 1983. 
Although producers enjoyed record yields in 2001/02--at over 3,000 pounds 
per acre--and the highest peanut production since 1994/95, low monthly 
average farm prices in the key first quarter of the current 2001/02 
marketing year (August-July) portends only modest revenue gains for peanut 
farmers. Weak average prices reflect the large crop and mounting ending 
stocks, which are projected at a record high. 

Impact of Farm Policy 
& Trade Agreements

The general decline in income is rooted in domestic support program changes 
and trade policies enacted during the mid-1990s that lowered support to 
domestic peanut producers and opened the door to increased import 
competition for the domestic edible peanut market. The decline in revenues 
is also tied to fading demand for exports and crushed peanuts compared with 
levels of the early 1990s. In particular, the export market--an important 
outlet for U.S. additionals--has become increasingly competitive with a 
surge in production and exports from the world's leading peanut producer, 
China. The crushed value of peanuts has also weakened in the face of 
depressed prices of competing substitutes, such as soybean meal and oil.

The 1996 Farm Act did not fundamentally alter the U.S. peanut program, but 
several modifications effectively lowered income potential from peanut 
production. Among the more significant were those affecting the quota 
support price and the quota itself--the amount producers can sell for 
domestic food use. 

The quota support price was lowered from $678 per short ton during 1995 to 
a fixed $610 per short ton during the 1996-2002 crop years. The quota 
poundage is now set annually at the projected level of U.S. food and 
related use demand, and there is no longer a required minimum (as in 
previous legislation). 

For the 1991-95 crops, USDA was required to set the quota amount at a 
minimum of 1.35 million short tons, regardless of anticipated domestic food 
demand. The quota for the 1998 through 2002 crop years has been set at 1.18 
million short tons (not including a separate quota for seed peanuts). In 
addition to lowering the support price, the 1996 Farm Act eliminated an 
automatic escalator, which allowed the support price to increase annually 
by up to 5 percent, based on the previous year's production costs. These 
changes were intended to make the peanut program operate at no net cost to 
the government. If the quota amount and support price had been left 
unchanged at the higher levels, it is possible that demand by peanut 
processors and shellers would not have been sufficient to clear the market. 
In that case, the unsold quota peanuts would be defaulted to USDA for 
disposal in the lower priced crush market. Peanut quota holders are 
responsible for reimbursing these losses to USDA.

In addition to pressures stemming from changes to the domestic support 
program, trade agreements began to expose U.S. producers to increased 
import competition in the mid-1990s. With only 5 percent of global peanut 
production exported, peanuts are far less widely traded than many other 
commodities, but for the U.S. peanut market, trade is an important 
component of both supply and demand. The U.S. is both a leading exporter 
(ranking second behind China) and a leading importer (ranking fifth behind 
the European Union, Indonesia, Canada, and Japan). 

Prior to the 1994 Uruguay Round Agreement on Agriculture (URAA) and the 
North American Free Trade Agreement (NAFTA), which became effective the 
same year, U.S. peanut imports were limited to a specific and very low 
absolute level by Section 22 of the Agricultural Adjustment Act of 1933. 
The permitted quantity of 1.7 million pounds (shelled basis) represented 
barely one-tenth of 1 percent of domestic food consumption in 1993. This 
limit was designed to prevent lower priced peanut imports from undermining 
the U.S. domestic support price program. 

Without limitation on imports, the price support program for edible peanuts 
would not be sustainable at current quota loan rates and world peanut 
prices. Peanut processors and shellers would seek to avoid the high prices 
for domestic peanuts (usually at or above the $610 per short ton quota 
rate) caused by production limitations, and instead import peanuts at a 
price (assuming equal quality) below that charged for domestic peanuts. If 
unrestricted imports were allowed, domestic quota peanuts could go unsold 
and either the quota would have to be drastically reduced or the quota 
support price brought closer to world prices. 

However, under the URAA and NAFTA, the U.S. has opened its market to 
limited, but gradually increasing, quantities of peanut (and peanut butter) 
imports through a tariff-rate quota (TRQ) system. Under the URAA, the U.S. 
replaced the import quota with a TRQ, permitting a set amount of peanuts 
into the U.S. at a low in-quota tariff rate, but subjecting imports above 
that level to a much higher over-quota tariff rate. Most of the quota (78 
percent) was reserved for imports from Argentina. The TRQ has specific 
tariffs for in-quota imports and ad valorem tariffs for over-quota imports. 
The in-quota tariff rate ranges from 6.6-9.35 cents per kilogram; the over-
quota tariff rate currently ranges from 131.8 to 163.8 percent. 

The quota amount in 2000 was set at 56,821 metric tons (shelled basis), 
representing about 7.5 percent of total U.S. peanut food use that year. The 
quota for all countries except Mexico is scheduled to remain fixed after 
2000, but Mexico's quota is scheduled to continue increasing through 2007, 
to 4,815 metric tons as part of the NAFTA agreement. This represents a 
relatively small share of U.S. consumption. After 2007 imports from Mexico 
will be completely unrestricted, with no quota or tariff.

In the URAA, the U.S. also established a TRQ for peanut butter, with a 
duty-free quota level of 20,000 metric tons by 2000, and an over-quota 
tariff rate of 131.8 percent. The peanut butter TRQ is allocated mainly to 
Canada (14,500 metric tons) and Argentina (3,650 metric tons). Under NAFTA 
rules of origin, Canadian exports of peanut butter and paste made with 
peanuts from another country are not considered of Canadian origin (and are 
subject to the TRQ) since Canada grows no peanuts. However, imports of 
Mexican peanut butter and paste face no restrictions so long as they are 
made with peanuts of Mexican origin. Mexican-produced peanut butter/paste 
enjoys a cost advantage over domestic production made with peanuts 
purchased at the high support price. 

From virtually no exports to the U.S. prior to 1998, peanut butter and 
paste exports from Mexico were closing in on 5,000 metric tons during 
calendar year 2001. Mexico is a small but growing peanut producer, with 
annual production of 130,000-160,000 tons, and appears to have ample 
production to fuel continued growth of both peanut and peanut butter/paste 
exports to the U.S. But it is also likely that, in the near term, these 
exports will continue to represent only a small fraction of total U.S. 
peanut consumption and that Mexico will remain an important destination for 
U.S. peanut exports (averaging 25,000-40,000 metric tons annually).

In the wake of trade agreements, the quantity of peanut and peanut 
butter/paste allowed into the U.S. at the lower in-quota tariff rates 
currently represents approximately 10 percent of the U.S. domestic peanut 
market in 2000/01, up from 0.1 percent prior to 1995. Some observers have 
also pointed out that a number of products containing peanuts, including 
some peanut candies, cookies, and confectionery items, are not subject to 
TRQs and face lower tariffs than the over-quota rates charged on peanuts 
and peanut butter/paste. 

U.S. Exports Trend Down 
As Chinese Exports Surge

Exports have been a key source of demand for U.S. peanut producers for 
decades. Since 1980, the percentage of U.S. production exported has ranged 
from 14-25 percent. Nearly all U.S. peanut exports are for direct human 
consumption. High-quality product and a reputation as reliable suppliers 
have enabled U.S. sellers to command a price premium in international 
markets. 

Although global peanut trade increased slightly (4 percent) between 1990-95 
and 1996-2000, U.S. exports during the same time period declined. U.S. 
peanut exports averaged 807 million pounds during 1990-95, but dropped by 
nearly 22 percent to 632 million pounds during 1996-2000. U.S. peanut 
exports in 2000, at 520 million pounds (valued at about $135 million), were 
the lowest since 1980, but shipments are projected to rebound to 725 
million pounds in 2001/02. 

China emerged as the major competitor to the U.S. in 1980, with sales to 
Japan and other Asian countries, and small shipments to Western Europe. 
High peanut prices brought on by the 1980 U.S. drought, China's policy 
incentives for expanding oilseed production, and the opportunity to 
increase foreign exchange earnings were among the catalysts for increased 
exports by China. 

From 1980 to 1996, the U.S. and China regularly exchanged position as the 
world's leading peanut exporter. In 1997 Argentina led in global exports, 
but since then China has led the world by a large margin and appears poised 
to remain the leading exporter for the foreseeable future due in part to 
its low production costs and the proximity of main production regions to 
ports. 

In the past 5 years, peanut production in China--concentrated mainly in the 
eastern coastal province of Shandong--has soared, rising from an average of 
7.8 million metric tons during 1990-95 to a projected 14.5 million tons in 
2001 (more than 7 times U.S. production). While China's domestic 
consumption is rising nearly as much, the surplus has allowed exports to 
expand. However, the potential for increased exports from China may be 
restrained both by limits on area suitable for peanut planting, and by 
reports of problems with aflatoxin (a disease that makes the nuts inedible) 
in peanut exports from Shandong. 

Like producers of other agricultural commodities in the past several years, 
U.S. peanut growers have confronted pressures from market forces and the 
impacts of policy developments. While demand prospects are brighter than in 
the mid-1990s, the outlook for peanut farmer incomes is clouded by the 
potential for higher imports, and increased competition in export markets. 
The prospect of further legislative changes to the peanut program is also a 
source of uncertainty for peanut producers.  

Erik Dohlman (202) 694-5308
Edohlman@ers.usda.gov

Commodity Spotlight Box 1

Peanut Profile in a Nutshell

Peanuts are believed to have originated in South America, probably in 
Brazil or Peru. Peanuts were introduced to Asia and Africa by Spanish 
explorers and to North America in the 1700s. Four main varieties of peanuts 
are produced in the U.S.: Runners, Virginia, Spanish, and Valencia. 

The most common variety, Runners, accounts for about three-quarters of U.S. 
peanut production and is used mainly to make peanut butter (52 percent of 
Runners in 2000/01) but also in peanut candy (26 percent) and as snack 
peanuts (20 percent). The large, high-quality Virginia peanuts account for 
about 15 percent of domestic production and are more favored as snack 
peanuts (e.g., roasted in-shell peanuts, and salted or honey-roasted 
peanuts). Spanish peanuts, with smaller kernels and higher oil content, are 
used mainly in peanut candies. The least common, Valencias, also have small 
kernels and are known for their sweetness. They are produced almost 
exclusively in New Mexico, and are usually roasted and sold in the shell.

At the national level, peanuts are a relatively minor crop, with farm-level 
value of production less than 5 percent of the value of corn production in 
2000/01. But peanut production is concentrated in a small number of states 
and is a key contributor to local economies. Virtually all peanut 
production takes place in just nine states in three regions: the Southeast 
(Georgia, Alabama, Florida, and South Carolina), with 55 percent of 
national production; the Southwest (Texas, Oklahoma, and New Mexico), with 
30 percent; and the Virginia-North Carolina region, with 15 percent.

Commodity Spotlight Box 2

Congressional Proposals Would Transform Peanut Program

Current proposals for the next farm bill contain substantial changes to the 
peanut program. Passed in October 2001, the House Farm Security Act of 2001 
(H.R. 2646) would eliminate the quota system. Peanuts would be treated 
similarly to "program" crops such as grains and cotton--with a system of 
direct support payments contingent on historical acreage, but not current 
production, and with marketing loan provisions. Farmers would no longer 
have to own or rent quota to produce for domestic food use. The proposal 
also includes a buyout for quota holders. Although it is uncertain what 
form the final farm bill will take, similar reforms of the peanut program 
are incorporated in the Senate version of the farm bill (S.1731), which was 
passed on February 13, 2002. 

The proposals contain four main provisions. The fixed decoupled payment and 
countercyclical payments would be options only for those with a history of 
peanut production during 1998-2001:

*  Marketing assistance loan. As with other crops eligible for marketing 
loans and loan deficiency payments, peanut producers, with or without a 
history of peanut production, would be eligible for a marketing assistance 
loan. The House proposed a loan rate of up to $350 per short ton; the 
Senate proposed up to $400. Producers could pledge their stored peanuts as 
collateral for up to 9 months and then repay the loan at a rate that is the 
lesser of: 1) the loan rate plus interest, or 2) a USDA-determined 
repayment rate designed to minimize loan forfeiture, government-owned 
stocks, and storage costs, as well as to allow free and competitive 
marketing of U.S. peanuts in domestic and international markets. 

*  "Fixed, decoupled" payment. Similar to the production flexibility 
contract payments made available to grain and cotton producers in the 1996 
Farm Act, peanut producers would receive $36 per ton of eligible production 
during the base (1998-2001) period. Eligible production would equal the 
product of: base-period yields (with provisions for unusual crop losses) 
and 85 percent of base-period acres planted to peanuts. These payments are 
considered fixed and decoupled because they are made regardless of current 
prices or so long as the area remains in an approved agricultural use.

*  "Countercyclical" payment. Producers with base acreage would receive 
financial assistance when market prices are below an established target 
price of $480 per ton. The payment would be based on the difference between 
the target price and the higher of: 1) the 12-month national average market 
price for peanuts plus the $36-per-ton fixed decoupled payment, or 2) the 
marketing assistance loan rate of $350 per ton plus the $36-per-ton fixed 
decoupled payment. Payments would be made on 85 percent of base (1998-2001) 
peanut production so long as the area remains in an approved agricultural 
use.

*  Quota buyout (compensation for loss of quota asset value). Quota owners 
would receive compensation for lost asset value of their quota. Payment 
would be made in five annual installments of $200 per ton during fiscal 
years 2002 through 2006. The payment would be based on the quota owners' 
2001 quota.


COMMODITY SPOTLIGHT

Fresh Snap Beans: No Strings Attached

Fannie Farmer published a recipe for string bean soup in The Boston 
Cooking-School Cook Book in 1896. But snap beans, a native of the Americas, 
had already been on America's dinner plates for centuries. Today, on any 
given day, about 2 percent of Americans consume fresh snap beans, popularly 
known as green beans or string beans. Per capita use of fresh-market snap 
beans has been on the rise over the past decade, reaching 2.1 pounds in 
2000. 

Snap beans were so-named for their stringy pods. However, over the past 
century the tough pod strings have been bred out of most of today's popular 
varieties. Snap beans may be various shades of green, yellow (called wax 
beans), or purple, and the bean pod shapes vary from round to flat. Snap 
beans are available year round, with the peak season from May through 
October.

In the U.S., snap beans are produced largely for three distinct markets--
fresh, canning, and freezing. These markets operate fairly independently, 
with separate supply, demand, and price characteristics. Fresh-market 
production during 1998-2000 accounted for about 25 percent of the 2.1 
billion pounds produced in the U.S.--the same share as for frozen snap 
beans. Canning is the most intensive use, with 50 percent of all snap beans 
destined for canneries. A small amount of snap beans is used for dehydrated 
products. Because of higher prices received for fresh market beans, that 
segment commands two-thirds, or $250 million, of all farm cash receipts for 
snap beans. 

Commercially, the two most important types of snap beans are bush beans and 
pole beans, with bush types accounting for the majority of commercial 
sales. While both types of plant produce beans of similar taste and 
texture, their differences are more notable in the field. Labor-intensive 
pole types, which have a longer bearing season, are popular in some regions 
and with home gardeners, but do not lend themselves to mechanical 
harvesting because plants must be supported by trellises. Pole beans (and 
bush beans in some growing areas) are generally harvested by hand several 
times a season, at intervals of 3 to 5 days. Many commercial fresh-market 
bush varieties have been specially bred to facilitate mechanical 
harvesting, which is accomplished in one pass over the field (the plants 
are destroyed in the process). Virtually all beans for processing are 
machine-harvested. 

Many fresh-market snap beans have a higher pod fiber content than 
processing types, which helps withstand the rigors of mechanical harvest, 
packing, and transportation. While snap beans destined for canning and 
freezing are usually processed hours after harvest, fresh-market beans must 
remain merchantable for 7 to 10 days. At harvest, most fresh-market snap 
beans are trucked to packinghouses where they are washed, trimmed, graded, 
packed, and cooled for transport to market. Field-packing of snap beans, 
although less common, is done in some areas to reduce handling losses.

The volume of U.S. canning production has changed little over the past 
three decades, but fresh and frozen output has increased. Production of 
snap beans for frozen use has been on a slow upward trend during this 
period, while fresh market output began to rise in the early 1990s after 
remaining fairly stable for the previous two decades. Spurred by strong 
demand, fresh-market snap bean production in 1998-2000 was 90 percent 
higher than 1988-1990. 

Florida Tops 
The Fresh Market

Some 9,118 farms in all 50 states (1997 Census of Agriculture) produce 
fresh and processing snap beans--down 16 percent from 1992. Like production 
of many agricultural commodities, snap bean operations are becoming more 
concentrated. According to the 1997 Census, just 8 percent of farms 
producing snap beans accounted for three-fourths of national snap bean 
harvested area. While area harvested and number of farms with less than 250 
acres of snap beans have declined since 1992, area and numbers of farms 
with 250 acres or more have increased. 

In the U.S., there is minimal overlap between the fresh and processing 
markets, largely because of differences in varieties and the geographic 
location of processing plants. Florida is the leading fresh-market source, 
growing nearly half of the fresh crop. Wisconsin tops all processing 
states, with 31 percent of production, followed by Oregon with 17 percent. 
Most canned and frozen snap beans are produced under processor contracts 
requiring specific product attributes.

According to the 1997 Census of Agriculture, 283 farms in Florida reported 
growing snap beans, with 24 percent harvesting 100 or more acres. Most of 
Florida's snap bean crop is destined for the fresh market, where the 
Sunshine State accounts for 48 percent of U.S. output. Mirroring national 
trends, Florida's production jumped 124 percent between 1988-90 and 1998-
2000, after changing little during the 1970s and 80s. Its top three 
counties (Dade, Palm Beach, and Alachua) account for three-fourths of the 
crop, with Dade County alone producing half the state's $135 million in 
fresh snap beans. Florida has several regional in-state shipping seasons; 
commercial snap bean shipments generally begin in mid-October and continue 
through June. Major markets include cities along the East Coast and in the 
Midwest. Florida is the primary domestic supplier from November to April, 
with volume supplemented by Mexican imports. 

Georgia follows Florida in fresh-market snap bean production, accounting 
for 13 percent of the nation's output during 1998-2000. In 1997, 263 farms 
harvested snap beans in Georgia, 29 percent fewer than in 1992. However, 
snap bean acreage jumped 38 percent during this time, with most of the gain 
in Sumter County. Snap bean area in this southwestern county grew by a 
factor of 5 from 1992 to 1997; half of Georgia's snap bean crop is now 
grown there. Georgia ships fresh snap beans during the spring and fall and 
is the primary domestic supplier in May and June and again in October.

With 9 percent of U.S. production, California is the third leading source 
of fresh-market snap beans. Acreage is spread among several counties, but 
San Luis Obispo (15 percent of state area) and Orange (13 percent) are the 
only two with over 1,000 acres. Although California's production and 
acreage declined from 1992 to 1997, the number of farms harvesting snap 
beans jumped 30 percent to 478 farms in 1997 as more small farms 
diversified their product lines. Production has increased by one-fourth 
since reaching a low in 1998. California ships snap beans from March until 
early December with peak volume from May to August.

New York is the fourth leading producer of fresh snap beans, growing 7 
percent of national output. The fresh market accounts for about 20 percent 
of the state's snap bean crop, with the bulk of the crop earmarked for 
processing. Genesee County (26 percent of state acreage) in the western 
part of the state is the leading source of snap beans in New York, followed 
by Orleans (19 percent), Ontario (11 percent), and Oneida (11 percent) 
counties. Fresh-market production increased 64 percent between 1988-90 and 
1998-2000, while processing output rose 24 percent over the same period. 
New York ships fresh-market snap beans during the summer, and supplies are 
strongest during August and September. All processing and most fresh-market 
snap bean acreage in New York is mechanically harvested.

North Carolina supplies nearly 7 percent of U.S. fresh-market snap beans 
and harvested a record-large crop in 2000. Hyde County on the central coast 
and Henderson County in the western mountain area produce two-thirds of the 
state's fresh snap bean crop, with acreage for both more than doubling 
since 1992. North Carolina ships snap beans from mid-May to early November, 
with volume strongest from June to August. 

The Seasonal Role
In Prices & Trade

With limited domestic supplies, fresh snap bean prices are generally higher 
from January to April and are lowest in June and July when supplies become 
available from multiple areas. Most fresh snap beans are priced on the 
daily spot market. In contrast, about 98 percent of snap beans destined for 
canning and freezing are produced under contract between growers and 
processors.

Although prices are generally higher in the winter than the summer, monthly 
shipping-point prices display weak seasonalities. This reflects the 
availability of relatively reliable year-round supplies. It could also 
reflect the short growing period for snap beans (45 to 60 days), which 
allows for quick recovery following weather-related losses (frost, rains). 

The season-average price received by growers during 1998-2000 was 14 
percent lower than in 1988-90. Since production has been rising, real price 
declines may be a reflection of gains in productivity, i.e., increased 
efficiency in the market, hence more output per unit of input. Such 
efficiency gains may be partly associated with the increased prevalence of 
mechanical harvesting of fresh-market snap beans over the past decade. For 
example, machine harvest and marketing costs in south Florida were 
estimated to be about $20 per cwt in 1999/2000--virtually the same as 
manual-harvest costs a decade earlier. During this time, variable labor 
costs more than doubled, likely pushing up hand-harvest costs. 

Both exports and imports of fresh snap beans reflect a seasonal influence. 
The U.S. is the world's top producer of snap beans, with about 60 percent 
of output, according to the Food and Agriculture Organization of the United 
Nations. In addition, the U.S. is the world's leading importer as well as 
exporter of snap beans. While remaining a net importer in both the canned 
and frozen markets (where trade plays a smaller role), the U.S. is 
generally a net exporter of fresh snap beans. In the 1990s, the U.S. 
exported 11 percent of fresh-market supply, while imports supplied 9 
percent of fresh consumption. Imports have trended higher over the past few 
decades (up 49 percent between 1998-2000 and 1988-90), and exports have 
more than kept pace (up 114 percent). U.S. export volume is generally 
steady from October through July, but declines sharply in August and 
September when Canadian snap bean production peaks. 

Fresh imports are strongest in December through March, when U.S. production 
is limited by cool weather, and are weakest in the summer during the height 
of the domestic growing season. About 92 percent of import volume arrives 
from Mexico while about 80 percent of exports are normally shipped to 
Canada. Under the North American Free Trade Agreement, 2002 is the final 
year Mexico will face a tariff on fresh snap beans sent to the U.S. 
($0.07/kg). That tariff is in place November 1 through May 31. Meanwhile, 
Canadian snap beans (6 percent of U.S. snap bean imports) enter duty-free. 

Fresh Consumption
Makes a Comeback

U.S. consumption of fresh snap beans averaged 519 million pounds annually 
during 1998-2000, up a respectable 83 percent from 1988-90. Since tumbling 
to a record low of 1.1 pounds in 1990, per capita consumption of fresh-
market snap beans has trended higher. Per capita use climbed to 2.1 pounds 
in 2000--the highest since 1964, but well below the record-high 5.3 pounds 
reached in 1943. 

Since reaching its apex in 1943, fresh snap bean use in this country 
spiraled downward for nearly 50 years. But the 1990s brought several 
changes that snapped the market back to life. Some of these include

*  a sustained economic boom with low unemployment and strong income 
growth;

*  the popularity of cuisines viewed as natural and healthy;

*  the drive toward use of low-fat foods such as fresh vegetables; and

*  increased diversity in the Nation's population.

Low unemployment rates, strong income growth, and low price inflation 
during the past decade have supported consumer spending on a range of 
foods. This includes both food away from home and food at home prepared 
using basic ingredients like fresh snap beans. The strong trend in away-
from-home eating helped boost consumption of ethnic cuisines from Asia and 
Mediterranean countries as consumers sought diversity in their diets. 

The 1990s saw new emphasis on cuisines viewed as natural and healthy, such 
as the so-called "Mediterranean diet." Asian cuisines such as Chinese, 
Korean, Vietnamese, and Indian offered unique dining experiences and new 
flavors. The use of snap beans in various stir-fry dishes abounded as the 
wok became a symbol for a healthy lifestyle as well as a principal cooking 
tool in the American kitchen, supported by a world of recipes readily 
available on the Internet.

Consumer awareness of the nutritional virtues of vegetables like snap beans 
has been rising. Snap beans provide Vitamins A and C, potassium, calcium, 
phosphorous, and fiber, with a one-cup serving containing just 34 calories. 
Snap beans can be served as a main dish (e.g., stir-fry with meat), a side 
vegetable, in casseroles and soups, and in a salad mixture with other 
vegetables. Popular recipes featuring snap beans include green bean 
casserole, Swiss-style green beans, three-bean salad, stir-fry chicken and 
beans, shepherd's pie, and pickled green beans.

The surge in snap beans' popularity may also have been boosted by 
immigration trends over the past two decades. A more diverse population has 
helped to increase demand for snap beans and expanded the use of snap beans 
in the diet through the introduction of new cuisines.

Most Snap Beans
Consumed at Home

On a fresh-equivalent basis, Americans consumed 2.1 billion pounds of snap 
beans during 1998-2000. While canning accounted for 50 percent of this, 
fresh-market use amounted to 25 percent, or 519 million pounds. According 
to USDA's 1994-96 Continuing Survey of Food Intakes by Individuals (CSFII), 
fresh snap beans, like most other foods, are purchased largely at retail 
for home consumption (84 percent). This likely reflects the dearth of uses 
for fresh snap beans in fast foods (3 percent of use) as well as 
competition with less labor-intensive canned and frozen snap beans for 
restaurant menus and institutional meals. 

In the away-from-home market, U.S. consumers eat snap beans most often in 
standard full-service restaurants (10 percent of use). As is the case with 
sweet corn and broccoli, shippers of both fresh and processed snap beans 
have had little success finding a niche in the expanding fast-food market. 
This market accounts for less than 3 percent of fresh snap bean consumption 
and less than 1 percent of canned and frozen snap beans. 

Regionally, the South (a 16-state region defined by the Census Bureau) and 
Northeast (a 9-state region) consume more fresh-market snap beans than do 
other areas of the country. Southerners consume more than twice as much per 
capita as westerners and 81 percent more than residents of the Midwest. 
Based on distributors derived from the CSFII, regional per capita fresh-
market snap bean use in 2000 was estimated as follows:

*  South, 2.9 pounds per person;

*  Northeast, 2.1 pounds;

*  Midwest, 1.6 pounds; and

*  West, 1.3 pounds.

Low snap bean consumption in the West may reflect the influence of 
Hispanics, who eat few fresh snap beans, as well as the West's status as 
national leader in fast-food and other restaurant spending--sectors where 
snap beans are not well represented. 

Metropolitan areas, where 32 percent of the U.S. population resides, 
accounted for nearly 40 percent of all fresh snap beans consumption. The 
CSFII indicated that Americans in suburban and rural areas consume about 40 
percent fewer fresh snap beans on a per capita basis than those in metro 
areas. 

Asian Americans consume the greatest amount of fresh snap beans per capita. 
According to the survey, Hispanics were the only major racial/ethnic group 
that does not express a preference for fresh-market snap beans. Consumers 
in the survey's top income bracket report the highest per capita 
consumption, although the CSFII results suggest that the correlation 
between income and fresh snap bean use is weak.

Snap bean consumption is greatest among older Americans and weakest among 
teenagers. In general, there appears to be a positive correlation between 
age and per capita consumption with per capita use strongest for those 60 
and over and weakest for teenagers. A similar pattern was noted for frozen 
snap bean consumption and canned consumption. 

Although the near-term tide of consumption has been shifting higher for 
fresh-market snap beans, the longer run market appears less certain. At 
least part of the future success for this crop may be linked to the ability 
of the industry to entice more Hispanic consumers. With the population base 
for this ethnic group expected to expand substantially over the next 
several decades, their current low consumption rate may provide a challenge 
to the industry. Despite this potential longrun market gap, other factors 
favor increased consumption over the next several years. If consumer 
interest in nutrition and healthy lifestyles continues, this should support 
further growth in fresh snap bean consumption over the next several years.  

Gary Lucier (202) 694-5253
Biing-Hwan Lin (202) 694-5458
glucier@ers.usda.gov
blin@ers.usda.gov

Commodity Spotlight Snap Beans Box 1

Snap beans, the most widely consumed species (vulgaris) of the genus 
Phaseolus, are thought to have originated in Central America and include 
dozens of varieties. Snap beans are harvested and eaten at the immature pod 
stage--they are most tender and succulent before the seeds cause the pod 
walls to expand. In contrast, their closely related cousins, dry beans, are 
harvested after the seeds are fully developed and the pods are dry.

Commodity Spotlight Snap Beans Box 2

Farms growing snap beans range from local small, family operations to 
large-scale multi-state growers. As is the case with many fresh-market 
vegetables, some large fresh-market growers have agreements or contracts to 
provide year-round supply to buyers like retail chain stores and wholesale 
distributors. This usually means the grower must have farms in several 
states or have agreements with growers in other states (or countries) to 
assure year-round supplies.


WORLD AGRICULTURE & TRADE

Food Aid: How Effective in Addressing Food Security?

Food aid has served as a major tool for the international community in 
improving food access and reducing suffering from emergency conditions in 
low-income countries. The 8.5 million tons of food aid provided in 2000 
could reduce the projected 2001 gap between food available and food needed 
to maintain consumption levels in low income countries by as much as 80 
percent. The actual impact of food aid is sensitive to its allocation. 
Analysis by USDA's Economic Research Service (ERS) finds that historical 
allocations of food aid have been directed more heavily toward countries 
that have adequate aggregate food supplies but also vulnerable groups 
unable to purchase the food required to meet their needs. The analysis 
estimates the potential impact food aid could have on different measures of 
food security and highlights the importance of targeting food aid 
resources.

Food security is defined as access by all people at all times to enough 
food for an active and healthy life. Progress toward global food security 
objectives has been slow, but food aid can help close the gap between 
countries' food needs and food availability. How effective have food aid 
programs been in addressing the needs of recipient countries?  What does 
this imply for future effectiveness?  Analysts at ERS have assessed the 
food security situation in 67 developing countries, taking into account 
each country's physical access to food (physical availability) and its 
economic access (ability to purchase). Five regions were represented in the 
study: North Africa (4 countries), Sub-Saharan Africa (37 countries), Asia 
(10 countries), Latin America and the Caribbean (11 countries), and the New 
Independent States (NIS) of the former Soviet Union (5 countries). 

Food security situations in these countries were evaluated by projecting 
the gaps between estimated food consumption (defined as domestic production 
plus commercial imports minus non-food use) and two different consumption 
targets through the next decade using ERS's food security assessment model. 
The targets are: 

*  maintaining per capita consumption at the 1998-2000 level (the "status 
quo target"); and 

*  meeting recommended nutritional requirements (the "nutrition target") 
which in most cases would allow a higher calorie diet. 

It should be emphasized that the food security assessment makes no 
assumptions about availability of food aid in its projections. Moreover, 
the measure of estimated nutritional gaps is for calorie consumption alone, 
without reference to factors such as poor utilization of food due to 
inadequate consumption of micronutrients or lack of health and sanitary 
facilities. For the 67 countries included in this analysis, the food needed 
(in grain equivalent) to maintain per capita food consumption at the 1998-
2000 level (status quo) is estimated at about 11 million tons in 2001. The 
food to meet nutritional requirements is 18.3 million tons.

A "distribution gap" is also estimated because estimated food gaps for 
individual countries represent average gaps, masking the impact of unequal 
incomes on food security. This gap represents the amount of food needed to 
raise food consumption for each income group within each country to the 
level that meets nutritional requirements. This indicator captures the 
impacts of unequal purchasing power on food access. It also allows for an 
estimate of the number of hungry people--those who are consuming below the 
nutritional target.

The distribution gap--estimated at 31 million tons--is even higher than the 
other food gaps. Further, 896 million people were estimated to subsist on 
less than the nutritional requirements in 2001, or 35 percent of the 
population of the 67 countries. 

The analysis revealed Sub-Saharan Africa to be the most vulnerable region, 
accounting for 23 percent of the population of the countries but 38 percent 
of the number of hungry people in 2001. That year, about 57 percent of the 
region's population, or 337 million people, were estimated to be hungry.

On the basis of the food needs assessment, food aid can be evaluated in 
terms of the proportion of the food gaps (status quo and nutritional gaps) 
it eliminates. The quantities of food aid and its distribution to recipient 
countries vary annually depending on the policies of donor nations. Most of 
the food aid is in the form of cereals. Cereal food aid shipments for 2000 
were about 8.5 million tons. 

The Asian countries included in this analysis are recipients of the largest 
share of aid, nearly 40 percent. Sub-Saharan Africa receives roughly a 
third, while Latin America and the Caribbean receive less than 10 percent 
of the aid. The U.S. continues to be the main source of aid, providing 55 
percent of the world total (in terms of volume). 

Depending upon the future availability of food aid, part of the projected 
food gaps can be eliminated. Based on aggregate food security assessment 
estimates for 2001, if food aid levels for that year are the same as in 
2000, food aid would fill nearly 80 percent of the calculated gap to 
maintain per capita consumption (status quo), and nearly half of the 
nutritional gap. If countries receive the same level of food aid in 2001 as 
in 2000 (i.e., no change in country or quantity allocations), the estimated 
number of hungry people would be 691 million rather than 744 million. In 
other words, based on the current level of food aid, roughly 50 million 
people may avoid hunger. On the other hand, this underscores that, while 
food aid can play a useful role in the fight against hunger, its 
contribution is limited and cannot be the sole remedy to the hunger 
problem. 

Notably, not all of the available food aid is sent to low-income, food-
deficit countries. For example, in 2000 about 7.4 million tons, or 85 
percent of total food aid, was given to the 67 countries included in this 
study. The remaining 15 percent was supplied to countries such as Indonesia 
and Russia which were facing financial crises.

Although the current level of food aid reduces the food gap significantly, 
the allocations to individual countries do not always correspond to levels 
of need. Accounting for the disparity are the lack of information or 
systematic evaluation of the food situation of countries, and absence of 
coordination among donors and recipients. 

To examine the potential effectiveness of food aid in reducing hunger in 
the study countries, taking into account the needs of individual countries, 
ERS combined its food security assessment for 2001 with actual food aid 
data from 2000. This allowed for the calculation of the food gaps that 
remained after food aid allocations. It was then possible to compare the 
difference in food gaps--the base level without food aid, and the scenario 
with the actual level of food aid, 7.4 million tons, that the countries 
received in 2000.

Surprisingly, the analysis showed that these allocations reduced the 
estimated status quo and nutritional gaps by only 13 and 11 percent, 
indicating that a relatively small share of food aid was given to countries 
with status quo and nutritional food gaps as estimated by ERS. The largest 
decline was in the distribution gap, which was reduced by 20 percent as a 
result of food aid. In other words, 6.2 million tons (85 percent) of the 
food aid allocated to these countries went to the countries with 
distribution gaps--countries facing food insecurity due to the inability of 
the lowest income groups to access food. This is an impressive achievement. 
It means that most of the food aid was given to countries such as India and 
Bangladesh that did not have any national food gaps (based on status quo 
and nutritional indicators), but did have a distribution gap, stemming from 
food access limitations. Although this is consistent with the mission of 
food aid, the analysis indicates that food aid was not entirely allocated 
based on the severity of food access problems in regions or countries. For 
example, the amount of food aid received by countries in Sub-Saharan Africa 
relative to these countries' distribution gaps was less than that of the 
Latin American and Asian countries.

In sum, while food aid does reduce hunger, it clearly falls short of the 
needs. Allocations of food aid are based on a mix of objectives. Decisions 
may be affected by such external factors as difficulties in delivering aid 
and competition from other donation priorities. In addition to the extent 
of hunger, other factors such as political instability and financial 
difficulties play an important role in donors' decisionmaking. However, it 
should be emphasized that because of slow progress in improving global food 
security--countries' ability to provide or purchase sufficient food--and 
because of the potential and crucial role of food aid and its limited 
quantities, it is critically important to improve the targeting policies of 
donors to maximize the benefits to the recipients.  

Shahla Shapouri (202) 694-5166, and
Stacey Rosen (202) 694-5164
Shapouri@ers.usda.gov
Slrosen@ers.usda.gov

WORLD AGRICULTURE & TRADE BOX 1

PL 480 Helps Supplement Food Supplies

The U.S. provides food aid under three programs: PL 480, Section 416b, and 
Food for Progress. The Section 416b program provides for overseas donations 
of surplus commodities owned by the Commodity Credit Corporation (CCC) to 
developing countries. The Food for Progress program authorizes the CCC to 
finance the sale and exportation of agricultural commodities on credit 
terms or on a grant basis to support developing countries or emerging 
democracies. The U.S. PL 480 food aid program is the principal vehicle for 
U.S. food aid and it is comprised of three titles. 

*  Title I consists of government-to-government sales of commodities under 
long-term credit arrangements. 

*  Title II provides for donations of commodities to meet humanitarian 
needs. 

*  Title III provides for government-to-government grants to support 
economic development for the least developed countries. 

Through the 1990s, changes in appropriations for the PL 480 programs 
reflect the emphasis toward humanitarian goals of the programs rather than 
market development goals. In fiscal year 2001, 86 percent of the value of 
U.S. food aid appropriations fell under the Title II program as compared to 
50 percent in the early 1990s.

On the other hand, the allocation levels of Title I fell steadily during 
the 1990s, averaging over $400 million per year early in the decade to 
roughly $140 in 2001. Title II varied marginally during the same time 
period, exceeding $800 million in most years. Title III is significantly 
smaller than the other two programs, and there were no allocations in 2001.


WORLD AGRICULTURE & TRADE

Middle East/North Africa Region: A Major Market for U.S. Feeds

The 20 countries of the Middle East and North Africa region (MENA) provide 
a substantial market for U.S. coarse grains, oilseeds, and meals. Prospects 
are for this market to continue growing. During the 1990s, the MENA region 
became increasingly dependent upon feed imports to support its expanding 
livestock and poultry production. In 2000, MENA was the largest foreign 
market for U.S. barley and soybean meal, accounting for 39 percent of U.S. 
feed barley exports and 21 percent of U.S. soybean meal exports. MENA was 
also the second-largest market, after Japan, for U.S. corn, receiving 22 
percent of total U.S. corn exports. Feed imports are expected to expand 
further in the future for most MENA countries because of population and 
income growth coupled with restrictions on imports of red meat and poultry. 

Feed Imports Fill Gap 
Between Production & Demand

Both demand and supply factors have contributed to MENA's expanding feed 
imports, and will likely continue to do so, barring major political or 
economic crises. On the demand side, a rising regional population and an 
increasing average real GDP growth rate have sustained, and should continue 
to sustain, strong demand growth for animal products--the catalyst behind 
feed demand growth. The region's population, 403 million in 2000, grew at 
about 2.3 percent per year during the 1990s and is expected to continue 
growing at around 1.8 percent during the next 10 years. Average annual GDP 
growth for the region during the 1990s was 4-5 percent, and this also is 
expected to continue. Although considerable disparity exists in per capita 
GDP among countries in the region, ranging from as high as $19,000 in the 
United Arab Emirates to $300 in Yemen, the majority of countries are in the 
$1,200-$2,500 range where increased incomes will go in part toward 
increased meat and poultry consumption.

Currently, many countries within MENA maintain restrictive policies on 
imports of poultry and red meat, including outright bans and/or high import 
duties, in order to bolster domestic production. Moreover, most Muslims in 
these countries have a strong preference for domestically produced 
livestock in order to ensure that the animals are halal (slaughtered 
according to Islamic rites) and thus suitable for consumption. Also, live 
or freshly slaughtered poultry is preferred over frozen by many consumers 
in the region. Strong regional demand for animal products bolstered MENA's 
output of animal products between 1990 and 2000: poultry production grew at 
an annual rate of 4 percent, red meat at 1.8 percent, eggs at 2.6 percent, 
and milk at 2.1 percent. 

Traditionally, animal feeding in the region relied mostly on grazing and on 
crop residues such as wheat, rice, and barley straw, and corn, sorghum, and 
cotton stalks. Only small amounts of coarse grains and oilseed meals were 
used. With the ongoing modernization of animal feeding and the introduction 
of feed manufacturing, concentrates such as coarse grains and meals 
increasingly are replacing traditional feedstuffs. Feed requirements in the 
region have advanced in step with the livestock and poultry sectors. 
However, most MENA countries share the common circumstance of limited 
arable land and inadequate water resources, which together constrain the 
capability to produce feed grains and oilseeds. 

Feed Imports: 
A Decade of Expansion

Latest available United Nations trade data indicate that during 1989-2000, 
MENA imports of total feedstuffs rose from 16 to 33 million tons, and from 
$2.6 to $3.9 billion in value. Seventy-six percent of the imports consisted 
of coarse grains, 13 percent oilseed meals, and 7 percent oilseeds; the 
rest included prepared feeds, fish and meat meal, cereal bran, and alfalfa. 

Coarse grains. MENA's coarse grain imports from all sources in 2000 were 
mostly yellow corn (57 percent) and barley (41 percent). Yellow corn 
imports grew at a 11.8-percent annual rate from 5.6 million tons in 1989 to 
14.4 million in 2000, overtaking barley imports in 1992. The upsurge in 
corn imports was due mostly to its use as a feed in the region's expanding 
poultry production. Barley is used in the region mostly for feeding sheep, 
goats, and camels.

MENA was the second-largest foreign market for U.S. corn exports in 2000 
(after Japan). Between 1989 and 2000, U.S. yellow corn exports to MENA 
countries more than doubled, from 4.5 million tons to 10.3 million, 
accounting for 22 percent of total U.S. corn exports in 2000. Egypt was the 
largest MENA importer of yellow corn, alone accounting for 35 percent of 
U.S. exports to the region, followed by Algeria and Saudi Arabia (about 10 
percent each), and Turkey (7 percent).

MENA's barley imports are inversely related to regional barley production, 
which is highly dependent on the amount of rain. From 1989 to 2000, the 
proportion of domestic barley production fluctuated between 59 and 83 
percent of MENA's average annual consumption of 23.2 million tons, with the 
balance imported. U.S. barley exports to the region in 2000 totaled 413,000 
tons, or 39 percent of total U.S. barley exports. Although down from 1.3 
million tons in 1989, this volume was still large enough to rank MENA as 
the largest market for U.S. barley exports in 2000. Three-quarters of U.S. 
barley exports to the region went to Saudi Arabia, and the rest to Jordan, 
Morocco, and Tunisia.

MENA's imports of sorghum declined from 736,000 to 180,000 tons during the 
1989-2000 period, as countries shifted to yellow corn imports due to a 
narrowing price differential. Imports of other coarse grains such as rye, 
oats, and millet were minor.

Oilseeds. About 78 percent of MENA's total oilseed imports in 2000 was 
soybeans, 16 percent was sunflower seeds, and the balance mainly 
cottonseed. Between 1989 and 2000, soybean imports alone accelerated at a 
14.6-percent average annual rate, due mainly to rising demand for both 
oilseed meals and vegetable oils. 

U.S. exports of soybeans to MENA countries increased from 370,000 tons in 
1989 to 1.03 million in 2000. Half of U.S. soybean exports to the region 
were shipped to Israel, which has the largest crushing capacity in the 
region, another 27 percent went to Turkey, and 13 percent to Egypt. Most 
other countries in the region, with inadequate or inefficient crushing 
facilities, prefer to import soybean meal ready for feeding.

Imports of sunflowerseed jumped from 4,200 tons in 1989 to over 500,000 
tons in 2000, with Russia, Argentina, and Romania as the major suppliers. 
Exports to the region represented 12 percent of U.S. total sunflower 
exports in 2000. Turkey was the largest single importer of sunflowerseed, 
receiving more than 88 percent of MENA's total, followed by Morocco (5 
percent), and Israel (3 percent). Imports of other oilseeds were minor.

Oilseed meal. MENA's total oilseed meal imports more than doubled from 1.8 
million tons in 1989 to 4 million in 2000. Soybean meal dominated the 
imports, followed by very small percentages of sunflower, cottonseed, 
rapeseed, and linseed meals. Lack of crushing facilities in most countries 
of the region encouraged the import of meals ready for livestock and 
poultry feeding without the need for any further domestic processing. In 
2000, MENA was the largest export market for U.S. soybean meal, receiving 
1.2 million tons, or 21 percent of U.S. total soybean meal exports. The 
second- and third-ranked markets were the Philippines (15 percent) and 
Canada (14 percent). One-quarter of U.S. soybean meal shipments to MENA 
went to Saudi Arabia, followed by Egypt and Turkey, with 20 percent each. 

MENA's Feed Production 
Shows Mixed Results

Coarse grain production ebbing. Despite increasing demand for coarse grain, 
the region's long-term trend upward in coarse grain production seems to 
have ebbed during 1989-2000. Production at the end of the period was 
actually about 24 million tons, down over 4 million tons from the 
beginning. However, the drop was due mostly to barley, which varies 
considerably from year to year due to the yield effect of rainfall on the 
mostly rain-fed production. In contrast to barley, higher yields for corn 
pushed corn production in the region up marginally from 8.5 million tons in 
1990 to 10.6 million in 2000. Sixty percent of corn output was produced on 
irrigated land in Egypt. Future expansion of corn area in MENA is expected 
to be marginal because of limited availability of irrigated land with 
secure water supplies. Other coarse grains such as sorghum, oats, and rye 
together accounted for less than 10 percent of the region's coarse grain 
production in 2000. 

Oilseed production increased marginally. Oilseeds produced in the region 
include cottonseed, sunflower, soybeans, rape, and other minor oilseeds 
such as linseed, peanuts, and sesame. While the region's demand for 
oilseeds was strong throughout the 1990s, production increased only 6.7 
percent to 5.7 million tons. Cottonseed made up 75 percent of the region's 
oilseed production, half of which was produced in Turkey. Sunflower (18 
percent) and soybeans (4 percent) followed. Soybeans are new to the region, 
and farmers consider current yields too low to compete with other crops for 
the use of land. 

Oilseed meal crushing expands. Although oilseed production in the region 
only increased marginally, crushing volume expanded substantially from 2 
million tons in 1990 to 3.4 million in 2000. The expansion was due mainly 
to new soybean crushing facilities in Israel, Iran, Turkey, and Morocco, 
which relied mostly on soybean imports. The trend toward greater crushing 
continues throughout the region, with at least 11 new soybean-processing 
plants in various stages of construction. These new crushing facilities 
will rely totally or heavily on soybean imports, adding further to the 
region's growing imports of soybeans.

With the expanding crushing capacity, MENA's soybean meal production rose 
rapidly from 474,000 tons in 1990 to 1.4 million tons in 2000. In the 
latter year, soybean meal made up 42 percent of the region's total meal 
production, now ahead of cottonseed meal at 31 percent. Sunflowerseed meal 
ranks third in production of oilseed meals in the region, and is crushed 
predominately in Turkey. In addition, the region produced small amounts of 
oilseed meals mostly from domestically cultivated crops such as rape, flax, 
sesame, peanuts, and corn.

Competition Intensifies for 
the MENA Feed Market

In 2000, the U.S. was the largest single supplier of corn and soybeans to 
the region, the second-largest supplier of soybean meal, and the sixth-
largest supplier of barley. U.S. share of the region's corn imports was 66 
percent, down from 80 percent in 1989. Argentina, the second-largest 
supplier, shipped 24 percent of the imported corn, up from zero in 1989. 
Other suppliers were Canada, Hungary, Romania, and occasionally China.

Until 1997, when Argentina and Brazil began making inroads, the U.S. 
supplied almost all of MENA's soybean imports. While the U.S. managed to 
remain the largest single soybean exporter to the region, with 60 percent 
of the market in 2000, Brazil had 27 percent of the market that year and 
Argentina 4 percent.

In MENA's soybean meal market since the early 1990s, major U.S. competitors 
have been Argentina and Brazil. In 2000, Argentina supplied 50 percent of 
the imports, followed by 32 percent from the U.S. and 11 percent from 
Brazil. U.S. import share was down from 63 percent in 1989. U.S. credit 
guarantees that had boosted U.S. soybean meal exports to the region now 
compete with lower prices from Argentina and Brazil. 

MENA's dependency on feed imports is expected to increase in the future, 
and will result in further increases in corn, soybean, and soybean meal 
imports as domestic production of livestock and poultry expand to meet 
rising demand. In the longer run, improvements will occur in the region's 
domestic feed production (greater use of improved crop varieties and 
cultivation practices) and in livestock and poultry production efficiency, 
which may reduce the dependency marginally. Even so, the bottom line will 
be expanding feed imports. The U.S. will continue to be a major supplier, 
but will have to face price competition from other countries, notably 
Argentina and Brazil.  

Fawzi A. Taha (202) 694-5178, 
ftaha@ers.usda.gov

POLICY

Farm Income, Finance, & Credit Outlook for 2002

The overall financial state of the U.S. agricultural sector is sound, as 
evidenced by continuing increases in asset values and equity levels. Farm 
business assets are forecast to surpass $1.228 trillion, increasing nearly 
$12 billion from 2001. Farm business debt is anticipated to approach $197 
billion, up from $192.8 billion in 2001, while farm business equity (assets 
minus debt) is expected to rise to $1.032 trillion in 2002, a gain of 
almost $8 billion.

In the face of relatively low commodity prices, the farm business balance 
sheet has shown steady gains throughout 1999-2001. During this 3-year span, 
total direct government payments (including disaster, conservation, 
production flexibility contracts, loan deficiency, and marketing loan 
gains) contributed more than $65 billion to the incomes of farmland owners, 
supporting farm incomes and farmland values. In contrast, investors in U.S 
equity markets have witnessed increasing market volatility and lost 
considerable net worth, especially since March 2000. From the beginning of 
1999 through the end of 2001, however, farmland owners have benefited from 
a $111-billion increase in farm equity, driven largely by a $116-billion 
rise in farm real estate values. Since land values largely reflect expected 
future earnings from farming, the recent strength of land values suggests 
that farmland owners do not anticipate a significant decline in incomes in 
the foreseeable future. 

Net cash income--before government payments--is expected to increase for 
the third straight year and exceed $40 billion for the first time since 
1998. In 2002, livestock receipts are expected to improve by over $10 
billion and crop receipts by $5 billion from their lows in 1998 and 1999. 
Cash receipts are expected to be up about $1 billion for feed grains and 
oil crops. Cotton and rice are the only major crops with prospects of lower 
2002 cash receipts. Relatively low feed costs, strong domestic demand, and 
gains in export sales have encouraged higher pork and beef output. Receipts 
from sales of dairy products are forecast to retract by $2.3 billion in 
2002, after a $4.1 billion gain last year.

Since Congress was debating the next farm bill as USDA prepared its 2002 
financial outlook, current law guided the forecast of direct payments--
assumed to be $10.7 billion for 2002. Boosted by emergency assistance and 
loan deficiency payments (LDPs), government payments have exceeded $20 
billion in each of the last 3 years. Emergency assistance payments result 
from separate legislative initiatives enacted in 1999, 2000, and 2001 in 
response to the economic adversity that farmers were facing. LDPs are 
intended to be countercyclical with commodity prices, and are determined 
using the gap between trigger prices and market prices. As a result of 
higher prices projected for several major program crops, LDPs are expected 
to decline by 25 percent in 2002.

Relative stability in production expenses is also a contributing factor to 
higher net incomes. Major crop-related expenses (seeds, fertilizer, and 
pesticides) are forecast to be $26.9 billion in 2002, 1.6 percent below 
2001. Fertilizer prices are slated to fall about 5 percent, while small 
increases will likely occur in seed and pesticide prices. Fuel expenses are 
a major cost factor for farmers producing crops requiring frequent 
cultivation and/or drying, such as corn. After jumping $1.6 billion (29 
percent) in 2000 as a result of a rise in crude oil prices, fuel expenses 
are forecast down 7 percent in 2001 and another 2 percent in 2002. For 
livestock producers, feed represents one of the largest input costs. 
Following a 7-percent jump in 2001, feed expenses are forecast to rise 8 
percent in 2002. 

Income Prospects 
Reflect Farm Diversity

Farm-sector net cash income for 2002 is projected to decline by 15 percent 
and is not likely to be evenly distributed across all farm operations. The 
largest gains in crop receipts are projected for corn and soybeans, while 
cotton and rice are expected to record the largest 2002 declines. Three 
factors will determine the impacts on individual operations:

*  their mix of crop and livestock enterprises;

*  the extent to which government payments contribute to gross income; and

*  the relative importance of expense items that are forecast to increase 
(such as feed and labor) versus those expected to decline (such as 
fertilizer and interest). 

Among these factors, the largest impact on the economic outlook for 2002 
will be determined by the level of government payments. Assuming no 
emergency assistance, the 50-percent drop in government payments will most 
negatively impact incomes on those operations where payments account for 
the largest share of gross income. These include farm businesses that 
specialize in wheat production (with an average of 30 percent of gross cash 
income from government payments), corn and other cash grains, and soybeans 
(at least 20 percent of gross cash income). Regional dependence on 
government payments also varies and generally reflects the concentration of 
program commodity production.

To gauge the sensitivity of the forecasts, an analysis of total direct 
payments was conducted in which hypothetical payments were incrementally 
increased by $1 billion up to a total of $10 billion more than assumed in 
the forecast. Limiting the analysis to commercial farms (i.e., excluding 
retirement, limited-resource, and rural residence farms) permits more 
focused study of the impact of changes in government payments on those 
farms generating the bulk of U.S agricultural production. 

For all farm businesses, $5 billion in additional government payments, 
which are assumed to be distributed as they have been historically, would 
change the outlook for net cash income from a decline of 18 percent to a 
decline of 8 percent relative to 2001. Adding $10 billion to government 
payments (which brings the level of total payments near the amount paid in 
2001), would result in average net cash incomes for farm businesses nearly 
2 percent higher than in 2001.

Direct government payments have historically been associated with 
production of program commodities, and have not been evenly distributed 
across all regions and farm types. Farms in the Heartland, Northern Great 
Plains, and Prairie Gateway have traditionally been large producers of 
program crops, and received a large share of payments. USDA's 2000 
Agricultural Resource Management Study (ARMS) indicated that these regions 
accounted for 42 percent of all U.S. commercial farms, but received 68 
percent of government payments. 

Not surprisingly, sensitivity analysis suggests that farms in these regions 
would be the prime beneficiaries of increased levels of government 
payments. In the Northern Plains, 2002 average net cash income is currently 
projected to be 34 percent below 2001. Providing an additional $10 billion 
in government payments would produce an average net cash income 13 percent 
above 2001. Similar results occur in the Heartland, where average net cash 
income would rise 12 percent due to additional payments compared with the 
currently projected 21 percent decline, and in the Prairie Gateway, where 
the current 20 percent income decline would change to a 13 percent gain.

Crop farms account for 49 percent of all U.S. commercial farms but receive 
76 percent of government payments, and not all crop farms benefit equally. 
The 26 percent of farms classified as wheat, corn, soybean, and mixed grain 
operations jointly receive 60 percent of all payments, while the 10 percent 
of farms producing specialty crops receive less than 3 percent of payments. 

Only specialty crop and beef producers are projected to see higher average 
net cash incomes in 2002 than in 2001. While specialty crop income gains of 
6 percent are expected (assuming current payment levels), a $10-billion 
increase in payments would result in only a 9-percent increase. Average net 
cash incomes of beef producers are expected to rise 4 percent in 2002, and, 
since farms classified as beef operations traditionally receive about 11 
percent of government payments, increasing payments by $10 billion would 
generate a 25-percent income gain. 

Given current government payment assumptions, corn producers are expected 
to see a 28-percent drop in average net cash income in 2002. Adding $10 
billion in government payments would result in average net cash incomes of 
corn producers rising 32 percent in 2002. Similarly, adding $10 billion 
would improve average net cash income for producers of wheat (from a 
currently projected 53-percent decline to a 14-percent increase), mixed 
grains (from a 38-percent decline to an 18-percent increase), and soybeans 
(from a 32-percent decline to a 21-percent increase). 

Livestock producers typically do not receive proportional benefits from 
government payments. More than half of all farms are livestock operations, 
but they receive less than one-fourth of payments. In 2002, dairy farms are 
projected to generate average net cash income 35 percent below 2001 levels. 
Since dairies traditionally receive little benefit from direct government 
payments, adding $10 billion would still result in a 29-percent decline in 
average net cash incomes. 

Financial Condition of 
Farm Operator Households

After rising each year in the late 1990s, farm household income leveled off 
last year and is expected to decline slightly this year. However, this 
minimal drop is much less than the decline expected for the average U.S. 
household. 

To analyze the sensitivity of farm households to changes in the outlook for 
farming and the economic status of the general economy, four groups were 
identified based on their relative diversity of income sources. All farm 
operator households were included. Fewer than one in four of all U.S. farm 
households earn more than 20 percent of income from the farm business. 
Farming is the primary source of household income (80 percent or more) for 
only about 12 percent of farm households. These farms account for 52 
percent of total production and received 42 percent of direct government 
payments. Another 13 percent of farms have proportionate levels of farm and 
off-farm earnings. This group accounts for 26 percent of farm output and 32 
percent of total direct payments.

How off-farm incomes will be affected by changes in the national economy 
depends heavily on the source of their income, as well as the speed and 
extent of the current economic recovery. In the 2000 ARMS, about 80 percent 
of operators (70 percent of spouses) who worked off farm reported an 
average workweek of more than 35 hours. If their primary occupation has 
been directly affected by the economic slowdown, they have likely faced 
greater income reductions than other farmers who earn a much larger share 
of total household income from farming. 

Off-farm wages and salaries represent the primary source of income for 45 
percent of farm households. Off-farm job opportunities vary by region. In 
the Northeast there are durable goods manufacturing plants. The recent 
slowdown in demand for products such as machinery, equipment, autos, and 
trucks will be felt by farmers and/or spouses who may have jobs in these 
industries. In the more rural Midwest, farmers and spouses may more 
commonly be working in retail trade and services, where layoffs or cutbacks 
may be less severe than in manufacturing. Across the country, U.S. Labor 
Department survey data are showing employment growth in health services but 
declines in transportation and no change in construction. 

Many smaller farms are located in the South, which has seen its textile 
industry eroded by overseas competition. More recently, automobile 
manufacturing and its input suppliers have moved into the South, but these 
jobs tend to be located around more urban areas where educational levels of 
workers are higher and where transportation is readily available. The 
automobile business has been especially hurt by the recession, and workers 
in this sector will be affected in the coming year. Spouses or operators 
working in medical services or in teaching will likely see little if any 
decrease in earnings as these professions tend to be recession-proof in the 
short run. However, the food and beverage sector has been hit hard by 
current economic conditions, certainly in the hotel and motel businesses, 
and those farm households receiving wages and salaries from this sector 
will likely be hit in 2002.

Another 30 percent of farm households derive most of their income from 
interest, dividends, and other nonfarm businesses. Recent drops in interest 
rates have benefited borrowers but have hurt those dependent on interest 
and dividends as a source of income. This most likely would affect older 
farmers who are retired or nearing retirement and who are more dependent on 
interest income from investments to supplement Social Security or other 
savings. 

Farm households most dependent on farming had the lowest average household 
income. At $35,800, their income was below the average for nonfarm 
households, while groups that rely less on farming as a source of income 
had average incomes exceeding nonfarm households. On average, income from 
farming was negative for households where earnings from off-farm jobs and 
investments were the dominant sources of income.

Government Payments & the
Ability to Service Debt

Farm business debt is projected to rise about 2 percent in 2002, following 
an estimated 4.8-percent increase in 2001. Anecdotal evidence suggests that 
farmers may be refinancing farm debt, and converting nondeductible personal 
debt to farm business debt. 

Expansion of Farm Credit System (FCS) lending is contributing to the 
anticipated rise in farm debt in 2001. Annual changes through the end of 
the third quarter suggest that FCS debt levels can be expected to surge 
almost $6 billion (12 percent) in 2001. FCS loans are projected to rise 
another $1 billion in 2002. Bank lending is expected to grow slightly above 
2 percent in 2002, after 3-percent growth last year.

About 21 percent of all U.S. commercial farms are expected to experience 
debt repayment problems in 2002. Since many of these operations carry much 
more debt than they can service with current income, increasing government 
payments by $10 billion is projected to only reduce this number to 19 
percent. The additional payments would have the greatest impact in the 
Northern Great Plains, where 28 percent of farms are projected to have 
repayment difficulty. About 23 percent of farms in this region would have 
repayment problems after an infusion of an additional $10 billion in 
payments. Similarly, increased payments would lower the number of Heartland 
operations experiencing repayment problems from 24 percent to less than 21 
percent. 

Wheat and corn growers are projected to account for the largest percentage 
of producers with repayment difficulties in 2002. The number of wheat 
producers experiencing repayment problems would rise, in the absence of 
additional government payments, from 27 percent in 2001 to 37 percent in 
2002. An additional $10 billion in payments would reduce this to 29 
percent. The share of corn producers with repayment problems is projected 
to rise from 27 percent in 2001 to 30 percent in 2002; an additional $10 
billion in funding would result in loan service problems for only 23 
percent of corn producers.  

Mitchell Morehart (202) 694-5581
James Ryan (202) 694-5586 
morehart@ers.usda.gov
jimryan@ers.usda.gov

SPECIAL ARTICLE

Safety Nets: An Issue in Global Agricultural Trade Liberalization 

Global trade liberalization is expected to benefit many countries, 
including those developing countries that are net agricultural exporters 
and are able to respond to expanded market opportunities. Other low-income 
countries, however, have argued that their food security could be adversely 
affected by the reforms and have lobbied for some form of food safety net 
or compensation. This issue was discussed in the past Uruguay Round of 
international trade talks and is on the agenda of the current round.

During the previous round of trade negotiations, several studies on the 
potential impact of agricultural trade liberalization concluded that world 
food prices for a few key commodities would rise and possibly become more 
volatile as surpluses drop. If both results occur, low-income countries 
could experience greater food insecurity. Even without greater price 
volatility, an increase in food prices may escalate the problems of import 
financing for low-income countries that spend a significant share of their 
budgets on food imports and whose domestic production is highly variable.

Given these food security concerns, many developing countries have argued 
for improvement in safety net policies to minimize the impact of trade 
liberalization on their consumers. These concerns were discussed in several 
forums, namely the 1996 World Food Summit and the World Trade Organization 
(WTO) meetings. The result was a provision in the Marrakech Agreement that 
recognized concerns and initiated steps to improve international safety net 
mechanisms. 

What are the Available 
Safety Net Programs? 

Food importing countries have used safety nets provided by a range of 
programs in the past. Some of the programs continue while others have been 
revised or discontinued. 

Food aid. Food aid has a long history and is the most important 
international food safety net program. The magnitude and role of food aid 
has changed through time, but its mission to address both chronic and 
transitory food insecurity has remained the same. Food aid was first 
provided to developing countries in the 1950s as the U.S. disposed of grain 
surpluses. For producers and exporters, food aid became a desirable policy 
choice because reductions in commodity surpluses usually boosted market 
prices. As commercial exports increased over time, the role of food aid 
diminished as a means of reducing commodity surpluses.

All food aid donors cite humanitarian relief as their basic distribution 
criteria, but economic and political considerations have also played 
important roles in allocation decisions. The commodity mix of food aid 
usually reflects the export profile of the donor country and tends to vary 
with yearly fluctuations in availability. Cereals (mainly wheat) are by far 
the largest category of food aid. Currently, the major donors of grain food 
aid are the U.S., the European Union (EU), Canada, Japan, and Australia. 
The U.S. continues to provide food aid in commodity form, while the EU and 
Canada provide their food aid on a grant basis. Japan provides financial 
assistance for food aid programs such as the World Food Program.

The future of food aid is uncertain. One concern is the increasing cost of 
food aid as further global trade liberalization reduces or eliminates 
support prices and food surpluses in donor countries. The U.S. and EU--the 
two largest food aid donors--agree that food aid should be provided to the 
least developed net importing countries. However, rising food prices in the 
future could reduce food aid volumes unless donor countries increase 
budgetary appropriations. Food aid volumes have not been sufficient to meet 
estimated needs in the past. With a growing gap between food needs and food 
availability in many low-income countries over the next decade, food aid 
will likely cover a smaller proportion of that gap.

EU's STABEX program. The EU conceived STABEX as a safety net program for 
low-income countries that were mostly former European colonies. However, 
the program has turned out to be more of a development program than a 
safety net program. Selected developing countries receive compensation when 
export earnings are below average or prices of imported food are above 
average (compared with recent trends). Compensation is provided as project 
grant aid, which is administered by local EU officials in cooperation with 
local country officials. Criticisms of the program point to inadequate 
funding, slow processing, and a rigid formulaic approach that ignores the 
impact on local reform processes. The EU recommended in 1996 that the 
program be modified or discontinued.

International Monetary Fund's (IMF) Compensatory and Contingency Financing 
Facility (CCFF). The CCFF program provides compensation to countries either 
when global food prices have been unusually high or export earnings 
unusually low. One shortcoming has been that each country's compensation is 
limited to its share of available IMF funds. Another shortcoming has been 
that the IMF must first determine that a country's high food import costs 
or low export earnings are not the result of economic mismanagement. The 
time required for this determination has contributed to delays in 
processing country financial support requests. The program was little 
utilized in recent years (about two countries per year over 1993-99) and 
was terminated in 2001.

New Safety 
Nets Proposed

At the WTO meeting of trade ministers in November 2001, developed countries 
generally showed support for the broad goal of improving food security 
safeguards for low-income countries, but reached no agreement on particular 
mechanisms to achieve this goal. Before the meeting, several new proposals 
were submitted to the WTO Committee on Agriculture. The EU proposed 
improving the effectiveness of food aid by making it available only to 
food-insecure low-income countries, and by requiring that it be provided 
only on a grant basis. Nigeria and South Korea proposed increasing the 
volume of food aid. Japan and Mauritius suggested creating an international 
grain reserve to reduce food price volatility. Several developing countries 
proposed that food-insecure countries be exempted from restrictions on 
domestic production subsidy programs. Egypt favored an international 
financial rebate system that would compensate food-insecure countries for 
costly food import bills. Other proposals called for reducing the financial 
burden on developing countries of transitory food import shocks. 

Most of the proposals are "ideas" and are difficult to compare in terms of 
operation and targeting. However, three proposed mechanisms have drawn 
recent attention.

International derivatives for grains. The goal of this proposal would be to 
stabilize food import prices by designing new derivatives (puts and calls) 
that give food-insecure countries the option to buy or sell food at either 
current market prices or at predetermined prices (purchased options). The 
options would help food insecure countries purchase food at more 
predictable prices. The program would protect countries against import 
price hikes, but not necessarily against import costs that result from 
their own domestic production shortfalls. Creative derivatives might need 
to be developed, such as an option to purchase grain 15 months in advance 
of the harvest (presently not available). A fund that subsidizes the 
options probably would be necessary. Developed countries could help in the 
design and funding of the program. 

Revolving fund/financial rebate system. Under this proposal, food-insecure 
countries would be reimbursed from an international fund if food import 
costs for a selected basket of products exceeded a threshold. For example, 
if a country's total import costs were 10 percent above trend import costs, 
the country would receive compensation for the difference. The Food and 
Agriculture Organization of the United Nations estimated that such a 
program covering 65 food-insecure countries would have cost about $429 
million per year over the 1989-99 period. 

Import insurance program. Under this program, a variation of the financial 
rebate system, food insecure countries would pay annual premiums according 
to a predetermined historical risk profile. Depending on coverage options, 
countries would receive compensation whenever import costs exceed a 
threshold for a preselected consumption target. For one standard option, 
USDA recently estimated that program costs for 67 food-insecure countries 
would have cost about $450 million over the 1988-97 period. The program 
would require a one-time startup cost of about $2-$3 billion to keep the 
fund solvent, after which the program would be self-financing with the 
collection of each country's premiums. 

Comparing these proposals with food aid. Estimated costs of either the 
revolving fund or the import insurance program, $429-450 million annually, 
can be compared with the latest food aid budgets. The combined food-aid 
budgets for the 5 major donors (Australia, Canada, EU, Japan, and the U.S.) 
totaled an estimated $2.9 billion in 1998. Hypothetically, it would be more 
cost-effective to channel these same food aid budgets into some of the 
proposed options, even if donor countries paid nearly all the costs. 

All of the proposed programs would involve numerous administrative issues 
that would need to be addressed before deciding on the program or programs 
to implement. 

Defining Food-Insecure
Countries

The Uruguay Round's Marrakech Agreement recognized the special needs of 
Least Developed Countries (LDCs) and the Net Food Importing Developing 
Countries (NFIDCs). In particular, the signatory countries agreed to review 
food aid periodically; ensure that an increasing proportion of foods is 
provided concessionally to LDCs and NFIDCs; and provide technical and 
financial assistance to these countries. Additionally, the signatory 
countries recognized that LDCs and NFIDCs may be eligible to "draw on the 
resources of existing international financial institutions under existing 
facilities, or such facilities as may be established." 

The agreement raises two key questions: What are the criteria used to place 
countries in LDC and NFIDC categories?  Are these categories synonymous 
with food insecurity?  Answers to these questions are important for 
targeting food-insecure countries and determining the costs of various 
programs and proposals.

The United Nations determines which countries are considered LDCs 
(presently there are 48 countries). A variety of socioeconomic indicators 
are used in the determination, including per capita income, size of the 
manufacturing sector, literacy rates, a quality-of-life index, economic 
diversification, and population size. While the LDCs are undoubtedly poor 
and likely to be food insecure, they are not specifically identified as 
such.

The WTO's Committee on Agriculture makes the determination of which 
countries are considered NFIDCs (presently there are 18 countries). 
Specifically, countries that wish to be considered an NFIDC must petition 
the Committee and provide data to support the claim that they are net food 
importers of basic food items. While these 18 countries are particularly 
vulnerable to trade liberalization effects, there are undoubtedly many 
others that are food insecure and would be affected by trade 
liberalization.

Recently, the International Food Policy Research Institute (IFPRI) 
completed a study suggesting that countries should be more carefully 
classified and targeted in international treaties. Several criteria were 
used to classify the countries as food insecure, including per capita food 
production trends, the ratio of total exports to food imports, average 
calories consumed per capita per day, average proteins consumed per capita 
per day, and the share of the nonagricultural population. Using these 
criteria, IFPRI classified 74 food-insecure countries into four categories 
reflecting different degrees of insecurity. 

While there is clear overlap in these country classifications, a careful 
identification of food-insecure countries would be helpful in targeting 
safety net programs and in minimizing program costs. Though not cited in 
international treaties, USDA also monitors annually the food security 
situation in 67 developing countries around the world. These 67 countries 
largely overlap the 74 countries identified in the IFPRI study. The 
countries monitored by USDA have been selected primarily because they have 
received U.S. food aid in the past.

New Food Safety Nets Will Support 
Trade Liberalization 

While trade liberalization has the potential to improve the food security 
of developing countries, low-income countries that are not strong 
participants in global food and agricultural markets will remain vulnerable 
to price shocks and food insecurity. Presently, the international safety 
nets that do exist are inadequate to stabilize food supplies for the more 
vulnerable countries. Food aid has been the primary safety net, but is not 
sufficient to meet estimated needs around the world. With food gaps 
projected to grow wider in the future, the problem likely will only worsen. 
The few alternatives to food aid that have been implemented so far have 
been underutilized or highly ineffective. 

New safety net proposals could help stabilize grain import prices or manage 
import costs. Recent estimates of selected proposals suggest that the costs 
could be much less than those of current programs. The costs of new 
proposals will vary depending on the type of safety net program and the 
countries targeted. In turn, the number of eligible countries will vary 
depending on the selection criteria. Improving international safety net 
programs may not only temper food security concerns, but also generate 
support among low-income countries for further trade liberalization.

Michael Trueblood (202) 694-5169
Shahla Shapouri (202) 694-5166
Shapouri@ers.usda.gov
trueb@ers.usda.gov

For more information:
www.ers.usda.gov/publications/aib764/ (Discusses various safety net options 
and their costs in more detail)
www.ers.usda.gov/briefing/WTO/DevelopingCountries.htm
www.ers.usda.gov/briefing/globalfoodsecurity/ 

END_OF_FILE
