AGRICULTURAL OUTLOOK                  July 23, 2002
August 2002, ERS-AO-293
             Approved by the World Agricultural Outlook Board
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CONTENTS
 
BRIEFS
U.S. Red Meat & Poultry Exports May Hit Record Levels in 2003 
Corn & Soybean Plantings Change Little from Spring Intentions  
 
COMMODITY SPOTLIGHT
U.S. Wheat Output & Exports to Decline in 2002/03
Is There a Tobacco Quota Buyout in the Future?
 
RESOURCES & ENVIRONMENT
Rural Residential Land Use: Tracking Its Growth
 
WORLD AGRICULTURE & TRADE
The African Growth & Opportunity Act: How Much Opportunity?
The Services Sector: Its Role in World Food Production & Trade 
Trade Remedy Laws & Agriculture
 
FARM & RURAL COMMUNITIES
Assessing the Economic Well-Being of Farm Households
 
IN THIS ISSUE
 
U.S. Red Meat & Poultry Exports May Hit Record Levels in 2003 
 
Total U.S. meat exports are expected to increase nearly 9 percent in 2003 from 
weak 2002 levels, and may approach record levels.  Likely bolstering the 2003 
increase will be a resolution of recent food safety issues and a stronger world 
economy.  In contrast, total 2002 meat exports will likely decline 8-9 percent 
from the 2001 record as a result of the strong dollar, slow world economic 
growth, and unexpected animal disease and food safety concerns. Lower pork and 
poultry exports account for the 2002 decline. Dale Leuck (202) 694-5186; 
djleuck@ers.usda.gov
 
Corn & Soybean Plantings Change Little from Spring Intentions  
 
Planted area for the eight major U.S. field crop, sorghum, barley, oats, 
soybeans, wheat, cotton, and rice) is estimated at 249.1 million acres in 2002, 
up slightly from last year, based on USDA's Acreage report.  Increases in corn, 
wheat, barley, and oats are partially offset by decreases in soybeans, cotton, 
rice, and sorghum.  Hay area is estimated up more than 1 million acres.  William 
Chambers (202) 694-5312; chambers@ers.usda.gov  
 
U.S. Wheat Output & Exports to Decline in 2002/03
 
Prospects for the lowest U.S. wheat exports in more than 30 years are dominating 
the 2002/03 U.S. wheat outlook.  Smaller U.S. supplies, shrinking global 
imports, and intense competition are combining to reduce U.S. exports. Despite a 
further drop in U.S. ending stocks this year, these bleak export prospects 
dampen the price advantages from declining stocks. The projected price range for 
2002/03 is $2.75 to $3.35 per bushel. Gary Vocke (202) 694-5285; 
gvocke@ers.usda.gov
 
Is There a Tobacco Quota Buyout in the Future?
 
During the current session of Congress, several tobacco buyout bills have been 
submitted that would modify the tobacco program and provide for government 
purchase of quota from growers or other quota owners. Declining demand for 
tobacco is limiting the amount of quota available, and increased use of 
marketing contracts is reducing the amount of tobacco eligible for price 
support. Some growers seem ready to accept buyouts and give up the security of 
the price support safety net for greater freedom in making production and 
marketing decisions. Thomas Capehart (202) 694-5311; thomasc@ers.usda.gov 
 
Rural Residential Land Use: Tracking Its Growth
 
Among the most rapidly growing land uses in the U.S. is land for rural 
residences. Residential land use in rural areas has increased more rapidly than 
in urban areas, not only in percentage terms but also in absolute numbers: 1 
million acres per year compared with 420,000 acres. Rural residential lots tend 
to be much larger than urban lots: 60 percent of the residential acreage is in 
lots of over 10 acres.  While land in residential use in rural areas is a small 
proportion of total U.S. land use, this phenomenon has implications for farmland 
prices and the availability of land for agriculture and forestry. It could also 
affect rural amenities and the rural environment. Marlow Vesterby (202) 694-5528; 
vesterby@ers.usda.gov
 
The African Growth & Opportunity Act: How Much Opportunity?
 
For Sub-Saharan Africa (SSA), trade could play a crucial role in economic 
development, by providing opportunities to improve economic efficiency and raise 
incomes. To help create incentives for SSA countries to implement domestic 
economic and political reforms and improve market opportunities, Congress passed 
the African Growth and Opportunity Act (AGOA) in May 2000.  AGOA provides 
preferential access to U.S. markets for designated Sub-Saharan countries and 
improved access to credit and technical expertise. 
Stacey Rosen (202) 694-5164 slrosen@ers.usda.gov 
 
The Services Sector: Its Role in World Food Production & Trade 
 
Trade in services is growing faster than merchandise trade. In the U.S. and 
other developed economies the services sector accounts for more than two-thirds 
of gross domestic product. The food system is increasingly affected by service 
sector growth-a growing share of consumers' food expenditures and farmers' input 
costs are for services. It may be time to shift the focus of policy reform from 
agricultural production to the broader food system.  William T. Coyle 
(202) 694-5216; wcoyle@ers.usda.gov
 
Trade Remedy Laws & Agriculture
 
During the past century, governments of industrialized nations devised three 
basic trade remedies-countervailing duties, antidumping provisions, and 
safeguards-as defense measures against imports causing injury to domestic 
industry.  The Uruguay Round of international trade negotiations, which 
established the World Trade Organization (WTO), attempted to discipline 
inappropriate use of these trade remedies by establishing criteria or standards 
for their application.  Even so, trade remedies are being increasingly employed 
by WTO members against agricultural products, particularly value-added products.  
As a major exporter of high-value products, U.S. agriculture has a substantial 
interest in the outcome of WTO negotiations on these measures in the current 
Doha Round. Anita Regmi (202) 694-5161; aregmi@ers.usda.gov
 
Assessing the Economic Well-Being of Farm Households
 
While farm income or commodity prices are often cited as indicators of the 
economic well-being of farm households, the resulting picture is certainly 
incomplete and most likely distorted. The level of wealth, as well as the level 
of income from both farm and nonfarm sources, affects the consumption potential 
of farm households. A comprehensive assessment of well-being must therefore 
consider household wealth as well as income and consumption. Nearly half of all 
farm operator households had both higher income and higher wealth than the 
average U.S. household in 2000. Ashok Mishra (202) 694-5580; 
amishra@ers.usda.gov  
 
BRIEFS:  Livestock, Dairy, & Poultry
 
U.S. Red Meat & Poultry Exports May Hit Record Levels in 2003
 
Total U.S. meat exports are expected to increase nearly 9 percent in 2003 from 
weak 2002 levels, and may reach record levels for individual meats as well as in 
total. Likely bolstering the 2003 increase will be a resolution of recent food 
safety issues and a stronger world economy. In contrast, total meat exports in 
2002 will likely decline 8-9 percent from the record 2001 level as a result of 
the strong dollar, slow world economic growth, and, perhaps most importantly, 
unexpected worldwide animal disease and food safety concerns. The 2002 decline 
will come from drops in pork and poultry exports, with beef exports expected to 
remain near the 2001 level.
 
Disease Concerns
Have Affected Trade
 
The expected 8-9-percent decline in U.S. meat exports in 2002 follows an 8 
percent increase in 2001 that was at least partially induced by the outbreak of 
foot and mouth disease (FMD) in the European Union (EU) early in 2001. With EU 
pork and beef banned in many countries during parts of 2001, the U.S. was able 
to increase its share in many world pork markets, notably Japan. U.S. poultry 
meat also substituted for banned EU pork on the Russian market. Russia did 
import increased amounts of heavily subsidized EU boneless beef, however. U.S. 
pork and poultry exports to all destinations increased by 21 percent and 12 
percent, respectively, in 2001, more than offsetting an 8-percent decline in 
beef. EU meat exports resumed towards the end of 2001 as FMD was brought under 
control. Thus, lower U.S. exports in 2002 are at least partially the result of 
the EU regaining some of its pork markets.
 
In addition to the comeback of EU meat exports, food safety concerns in 2002 are 
also harming U.S. exports. The discovery of 4 bovine spongiform encephalopathy 
(BSE)-infected cows in Japan since September 2001 has led to a sharp drop in 
Japanese beef consumption and imports. U.S. beef has also suffered because of 
the strong U.S. dollar. BSE concerns were compounded by a rapid deterioration in 
Japan's economic outlook, and November-December U.S. beef exports to Japan 
dropped by one-third compared to a year earlier. Beef exports to Japan are not 
expected to return to normal levels until at least late 2003, as BSE concerns 
recede and Japanese economic growth resumes. 
 
U.S. Meat Exports 
Up in 2003
 
U.S. beef exports are expected to increase 4-6 percent in 2003, after likely 
rising marginally in 2002, and could reach a near-record 2.4 billion pounds and 
a record 9.6 percent of beef production. Demand in Japan is expected to 
gradually return to near-normal levels over the next 12-18 months after being 
weak in 2002. With Korea's liquidation of beef stocks in preparation for 
complete market liberalization now accomplished and the Korean economy growing 
rapidly, U.S. beef exports to Korea should hit record levels both in 2002 and 
2003. 
 
U.S. pork exports are expected to increase 5 percent in 2003, after dropping 6 
percent in 2002 as a result of static market growth in Japan and increased 
competition in a number of markets. The increased competition comes from 
Denmark--which can export pork again now that the EU is free of FMD--as well as 
Canada and Brazil. Canadian pork has become increasingly competitive with the 
U.S. in the Mexican market, particularly because of the strong U.S. dollar, but 
also because Canada is focusing heavily on exports. Meanwhile, Brazil has begun 
exporting pork to Russia. Even with this increased competition, continued 
economic recovery and growth in the three most important U.S. export markets-
Japan, Mexico, and Canada--are expected to drive U.S. pork exports 5 percent 
higher in 2003, to a near-record 1.55 billion pounds. Korea's problems with FMD 
continue to keep it from competing in the Japanese market.
 
U.S. poultry exports continue to be influenced by food safety concerns. In 2002, 
Ukraine banned imports of U.S. poultry products, citing the use of antibiotics 
in U.S. broiler production and antimicrobial rinses in U.S. processing plants. 
Russia followed suit, claiming that some U.S. processing plants were not meeting 
inspection protocols and had tested positive for salmonella. Finally, both 
Mexico and Japan banned the import of poultry products from selected U.S. states 
that had outbreaks of avian influenza.
 
Negotiations are currently under way to resolve the Russian health concerns, 
with the goal of reaching agreement on new health certificates by August 1. 
Without such certificates, no U.S. poultry meat will be allowed entrance into 
Russia after August 1. Assuming an agreement is reached with this key importer, 
U.S. broiler exports in 2002 are projected to total 4.8 billion pounds, down 
more than 13 percent from a year ago, while turkey exports are forecast at 489 
million pounds, marginally above 2001. The outlook is brighter for 2003 because 
of the expected removal of the Russian import ban. U.S. Broiler exports should 
total about 5.45 billion pounds, up 13 percent over 2002. Turkey exports in 2003 
are forecast to be virtually unchanged at 490 million pounds.
 
Cattle & Meat Imports
Continue to Increase
 
U.S. live cattle imports are expected to increase and exports to decrease in 
both 2002 and 2003. Dryness and tighter feed grain supplies in Canada are 
expected to continue inducing movement of feeder cattle south to the U.S. At the 
same time, tight feed supplies in Canada have reduced demand for feeder cattle 
from the U.S. In 2003, sharply reduced U.S. supplies of beef and feeder cattle 
are expected to reduce cattle exports to Canada and to encourage imports of 
Canadian cattle.
 
Dry weather and financial stress among Mexican cattle producers will likely 
continue to encourage export of feeder cattle to the U.S. through 2003. U.S. 
imports of feeder cattle from Mexico have recently weakened because of improved 
pasture conditions in some parts of Mexico and lower feeder cattle prices in the 
U.S. However, imports should pick up again as feeder cattle prices turn higher 
in late 2002, and higher still in 2003, as the rebuilding phase of the U.S. 
cattle cycle begins. A possible limiting factor may be the imposition of more 
stringent U.S. standards on live cattle imports from regions of Mexico with a 
high incidence of tuberculosis as announced April 1, 2002. 
 
U.S. hog imports should continue increasing with nearly 6 million live hogs-
mostly feeder pigs--expected from Canada this year, and slightly more (6.1 
million) in 2003. Hog movement to the U.S could expand further if expected 
increases in Canadian feedgrain supplies fail to materialize because of 
continued dry weather. 
 
U.S. red meat imports are expected to increase 2-3 percent in 2002 and about 1 
percent in 2003. Record beef imports in 2002 may grow even higher in 2003 as 
U.S. cow slaughter declines. Both Australia and New Zealand are expected to meet 
their tariff rate quotas in 2002 and 2003. South American fresh/frozen beef is 
not allowed into the U.S. because of restrictions related to FMD. While some 
increased imports are expected from New Zealand, most will be fresh/chilled and 
frozen product from Canada (not subject to tariff rate quotas) and heat-treated 
product from South America. 
 
U.S. pork imports in 2002 will likely reach 960 million pounds, about 1 percent 
higher than 2001. Imports in 2003 are expected to be about equal to 2002 levels. 
Canada is the source of almost 80 percent of U.S. pork imports, reflecting the 
growing integration of North American meat and livestock sectors.
 
Lamb and mutton imports from Australia and New Zealand are expected to increase 
about 19 percent in 2002 to 174 million pounds, and to drop 7-8 percent in 2003. 
Facilitating imports in 2002 are a relatively strong dollar and free access to 
the U.S. market. The expected import drop in 2003 will come primarily from 
increased domestic supplies of lamb.
 
Dale Leuck (202) 694-5186 djleuck@ers.usda.gov
Mildred Haley (202) 694-5176 mhaley@ers.usda.gov
 
For more information see these sources on the web: 
ERS Cattle Briefing Room: www.ers.usda.gov/briefing/cattle/
ERS Hogs Briefing Room: www.ers.usda.gov/briefing/hogs/
ERS Poultry Briefing Room: www.ers.usda.gov/briefing/poultry/
ERS Livestock, Dairy, and Poultry Outlook Report:
www.ers.usda.gov/publications/so/view.asp?f=livestock/ldp-mbb/
 
BRIEFS:  Field Crops
 
Corn & Soybean Plantings Change Little From Spring Intentions
 
Planted area for the eight major U.S. field crops (corn, sorghum, barley, oats, 
soybeans, wheat, cotton, and rice) is expected to total 249.1 million acres in 
2002, up from 248.2 million last year. Increases in corn, wheat, barley, and 
oats are partially offset by decreases in soybeans, cotton, rice, and sorghum. 
2002 hay area is expected to increase more than 1 million acres to 64.7 million. 
 
Estimates of planted and harvested area in USDA's Acreage report are based on 
surveys conducted during the first 2 weeks of June. Compared with USDA's March 
28 Prospective Plantings report, which indicated farmers' crop intentions for 
spring plantings in 2002, planted area for the eight major field crops is up 
782,000 acres due to increases in wheat, sorghum, and soybeans. Acreage for 
cotton, corn, oats, barley, and rice are down from March intentions. 
 
2002 corn plantings are estimated at 78.9 million acres, up more than 3 million 
acres from 2001 but only slightly lower than March intentions. Biotech varieties 
are expected to be grown on 34 percent of this corn area, up from 26 percent in 
2001. The increase in corn acreage is caused by higher expected returns, crop 
rotation needs, and lower input costs for corn production. A year ago, high 
nitrogen fertilizer costs induced some farmers to shift acreage into soybeans, 
but this is not an issue in 2002. Also, the 2002 Farm Act raised corn loan rates 
and lowered soybean loan rates. Although the legislation didn't pass until after 
many farmers made planting decisions, the change in loan rates was widely 
expected. 
 
Corn farmers in the 7 major states (Illinois, Indiana, Iowa, Minnesota, 
Nebraska, Ohio, and Wisconsin) planted 51.8 million acres, an increase of 3 
percent from last year. Illinois, Minnesota, and Iowa showed the largest 
increases in planted acreage. Dry weather provided good planting conditions for 
farmers in the western Corn Belt and central Plains, but eastern Corn Belt 
farmers faced planting delays due to excessive moisture. Conditions were 
particularly bad in Indiana and Ohio. Many analysts expected corn area to be 
lower than estimated in the June report with more acreage planted to soybeans. 
Germination and emergence were hampered throughout the Corn Belt due to excess 
moisture in the east and cold temperatures in the west. As of July 15, 49 
percent of the corn crop was rated good to excellent, down from 65 percent for 
the same period a year earlier. 
 
Soybean acreage is down from last year for many of the same reasons that corn 
acreage is up. 2002 soybean area is estimated at 73 million acres, down 1.1 
million from last year but virtually unchanged from March intentions. Biotech 
varieties are expected to be grown on 75 percent of this area, up from 68 
percent in 2001. Total soybean acres were down in 2002 because of lower input 
costs for corn production and expectations for a lower loan rate relative to 
corn. Acreage decreases were mainly in the western Corn Belt, central Plains, 
Great Lake States, and Atlantic Coast. Acreage increased in the eastern Corn 
Belt, and across the South. Area would likely have been lower in the eastern 
Corn Belt, but excessive moisture made corn planting difficult and many farmers 
shifted to soybeans. 
 
Total planted wheat area is estimated at 60 million acres in 2002, up less than 
1 percent from 2001. Compared with intentions reported in the March Prospective 
Planting report, plantings are up more than 1 million acres for all wheat--up 
286,000 acres for winter wheat, down 82,000 acres for Durum, and up 877,000 
acres for other spring wheat. This follows a long-term trend of declining U.S. 
wheat area, particularly winter wheat. Producers plan to harvest 47.6 million 
wheat acres, down 2 percent from 2001. Drought conditions in the Plains are 
another important factor for the 2002 crop and will likely lead to greater 
abandonment. Partly because of increased abandonment, 2002 is forecast to have 
the smallest winter wheat harvested area since 1917. 
 
2002 cotton plantings are estimated at 14.4 million acres, down 1.4 million 
acres from a year earlier and 355,000 acres from March intentions. Biotech 
varieties are growing on an estimated 71 percent of this area, up from 69 
percent in 2001. Low cotton prices relative to competing crops-especially corn 
and soybeans--are the main factor behind the acreage drop. Other important 
factors are changes in revenue insurance from a year earlier that make the crop 
insurance program less attractive for cotton, and uncertainty (at planting time) 
about payment limits associated with the 2002 Farm Act. 
 
The main acreage reductions were in the Delta states, California, and Arizona. 
2002 cotton acreage in the Delta (Arkansas, Louisiana, Mississippi, Missouri, 
and Tennessee) is estimated at 3.73 million acres, down 865,000 acres from a 
year earlier. 2002 California and Arizona acreage is estimated at 932,500 acres, 
down from nearly 1.2 million last year. Southeastern (Alabama, Florida, Georgia, 
North Carolina, South Carolina, and Virginia) cotton acreage is estimated at 
3.57 million acres, down 1 percent from 2001. Acreage in Texas, Oklahoma, 
Kansas, and New Mexico is estimated at 6.19 million acres, down 3 percent from a 
year earlier. 
 
U.S. rice plantings for 2002 were reported at 3.25 million acres, down 84,000 
from a year earlier. Arkansas, the largest rice producing state, accounted for 
the bulk of the decline. Plantings were also reported smaller than a year 
earlier in Louisiana and Texas. In contrast, producers in California, 
Mississippi, and Missouri expanded rice acreage this year. Total U.S. rice 
plantings are down 72,000 acres from March intentions, with long grain--grown 
almost exclusively in the South--accounting for all of the decline. Estimated 
combined medium/short grain plantings were 35,000 acres higher than March 
intentions. 
 
Long grain also accounts for the entire year-to-year decline in U.S. rice 
plantings. This is mainly due to very low long grain prices but relatively 
strong medium and short grain prices. Long grain prices declined throughout the 
2001/02 market year to the lowest point in 15 years. In contrast, medium/short 
grain prices have strengthened since August and are more than 40 percent higher 
than long grain prices. The June survey reported long grain plantings at 2.58 
million acres, down 131,000 from a year earlier's near record. In contrast, 
combined medium/short grain plantings are estimated at 668,000 acres, an 
increase of 47,000 from 2001, with California accounting for almost all of the 
increase. 
 
Sorghum area is estimated at 9.3 million acres in 2002, down 9 percent from a 
year earlier. Dry conditions are a partial explanation for low sorghum plantings 
this year, but more sorghum may be planted on acres where other crops failed if 
sufficient moisture is available. Acreage in Kansas and Texas, the largest 
producing states, are both expected to decline in 2002. Texas acreage is 
estimated at 3 million acres, down 500,000 from last year. Kansas acreage is 
estimated at 3.9 million acres, down 100,000 from 2001. Sorghum area harvested 
for grain is estimated at 7.9 million acres, down from 8.6 million last year. 
2002 sorghum area is up 275,000 acres from the March intentions report. This 
increase is caused by more sorghum being planted in Texas and Kansas than 
earlier intentions, which was likely on land originally planted to wheat. 
 
Barley acreage is estimated at 5 million acres, up 1.6 percent from last year's 
record low. North Dakota and Montana, the largest producing states, each 
increased 100,000 acres from last year. Planting is expected to be 1.6 million 
acres and 1.2 million acres in North Dakota and Montana, respectively. Barley 
planting is down 30,000 acres from March intentions. Cool May temperatures 
hindered development, although temperatures increased in June. As of June 23, 15 
percent of the barley crop had headed compared with 20 percent the previous 
year--the 5-year average is 24 percent. 
 
Oats area is estimated at 5.1 million acres, up 682,000 from a year earlier. 
High oats prices last year, brought on by low world supplies of high-quality 
milling oats, are behind this increase in planted area. Compared with the March 
intentions report, oats area is expected to be down nearly 1 percent. 
 
William Chambers (202) 694-5312 chambers@ers.usda.gov
Allen Baker (202) 694-5290 albaker@ers.usda.gov
 
More info?
USDA's June acreage report 
http://usda.mannlib.cornell.edu/reports/nassr/field/pcp-bba/acrg0602.pdf
 
USDA's March 28 Prospective Plantings report
http://usda.mannlib.cornell.edu/reports/nassr/field/pcp-bbp/pspl0302.pdf
 
COMMODITY SPOTLIGHT
 
U.S. Wheat Output and Exports To Decline in 2002/03
 
Prospects for the smallest U.S. wheat exports in more than 30 years are 
dominating the 2002/03 outlook for U.S. wheat. Smaller U.S. supplies, shrinking 
global imports, and intense competition are combining to reduce U.S. export 
prospects. 
 
Domestic use in 2002/03 is projected to be nearly the same as last year, as a 
10-million-bushel increase in food use because of population growth is offset by 
reduced feed and residual use. Projected exports of 900 million bushels are down 
60 million bushels from the 2001/02 forecast and would be the lowest since 
1971/72 (610 million bushels). Record wheat production is expected in the 
European Union (EU), and large wheat supplies in the former Soviet Union are 
expected to maintain stiff export competition from the Black Sea region. With EU 
imports dropping because of increased import duties, world wheat trade is 
expected to be reduced in 2002/03, and the U.S. share is expected to be the 
lowest since comparable data were first compiled (1961/62).
 
Total U.S. wheat production is forecast down 11 percent from 2001/02 to 1,749 
million bushels. The smaller wheat crop (209 million less) combined with the 
lowest carryin stocks since 1999/00 (104 million less) drops total 2002/03 
supplies 313 million bushels (nearly 11 percent) below a year earlier.
 
Although total use is declining, it will exceed production plus imports and 
result in a further drop in U.S. ending stocks. Carryover stocks will fall below 
last year's level by 252 million bushels. However, these bleak export prospects 
dampen the price advantages from declining stocks. The 2002/03 price is 
projected to range from $2.75 to $3.35 per bushel, compared with an estimated 
$2.78 for 2001/02.
 
Lower Acreage & Yields to Cut
U.S. Wheat Production Again 
 
All wheat. For all wheat, total 2002 planted area is estimated at 60.1 million 
acres, of which 47.6 million will be harvested. Planted area is up 0.5 million 
acres from a year ago, but harvested area will be down from a year ago, by 1 
million acres. Poor soil moisture is estimated to increase winter wheat 
abandonment in 2002 compared with 2001 and reduce average yield by 3.5 bushels 
to 36.7 bushels per acre.
 
Winter wheat. USDA forecasts 2002 U.S. winter wheat production at 1,178 million 
bushels, down 183 million bushels (13 percent) from 2001. This is the smallest 
output since 1971 and reflects lower harvested acreage and yield. Harvested area 
totals 29.8 million acres, down 1.5 million acres from 2001 and the lowest since 
1917. The U.S. winter wheat yield is forecast at 39.6 bushels per acre, 3.9 
bushels less than last year.
 
The largest class of winter wheat, hard red winter (HRW), is forecast at 634 
million bushels, down 133 million bushels from 2001. This is the lowest since 
1963/64 when 544 million bushels were produced. Production is down because HRW 
area is 1.1 million acres below last year to 19.8 million, and forecast yield is 
down 4.7 bushels per acre to 32.1 bushels.
 
Soft red winter (SRW) wheat, forecast at 341 million bushels, is down 59 million 
bushels because of reduced harvested area and a lower average yield. SRW 
harvested area is down 0.5 million acres to 6.7 million, and yield is forecast 
down 5 bushels per acre to 50.7 bushels in 2002. 
 
White winter (WW) wheat is forecast up 8 million bushels at 203 million with 
higher yields and a slightly larger harvested area from last year. Forecast WW 
wheat yields are up 2.3 bushels from 2001 to 62.2 bushels per acre because of 
improved weather conditions.
 
Spring wheat. USDA forecasts 2002 U.S. spring wheat production (including durum) 
at 570 million bushels, down 26 million bushels, or 4 percent from 2001. This 
would be the smallest spring wheat output since the 1988 drought. Harvested area 
is up 0.5 million acres to 17.9 million acres--not enough to offset a 2.4-bushel 
decline in average yield from last year to 31.9 bushels per acre. 
 
The largest spring wheat class, hard red spring (HRS), is forecast at 443 
million bushels, down 32 million from 2001. Lower yields more that offset a 0.6
million increase in harvested area to 13.8 million acres. Forecast HRS yield is 
down 3.7 bushels per acre to 30.9 bushels.
 
Durum wheat, forecast at 84 million bushels, is up 0.6 million bushels from last 
year, as slightly higher average yield more than offset reduced harvested area. 
Durum yield is forecast up 1.3 bushels per acre to 31.3 in 2002. 
 
White spring (WS) wheat is forecast up 6 million bushels to 43 million, with 
sharply higher yields reinforced by a slight increase in harvested area from 
last year. Improved weather conditions put the forecast WS wheat yields at 51.7 
bushels per acre, up 6.6 bushels from 2001.
 
Foreign Wheat Production
To Increase 
 
Foreign wheat production in 2002/03 is forecast at 533 million metric tons 
(mmt), up nearly 7 mmt from last year and the largest except for the 1997/98 
record. For the first time, the EU wheat crop is forecast to be double the size 
of the U.S. crop. EU wheat production is forecast to reach a record 109 mmt in 
2002/03, up 17 mmt from 2001/02, when excessive rains and flooding reduced area 
and production. EU internal wheat prices during planting were relatively strong 
compared with world traded prices, especially for good-quality wheat.
 
With more favorable planting conditions and payment incentives favoring wheat 
compared with oilseeds, EU wheat area planted last fall increased dramatically 
and is forecast up 9 percent in 2002/03. Generally favorable conditions have 
prevailed so far across most of France, Germany, the United Kingdom, and Spain. 
Though much of Southern Italy has been dry, average EU yields are expected to be 
a record over 6 metric tons per hectare (comparable U.S. average is 2.6 metric 
tons per hectare). 
 
India's wheat crop is one of the first harvested in the Northern Hemisphere, 
with harvest starting in March. With government support prices much higher than 
world prices for similar wheat, increased area is reported. Production is 
forecast up 3 mmt to 72 mmt. Moreover, India's beginning wheat stocks are 
estimated up nearly 6 mmt, and storage facilities for government-owned grain are 
limited. With the high procurement price, the Indian Government is expected to 
make huge purchases in 2002/03, providing additional pressure to subsidize 
exports in order to move excess supplies onto the world market. 
 
Wheat production in the Middle East is forecast up 5 mmt, mainly because more 
plentiful rains in Iran and Turkey are expected to boost yields. However, wheat 
production in North Africa is forecast down slightly, with dry conditions 
reducing yield prospects especially in Tunisia. 
 
Wheat production in China is forecast down 2 mmt to 92 mmt. Surveys of planted 
wheat area by China's National Bureau of Statistics indicate a small decline. 
Yields are projected to be similar to drought-reduced levels of the last 2 
years, because of dryness in some regions and increased plantings of higher 
quality but lower yielding varieties in response to price premiums. China's 
wheat supplies in 2002/03 are expected to be sharply lower because beginning 
stocks are forecast down 19 mmt to less than 38 mmt. 
 
Production in the major export competitor countries is forecast up slightly in 
Canada, but down in Australia and Argentina. Because of dry soils at planting, 
Canada's wheat area is forecast down 2 percent, but yields are forecast to 
rebound from the previous year's drought, boosting production nearly 2 mmt. In 
Argentina, wheat area is declining because of reduced credit availability and a 
shortage of diesel fuel. Argentina's production is forecast down 1.5 mmt to 14 
mmt. Australia, which had a large crop in 2001/02, suffered from early season 
dryness especially in the West, and in 2002/03 is expected to reduce wheat area 
and lower production by 1 mmt to 23 mmt. 
 
Wheat production in the former Soviet Union in 2002/03 is forecast down 11 mmt 
to 80 mmt. Area is forecast up slightly, but yields are not expected to match 
last year's high level. Growing conditions have been generally favorable this 
winter; they were excellent last year. Even with a significant drop in forecast 
production, wheat supplies in 2002/03 are expected to increase because beginning 
stocks are forecast up nearly 14 mmt. 
 
In Eastern Europe, production is forecast down 5 mmt because yields are not 
expected to match the previous year's exceptional levels. With the forecast 
increase in Eastern Europe's beginning stocks being less than the decline in 
production, a reduction in 2002/03 wheat supplies is expected. 
 
World wheat disappearance in 2002/03 is projected to increase 1.1 percent to a 
record 594 mmt, compared with the small decline estimated for 2001/02. 
Population growth accounts for most of the increase, and ample supplies of low
quality wheat are also expected to maintain the use of wheat for feed. The EU, 
with a much larger crop, is forecast to increase its feed use by nearly 2 mmt to 
49 mmt. 
 
World wheat production is forecast at about 581 mmt in 2002/03, and with total 
use projected to exceed 594 mmt, global ending stocks will drop nearly 14 mmt 
from the previous year. Non-U.S. wheat stocks are expected to decline nearly 7 
mmt, with significant increases in India, the EU, and the former Soviet Union, 
partly offsetting the 17 mmt drop in Chinese stocks.
 
World Wheat Trade 
To Decline Slightly 
 
World wheat trade in 2002/03 (July/June international marketing year) is 
forecast at less than 104 mmt, down more than 3 percent from the previous year. 
The most significant drop in imports is projected for the EU. In 2001/02, the EU 
emerged as the world's largest wheat importer, even excluding intra-EU trade. 
High internal prices and low import duties boosted imports to a forecast 9 mmt, 
almost triple the previous year. Inexpensive wheat from the Black Sea region 
moved into the EU in large volumes. In 2002/03, with a larger crop and increased 
import duties, EU wheat imports are expected to drop to 3.5 mmt. EU imports will 
be largely limited to the traditional demand for high-quality wheat and to some 
access granted to Eastern European countries that are in the process of joining 
the EU. 
 
Iran is expected to reduce imports by 1 mmt in 2002/03 to 5 mmt because of 
increased production. In contrast, China is expected to increase wheat imports 
more than 50 percent to 2 mmt as stocks decline and membership in the World 
Trade Organization facilitates trade. Many other countries are expected to 
increase imports slightly in 2002/03 as populations increase, but not by enough 
to offset the drop in EU imports. 
 
Intense Export Competition
To Erode U.S. Share
 
EU wheat exports in 2002/03 are expected to increase 35 percent to 13.5 mmt. 
Increased production is expected to make EU prices more competitive with wheat 
from the Black Sea region and India. 
 
India, with burgeoning wheat supplies, is expected to boost 2002/03 exports by a 
third to 4 mmt. Even with aggressive export subsidies, the government will not 
reach its goal of exporting 10 mmt of wheat. Turkey is also expected to increase 
wheat exports 1 mmt, the result of a larger crop.
 
Kazakstan's improved transportation infrastructure is expected to help increase 
its wheat exports to Iran, and a rise of 0.5 mmt in exports is forecast in 
2002/03. Australia is expected to remain the world's second-largest wheat 
exporter, boosting exports 0.5 mmt to a forecast 17 mmt. 
 
Reduced production and higher EU import duties are expected to drop Ukraine's 
wheat exports 2.5 mmt to 3.5 mmt in 2002/03, and Eastern Europe's exports are 
expected to decline 1.2 mmt to less than 3 mmt. Canada's wheat exports are 
forecast down 1.5 mmt to 15 mmt because of relatively tight supplies. For 
Argentina, reduced production will offset a favorable exchange rate and exports 
are projected down 2 mmt in 2002/03. 
 
U.S. wheat exports in 2002/03 (July-June) are forecast down 2 mmt to 24.5 mmt, 
the lowest since 1971/72. Reduced production is expected to maintain U.S. prices 
high enough to limit export potential. With world wheat trade expected to 
decline in 2002/03, and increased production by several competing exporters, 
U.S. wheat will face intense competition, particularly in North Africa and the 
Middle East. This key wheat-importing region includes Egypt, which in recent 
years has been the largest importer of U.S. wheat. Wheat shipped from the Black 
Sea and the EU has lower transport costs than wheat from the U.S. While the U.S. 
is expected to remain the largest global wheat exporter, its share of global 
exports is forecast at less than 23 percent, the lowest forecast share since 
comparable data have been compiled. 
 
Gary Vocke (202) 694-5285 gvocke@ers.usda.gov
Edward Allen (202) 694-5288 ewallen@ers.usda.gov
 
For more info: 
ERS wheat briefing roomwww.ers.usda.gov/briefing/wheat/
 
COMMODITY SPOTLIGHT BOX 1
 
County Loan Rates Updated
 
USDA county loan rates for wheat have been updated to reflect recent market 
price relationships among counties. In this update, national loan rates for the 
2002 wheat crops are differentiated by five classes of wheat: hard amber durum; 
hard red spring; hard red winter; soft red winter; and soft white wheat. This 
update is the first time USDA has differentiated loan rates by class of wheat, 
and is the most comprehensive update in 15 years. The changes are intended to 
reduce disparities in marketing loan benefits in local markets that have emerged 
in recent years.
 
COMMODITY SPOTLIGHT BOX 2
 
Farm Security and Rural Investment Act of 2002
 
Among the Act's highlights: 
 
* Alters the farm payment program and introduces counter-cyclical farm income 
* support; 
* expands conservation land retirement programs and emphasizes on-farm 
* environmental practices; 
* relaxes rules to make more borrowers eligible for Federal farm credit 
* assistance; 
* restores food stamp eligibility for legal immigrants; 
* 
 *  adds various commodities to those requiring country-of-origin labeling; 
 *  introduces provisions on animal welfare. 
 
Wheat-related highlights:  
 
* Increases national crop loan rates for wheat from $2.58 per bushel to $2.80 
* in 2002/03 and 2003/04, and $2.75 per bushel in 2004/05-2007/08; 
 
*  provides a direct payment of 52 cents per bushel; 
 
* bases counter-cyclical payments for eligible production on target prices of 
* $3.86 per bushel for the first 2 years and $3.92 per bushel thereafter; 
 
* creates an incentive program to help develop marketing opportunities for hard 

* white wheat; 
 
* establishes marketing loans and loan deficiency payments (LDPs) for pulse 

* crops providing new cropping opportunities for typical wheat producers; 
 
*  continues authority for LDPs on grazed wheat.
 
For details, see the ERS web site http://www.ers.usda.gov/features/farmbill/.
 
COMMODITY SPOTLIGHT
 
Is There a Tobacco Quota Buyout in the Future?
 
During the current session of Congress, several tobacco buyout bills have been 
submitted that would modify the tobacco program and provide for purchasing quota 
from growers or other quota holders. Quota represents the pounds or acreage of 
tobacco growers are allowed to market during a season. Quota can be owned by a 
non-farmer and rented to an active producer, or owned by a producer outright.
 
The bills come at a critical time for U.S. growers. During the last two 
marketing seasons, contracting has quickly become the dominant means of 
marketing tobacco, placing unprecedented strains on the tobacco program. The 
income-enhancing price support program functions in the context of an auction 
where USDA assigns grades that are linked to differing levels of price support. 
However, contract sales bypass the auction warehouse and are not eligible for 
price supports. 
 
Additionally, because of declining demand for tobacco products and U.S. tobacco 
overseas, and greater use of imported tobacco, quotas (which are based on 
demand) have declined markedly during the past five seasons. With less quota 
available, quota rental rates and sales prices rise. Growers trying to maintain 
economic scales of operation face increasing production costs. 
 
For these reasons, grower interest in a buyout is at an all-time high, and quota 
owners see an opportunity to exit with a generous payment. Some growers seem 
ready to give up the security of the price support safety net for greater 
freedom in making production decisions and marketing directly to leaf dealers 
and manufacturers. Growers who lease quota anticipate a buyout payment and 
elimination of quota rent payments in the future. 
 
Most tobacco has been grown under a quota since the 1930s. The quota, combined 
with a price support program, is intended to reduce fluctuations in tobacco 
supply and price, thereby stabilizing grower income. 
 
A buyout has generally involved a voluntary or mandatory purchase of the quota 
for a given price over a period of time. Tobacco quota buyouts have been 
discussed for many years, but no agreement has been reached on the structure of 
a buyout and how to pay for it. However, during the past few growing seasons, 
changes in the way tobacco is marketed have reinvigorated the buyout discussion 
and new proposals have been put forward. 
 
The first significant proposal for a quota buyout came from Senators John McCain 
(R-AZ) and Harold Ford (D-TN) in the LEAF act of 1997, which would have paid 
quota holders and growers for their quota, modified the USDA tobacco program, 
and had a significant economic development component. 
 
Other proposals surfaced before the Master Settlement Agreement (MSA) was signed 
in November 1998 (AO January-February 2002). The Tobacco Transition Act 
sponsored by Senator Richard Lugar (R-IN) would have compensated quota owners 
and tenants and ended the quota and price support programs. It also included 
community development grants. 
 
Other proposals included buyouts for quota owners and transition payments for 
growers, and would either terminate or privatize the tobacco program. Some 
proposals had a community development component. Participation in the buyouts 
was not mandatory in all proposals. The MSA reduced the pace of buyout 
proposals, as it addressed many of the objectives of the earlier proposals 
(restrictions on advertising, sales, and where people can smoke). 
 
In 2000, the President's Commission on Tobacco Growers and Health released its 
report, again proposing a quota buyout, modification of the tobacco program, 
economic development programs for tobacco growing areas, and greater regulation 
of tobacco products. 
 
The two proposals discussed in detail below would enable tobacco growers to 
continue production, and both would modify the tobacco program and provide for 
quota buyouts. The McIntyre-Davis proposal would foster economic development in 
tobacco producing areas.  The Goode-Boucher-Jones proposal would create a new 
mechanism for ensuring production/marketing rights. 
 
Two other buyout proposals have recently been submitted in Congress. Rep. Ernie 
Fletcher's (R-KY) bill, known as the "Tobacco Equity Elimination Act of 2002," 
and Senator Max Cleland's (D-GA) bill, the "Aid to Tobacco-Dependent Communities 
Act of 2002," both contain quota buyout provisions and would modify the tobacco 
program in ways similar to the Goode-Boucher-Jones proposal. These bills would 
each provide $5 million annually for 10 years to fund a Center for Tobacco
Dependent Communities, which would help producers and communities diversify 
their economic base.
 
McIntyre-Davis 
Proposal
 
A bill submitted to Congress by Representatives Mike McIntyre (D-NC) and Tom 
Davis (R-VA), known as the "Tobacco Livelihood and Economic Assistance for Our 
Farmers Act of 2002" (H.R. 3940), has these main features:
 
Termination of quota, price support, and no-net-cost programs. The current 
tobacco program would end.
 
Tobacco production limited to current production regions. Beginning in 2003, 
production of tobacco subject to quotas in 2002 would be limited to counties 
where that type of tobacco was previously grown.
 
Payments to quota holders. Quota holders (owners) would receive $8 per pound for 
their quota, paid in five equal annual installments, beginning in 2003. The 
volume upon which the payment is to be made is the basic quota for the 1998 
marketing year. In the case of tobacco under allotments, the volume is based on 
the 1998 allotment multiplied by the average yield for that county.
 
Payments to active producers. Active producers would receive $4 per pound of 
tobacco produced in 2001, paid in five equal annual installments, beginning in 
2003. 
 
Establishment of a Tobacco Quality Board. The Tobacco Quality Board would 
consist of five grower representatives, five manufacturer representatives, and 
one USDA representative. Members are appointed by the Secretary of Agriculture. 
The Board's duties would be: 
 
* determining and describing characteristics of U.S.-produced and imported 
* tobaccos;  
* collecting and evaluating concerns and problems with U.S. tobacco expressed 
* by buyers and manufacturers; 
* monitoring the physical and chemical integrity of U.S.-produced and imported 
* tobacco, and
* reporting to the Secretary conditions that inhibit improvements in U.S. 
* tobacco quality, and recommending regulatory solutions to tobacco quality 
* issues.
 
Product user fees paid by manufacturers to fund Food and Drug Administration 
(FDA) regulation of tobacco products and quota buyout. A base fee, adjusted 
annually by change in sales, would be assessed on manufacturers and importers of 
tobacco products. Initially, the fee would total $2.3 billion annually for all 
tobacco products. For cigarettes, the fee equals about 10 cents per pack. Within 
product types, individual manufacturers or importers would be assessed pro rata 
based on market share. Total cost of the buyout is about $16 billion. Fifteen 
percent of the fee would go to FDA to fund regulation of tobacco products, and 
85 percent of the fee would go to USDA to fund buyout payments or programs 
related to tobacco products.
 
FDA regulation of tobacco products.
 
* Manufacturers would be required to disclose on each package of tobacco 
* product the percentage of domestic and foreign tobacco contained in the 
* product. 
 
* FDA provisions would not apply to tobacco leaf not in possession of a 

* manufacturer, nor would they apply to tobacco growers, warehouses, or 

* tobacco cooperatives.
 
* FDA would have no authority whatsoever to enter onto a farm without written 

* consent of the producer/owner. 
 
Unlike some proposals from 1998 and the Tobacco Commission recommendations, the 
McIntyre-Davis proposal contains no provisions for economic development in 
tobacco-growing regions. 
 
Goode-Boucher-Jones 
Proposal
 
In May 2002, three legislators--Virgil Goode (I-VA), Richard Boucher (D-VA), and 
Walter Jones (R-NC)--introduced a bill in the House titled "Tobacco Market 
Transaction Act of 2002" (H.R. 4753). The purposes of the bill are to: 
 
*  terminate the tobacco program, 
* replace it with a federally chartered corporation to ensure the stability of 
* the price and supply of U.S. tobacco, 
*  compensate quota holders for their loss of quota, and 
*  provide transition assistance for current producers of tobacco. 
 
The bill also seeks to improve the competitiveness of U.S.-grown tobacco in the 
world market with buyout provisions similar to those in the MacIntyre-Davis bill 
but with no proposed funding source and no FDA regulation. The bill would 
replace the current quota program with a licensing program to control tobacco 
production and would create a Tobacco Community Revitalization Trust Fund to 
compensate quota owners and growers in a way similar to the McIntyre-Davis bill. 
 
The main features of this bill are:
 
Termination of the current tobacco program. Tobacco held by producer 
cooperatives is to be disposed of in an orderly fashion. Producer cooperatives 
would repay price support loans within 1 year. Grower obligations under the 
current program end.
 
Price support continued. The Corporation, in consultation with the cooperative 
associations and the Secretary of Agriculture, would enter into agreements with 
the tobacco loan associations to:
 
* establish a base price for tobacco based on the cost of producing that type 
* of tobacco;
*  arrange for financing and the administration of a base price for tobacco; and 
* receive, process, store, and sell any domestically produced tobacco received 
* as collateral for a base price loan.
 
Quota buyout and grower transition payments. 
 
* Compensate quota holders for the loss of tobacco quota asset value ($8 per 
* pound, based on 2002 quota or the average of the 1997-99 marketing years' 
* quota ).
 
* Provide transition assistance for active tobacco producers ($4 per pound, 

* based on 2002 quota or the average of the 1997-99 marketing years' quota).
 
Establishment of the federally chartered Tobacco Production Control Corporation. 
The Corporation will be governed by a board consisting of 25 members, including:
 
*  the Secretary of Agriculture, who shall appoint:
 
* two members from each state that produces more than 250 million pounds of 
* tobacco;
* one member from each state that produces more than 50 million pounds, but 
* less than 250 million pounds, of tobacco; and
* one member, to be appointed on a rotating basis, from a state that produces 
* less than 50 million pounds of tobacco.
* four members representing domestic tobacco product manufacturers, except 
* that:
 
**  no manufacturer may have more than one member on the Board;
**  at least one of the members must be from a domestic smokeless tobacco 
manufacturer; and
**  one of the members must be from a domestic cigarette manufacturer that 
comprises less than 5 percent of domestic cigarette sales, or a cigar 
manufacturer, or a pipe tobacco manufacturer, on a rotating basis.
 
*  one member representing domestic export leaf dealers.
* one member to be responsible for operating the quality assurance system of 
* the Corporation.
* three members appointed by flue-cured tobacco associations and two members 
* appointed by burley tobacco associations.
* one member appointed by tobacco associations other than flue-cured and 
* burley, on a rotating basis.
* three members appointed by the Secretary of Health and Human Services, 
* representing public health interests.
 
Licenses to market tobacco issued to current tobacco producers. The Corporation 
would give licenses to growers who produced tobacco in the 2001 or 2002 crop 
year, which would permit them to market a similar quantity of tobacco in the 
2003 crop year and thereafter.
 
Inspection and grading of domestic and imported tobacco. A system would be set 
up to grade and inspect tobacco.
Increase competitiveness of domestically produced tobacco. Costs associated with 
buying or leasing quota would be eliminated.
 
Transition payments would be considered for other persons adversely and directly 
affected by termination of the Federal tobacco program. These include graders, 
inspectors, warehousemen, auctioneers, equipment dealers, and other persons.
 
After 3 years, the program would be subject to a referendum at the request of 
one-third of the growers of any specific kind of tobacco. If half of the growers 
vote to end the license program, another referendum would be held a year later. 
If half of the growers again vote against the program, the program is 
terminated. The Corporation may hold referenda at any time to determine the 
continued existence of the program, or other matters regarding the program. 
 
Implications for 
Producers
 
Both of these buyout proposals contain provisions that enable tobacco producers 
to continue to grow tobacco. Growers benefit from transition payments and 
continued restrictions on the right to market tobacco. The McIntyre-Davis bill 
pays growers $4 per pound of quota and restricts production to counties that 
previously produced tobacco. The Goode-Boucher-Jones bill also pays growers $4 
per pound of quota and restricts production through licenses issued to current 
producers. The Goode-Boucher-Jones bill also provides for price support through 
the Tobacco Production Control Corporation in conjunction with existing 
cooperatives. 
 
Unlike the buyout in Maryland, the purpose of these proposals is not to restrict 
tobacco production. In Maryland, buyout participants had to promise never to 
grow tobacco again. 
 
One purpose of a quota buyout is to eliminate the equity inherent in the "right" 
to grow tobacco (i.e., own quota) so that the producer actually growing the 
tobacco is the only possible beneficiary of the right to grow it. This 
eliminates quota as a factor in the cost of producing tobacco, lowering overall 
costs and increasing competitiveness. Currently, a producer who also owns quota 
does not pay himself rent, but there is an opportunity cost to holding quota 
because it has intrinsic value. A grower who rents the quota he grows must pay 
the owner, boosting his cost. When the cost of producing tobacco is inflated by 
the value of the right to grow it, it is more difficult for U.S. producers to be 
competitive against foreign tobaccos. The proposals that have been submitted 
would eliminate the equity issues associated with quota. 
 
Thomas Capehart, (202) 694-5311 thomasc@ers.usda.gov
 
COMMODITY SPOTLIGHT BOX 3
 
The Federal Tobacco Program
 
The USDA tobacco program consists of marketing quotas and price supports. The 
program is intended to stabilize and raise prices. Excluding the 1939 crops, 
marketing quotas have been approved and were in effect since 1938 for each crop 
of flue-cured, burley, and dark tobacco. Cigar binder and Ohio filler crops 
first came under quotas in 1951. Price supports have never applied to 
Pennsylvania filler and last applied to the Maryland crop in 1965 and the 
Connecticut-Massachusetts binder crop in 1983.
 
Marketing quotas determine the quantity of tobacco that may be marketed by 
growers. For flue-cured and burley, which account for over 90 percent of U.S. 
production, quotas are determined by a three-part formula. The quota formula is 
the sum, in pounds of tobacco, of:
 
*  The amount manufacturers intend to use in the following crop year, plus
*  3-year average exports, plus
*  reserve stock adjustment.
 
The Secretary of Agriculture has the authority to raise or lower the sum by 3 
percent. The result is the basic quota. The national basic quota is divided 
proportionally between the growers of that type of tobacco according to the 
amount of quota owned by each. Each grower's share is then adjusted by the 
accumulated over- and under-marketings from previous seasons. This is the 
effective quota, or the amount growers may actually market without 
penalty.(Growers can carry forward a maximum of 3 percent over or under their 
quota each year.) 
 
Other rules of the quota program limit lease and transfer of quota and restrict 
sale of quota to within counties in most areas. If a producer's quota was not 
planted for at least 2 out of the 3 previous years, it reverts to USDA for 
redistribution. 
 
The price support program operates in conjunction with quotas. Price supports 
(also known as loan rates) for flue-cured and burley are based on the previous 
year's price support adjusted by the change in the cost of production, and the 
change in the previous 5-year-average price, omitting the high and low years. 
Each different grade of tobacco has its own price support level or loan rate. 
Grade loan rates vary depending on the desirability of a given grade of 
tobacco-higher quality tobacco has higher grade loan rates. The weighted average 
of all grade loan rates for a type of tobacco is the loan rate for that type of 
tobacco.
 
Prior to being auctioned, each pile of supported tobacco is assigned a grade by 
a USDA inspector. If the auction bids for that pile are below the grade loan 
rate, the grower may turn the tobacco over to the cooperative and receive 
payment equal to the grade loan rate for his lot of tobacco. The cooperative 
then processes, packs, and stores the tobacco until a buyer can be found. 
 
To finance its operation, the cooperative borrows money from the Commodity 
Credit Corporation (CCC). The cooperative must repay the CCC the expenses 
associated with its support operation. If the costs of processing, storing, and 
selling the tobacco is greater than the selling price, the deficit is paid 
through an assessment levied on each pound of tobacco sold and paid by buyers 
and sellers at the time the tobacco is sold. The no-net-cost program ensures 
that the costs of the tobacco program are not borne by U.S. taxpayers, but by 
the tobacco growers themselves.
 
However, CCC loans to the flue-cured, burley, and cigar binder cooperatives 
resulting from a poor-quality crop in 1999 were forgiven as a result of special 
legislation in 2000 and 2001. The CCC took title to the tobacco and forgave the 
loans to the cooperatives at a cost of $660 million to the U.S. Treasury.
 
RESOURCES & ENVIRONMENT
 
Rural Residential Land Use: Tracking Its Growth
 
Among the most rapidly growing land uses in the U.S. is land for rural 
residences. Between 1980 and 1997, residential land use in rural areas increased 
more rapidly than in urban areas, not only in percentage terms but also in 
absolute numbers: 1 million acres per year compared with 420,000 acres. While 
land in residential use in rural areas is a small proportion of total U.S. land 
use, this phenomenon has implications for farmland prices and the availability 
of land for agriculture and forestry, and can affect rural amenities and the 
rural environment in positive and/or negative ways.
 
Residential Land in Rural Areas Is Almost 
Double the Urban Residential Acreage 
 
All land is categorized as either urban or rural. Within the urban and rural 
categories are residential and nonresidential land. The rural nonresidential 
category is by far the largest, accounting for over 2.1 billion acres of land in 
1997, and includes cropland, forestland, pasture and range, and other 
miscellaneous uses.
 
Residential area is broadly defined as the land or lots upon which housing units 
are situated. Of the estimated 109 million acres of residential land in 
1997-the most recent estimate comparable to other published sources--36 million acres 
were located in urban areas and 73 million in rural areas. The combined increase 
in urban area and rural residential use resulted in a 2.1-million-acre annual 
decrease in other rural uses, from 1980 to 1997. 
 
Lot Sizes of Rural Residences 
Tend to Be Very Large
 
One factor in the relatively greater increase in rural residential land use is 
that it is generally land-extensive compared with the land-intensive residential 
use in urban areas. Rural residential lots, while fewer in number than urban 
lots, tend to be larger, averaging nearly 3 acres per household, compared with 
less than a half acre per household in urban residential areas.
 
Forty-four million acres, 60 percent of all rural residential lands, are in the 
largest lot-size category, over 10 acres. Rural land in this category is 3 1/2 
times as large as the area of urban land in this category. The wide acreage 
disparity between rural and urban large-lot categories is likely attributable to 
relative land values--lower land prices in rural areas make large lots more 
affordable.
 
While the amount of residential land in the largest lot-size category, both 
urban and rural, is far greater than the amount in other categories, the 
corresponding number of household units in that category is relatively small. In 
urban areas in 1997, just 1 million households occupied 12 million acres of 
urban residential land in the largest lot size. In contrast, in the smallest lot 
size, less than 1/8 acre, 38 million households accounted for only 3 million 
acres. 
 
In rural areas this pattern also holds, although the ratio of overall 
residential acreage to households is higher than for urban areas in both 
categories. Less than 3 million households accounted for 44 million acres in the 
largest lot-size category, while 5 million households resided on only 300,000 
acres in the smallest lot-size category.
 
Rural Residential Area Is a Small but 
Growing Proportion of U.S. Land Use
 
Estimates of major land uses by USDA's Economic Research Service (ERS) suggest 
that rural residential land has increased substantially, by 31 percent, from 
1980 to 1997. In contrast, all the major rural nonresidential uses decreased 
slightly--none by more than 3 percent. Parks and wildlife uses in rural areas 
increased by 6 percent. 
 
Concerns about the effects of land conversion to all developed uses, including 
loss of rural land and open space, traffic congestion, sprawl, and loss of rural 
amenities, arise even though conversions are a relatively small part of the area 
of cropland, pasture, range, and forest uses from which they are converted. 
 
Urban area, the traditional measurement used to describe the urbanization 
process, is a relatively small part of total land use in the U.S. (less than 3 
percent in 1997), but is growing rapidly. A significant portion of the Census 
Bureau-defined urban area is used for residential purposes. However, there is 
also an increasing awareness of the magnitude of rural non-farm residential 
development. Rural residential land accounts for slightly over 3 percent of U.S. 
land use. 
 
Alternative Data Sources Confirm 
Increased Rate of Developed Uses
 
Different data sources use different concepts, methods, and terms in measuring 
land conversion from cropland, forest, and other open, rural uses to urban and 
rural developed uses. Estimated annual rates of increase in developed uses 
differ by time period and data source. The magnitudes of the estimated changes 
among three primary data sources vary because of differences in definitions, 
sampling techniques, and sampling errors. 
 
The rates of annual increase vary from 0.8 million acres per year from 1950 to 
1980, to an estimated 1.4 million acres per year during 1990-97 for urban area 
as measured by the Census and the ERS Major Land Use series. The National 
Resources Inventory (NRI) indicates that the rise in developed land was 1.3 
million acres per year for the 1982-87 period and 2.2 million per year in1992-
97. Total 1997 NRI developed acreage was 98 million, up from 73 million acres in 
1982. The American Housing Survey (AHS) estimate of 109 million acres of total 
residential land is larger than NRI developed land, probably due to differences 
in definitions and survey sampling procedures. 
 
All three data sources show increases in developed uses in the 1990s, although 
the magnitude varies. Part of the growth can be attributed to long periods of 
peace and economic prosperity in the U.S. since 1990. Higher incomes, low 
interest rates, and minimal inflation made bigger homes and larger lots more 
affordable than in the past. 
 
Why is Rural Residential Area Important? 
What are the impacts?
 
Competition for rural land drives up prices. Decreasing costs of transportation 
and communication, along with higher incomes, encourage development of rural 
residential lots. Advanced telecommunications capabilities, such as the Internet 
and cable, are becoming available in many areas of the country, making it easier 
to work in usually urban-oriented jobs far from urban centers. 
 
As this expansion occurs, competition for rural land increases. ERS research has 
shown that development, including rural residential development, has a 
significant influence on rural land prices. When development spreads to rural 
areas, the price of farmland is often driven above its economic value for farm 
use. In states where farmland is in great demand for conversion to developed and 
rural residential uses, a relatively large proportion of the market value of 
farmland is attributable to nonfarm demand. Land converted to rural residences 
slightly reduces availability for agriculture and forestry uses. Several studies 
have shown that once land is converted to developed uses it tends to remain in 
those uses. An ERS study found this applies to both the residential and 
nonresidential components of developed area. That is, the shift in use is 
generally irreversible and may reduce future land availability for food and 
fiber production. At present, however, the effects of land conversion on 
aggregate food and fiber production are minimal, as the area converted is a 
small fraction of total rural area. Since rural residential land includes large 
isolated tracts, it may not be as irreversible as urban land, but there are no 
comparable studies.
 
National averages may mask significant effects at state and local levels. New 
Jersey, Maryland, and Massachusetts, for example, have experienced heavy 
development pressures, which have led to the establishment of various land 
protection programs. Land conversion, in general, may affect the supply of rural 
amenities such as open space, clean air, and rural lifestyles, and may produce 
fragmented development patterns. Other environmental challenges, including 
decreased soil quality, wildlife habitat, and water and air quality, may follow 
rural residential growth. 
 
In summary, urban and rural residential areas have increased significantly in 
the last several decades. These increases meant some reductions in cropland, 
pasture, range, miscellaneous, and forest uses. Rural residential lots tend to 
be much larger than housing lots in urban areas. Conversion of land to developed 
uses in urban areas tends to be irreversible. The extent to which rural 
residential land is irreversible is also likely high, but has not been studied. 
Further research is needed to address the potential effects of increasing rural 
residential land use on future food and fiber production, the environment, 
wildlife habitat, and water and air quality.
 
Marlow Vesterby (202)694-5528
vesterby@ers.usda.gov
Kenneth S. Krupa (202) 694-5521
kkrupa@ers.usda.gov
 
For further information see:
 
Development at the Urban Fringe and Beyond: Impacts on Agriculture and Rural 
Land, AER-803, USDA, Economic Research Service, June 2001. 
www.ers.usda.gov/publications/aer803/
 
Major Uses of Land in the United States, 1997, SB-973, USDA, Economic Research 
Service, August 2001. www.ers.usda.gov/publications/sb973/sb973.pdf and 
associated data files www.ers.usda.gov/data/majorlanduses/
 
1997 National Resources Inventory Summary Report, USDA, Natural Resources 
Conservation Service, April 2002. 
www.nrcs.usda.gov/technical/NRI/1997/summary_report/index.html and associated 
data files.
 
American Housing Survey for the United States, 1997, U.S. Dept. of Housing and 
Urban Development and U.S. Dept. of Commerce, Sept. 1999. 
www.census.gov/prod/99pubs/h150-97.pdf and associated data files, The American 
Housing Survey, 1997, National Microdata, CD-AHS97-NMICRO.
 
"Urbanization Affects a Large Share of Farmland," Rural Conditions and Trends, 
Vol. 10, No. 2, USDA, Economic Research Service, July 2000. 
www.ers.usda.gov/publications/rcat/rcat102/rcat102k.pdf
 
Also see also several additional references on the ERS web site "Urban 
Development, Land Use, and Agriculture," www.ers.usda.gov/features/sprawl/
 
RESOURCES & ENVIRONMENT BOX 1
 
Defining the Terms
 
Urban area consists of cities, towns, and Census-designated places of 2,500 or 
more persons and areas with populations of 50,000 or more--central cities and 
their adjacent densely settled surrounding "urban fringe."  Within urban areas 
are residential uses and concentrations of nonresidential uses such as 
commercial, industrial, and institutional land; office complexes; urban streets 
and roads; major airports; urban parks and recreational areas; and other land 
within urban-defined areas. The definition has changed little from decade to 
decade during the last 40 years. Portions of extended cities that are 
essentially rural in character are excluded. 
 
Rural area covers all land that is not urban.
 
Residential area is estimated from American Housing Survey (AHS) lot-size data 
for housing units. Sample-based responses, expanded to area totals, are 
published in the AHS every 2 years. These data are collected for both urban and 
rural areas. The data set includes housing lots on farms (removed for this 
study). The AHS includes housing units by lot size from 1980. 
 
Urban residential is an estimate of the residential component of urban land that 
shows how much land is used for housing in urban areas versus land for all other 
urban purposes, such as commercial and industrial sites, institutional uses, 
urban parks, and other non-housing urban uses. 
 
Rural residential is an estimate of land used for residences in rural areas. 
Rural residential land includes hobby farms, ranchettes, and housing units on 
rural lots. In many cases, rural residential development involves the 
subdivision of larger parcels, including farms.
 
Developed land generally includes both urban and rural residential uses, as well 
as other urban uses and rural transportation uses.
 
RESOURCES & ENVIRONMENT BOX 2
 
Three Data Sources on Urban, Developed, And Residential Land
 
* Bureau of the Census, U.S. Department of Commerce, measures "urban area" 
* every 10 years, coincident with the U.S. Census of Population. 
 
* Natural Resources Conservation Service (NRCS), U.S. Department of 

* Agriculture, measures "developed area," including urban, rural 

* transportation, and other components, at 5-year intervals as part of the 

* National Resources Inventory (NRI). (The NRI is being converted to an annual 

* cycle.)
 
* U.S. Department of Housing and Urban Development (HUD) and the U.S. Bureau of 

* the Census include lot sizes in the American Housing Survey (AHS), which is 

* the basis of "residential area" estimates. American Housing Surveys are 

* conducted every 2 years.
 
WORLD AGRICULTURE & TRADE
 
The African Growth & Opportunity Act: How Much Opportunity?
 
For Sub-Saharan Africa (SSA), trade could play a crucial role in development, 
both economically and politically. Economically, trade offers short- and long-
term opportunities to improve economic efficiency and raise incomes. 
Politically, trade also can spur domestic reforms which would lead to greater 
stability and peace.
 
To help create incentives for SSA countries to implement economic reforms and 
contribute to improved market opportunities and stronger commercial ties to U.S. 
companies, Congress passed the African Growth and Opportunity Act (AGOA) in May 
2000 as part of the Trade and Development Act of 2000. AGOA provides 
preferential access to U.S. markets for eligible products (1,853 tariff lines) 
from designated Sub-Saharan countries and improved access to credit and 
technical expertise. 
 
The President may designate SSA countries as eligible to receive the benefits of 
the Act if they are making progress in such areas as:
 
*  establishing market-based economies,
*  democratizing government,
*  eliminating barriers to U.S. trade and investment,
*  combating corruption, 
*  increasing access to health care and education, and
*  protecting human rights.
 
However, progress in each area is not a requirement for AGOA eligibility. 
Currently, there are 36 AGOA-eligible countries. Eligibility is reviewed 
annually. 
 
AGOA allows duty- and quota-free market access for virtually all products as 
long as they are produced in and/or imported from a beneficiary Sub-Saharan 
African country. The exceptions include fabrics and yarns that are not parts of 
finished apparel products, and a few sensitive agricultural products. 
 
AGOA grants the most liberal access to the U.S. market available to any country 
or region except for countries with which the U.S. has a free trade agreement. 
It has the potential to be more comprehensive with respect to trade provisions 
than the European Union's (EU) Lome agreement that provides duty-free status for 
agricultural goods produced in African, Caribbean, and Pacific countries. 
 
The Role of Agricultural
Commodities
 
The European Union (EU) is the largest market for SSA exports, with a 37 percent 
share. However, the U.S. is the largest single-country market, with 27 percent 
in 2000. The United Kingdom had a 7 percent share. The U.S. imported $7.6 
billion (duty-free) under AGOA in 2001, which equaled more than a third of the 
value of total U.S. imports from the region. Ninety percent of the imports were 
petroleum products and 5 percent were apparel. Three countries--Nigeria, Gabon, 
and South Africa--received 93 percent of the benefits. 
 
Imports from the 36 AGOA-eligible countries were down 10 percent from 2000, 
reflecting the 15-percent drop in oil prices between 2000 and 2001. However, 
when crude oil and precious metals and stones are excluded, U.S. imports from 
these countries rose 11 percent from 2000.
 
While oil dominates regional export values at the aggregate level, only a few 
countries in the region export oil (i.e., Nigeria, Cameroon, Gabon, and Angola). 
Agricultural commodities, however, are vital to the economic development and 
food security of the entire region. Agriculture contributes roughly 35 percent 
of the region's gross domestic product (GDP), more than for any other region in 
the world, and contributes about 25 percent of total export earnings. 
 
More than half the SSA countries depend on three out of four primary commodities 
for over 50 percent of their export earnings. Beverages (coffee, cocoa, and 
tea), sugar, cotton, and tobacco accounted for more than 80 percent of 
agricultural export earnings of those countries in the late 1990s. Stimulating 
development and achieving a broad-based export gain will depend on agriculture. 
 
Challenges of Competing in 
U.S. & Global Markets
 
The U.S. food market is a mature market with daily per capita calorie 
availability at roughly 3,800. The U.S. produces tobacco and cotton, which are 
important export crops for SSA countries. While U.S. imports of agricultural 
products grew in the last decade, the growth rate was slower than for 
nonagricultural products. 
 
The highest value imported food commodity group is processed foods, followed by 
fruits, vegetables, nuts, and tropical products--including coffee and cocoa. Per 
capita consumption of coffee and cocoa has been flat during the last decade, as 
it was displaced by soda in the late 1980s and early 1990s. More recently, 
competition has come from bottled water. 
 
Despite these trends, the U.S. remains a major market for coffee and cocoa. The 
U.S. accounts for more than 25 percent of the world's raw coffee imports, and 
close to 20 percent of cocoa beans. However, most U.S. coffee imports are being 
supplied by Latin American, not African, countries. Colombia, Guatemala, Brazil, 
Mexico, and Costa Rica account for about two-thirds of U.S. coffee imports. Cote 
d'Ivoire dominates the cocoa market, however, supplying almost half of U.S. 
imports. 
 
Bananas and pineapples are also important export crops for SSA countries, but 
Latin American countries dominate the U.S. market for these commodities as well. 
Latin America has had an advantage stemming from proximity to the U.S. market, 
from trade agreements (such as the Caribbean Basin Initiative), and in some 
cases, because of a higher quality product. 
 
Market competition for traditional African export commodities has risen. 
Regional transportation policies favoring domestic carriers have raised shipping 
costs. As a result, the region has lost market share at the global level and in 
the U.S. market. SSA's share of global agricultural exports declined steadily 
between 1970 and the early 1990s (at an annual rate of roughly 7.5 percent), and 
has held fairly stable at the current rate of about 2.5 percent. 
 
Another constraint facing SSA is lack of established sanitary and phytosanitary 
(SPS) requirements--measures adopted by governments to protect animal, plant, or 
human health. Establishing SPS measures can take many years, particularly with 
limitations in:*  certification process,
*  trained inspectors,
*  testing facilities, and
*  enforcement of standards.
 
Declining market share has translated into a serious financial loss. SSA's share 
of global agricultural exports was 4.35 percent in 1980. Had this share remained 
constant through 2000, SSA's agricultural exports could have reached $18 billion 
in 2000 as opposed to the actual value of $10 billion. The estimated loss in 
export revenue resulting from declining market share during the last two decades 
totaled more than $95 billion. 
 
SSA's share of the U.S. agricultural import market continues to fall--from 2.5 
percent in 1996 to 1.9 percent in 2001--as total U.S. agricultural imports rise. 
Additionally, prices for a majority of Sub-Saharan agricultural export 
commodities have declined. In 2000, for example, prices for coffee and cocoa had 
fallen to about 25 percent of their peak level of the late 1970s.
 
Value-Added Commodities
Present Opportunity
 
What potential export opportunities exist for this region?  Value-added 
commodities are a possibility as demand for processed agricultural products 
rises--and prices for processed goods are obviously much higher than for raw 
agricultural products. 
 
Currently, SSA exports mostly unprocessed agricultural products--processed 
products account for less than 10 percent of the region's agricultural exports. 
Developed countries (e.g., Canada, Germany, and Sweden) dominate exports of 
processed coffee and cocoa to the U.S. market. The U.S. import value of 
processed coffee is about 3 times as high as the raw product, and the import 
value for processed cocoa is more than twice that for unprocessed cocoa. Under 
AGOA, African countries have the potential to increase their share of these 
exports because they produce the raw materials and will be exempt from any 
tariffs that other producers have to pay. 
 
But investment is needed before this region can enter into the processed market. 
In 1998, 85 percent of global foreign direct investment (FDI) went to high- and 
middle-income countries. Most of the FDI directed at developing countries goes 
to China. SSA countries received less than 1 percent of global FDI in 1999. 
Although FDI to the region grew threefold between 1994 and 1999, most of the 
benefits went to South Africa and to oil exporters like Nigeria and Angola. 
 
Reasons for low inflow of FDI include: 
 
*  political instability;
*  low GDP growth rate of SSA; 
*  trade restrictions in many SSA countries; 
*  highly variable real effective exchange rates; 
*  corruption; and 
*  poor market infrastructure. 
 
Global trade liberalization will reduce trade barriers and increase trade 
competition, but it also means that the competitive edge SSA currently enjoys 
under the AGOA will be reduced in the future. In the meantime, however, AGOA 
will provide an edge for African countries. The U.S. market share of the 
region's agricultural exports is low relative to other regions of the world, 
leaving significant potential for growth. The mature U.S. consumption market is 
diversifying, which can create opportunities for African exporters. 
 
Improvement in market information should allow SSA countries to make choices. 
Niche markets for commodities such as organic fruit and vegetable exports 
represent opportunity for growth. The AGOA initiative--and similar pursuits by 
other high-income countries--should expand market opportunities. Further 
integration into global markets should lead to increased foreign investment and 
assistance to link the region to the global economy.
 
Stacey Rosen (202) 694-5164 slrosen@ers.usda.gov 
Shahla Shapouri (202) 694-5166 shapouri@ers.usda.gov
 
WORLD AGRICULTURE & TRADE
 
The Services Sector: Its Role in World Food Production & Trade
 
The U.S. and other developed economies are now dominated by the services sector, 
accounting for more than two-thirds of their gross domestic product (GDP). 
Individual sectors such as the food system are also increasingly affected by the 
growing dominance of the service sector. 
 
Consumers, for example, are paying more for services than for the raw materials 
in the foods they buy at the grocery store. They are also spending more of their 
disposable income at restaurants and at other eating establishments, where the 
service component is very large. On the supply side, purchased inputs and off-
farm services are making up a growing share of farmers' total production costs. 
While most attention in trade policy is focused on farm-level and commodity 
policies, it is clear that growth in the relative importance of services in the 
food system merits closer examination. 
 
Trade in services has grown faster than merchandise trade in the past two 
decades. As estimated from balance-of-payments statistics, total transactions of 
commercial service trade accounted for over 20 percent of cross-border world 
trade in 2000, at more than $1.44 trillion. Trade in services became a major 
issue in the Uruguay Round negotiations, and is a continuing source of trade 
friction. It is also a major focus of the new World Trade Organization (WTO) 
Doha Development Agenda, which was launched in November 2001. 
 
Services cover a variety of sectors, each with distinct characteristics. Large 
sectors such as banking, insurance, and financial services have become 
increasingly necessary as world trade has expanded. Opening overseas markets to 
these sectors has become a growing issue for developed countries, the main 
producers of these services. Services in wholesale and retail trade and 
transportation industries are also very large sectors in many countries and are 
closely linked to trade in commodities. Reducing the costs of services (e.g., 
marketing, communications, and transportation costs) is now a key driver in the 
expansion of world trade. 
 
Service sectors such as finance, telecommunications, and transportation are the 
backbone of any modern economy, and these sectors are similarly vital to the 
world food system. Well-functioning service industries contribute to the 
efficiency of the world food system in a variety of ways. 
 
An efficient financial sector helps deploy resources where they bring the 
highest return within the food production sector and along the distribution 
chain. Shippers need access to short-term credit to facilitate the flow of food 
products from one market to another. Farmers need credit to modernize their 
equipment and to apply new technologies. Farmers and ranchers need access to 
insurance to minimize the risk of loss from natural disasters and economic 
misfortune. 
 
Improved telecommunication efficiency generates economywide benefits; it is a 
vital intermediate input and contributes to the diffusion of knowledge, 
including new agricultural technology. The growing trade in perishable products 
makes rapid dissemination of information about market conditions and shipping 
options crucial for timely delivery and freshness. 
 
Transportation systems and wholesale and retail services contribute to the 
efficient distribution of food and agricultural products within a country and in 
overseas markets. Business services such as legal advice and market analysis can 
reduce costs of penetrating new food markets. Improvement in education and 
health services can contribute to the accumulation of human capital in rural 
areas, making them more attractive for investment. 
 
Service Trade in the 
World Food System
 
Service sector growth not only dominates the economic landscape of developed 
economies, but is also an integral component of economic development. Most of 
the value-added production activities in the U.S., the European Union (EU), and 
Japan are concentrated in trade, public services, financial, and other business 
services, while primary agricultural production constitutes less than 3 percent 
of GDP. Primary agriculture in low-income developing countries, like the 
Association of Southeast Nations (ASEAN) members, China, and especially many 
nations in South Asia, contributes a much larger share of GDP (12, 18, and 26 
percent in 1997, respectively) but is trending downward. 
 
The following patterns have emerged in the composition of value-added 
production:
 
* All economies have relatively large intermediate and durable goods 
* manufacturing sectors, with the exception of South Asia. Asia's Newly 
* Industrialized Countries, or NICs, China, and ASEAN members have the highest 
* share, indicating that Asia is a major manufacturing center in today's 
* world. 
 
* Public service, wholesale and retail trade, and transportation are large 

* value-added sectors in almost all economies, reflecting their crucial role.
 
* Financial and other business services are significant value-added sectors for 

* developed countries and the Asian NICs, but are relatively smaller in 

* developing economies.
 
The fall of agriculture's share and the rise of the service sector's share of 
GDP during economic development are usually attributed to the relatively low 
price and income elasticities of food demand, as well as the rapid diffusion and 
application of new technologies. These lead to relatively faster productivity 
growth in agriculture. 
 
The changing role of primary agriculture and services also results from the 
increasing importance of post-farmgate value-adding activities along the food 
marketing chain, such as assembling, processing, transporting, warehousing, and 
retailing. Farmers are receiving a declining share of the retail value of food 
products while consumers are paying more for services. In the U.S., the farm 
value of consumer food expenditures has declined from more than 30 percent to 
less than 20 percent in the past three decades. 
 
Another contributing factor in the declining share of agriculture and rising 
share of services is farmers' increasing use of purchased intermediate inputs 
and off-farm services. Manual farm jobs associated with spreading manure and 
weeding crops, for example, have disappeared as the use of farm chemicals has 
increased. As a result, the value added by farm households' own labor, land, and 
capital is declining as a share of the gross value of agricultural output. Farm 
use of intermediate inputs has also changed. According to time-series input
output data for the U.S., there has been a 30-year shift in the cost structure 
of U.S. food and agricultural production, with a declining share of material 
intermediates, especially primary agricultural intermediates (seed, feeder 
stock, etc.), and a rising share of service intermediates (financial services, 
insurance, etc.). Such a shift in the input structure of U.S. agricultural and 
food production reflects the increasing degree of specialization in the U.S. 
food sector and its rising dependence on the rest of the economy. 
 
The increased role of various services as intermediate inputs in food and 
agricultural production is a trend observed around the world. As a growing 
component of total intermediate inputs in farm and food production, services 
account for more than 26 percent of primary agricultural production costs in the 
U.S., about 20 percent of processed agricultural production costs in the EU and 
Japan, and more than 11 percent of dairy and meat production costs in all major 
world economies. 
 
The cost share of service inputs in the food and agricultural sectors of 
advanced economies, especially the U.S., are much higher than in developing 
countries because of a deeper division of labor and a greater degree of economic 
specialization. However, services also constitute a significant proportion (15
-30 percent) of total intermediate inputs for almost all food and agricultural 
production, even in developing countries such as China and many South Asian 
nations. 
 
Among various intermediate service inputs, financial, other business services, 
trade and transportation, and public services are the leading sectors. These 
sectors constitute more than three-fourths of total service costs in U.S. 
agricultural production.
 
The prominent role of purchased services in food and agricultural production 
provides a channel for transmitting gains from trade liberalization in the 
services sector to the world food system. When services trade is liberalized, 
services as intermediate inputs become cheaper, thus lowering the cost of world 
food and agricultural production. At the same time, more employment in the 
services sector, particularly in developing economies, will increase final 
demand for food and agricultural products, leading to increased world food 
production and trade.
 
Many Countries Erect High
Barriers to Services Trade 
 
The Uruguay Round established general rules for services trade and a framework 
for services trade negotiations, but was not greatly successful in reducing 
barriers. Since restrictions on trade in services are more complex than barriers 
to trade in goods, protection levels for services are difficult to quantify. 
Barriers in goods trade usually take the form of tariffs, which directly affect 
the price of foreign goods and can be measured relatively easily by the size of 
the tariff. In contrast, restrictions on services trade usually take the form of 
prohibitions, quantitative restrictions, and government regulations, which may 
affect entry and operations not only of foreign services suppliers, but also of 
domestic suppliers.
 
The World Bank made an early attempt to quantify barriers to services trade by 
using the presence or absence of offers made to liberalize policies during the 
General Agreement of Trade in Services (GATS) negotiations as an indicator of 
the protection level for different types of barriers to services trade. These 
protection rates, which ranged from zero being the most open, to 200 being the 
most protected, were essentially "guesstimates." They do, however, provide a 
crude initial estimate of the relative magnitude of protection levels for 
various service sectors. The estimates show that barriers to service trade are 
relatively higher in the retail-wholesale trade, transport services, and private 
business services, which are vital inputs in the global food system. 
 
More recently, the Center for Global Trade Analysis at Purdue University 
estimated two gravity models of trade--one for business services and one for 
construction services--using bilateral services export data from the U.S. These 
gravity models predict the levels of service trade that would occur in the 
absence of barriers, using Hong Kong and Singapore as "free trade" benchmarks. 
The models allow tariff equivalents for the unobserved trade barriers to be 
estimated for services trade in business and construction in other markets. 
 
According to their analysis, barriers to trade in services can be quite high in 
some countries, at least as large as the tariffs on many agricultural and 
manufactured products. The average agricultural tariff rate is about 62 percent 
for all WTO members, which includes over-quota tariffs for tariff-rate quota 
(TRQ) regimes, while the post-Uruguay Round world average tariff for 
manufactured products is under 10 percent. Generally, estimates for the business 
and construction sectors show that Asian and South American economies have 
medium to high barriers to services trade, while European and North American 
economies tend to have lower protection levels.
 
Probable Impacts of
Trade Liberalization 
 
Services have become increasingly significant as intermediate inputs and cost 
components in the world food system. Trade liberalization would not only 
directly affect world services production and trade, but would also have 
significant implications for the global food system. The major channels for such 
impacts are through trade relationships among industries and regions. While 
trade represents a relatively small share of output in the services sector in 
most regions, the services sector in many countries is large and protection 
levels may be relatively high. There could be significant improvements in 
welfare from services trade liberalization. 
 
Based on a recent study conducted by the Australian Productivity Commission, the 
world as a whole is projected to be better off by more than US$260 billion 
annually in terms of real purchasing power as a result of eliminating all post-
Uruguay Round trade barriers. About half of the gains would come from 
liberalizing services trade. These are the projected gains for 10 years after 
liberalization, when resources have fully adjusted.
 
One study estimated the probable impacts of service sector trade liberalization 
on agricultural and food production, consumption, and trade in major economies. 
Despite the use of "guesstimates" from the World Bank for services sector 
protection, their results reveal potential impacts of services trade 
liberalization on the world food system. As expected, when trade barriers in the 
services sector are reduced, services production and exports expand, thus 
increasing the demand for other intermediate inputs, including food and 
agricultural products. At the same time, the fall in service prices reduces 
production costs in sectors that use services as intermediate inputs, including 
the food system. Production and consumption of food and agricultural products 
increase in almost all regions, especially in developing economies. The only 
exception is a slight decline in processed food production in ASEAN countries 
and the U.S. Since the U.S. has a comparative advantage in producing most 
services, the dramatic expansion of services production and increased 
profitability relative to other economic activities after deregulation draws 
resources into services from other U.S. industries, including the processed food 
sector. However, world prices in all industries decline, indicating the crucial 
role of services as inputs in most economic activities. 
 
Much of today's agricultural focus in the WTO is on reducing distortions in 
commodity markets, including import barriers, export subsidies, and government 
support to producers. As the contribution of primary agriculture to GDP has 
shrunk to less than 3 percent in developed economies, it may be time to shift 
the policy reform focus from production agriculture to the broader food system, 
where the services sector plays an increasingly significant role and may have a 
larger distortionary impact on the food system than commodity and farm-level 
policies. 
 
William T. Coyle (202) 694-5216 wcoyle@ers.usda.gov 
Zhi Wang (202) 694-5242 zwang@ers.usda.gov
 
WORLD AGRICULTURE & TRADE BOX 1
 
Services & Services Trade
 
A critical distinction between goods and services is that services are consumed 
as they are produced, involving a direct interaction between consumer and 
producer. Services can be differentiated by those requiring close physical 
proximity between consumer and producer, and those that do not. The General 
Agreement of Trade in Service (GATS) defines four modes of service trade, making 
a distinction between cross-border and local supply of services: 
 
One involves no direct proximity:
 
* Cross-border supply--services supplied from one country to another (e.g. 
* international telephone calls); 
 
The other types involve close proximity: 
 
* Consumption abroad--consumers or firms use a service in another country 
* (e.g., tourism); 
 
* Commercial presence--a foreign company sets up subsidiaries or branches to 

* provide services in another country (e.g., an agricultural consulting firm);
 
* Individual presence--individuals travel from their own country to supply 

* services in another country (e.g., agricultural machinery consultant).
 
Trade in services performs a dual function in an economy. First, it contributes 
directly to trade, as when a seed company undertakes field trials in another 
country. Second, services are linked closely to merchandise trade, wholesaling, 
retailing, and transport services are obvious examples.
 
Source: WTO Website (http://www.wto.org); Joseph Francois and Ian Wooton "Market 
Structure, Trade Liberalization and the GATS," European Journal of Political 
Economics, Vol. 595(2001).
 
WORLD AGRICULTURE & TRADE BOX 2
 
Calculating the Cost of Services in Agricultural Production
 
The growing importance of services has not made the calculation of their cost 
any easier. There is a great deal of ambiguity in defining, not to mention in 
measuring, service costs in the economy in general and the food system in 
particular. For example, the inputs used in U.S. farm production as reported in 
the U.S. national input-output (IO) table  (BEA, Dept. of Commerce) are valued 
at the factory level while in ERS' farm cost estimates, they are valued at the 
farm level. This in part explains the difference between the 1997 ERS farm cost 
estimates attributed to services (14 percent) and the IO calculation of 26.2 
percent. Similarly, it is difficult to allocate service costs that are strictly 
attributable to the farm operation. Many farm households depend to a growing 
extent on off-farm employment, so only a portion of a service like fire 
insurance for the operator's dwelling can be attributed to the cost of the farm 
operation.
 
WORLD AGRICULTURE & TRADE BOX 3
 
Public Policies & Investment Priorities Can Distort Food Transport Services 
 
Cabotage laws, found in more than 40 major maritime nations, raise 
transportation costs by restricting shipments within a country to domestic, 
often more expensive, carriers.  Examples of the results of cabotage laws 
follow.
 
* It can be cheaper for a Hawaiian feed mill to purchase grain from Canadian 
* or 
* Australian sellers than from U.S. grain suppliers.
 
* It may be cheaper in some instances to deliver Midwest corn to distant 

* markets like Japan than to locations within the U.S. like California's 

* Imperial Valley.
 
Despite plentiful high-quality grapes produced in northwest China, inadequate 
infrastructure and high tolls can make it more expensive and time-consuming to 
get them to Guangzhou, China's biggest fruit market, than for Guangzhou to 
import grapes from California, which is 3 times farther away. 
 
China's corn production is concentrated in the north and northeast and its 
livestock production in the southeast. But lack of adequate rail service and 
other infrastructure have made it cheaper for livestock producers in southern 
China to import corn from the U.S. or other foreign sources rather than from 
domestic growers. China's massive public investments in upgrading its rail 
system will reduce transaction costs and boost north-south agricultural trade.
 
In the Philippines, transporting agricultural products from remote producing 
areas to processing and consuming areas in and around metropolitan centers is 
costly due to inadequate infrastructure. The cost of moving corn from the 
growing areas of Mindanao to the poultry growers located near metropolitan 
Manila is estimated to be higher than importing corn from Bangkok, Thailand.
 
WORLD AGRICULTURE & TRADE
 
Trade Remedy Laws & Agriculture
 
During the past century, governments of industrialized nations have devised 
three basic trade remedies--countervailing duties, antidumping provisions, and 
safeguards--as defense measures against imports causing injury to domestic 
industry. The Uruguay Round of international trade negotiations, which 
established the World Trade Organization (WTO) in 1994, attempted to discipline 
inappropriate use of these trade remedies by establishing criteria or standards 
for their application. 
 
Building on existing standards in some developed countries, the Uruguay Round 
established procedural and evidentiary requirements that all WTO members must 
meet before invoking trade remedies. While used mainly by developed countries, 
trade remedy use since the Uruguay Round Agreement (URA) of 1994 has expanded 
rapidly among developing countries. This may indicate a more transparent system, 
with WTO members adhering to trade regulations and notifying the WTO of any 
regulatory changes. On the other hand, it may indicate that some members are 
resorting to trade remedy measures to block imports in place of other trade 
barriers removed through trade liberalization. 
 
Trade remedies are being increasingly employed by developing countries against 
agricultural products, particularly value-added agricultural products. As a 
major exporter of high-value products, U.S. agriculture faces mounting use of 
trade remedies by importing countries and has a substantial interest in the 
outcome of WTO negotiations on these measures. 
 
The Emergence of
Trade Remedies
 
Countervailing duties (CVDs) and antidumping remedies originated in the late 
19th and early 20th centuries, about the same time as antitrust laws and for 
similar reasons. High tariffs on imports supported domestic cartels and 
aggressive export policies. Several European governments, for example, supported 
their sugarbeet producers and refiners through subsidies or bounties on refined 
sugar exports. To combat this practice, the U.S., in the McKinley Tariff of 
1890, created the first formal CVD measure as "a duty on bounties, not on 
sugar."  CVDs are aimed at neutralizing the export subsidies of foreign 
governments, rather than becoming new trade restrictions.
 
While CVDs are aimed at offsetting foreign government subsidies on exports, 
antidumping measures are directed at offsetting "unfair" actions of foreign 
(private) firms. Dumping refers to all export sales below "normal value," 
defined as the comparable domestic price (in the exporting country) of the 
product. Antidumping laws, therefore, discipline export price discrimination by 
foreign firms, even though domestic firms engaging in identical conduct in the 
home market would not be similarly disciplined. 
 
In 1904, Canada created the first formal antidumping measure in response to 
steel exports from the U.S., which Canada claimed were priced below the domestic 
U.S. price. Canada imposed a duty to offset the difference between the U.S. 
export price and normal value. The U.S. adopted an antidumping law in 1916, 
followed in the 1920s by most English-speaking countries, and in the Depression 
years of the 1930s by other industrialized countries.
 
International Discipline 
of Trade Remedies
 
The 1947 General Agreement on Tariffs and Trade (GATT) attempted to reverse the 
economic nationalism and protectionism of the interwar years. Article VI of the 
GATT addressed antidumping and CVDs, but the text was so general that it 
provided no effective discipline. The 1979 Tokyo Round of trade negotiations 
produced "codes" on antidumping and subsidies. While more specific than earlier 
agreements, these codes still left considerable discretion to the few GATT 
members that agreed to abide by them. 
 
The 1994 URA marked a major change, resolving many of the ambiguities in earlier 
agreements with more specific agreements on subsidies, CVDs, safeguards, and 
antidumping. The terms of these agreements are binding on all WTO members, not 
just those that chose to abide by the 1979 codes. The URA also improved on the 
existing dispute resolution process. A binding timeline prevents disputes from 
continuing indefinitely, and several antidumping complaints already have been 
resolved. 
 
WTO membership obliges member countries to play by WTO rules. Member governments 
voluntarily surrender some discretion over actions that can adversely affect 
other members, and in return gain the benefit that other members must also 
refrain from such actions. The U.S. is the world's leading importer, and its 
trade remedies are often challenged. But as the world's leading exporter, the 
U.S. also stands to benefit if its trading partners abide by trade remedy 
disciplines.
 
Countervailing duties (CVDs). Article VI of GATT allows the use of CVDs to 
offset public subsidies for the manufacture, production, or export of any 
merchandise. When a WTO member suspects that subsidized imports are causing or 
threatening to cause material injury to a domestic industry, it initiates an 
investigation to gather evidence. Although CVDs can be levied only after proving 
the injury or threat of injury, the trade impacts may be immediate upon 
initiation of the investigation. The URA establishes disciplines for calculating 
subsidies, and requires that CVDs terminate after 5 years--the sunset provision. 
Article VI allows the duty to be extended beyond the 5-year sunset if a public 
review determines that the foreign subsidy still exists and that injury to a 
domestic industry is still likely. 
 
The URA also defines what constitutes a subsidy, whether the subsidy is general 
or specific to a commodity, and whether it is prohibited, actionable, or non-
actionable. A subsidy is defined as a financial contribution to a private firm 
by a government or any public body within the territory of the member country. 
It can involve direct transfer of funds, government revenues forgone or 
uncollected, goods or services provided other than general infrastructure, 
payments made to a funding mechanism, or any form of income or price support. 
 
Prohibited subsidies include all export subsidies and other subsidies contingent 
on the use of domestic products over imported products, with the exception of 
agricultural commodities as specified by Article 13 of the Uruguay Round 
Agreement on Agriculture (which is part of the URA). Actionable subsidies are 
those against which trading partners can initiate investigations to implement 
trade remedy measures, and include any non-prohibited subsidies adversely 
affecting the interests of other WTO members. Non-actionable subsidies are 
general subsidies allocated for research, assistance to disadvantaged regions, 
assistance to promote adaptation to new environmental regulations, and other 
non-specific payments.
 
Although previously used mainly by developed countries, CVDs are increasingly 
used by developing countries, accounting for over one-third of all 
investigations initiated by WTO members in 2000. While CVDs were mainly used in 
nonagricultural sectors by the U.S. and the European Union (EU), CVD use by 
developing countries is primarily for agricultural products. For example, during 
the first 6 months of 1999, less than 1 percent of CVDs initiated and enforced 
by the EU and the U.S. were on agricultural products, but all CVDs initiated and 
about 75 percent of CVDs enforced by developing countries were on agricultural 
products. 
 
High-value food products appear to be the most vulnerable. All 34 CVD 
investigations carried out on agricultural products by WTO members between 1995 
and 2000 were directed at high-value products such as meat and other animal 
products, vegetables, fats and oils, and processed food products. 
 
Antidumping provisions. Article VI of GATT defines dumping as the introduction 
of a product from one country into the commerce of another country at less than 
its "normal value."  The URA defines normal value as the comparable price for 
the product, in the ordinary course of trade, when destined for domestic 
consumption in the exporting country. If such a price is not available, normal 
value may be computed using a comparable price for the product exported to a 
third country. If this information is not available, the normal value for the 
product is "constructed" by taking into account production costs, selling 
expenses, and profit.
 
An antidumping investigation also involves a two-part test. A WTO member must 
first find evidence that dumping exists. Second, a member must find that dumping 
causes or threatens to cause material injury to an established domestic industry 
or retards the establishment of a domestic industry. If both requirements are 
satisfied, the injured country can impose an antidumping duty which cannot 
exceed the margin of dumping--the difference between the export price and normal 
value. 
 
The antidumping agreement established a de minimis threshold. Duties can be 
imposed only if the dumping margin exceeds 2 percent of the export price or if 
the import market share from the dumping supplier exceeds 3 percent (by volume). 
When several countries are simultaneously subjected to an antidumping 
investigation, their imports can be aggregated or "cumulated." The cumulated de 
minimis volume share is 7 percent. Finally, antidumping actions are subject to a 
5-year sunset provision similar to that for the CVD which requires that reviews 
be conducted to ascertain whether dumped imports still cause or threaten to 
cause injury to domestic industry.
 
Once imposed only by a few industrialized countries, antidumping measures have 
been increasingly adopted by developing countries. Between 1995 and 2000, 
developing countries accounted for over half of all antidumping investigations. 
The number of countries using antidumping measures increased more than five-fold 
between 1987 and 2000, from 7 to 37, with nontraditional users such as 
Argentina, India, and South Africa increasing their use significantly. 
Antidumping use by traditional (industrialized) users, on the other hand, has 
slowed in recent years compared with the early 1990s. 
 
Antidumping investigations for agricultural products often find dumping and 
injury due to frequent price variations, especially among perishable products. 
Agriculture also remains very vulnerable to antidumping investigations given the 
current rule that bases the normal value of a product on estimates of total 
production costs, both fixed and variable, adjusted for marketing, handling, and 
imputed profit. In contrast, agricultural firms with perishable products make 
short-term business decisions based on meeting seasonal (variable) expenses. 
Given the length of time required to produce agricultural products, supply 
cannot be adjusted to price variations in the short run. Selling below the 
already-incurred cost of production, especially for perishable products, is the 
rational loss-minimizing option for producers. 
 
Agricultural exports are increasingly vulnerable to protective actions, given 
the increased use of antidumping measures by developing countries. Many 
developing countries restrict food and agricultural imports through high 
tariffs, licensing requirements, and parastatal import controls. As these 
countries implement their WTO obligations and liberalize agricultural trade, 
antidumping actions become an increasingly attractive substitute for traditional 
means of protection. While agriculture accounted for about 6 percent of the 
total number of antidumping investigations launched between 1987 and 1997, it 
accounted for over 10 percent of total investigations among newly established 
developing country users such as Brazil and Colombia, and 96 percent of Poland's 
total. Like CVDs, the use of antidumping measures in agriculture is limited 
primarily to high-value products such as fresh produce, meat, and processed food 
products.
 
General safeguards. Article XIX of GATT allows members to impose "safeguards" or 
temporary import control measures (tariffs and quantity restrictions) if a surge 
of imports causes or threatens to cause serious injury to a domestic industry. 
The subsequent Uruguay Round Agreement on Safeguards (URAS) established several 
rules. A necessary condition is a finding of "serious injury" (or threat 
thereof) which, while vague, is a higher standard than the "material injury" 
standard used for antidumping and CVD actions.
 
The URAS grants a 3-year retaliation-free period to WTO members who impose a 
safeguard. After 3 years, adversely affected trading partners can retaliate. 
Whether the safeguard was correctly imposed can be challenged through the WTO's 
dispute settlement process. A sunset provision requires safeguards to lapse 
after 4 years, but if the sunset review reveals serious injury to the country 
imposing the safeguard, it can be reimposed for an additional 4 years. While CVD 
and antidumping actions apply only to particular exporters, safeguards must 
apply to all suppliers. The safeguard de minimis exempts actions against 
developing countries with market shares of less than 3 percent, or a group of 
countries with a cumulative share of less than 9 percent. 
 
Between 1995 and October 2001, only 46 members had notified the WTO of their 
domestic legislation relating to safeguards. Given the lack of domestic 
legislation, safeguard actions have been limited to 17 countries, but as 
legislation develops, it is likely that the number of countries invoking 
safeguards will increase. This is evident by the fact that while only 50 
investigations were notified to the WTO between January 1, 1995 and November 9, 
2000, the WTO received 30 investigation notifications during the 11-month period 
between November 10, 2000 and October 29, 2001. About half of all safeguard 
investigations notified to the WTO since 1995 have covered agricultural 
products, primarily high-value products such as meat, milk powder, edible oils, 
peaches, and tomatoes. 
 
Special safeguards. Besides general safeguards, the Uruguay Round Agreement on 
Agriculture allows members to create special safeguards (SSGs) in the form of 
additional duties for agricultural commodities subject to tariffication--those 
products subject to quotas and bans prior to the Uruguay Round. Although this 
provision is not labeled as a trade remedy measure, it allows WTO members to 
implement additional duties for products identified in member-country schedules, 
when trigger levels for volume and value are satisfied. For example, additional 
SSG duties can be levied on an imported product if the import volume exceeds a 
pre-set (according to WTO guidelines) volume trigger, or if the price of the 
imported product is below a set trigger level. The Agreement on Agriculture 
provides general guidelines for setting trigger levels and for calculating 
additional duties when an SSG action is to be taken.
 
As of 1999, 38 members had designated SSGs in their country schedules, and eight 
had actually employed them. The U.S. and the EU have accounted for most of the 
SSG cases--mostly for sugar, dairy, and animal and horticultural products--but 
there is growing use by other countries, notably Poland. Developing countries, 
however, have complained about the SSG provision. Many had not identified 
commodities eligible for SSGs by the conclusion of the Uruguay Round, preventing 
them from using the provision. 
 
Unlike other remedies, SSGs are immediate; they do not require a quasi-judicial 
process to determine whether action is merited. If the import volume or value 
limit set by the importing country is breached, it may immediately impose an 
SSG; no injury determination is required. SSGs remain in effect for the 
remainder of the calendar year after implementation, but may be reimposed if 
volume or value continue to exceed trigger levels. Furthermore, SSGs are exempt 
from trade remedy actions by adversely affected exporters.
 
Similar to other trade remedy measures, SSGs are applied primarily to high-value 
agricultural products. Over half of all SSGs applied between 1995 and 1999 were 
on meat products, 15 percent were on fresh produce, and 14 percent were on dairy 
products.
 
What's Ahead For
Trade Remedies?
 
In light of concerns that WTO members may have too much discretion in 
implementing trade remedy measures, the November 2001 Doha ministerial 
declaration states that the new round of WTO negotiations will aim at clarifying 
and improving GATT disciplines on subsidies and countervailing measures. In the 
initial phase of the negotiations, participants may indicate the provisions for 
which they seek clarification and improvement. Requests for attention submitted 
so far include the methods for calculating "normal value" and for cumulating 
imports in antidumping investigations. Additionally there is a need to consider 
better harmonization of trade remedy laws across WTO members. While implementing 
a measure in some countries requires approval by panels of experts, in other 
countries single individuals may possess the same authority.
 
A special concern for agricultural trade is the expiration of Article 13 of the 
Agreement on Agriculture at the end of 2003. Unless a new agreement makes 
similar provisions, all agricultural subsidies will become open to CVD 
challenges.
 
Anita Regmi, (202) 694-5161 aregmi@ers.usda.gov
David Skully, (202) 694-5236 dskully@ers.usda.gov
 
For more information:
 
ERS Briefing Room on the WTO
www.ers.usda.gov/briefing/WTO/
 
WORLD AGRICULTURE & TRADE BOX 4
 
GATT & WTO: What's the Difference?
 
At the end of World War II, several international organizations were established 
to reverse the economic nationalism and protectionism of the interwar years and 
to enhance global security. The United Nations, the World Bank, and the 
International Monetary Fund were founded in 1944-45. An International Trade 
Organization (ITO) was also planned as part of the postwar order, but key 
countries objected to parts of the ITO charter and the organization was never 
established. Twenty-three countries, however, did agree to sign the General 
Agreement on Tariffs and Trade (GATT) in 1947. 
 
Technically the GATT is an agreement and not an organization: it has signatories 
rather than members. The assumption was that someday an ITO would be established 
as a permanent organization. In the interim, GATT signatories met periodically 
to negotiate changes in tariffs and trade policies; these meetings were called 
"rounds" of negotiations. More countries became signatories, and a GATT 
Secretariat was established to provide administrative support. 
 
In 1994, the Uruguay Round of the GATT (1986-94) established the World Trade 
Organization (WTO). The GATT Secretariat then became the WTO Secretariat, and 
GATT signatories became WTO members. The new organization did not supercede the 
GATT, which still exists. 
 
The GATT is similar to a constitution, where the original text has been and can 
be amended by its signatories. In contrast, the WTO is like a government that 
interprets and administers the laws contained in the constitution. Most of the 
articles of the original 1947 GATT text remain in effect. A few articles have 
been changed, and some new articles have been added. For example, the Uruguay 
Round expanded the scope of the GATT to include formal agreements on 
agricultural and textile trade, and rules governing subsidies and dumping.
 
In addition to GATT, the WTO also administers other multilateral agreements 
concluded during or since the Uruguay Round. These include the General Agreement 
on Trade in Services--covering banking, finance, insurance, telecommunication, 
tourism, and transportation (see article, this issue); the Agreement on Trade
Related Aspects of Intellectual Property Rights--covering patents and 
trademarks; and the Dispute Settlement Understanding, which established a WTO 
judicial body to resolve disputes among members.
 
FARM & RURAL COMMUNITIES
 
Assessing the Economic Well-Being of Farm Households
 
While commodity prices or farm income are often cited as indicators of the
 economic well-being of farm households, the picture they give is certainly 
incomplete and most likely distorted. Because half of farm operators spend the 
majority of their work time off the farm, their household income is driven more 
by the general economy than by the farm economy. Nor is it enough to recognize 
the diverse sources of income. A comprehensive assessment of well-being must 
move beyond income and consider other dimensions such as household consumption 
and wealth. 
 
USDA's 2000 Agricultural Resource Management Survey (ARMS), in addition to 
collecting information on household income and consumption, queried farm 
operators about household farm and nonfarm assets. These data provide a unique 
opportunity to examine farm household well-being in the context of the entire 
economy.
 
Farm household income levels used to be below those of nonfarm households. 
Average farm operator household income first exceeded the average income of all 
U.S. households in the early 1990s and has been consistently higher since 1996. 
Statistics for 2000 show average farm household income at $62,019, compared with 
$57,045 for all U.S. households. A comparison of median incomes (which reduces 
the influence of extreme values) also shows earnings of farm households 
exceeding those of the average U.S. household.
 
What accounts for farm household income surpassing average U.S. household 
income? Earnings from all off-farm sources grew from $10 billion in 1964 to $125 
billion in 2000. Meanwhile, sector-wide net cash farm income has increased by 
only $36 billion. Thus, it is the increase in off-farm earnings of farm families 
that has pushed up farm household income.
 
Wages and salaries make up a significant proportion of off-farm earnings even 
though they declined from 65 percent in 1964 to below 56 percent of total off-
farm earnings in 2000. Nonetheless, the absolute level of farm household wage 
earnings was nearly 9 times larger in 2000 than in 1964. 
 
There are several reasons for this growth in off-farm earnings. First, off-farm 
labor force participation rates for rural farm residents rose from approximately 
52 percent in 1960 to 65 percent in 1990. Additionally, an increasing share of 
farm households have at least one member working off the farm full-time 
(participation of rural farm females more than doubled during the same period), 
and more farm operators worked off the farm. The economic boom of the 1990s also 
helped by creating more jobs and higher wages in areas within commuting distance 
of farm households. 
 
In the past, economists have characterized economic well-being in terms of 
income's ability to support current consumption expenditures. However, two 
individuals with the same income but different amounts of wealth will have 
different consumption potential. Wealth, defined as the sum of farm and nonfarm 
net worth, represents potential spending power. A majority of farm wealth (net 
worth) is in farm assets, especially land, although it is difficult to liquidate 
on short notice. Average farm household net worth has increased steadily over 
the years, mainly from the appreciation in farmland values.
 
Classifying Households
By Income & Wealth
 
Farm household economic well-being is affected both by the level of income and 
wealth available to the household and by how income and wealth influence 
household consumption. The well-being of households has both an absolute 
component, which compares income and wealth to a selected standard, and a 
relative component, which measures the ability of households to meet consumption 
needs.
 
Movements in commodity prices, production shortfalls due to weather, and lack of 
off-farm jobs all effect well-being. Changes in economic conditions such as 
interest rates can have competing effects on farm and off-farm incomes. All of 
these factors contribute to income variations in a given year. Access to 
financial or other "liquid" assets (including savings and inventories) can help 
forestall a tightening in household consumption. Likewise, income that exceeds 
consumption can be added to savings or used to pay down debt. 
 
Analysis of ARMS data by analysts at USDAs Economic Research Service (ERS) 
suggests that, on average, farm households have higher incomes, greater wealth, 
and lower consumption expenditures than does the average U.S. household. On 
average, farm household incomes are better able to support their consumption 
needs. Since average comparisons can be misleading, the study divided farms into 
four groups using levels of income and wealth relative to the average U.S. 
household:  
 
* farm households with higher income and higher wealth than the average U.S. 
* household (49 percent of farm households);
 
* farm households with higher income but lower wealth (less than 3 percent of 

* farm households);
* farm households with lower income but higher wealth (about 43 percent of 
* farm 
* households); and
* farm households with both lower income and wealth (6 percent of farm 
* households). 
 
Higher income, higher wealth. Almost half of farm households have both higher 
incomes and greater wealth than the average U.S. household. The vast majority of 
these farms (98 percent) reported household income greater than consumption 
expenditures in 2000--on average, an excess of $76,000 in income over 
consumption expenditures. This group of farms reported average net worth of 
$656,000, of which $138,500 was household assets not owned by the farming 
operation. 
 
This group of higher income, higher wealth households includes a 
disproportionate share of larger farm operations and farm operators who reported 
a primary occupation other than farming. On average, this group of households 
operated the largest farms as measured by acreage at 455 acres on average, 
accounted for 62 percent of farm output, drew 60 percent of government payments, 
and had, by far, the highest educational attainment.
 
Higher income, lower wealth. The 2.6 percent of farm households with higher 
incomes and lower wealth than the average U.S. household are almost entirely 
focused on off-farm activities, with 84 percent reporting a primary occupation 
other than farming. Younger than average, with more having attended or completed 
college, their household incomes are almost entirely from off-farm sources and 
exceed consumption expenditures by a wide margin.
 
Lower income, higher wealth. Of the nearly 43 percent of farm households 
reporting lower income but greater wealth than the average U.S. household, 42 
percent reported annual household incomes below their expenditures in 2000. This 
group contains a disproportionate share of mid-size farms and of farmers who 
report that they are retired. For many of these, farm-derived income is often 
negative. But, if money owed from sales and additions to inventory were included 
in income, then there would have been sufficient income to offset half of the 
group's income shortfall. Taking these assets into account, the proportion of 
lower income, higher wealth households with incomes less than consumption drops 
from 42 percent to 38 percent. 
 
Thus, stockholding within their farm businesses as well as funds owed the 
business from prior economic actions must be considered. Without accounting for 
these sources of liquid or near-liquid assets, the proportion of households in 
this group could be substantially higher. This would have been particularly true 
for households of younger operators. 
 
The lower income, higher wealth farms hold a vast majority of their net worth 
($450,000 on average) in business assets (such as land, machinery, and crop and 
livestock inventories). The retired or more elderly farmers in the group who do 
not have sufficient current earnings from farming can access their accumulated 
assets or begin to consume capital assets (e.g., choose not to replace machinery 
or equipment as it wears out). Generating a sustained flow of income from the 
household's asset base to support household consumption requires either 
disposing of the farm or renting/leasing to other farmers or to the government 
through land retirement programs (such as conservation reserve). Many lower 
income, higher wealth households report receiving government payments, averaging 
$6,115 in 2000. This group also contains farm businesses whose income is 
temporarily lower because of either low commodity prices or production 
shortfalls. For many of these operations, adequate consumption levels can be 
maintained by drawing on savings or other assets.
 
Lower income, lower wealth. About 6 percent of farm households have both lower 
incomes and lower wealth than the average U.S household. Principally small and 
limited-resource farms, this group has thin margins between household incomes 
and consumption expenditures. Of these households, 21 percent report farming as 
their primary occupation, and nearly 38 percent are limited-resource households. 
Moreover, their small asset base can be insufficient to meet any unexpected 
shortfall in household earnings. Nearly one out of three of these households 
reported income less than consumption expenditures in 2000. For these 
households, there is insufficient income to support even relatively low levels 
of current consumption and few assets to meet or enhance consumption.
 
Policy 
Implications
 
Today, farm households are virtually indistinguishable from nonfarm households 
in their levels of income and diversity of employment. As a result, government 
policies that influence general economic conditions may have a much more 
profound impact on farm families than do farm policies. 
 
While farm families may suffer low incomes in any given year, low incomes are 
not necessarily chronic or involuntary. Relatively low household income in a 
particular year may result from an unusual weather event. The seeming immobility 
of farmers may, in fact, be voluntary and may simply reflect the nonmonetary 
value farm households assign to farm ownership and rural living in comparison 
with wages and benefits from nonfarm employment.
 
Issues regarding Federal government support of farm income gain breadth when 
considered in light of farm income's role in farm household well-being. A 
limited number of households depend on farming for a majority of their farm 
household income. Since household incomes for farms who get the majority of 
their income from farming are generally well above the average for all 
households, the case for income support as a necessity for well-being is 
weakened. 
 
During low-income years, many farms are able to maintain consumption by drawing 
on savings or by borrowing. Government policies that reduce credit constraints 
or increase farm household wealth may better address a farm household's yearly 
needs than do policies tied to farm production, farmland, or commodity 
production. By reducing market risk, government farm programs may create a 
disincentive for farmers to accumulate cash reserves for unexpected income 
shortfalls. 
 
One way to minimize the adverse and unintended effect of farm payments is to 
pursue policies aimed at increasing off-farm job opportunities. One such policy 
tool provided tax incentives to attract private-sector investment in areas 
targeted for economic development (i.e., areas with pervasive poverty and 
unemployment). 
 
The role of human capital is a related issue. Nearly one-quarter of U.S. farm 
operators, particularly older farmers, attained less than a high school 
education. Farmers with less formal education tend to miss out on higher paying 
off-farm jobs and job advances. This suggests a benefit to revisiting programs 
that authorized USDA to administer national grants to promote public secondary 
education curricula and enrollments in agriculture-related studies. Such 
programs might instead provide training for off-farm work. 
 
Capitalization of government payments into higher prices for farmland, 
production and marketing rights, production facilities, and other specialized 
resources has helped to create wealth (AO Nov. 2001). 
 
Estimates of the value of farmland attributable to government payments range 
between 8 and 25 percent. Some fear that removing the direct link between 
program payments and land values would cause severe adjustment problems. Yet 
farm families have diversified their asset holdings beyond the farm business, in 
effect helping to insulate them from the potential impacts of farm asset 
deflation.
 
Recognition of the importance of farm households' wealth and income diversity as 
it relates to off-farm sources of income should not diminish the overall 
benefits and opportunities that agriculture provides to local economies. A flow 
of farm and off-farm resources has the potential to create an environment that 
will attract and sustain private investment, job growth, and income generation 
activities in rural America.
 
Ashok Mishra (202) 694-5580 amishra@ers.usda.gov 
Hisham El-Osta (202) 694-5564 helosta@ers.usda.gov
Mitchell Morehart (202) 694-5581 morehart@ers.usda.gov
Jeffrey Hopkins (202) 694-5584 jhopkins@ers.usda.gov
James Johnson (202) 694-5570 jimjohn@ers.usda.gov
 
For more information:
"Income, Wealth, and the Economic Well-Being of Farm Households" Ashok Mishra, 
et al. (AER-812 to be released July 29, 2002). 
 

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