AGRICULTURAL OUTLOOK                  May 22, 2002
June 2002, ERS-AO-292
             Approved by the World Agricultural Outlook Board
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CONTENTS

BRIEFS
Ag Economy: World Macroeconomic Growth Positive But Slow
Livestock, Dairy & Poultry: Meat Production in 2003 Essentially Unchanged
World Agriculture & Trade: Cuba's Citrus Industry: Growth & Trade Prospects

COMMODITY SPOTLIGHT
Stable Field Crop Supplies Forecast for 2002/03

WORLD AGRICULTURE & TRADE
South Korea's Agricultural Policy Hampered Economic Growth
Non-Trade Concerns: International Debate & U.S. Policy

RESOURCES & ENVIRONMENT
Public Lands & Western Communities 

FARM & RURAL COMMUNITIES
Communications & The Internet in Rural America

SPECIAL ARTICLE
Does Land Degradation Threaten Global Agricultural Productivity & Food 
Security?

IN THIS ISSUE

Stable Field Crop Supplies Forecast for 2002/03

Supplies of most major U.S. field crops are expected to rise in 2002/03, 
according to USDA's first projection of production and prices for the 
marketing year. Bountiful production is anticipated despite similar or 
lower planted acres for most crops, although production gains for corn and 
oats are driven by large projected planted acreage increases of 4 and 16 
percent, respectively. Small output changes are projected for soybeans, 
sorghum, barley, and rice, but wheat and cotton production is expected to 
show substantial declines--over 7 and 12 percent, respectively. Higher use 
may offset downward pressure on farm prices for some crops, as relatively 
low prices are expected to encourage domestic consumption and exports. 
Gregory K. Price (202) 694-5315; gprice@ers.usda.gov.

South Korea's Agricultural Policy Hampered Economic Growth

The rapid economic development of South Korea (Korea) is often considered a 
model for developing countries, and some of them may consider adopting the 
Korean pattern of policy choices. However, while Korea clearly prospered 
between 1975 and 1990, a new ERS study finds that Korea's agricultural 
trade policies hindered rather than helped the country's economic progress. 
The costs of Korea's agricultural protection were high and increased over 
time. Korea's protective policies kept resources in agriculture, and this 
distortion, combined with high food prices, limited growth in the 
manufacturing and services sectors. John Dyck (202) 694-5221; 
jdyck@ers.usda.gov.

Non-Trade Concerns: International Debate & U.S. Policy

Among the topics of discussion in the World Trade Organization (WTO) 
negotiations on agriculture, non-trade concerns remain one of the more 
contentious. In WTO parlance, "non-trade concerns" include a range of 
issues related to agriculture but not strictly linked to traditional trade 
measures. Among other things, non-trade concerns include environmental 
protection, rural development, and food security. The crux of the debate 
derives from the presumption that agriculture produces desired noncommodity 
outputs as joint products with agricultural production, and agricultural 
production is necessary to obtain these noncommodity outputs. However, 
several U.S. policies illustrate how noncommodity benefits can be provided 
without agricultural production. Mary Anne Normile (202) 694-5162; 
mnormile@ers.usda.gov.

Public Lands & Western Communities

Net migration into the West and changing preferences for recreation 
opportunities and environmental amenities are increasing demand for 
recreational/environmental goods and services. This, in turn, is reshaping 
the economic relationship between public lands and rural communities. 
Traditional uses of public lands in the West--such as grazing, mining, and 
forestry--remain key sources of rural jobs and income, but continuing 
demographic changes are likely to put additional pressures on policymakers 
regarding multiple uses for public lands. Kenneth H. Mathews Jr., (202) 
694-5183; kmathews@ers.usda.gov.

Communications & the Internet in Rural America

Beginning with the invention of the telephone, communication and 
information service innovations have been introduced and disseminated 
throughout rural America in fits and starts. The marked decline in 
investment in telecommunications since the dot-com bust in the late 1990s 
will slow the diffusion of Internet and other new services, but the demand 
for these services seems to be continuing to grow. The availability of new 
services and their affordability will be determined by governmental policy, 
the economic feasibility and technical limits of new technologies, and 
market incentives. Peter L. Stenberg  (202) 694-5366; 
stenberg@ers.usda.gov.

Does Land Degradation Threaten Global Agricultural Productivity & Food 
Security?

Global food production has risen more rapidly than population in recent 
decades, but 800 million people remain food insecure. Soil erosion and 
other forms of land degradation have the potential to reduce productivity 
growth and increase food insecurity, particularly in areas where fragile 
resources are found along with poverty and poorly functioning markets. When 
markets function well, however, farmers have incentives to adopt 
appropriate conservation practices. Recent ERS research indicates that land 
degradation does not threaten productivity growth and food security at the 
global level. Keith Wiebe (202) 694-5529; kdwiebe@ers.usda.gov.

BRIEFS: Ag Economy

World Macroeconomic Growth Positive But Slow

The world economy is now in a gradual recovery driven by U.S. and Asian 
growth. Despite the Japanese and German recessions, world growth is 
expected to be about 2 percent in 2002, up modestly from 1.4 percent in 
2001. Growth in North America and parts of Asia is accelerating, with 
Central Europe and the former Soviet Union holding their own. Growth in 
Europe, Japan, and Latin America is below recent performance and likely to 
remain that way for the rest of the year. Given a slow world recovery, the 
dollar will stay strong, oil prices will moderate, and U.S. interest rates 
will remain low. 

Energy Prices 
Stable 

Without a rapid pickup in world and domestic manufacturing, crude oil 
prices should be stable. The recent surge in crude oil prices, while partly 
due to production cutbacks, was largely due to strong U.S. and Asian 
growth. However, oil prices are likely to stabilize or even drop as the 
usual summer increase in demand for gasoline is met by a drawdown from very 
high crude oil inventory levels accumulated this winter. The slow 
manufacturing recovery will keep world industrial fuel demand growth 
modest. West Texas crude oil prices in 2002 are expected to average $26 per 
barrel, about the same as in 2001.

U.S. natural gas prices will be lower than winter of 2000/01 levels. 
Wholesale natural gas prices, which reached over $9 per million British 
Thermal Unit (Btu) in December 2000, dropped to $2.26 per million Btu by 
January 2002--largely due to an unseasonably warm winter and a sharp drop 
in manufacturing output. Although natural gas prices have risen since 
January, substantial increases in natural gas prices are not expected until 
late 2002 or early 2003, when world industrial output returns to the 1999 
peak. As a result, the average natural gas wholesale price in 2002 is 
forecast at about $2.85 per million Btu (based on the U.S. Energy 
Information Administration's commercial natural gas price forecast of April 
2002), well below the $3.96 per million Btu average of 2001.

Productivity 
Up Sharply

 The current U.S. economic recovery and recent recession may be the most 
remarkable since systematic tracking of business cycles began. Federal 
income tax cuts and increased Federal Government spending coincided with 
weakness in the economy and aided the overall recovery. In addition, labor 
productivity rose at an annualized rate of 8.6 percent in the first quarter 
of 2002--more than triple the trend rate since the end of World War II, and 
the highest quarterly productivity growth rate in 20 years. Rarely does 
productivity pick up so sharply in the first quarter of a recovery. 
However, productivity continued rising throughout 2001, despite the 
recession. Favorable productivity growth reduced concerns about increased 
general inflation in 2002, as even relatively large wage increases would 
not cause substantial inflationary pressure. 

Farm Household 
Impacts Minimal 

Although the economic news is generally good, the outlook for farm 
households remains unchanged. Stable and lower farm input costs are not 
expected to offset the effects of a strong dollar and limited export 
growth. Off-farm employment, which is largely generated by the 
manufacturing sector, is not expected to rebound sharply during 2002. 

Increases in the price of manufactured farm inputs in the second half of 
2002 should be minimal as the prices of fertilizer and farm chemicals will 
fall due to declining natural gas prices relative to 2001. Stabilizing fuel 
and electricity prices reflect stable crude oil and lower natural gas 
prices. As general inflation is expected to be low, increases in other 
nonfarm input prices should be modest.

New off-farm rural jobs are likely to be relatively scarce, as recovery in 
U.S. job markets historically lags recovery in the overall economy. The 
recovery's high recent labor productivity growth makes slow employment 
growth even more likely for 2002. Further, since rural employment is 
disproportionately concentrated in the manufacturing sector, expected slow 
growth in manufacturing output due to the strong dollar and modest world 
growth weakens rural job growth prospects. Strength in the dollar, despite 
small recent weakening, puts downward pressure on farm prices and farm 
export growth, partly offsetting benefits of lower input costs and 
exacerbating weakness in off-farm employment.

Indicators 
To Watch

Prospects for faster world growth depend on strong economic recoveries in 
Europe and Latin America, even as Japan stagnates. The consensus among 
major international forecasters is for no improvement in growth until 2003. 
Most forecasts show continuing strength for the dollar, with a minority 
expecting a weaker dollar in 2003 or 2004. 

The European Union (EU) may require a lowering of short-term interest rates 
to boost private spending enough to stimulate a full recovery. If German 
manufactured exports and industrial production surge, the EU will rapidly 
recover without further stimulus. Latin America, suffering modestly from 
weakness in Argentina, needs either a surge in foreign direct investment or 
rapid growth in exports to move back to normal growth. 

David Torgerson (202) 694-5334; dtorg@ers.usda.gov

BRIEFS: Livestock, Dairy, & Poultry

Meat Production in 2003 Essentially Unchanged

Red meat and poultry production in 2003 is forecast at about 84.5 billion 
pounds, about the same as this year and up 2 percent from 2001. Continuing 
moderate increases in broiler and pork production, helped by expectations 
of continuing low feed costs, will offset the expected decline in beef 
production caused by reduced inventories from seven continuous years of 
herd reduction. 

Although red meat and poultry supplies are expected to be near record 
levels, an expected modest rebound in exports and the expanding economy in 
2003 should lead to fractionally higher prices. Prices for both feeder and 
fed cattle are expected to post gains as supplies continue to decline.

Forage and water supplies remain tight in many cattle producing areas due 
to previous droughts, continuing drought in some areas, and other weather 
problems. As a result, beef producers continued to reduce their breeding 
herds in 2001 and early 2002. Thus, herd expansion likely has been delayed 
for at least another year (many of the heifers that might have been bred 
this spring and added to the herd in 2003 are already on feed.) If drought 
conditions persist and /or areas now receiving rain become dry later this 
year, heifer retention will be delayed even further. 

Beef production this year will be nearly 1 percent above 2001 as a result 
of the combination of additional heifers on feed and heavier finished 
weights. If weather conditions improve, and forage supplies become more 
plentiful, producers may retain heifers from this year's calf crop, which 
could lower beef production in 2003 about 5 percent below this year.

Cattle inventories have been declining since 1996 and are now the lowest 
since 1960. The continuing drop in the breeding herd likely will result in 
the smallest calf crop since the mid-1950s. A slight decline is expected in 
2003.

If adequate forage is available, expected higher cattle prices should 
provide the incentive for producers to retain heifers for breeding from 
this year's calf crop. These heifers would be bred in 2003 and calve in 
2004. The retention of heifers will further reduce an already much-lower 
feeder cattle supply which was down 1 percent from a year earlier on April 
1. Feeder cattle supplies are expected to continue to decline over the next 
couple of years until the cattle herd begins to expand. 

Fed cattle prices in 2003 are expected to average in the mid-$70s per cwt, 
compared with the high-$60s this year as beef supplies (graded Choice or 
higher) tighten. Lower feeder cattle supplies will boost feeder cattle 
prices to around $90 per cwt in 2003 from the low- to mid-$80s this year. 
After declining about 2 percent from last year's record high, retail Choice 
beef prices in 2003 are expected to rise 3-5 percent as supplies tighten.

Pork production in 2003 is forecast at 19.8 billion pounds, up 1 percent 
from 2002. Hog slaughter is expected to be up about 1 percent while dressed 
weights edge up a pound. The March Hogs and Pigs report indicates the 
inventory of all hogs and pigs was up 2 percent from 2001. The number of 
hogs kept for breeding was up slightly, consistent with the March-May 
farrowing intentions, which are up 1 percent from actual farrowings a year 
ago. Pigs farrowed during this period will reach slaughter weight in late 
2002 and early 2003. 

Despite a return to profitability in early 2000 after the price collapse of 
1998, the pig crop declined for three straight years. During the 1999-2001 
period the structure of the hog sector continued to shift as many smaller 
producers exited the industry. In addition to loss of equity in 1998, the 
increased complexity of expanding production (including securing financing, 
obtaining building and waste management permits, and hiring and training 
staff) likely held back sector expansion. However, the pig crop for 2002 is 
expected to be up about 1 percent based on a 3-percent rise in the December 
2001-February 2002 pig crop and a 1-percent increase in March-August 
farrowing intentions. The early spring slide in prices and profitability 
could temper future production increases.

Hog prices in 2003 are expected to average in the mid-to-upper $30s per cwt 
compared with the mid-$30s this year. Pork production and exports will be 
higher in 2003. The expected decline in beef production will more than 
offset the rise in poultry production, which will reduce competing meat 
supplies slightly. 

Retail pork prices in 2003 are expected to be slightly lower than in 2002. 
If these prices are realized, retail pork prices would be down about 2 
percent from 2001. Expected strong beef prices will help support pork 
prices.

Poultry output is expected to rise 2 percent in 2003 compared with a 2-3-
percent increase in 2002. Broiler production is expected to rise about 3 
percent in 2002 while turkey production should rise about 1 percent (the 
same as expected for 2002). With relatively stable and low feed costs, 
broiler and turkey producers continue to have relatively favorable returns. 
Wholesale broiler and turkey prices are expected to remain unchanged. In 
2002, prices may be slightly weaker than a year ago. Retail poultry prices 
in 2003 are expected to rise slightly, compared with an expected 2-percent 
increase in 2002. The key to higher poultry prices is renewed strength in 
export markets.

Egg production is expected to increase about 1 percent in 2003 with greater 
demand for both table and hatching eggs. Wholesale egg prices are expected 
to rise about 2 cents per dozen in 2003, offsetting the expected decline in 
2002.  

Leland Southard (202) 694-5187; Southard@ers.usda.gov

BRIEFS: World Agriculture & Trade

Cuba's Citrus Industry: Growth & Trade Prospects

Citrus is a major commercial crop and generates significant revenues for 
Cuba. The fourth largest agricultural and natural resource export, fresh 
and processed citrus contribute about 8 percent of Cuba's agricultural 
export earnings. Cuba is the world's third largest grapefruit producer, 
after the U.S. and Israel. Production currently consists primarily of 
oranges and grapefruit, but a longer term potential exists for developing a 
Persian lime industry.

Agriculture is a key component of the Cuban economy and if trade 
restrictions between Cuba and the U.S. were eased, the citrus sector has 
the potential to generate both Cuban markets for U.S. exports and U.S. 
markets for Cuban exports. 

Cuba's citrus is well adapted for processing (fruit content is about 48 
percent juice). Over half the oranges and about 90 percent of the 
grapefruit are processed (primarily for juice). Most of the processed 
citrus products are exported. A small amount of both grapefruit and oranges 
are exported fresh. Shipments currently go to the former USSR and the 
Council for Mutual Economic Assistance (COMECON or CMEA) Eastern European 
countries, although some shipments have recently moved into Western Europe 
and Japan. Much of this latter trade has been in processed citrus products. 
In European markets, Cuba faces tough 
competition from Israel and Spain on both quality and transportation cost 
grounds, particularly for fresh oranges.

Development of 
Citrus Industry

As with many areas of Cuban agriculture, the historic development of Cuba's 
citrus industry can be delineated by two major events: the 1959 communist 
revolution, and the collapse of the centrally planned economies of Eastern 
Europe in 1989 and the Soviet Union in 1991 (AO, October 1998).

Following the 1959 communist revolution, investment in citrus increased as 
part of an attempt to diversify from a sugar-dominated economy and to use 
Cuba's natural resources more efficiently. At the same time, Cuba expanded 
exports to new markets in the Soviet Union and Eastern Europe, replacing 
the embargoed U.S. market.

The Cuban citrus industry, like the rest of the Cuban economy, faced a 
major downturn with the collapse of the centrally planned economies of 
Eastern Europe in 1989 and of the Soviet Union in 1991. Cuba lost not only 
its major markets and its favorable terms of barter trade for citrus 
products, but also imports of CMEA machinery, oil, and other agricultural 
inputs. With no hard currency coming from their major export markets and a 
lack of available foreign exchange, loss of production inputs was as 
devastating to Cuba's citrus industry as the loss in citrus export demand.

In the first half of the 1990s, Cuban orange production fell by over 50 
percent. Grapefruit production fell by 20 percent. Cuban fresh citrus 
exports fell more than 90 percent.

Structural problems in the citrus industry made Cuba's ability to respond 
to these shocks even more difficult. Productivity in the large state farms 
was low. Limited processing capacity existed and, because processing 
consisted primarily of fresh-market-reject fruit, juice yield and quality 
were low.

The late-maturing Valencia oranges, which Cuba sold in the fresh market and 
made up over 80 percent of Cuba's production and exports, were not 
competitive in Western fresh markets. Cuba's warm climate keeps their 
Valencia orange from having the darker external color preferred in these 
markets. With the U.S. market closed, Cuba was forced to turn to Western 
Europe's fresh markets. However, high transportation costs and lower 
quality caused Cuban oranges to face tough competition from fresh orange 
exports from Spain and Israel.

Investment & Change

To better meet demand in their new markets, as well as try to capitalize on 
comparative advantage, the Cuban government increased its emphasis on 
grapefruit and expedited the expansion of the citrus processing industry 
that was already underway.

In 1993 Cuba established a new form of cooperative--the Basic Unit of 
Cooperative Production (Unidades Basicas de Produccion Cooperativa, or 
UBPC)--which broke up the large state farms that controlled about 90 
percent of citrus production. Land title remained with the state, but these 
new cooperatives had the right to use the land and to make production and 
resource decisions. State enterprises still provided marketing, technical 
assistance, production services, and agricultural inputs. However, after 
delivering a contracted quota to the state, producers were allowed to sell 
surplus production. By 1999, the UBPCs controlled almost half of the citrus 
production area. 

In 1994, farmers' markets were established which enabled producers to sell 
surplus production at free-market prices. These markets now handle 25-30 
percent of farm products available to Cuban consumers.

Cuba also fostered the establishment of foreign "economic associations" 
(joint ventures, international contracts) to allow increased foreign 
investment in the Cuban economy. As a result, Israel re-initiated 
investments in 1991 which increased productivity and product quality for a 
joint Cuban-Israeli production enterprise. By 1997 this joint venture 
produced over a third of Cuba's citrus and controlled over a fourth of 
citrus area. 

Other investments in citrus production have come from Greece, Great 
Britain, Chile, and Italy. Over half of Cuba's citrus area now is covered 
by international economic associations. The processing industry has also 
benefited from both cooperative investment from these sources and improved 
processing equipment imported from Western Europe.

As a result of these changes and improved incentives, citrus yields and 
production have rebounded to 1980s levels. However, Cuba's economic 
problems constrain future expansion. Infrastructure remains in poor 
condition, investment resources and production inputs continue in short 
supply, foreign exchange remains limited, the trade deficit continues, and 
foreign debt remains high.

The citrus industry was hit by another devastating blow in November 2001 as 
Hurricane Michelle swept across the major citrus plantations in central 
Cuba. These plantations produce about half of the country's citrus. The 
hurricane hit as the fruit was ripening--over 80 percent of the crop was 
estimated to have been blown down. Not all the fruit blown down was lost, 
though fruit recovery and processing were further obstructed by severe 
flooding and road damage. Downed power lines took processing plants out of 
production during their peak season.

Potential Commercial Relationships

If bilateral trade between the U.S. and Cuba resumed, processed citrus 
products would be the most likely export opportunity for Cuba. The newer 
Cuban processing facilities are capable of producing the juice qualities 
demanded by U.S. consumers. With U.S. orange juice demand exceeding U.S. 
supply, Cuba might be able to compete with Brazil in the U.S. orange juice 
import market. With any significant increase in U.S. demand for grapefruit 
juice, Cuba could become a major grapefruit juice supplier. 

Cuban fresh grapefruit, particularly red seedless grapefruit, could also 
find a niche market in the U.S. Cuban grapefruit for the export market is 
harvested in late August and September. The U.S. fresh grapefruit market is 
supplied primarily by Florida, whose major harvest starts in late 
September. 

It is unlikely that Cuban fresh oranges could compete in the U.S. market. 
California and Florida dominate the U.S. fresh orange market, and only a 
small amount of fresh oranges is imported during the U.S. off-season. 
Furthermore, the Cuban Valencia's many seeds and pale, less-desirable 
external appearance would find little demand in U.S. markets.

In the longer term, Cuba's best prospects for citrus exports to the U.S. 
would most likely be Persian limes since U.S. demand for Persian limes is 
growing and U.S. production is small. Historically, Persian limes were 
produced primarily in south Florida, but the combination of the recent 
citrus canker infestation and the 1992 Hurricane Andrew decimated Florida 
Persian lime groves. These groves are not being replaced. This leaves 
Mexico as the major supplier to the U.S. market. With excellent growing 
conditions and a competitive location advantage, Cuba could expand Persian 
lime production and capture a significant portion of the U.S. East Coast 
market. With an efficient processing industry, Cuba could likely find a 
U.S. market for lime juice.

On the other side of the trade coin, the U.S. might find the Cuban citrus 
industry a market for U.S. exports. The U.S. has a highly developed, 
technically advanced citrus industry, a large part of which is in Florida. 
Florida has similar climate, is geographically close, and has cultural ties 
to Cuba. The U.S. is well positioned to supply technology, citrus rootstock 
and other inputs, a market-economy oriented management, and capital (all of 
which are currently in short supply in Cuba) to the Cuban citrus industry. 

William E. Kost (202) 694-5246; Wekost@ers.usda.gov

Cuban Agriculture on the Internet:
An excellent starting point for finding out more about Cuban agriculture is 
the Food and Resource Economics Department & International Agricultural 
Trade & Development Center, University of Florida Cuban Agriculture 
website:  www.cubanag.ifas.ufl.edu/default.htm 

BRIEF BOX

Want to read more?
Armando Nova Gonzlez, Thomas Spreen & Carlos Juregui, "The Citrus 
Industry in Cuba 1994-1999", International Working Paper Series IW01-4, 
International Agricultural Trade & Development Center, Food & Resource 
Economics Department, University of Florida, March 2001.

Armando Nova Gonzlez, Thomas H. Spreen & Ronald P. Muraro, "The Citrus 
Industries in Cuba and Florida", International Working Paper Series IW96-
2r, International Agricultural Trade & Development Center, Food & Resource 
Economics Department, University of Florida, June 1996.

Cuba in Transition, Volume 11, Proceedings of the 11th Annual Meeting of 
the Association for the Study of the Cuban Economy, Institute for Cuban and 
Cuban-American Studies, University of Miami, 2001.

Thomas H. Spreen, Armando Nova Gonzlez & Ronald P. Muraro, "The Cuban 
Citrus Industry: An Assessment of Potential Market Opportunities After 
Lifting of U.S. Economic Sanctions", Role of the Agricultural Sector in 
Cuba's Integration into the Global Economy and its Future Economic 
Structures: Implications for Florida and U.S. Agriculture Conference, 
Washington D.C., March 31, 1998.

Foreign Agricultural Organization, FAOSTAT Agricultural Data database,
http://www.fao.org/ag/guides/resource/data.htm

COMMODITY SPOTLIGHT

Stable Field Crop Supplies Forecast For 2002/03

Supplies of most of the eight major U.S. field crops (corn, soybeans, 
wheat, cotton, rice, sorghum, barley, and oats) are expected to rise in 
2002/03, according to USDA's first projection of production and prices for 
the next marketing year. Bountiful production is projected despite similar 
or lower planted acres for most crops this year, although production gains 
for corn and oats are driven by large projected planted acreage increases 
in of 4 and 16 percent, respectively. Sorghum and barley production are 
expected to rise slightly in 2002/03, and the output of soybeans and rice 
are projected to be only marginally lower than in the current season. 
However, the production of wheat and cotton are expected to show 
substantial declines--over 7 and 12 percent, respectively. Wheat production 
for 2002/03 is projected at the lowest level since 1990/91. Downward 
pressure on the season-average farm prices of some crops may be offset by 
higher use, as relatively low prices are expected to encourage domestic 
consumption and exports. 

Corn acreage in 2002 is expected to increase to 79 million acres, up from 
the 75.8 million acres planted in 2001, according to survey responses in 
USDA's March 2002 Prospective Plantings report. While the assumed trend 
yield for the coming season is below the 138.2 bushels per acre realized 
last year, production is still projected to jump 5 percent to 9,935 million 
bushels. However, total domestic supplies are anticipated to rise only 
slightly because lower beginning stocks are expected to partially offset 
higher production.

Domestic corn use in 2002/03 is expected to rise only 2 percent, with 
higher food, seed, and industrial (FSI) use accounting for all of the 
increase. Much of the change in the FSI category is due to higher expected 
industrial alcohol production. Feed and residual uses are anticipated down 
next season because of fewer cattle on feed. U.S. corn exports are expected 
to climb 9 percent because of less competition from foreign exporters. 
Analysts expect Argentina to have a smaller corn crop in 2002/03 because of 
the crop's relatively large use of inputs such as fertilizers, which have 
become more expensive as a result of the country's currency depreciation. 
With higher total use outweighing increased domestic supplies, the U.S. 
average farm price in 2002/03 is anticipated to be $1.75-$2.15 per bushel, 
with the midpoint averaging 5 cents per bushel higher than in 2001/02.

U.S. soybean production in 2002/03 is expected to be marginally lower than 
the current season's output, declining just over 1 percent to 2,850 million 
bushels. This projected drop matches the expected reduction in plantings, 
which are pegged at 73 million acres. The shift away from soybeans was 
partly attributable to disappointing yields in recent years, crop rotation 
considerations that favor corn, and an anticipated drop in the soybean loan 
rate. With lower domestic supplies and continued strong demand, the season-
average farm price is anticipated to strengthen, reversing a 5-year 
decline. The 2002/03 farm price of soybeans is expected to be $4.00-$4.90 
per bushel, with the average up 20 cents from the $4.25 estimated for 
2001/02.

A modest gain is projected for domestic soybean crush, reflecting growth in 
domestic meal use for pork and poultry production that more than offsets 
lower projected meal exports. USDA projects U.S. soybean exports to decline 
to 975 million bushels next season--down from estimated record exports of 
1,020 million bushels in 2001/02--due mainly to competition from large 
South American soybean supplies and prospects for even larger crops there 
next spring. With total use declining slightly less than the anticipated 
drop in production, ending stocks for 2002/03 are projected to fall 
slightly from 2001/02 levels. 

U.S. wheat plantings for the 2002/03 crop are expected to decline for the 
sixth consecutive year as producers continue to favor oilseeds in many 
parts of the Corn Belt and Northern Plains. Also, slightly lower yields are 
anticipated, dropping production next season to 1,886 million bushels, a 
decline of 4 percent. U.S. wheat exports will likely face intense 
competition in the world market in 2002/03. Wheat exports are anticipated 
to decline substantially, dropping 10 percent to 875 million bushels--the 
lowest level in 30 years. One factor is the projected growth of global 
wheat production. Excellent crop prospects and potentially larger exports 
from the European Union and other major exporters, plus India and the 
former Soviet Union, could constrain U.S. wheat exports. With global wheat 
imports expected to decline, the U.S. share of world exports is anticipated 
to drop to 22 percent, compared with 25 percent in 2001/02. 

The smaller projected wheat crop and the lowest beginning stocks since 
1998/99 are expected to result in 2002/03 supplies that are 7 percent below 
a year earlier. In addition, domestic use is expected to be slightly higher 
due to a 1-percent increase in food use. However, bleak export prospects 
dampen potential price gains that may have arisen due to the anticipated 
lower supplies and higher domestic use. The expected price range for wheat 
in 2002/03 is $2.50-$3.10 per bushel, compared with an estimated $2.78 per 
bushel for 2001/02.

U.S. rice plantings are expected to be 3.32 million acres in 2002, down 
less than 1 percent from last season despite considerably lower prices. The 
first projection for the 2002/03 rice crop pegs U.S. production at 208 
million cwt (rough basis), down 2 percent from the current year's record, 
but still the second highest on record. Forecast yield, projected by trend, 
is also expected to be 2 percent lower next season. Lower production of 
long grain rice--projected at 160 million cwt--accounts for the decline in 
total production. Combined medium/ short grain production is projected at 
48 million cwt, up fractionally from 2001/02. Despite a smaller crop, total 
supplies are projected at nearly 263 million cwt, up 3 percent from 
2001/02--a record number if realized. An anticipated increase in beginning 
stocks of over 50 percent and fractionally higher imports are expected to 
more than offset the smaller crop. 

U.S. total rice use is projected at a record 218 million cwt, up 2 percent 
from a year earlier. Domestic use is forecast at a record 126 million cwt, 
with food and residual uses accounting for all of the increase. Exports are 
projected to increase 2 million cwt to 92 million, the largest since 
1994/95. Competitive U.S. prices and expectations of larger global rice 
trade are behind the stronger export forecast. Ending stocks are 
anticipated at 45 million cwt, up nearly 8 percent from a year earlier. The 
season-average farm price is projected at $3.95-$4.45 per cwt, with the 
midpoint being the same as in the previous marketing year.

Cotton production is projected to plummet 12 percent to 17.8 million bales 
next season due to a 1-million-acre decline in anticipated plantings and 
yields that are expected to be more in line with trend. Acreage is expected 
to fall as a result of low cotton prices and relatively more attractive 
returns from competing crops. The yield in 2002/03 is projected to be 604 
pounds per acre, substantially lower than the previous year's 705 pounds. 
Larger beginning stocks are expected to partially offset the lower 
forecasted production, with total supply pegged at 25.5 million bales--a 3-
percent decline from last year. Ending stocks are projected to fall 1 
million bales, lowering the stocks-to-use ratio, from 41 percent in 2001/02 
to 36 percent next season.

Domestic mill use is anticipated to rebound slightly in 2002/03 as the 
economy recovers from the recession and inventories are restocked. U.S. 
exports of raw cotton next season are projected to equal the current 
marketing year's 11 million bales, the largest level of exports since 
1926/27. The U.S. share of world trade is expected to remain high because 
of lower world production and increasing foreign demand, combined with 
continued large U.S. supplies. Foreign production is expected to fall 4.5 
million bales, due primarily to low cotton prices. Much of the decline in 
foreign output is the result of China's anticipated double-digit percentage 
decline in acreage. In contrast, foreign consumption is expected to be 2 
percent higher in 2002/03, with improved economic growth and competitive 
cotton prices stimulating demand. 

Gregory K. Price (202) 694-5315; gprice@ers.usda.gov

COMMODITY SPOTLIGHT BOX

Planted area for field crops, excluding winter wheat, is based on USDA's 
Prospective Plantings report for 2002, released on March 28. Harvested area 
is based on historical averages for harvested-to-planted ratios. Yields are 
derived from historical trends or averages, except for winter wheat where 
survey results are used. With planting still underway and harvest several 
months away for most crops, growing conditions could alter final production 
levels. U.S. crop prices are influenced not only by domestic and foreign 
weather, but also by changing U.S. and global demand conditions.

WORLD AGRICULTURE & TRADE

South Korea's Agricultural Policy Hampered Economic Growth

The rapid economic development of South Korea (Korea) is often considered a 
model for developing countries to follow, and some of them may consider 
adopting the Korean pattern of policy choices. However, while Korea clearly 
prospered between 1975 and 1990, a new ERS study finds that Korea's 
agricultural trade policies hindered, rather than helped, the country's 
economic progress. Structural Change and Agricultural Protection: Costs of 
Korean Policy, 1975 and 1990, examines South Korea's agricultural trade 
barriers, comparing their effects with those of alternative policies on the 
country's economy in 1975 and 1990. Results show that the costs of Korea's 
agricultural protection were high, and increased over time. 

Korea's Rural Sector Interventions

Since the late 1960s, South Korea's government has sought, through various 
interventions, to keep the welfare of the rural population from falling 
behind that of the urban population, while not harming the rest of the 
modernizing economy. Many of these interventions improved the 
infrastructure and technology available to farming, and increased rural 
households' access to nonfarm jobs. Since 1975, the country's government 
has also transferred funds to farm households. Most of these transfers have 
been indirect in the form of higher prices paid by consumers--ensured by 
closing Korea's borders to most agricultural imports--with the rest being 
direct payments from tax funds. Korea's support to agriculture continues to 
be quite high relative to other countries. Calculations by the Organization 
for Economic Cooperation and Development (OECD) show that Korean support, 
as a proportion of its gross domestic product (GDP), is almost the highest 
among member countries. 

In 1989, Korea was persuaded by its trade partners in the General Agreement 
on Tariffs and Trade to begin agricultural trade liberalization. As a 
result, the country's imports of many products grew during the 1990s, 
benefiting consumers. The farm sector absorbed price competition from 
imports without collapsing. 

Rice remains a major exception to the trade liberalization trend. Complete 
protection of the domestic rice market from international competition has 
been the central component of Korea's agricultural support since the late 
1970s. In 2000, the OECD estimated that support for the rice market price, 
achieved primarily through government control of imports, provided almost 
$8 billion in subsidies to rice farming, over $8,000 per hectare. In the 
Uruguay Round of international trade negotiations, Korea agreed to import a 
specified amount of rice each year. However, since rice is imported only by 
the government trading enterprise and is never released for general 
purchase, the imports do not affect domestic rice prices.

Policies Had Mixed Results

Objectives cited by Korea in formulating food and agricultural policies 
have been:
*  enhancing farm income; 
*  achieving food self-sufficiency; 
*  conserving foreign exchange;
*  limiting government spending; and 
*  securing price stability; 
*  controlling real urban wages (or inflation).

Korea has experienced a mix of successes and failures in achieving these 
objectives. The goal of boosting agricultural income was at least partially 
met after 1970. The annual income of rural households rose above that of 
urban households in 1974-77 and again in 1982-83, and was only slightly 
less than urban levels in other periods. Gains in rural household income 
were due in part to higher prices for agricultural products, but due even 
more to farm household income derived from off-farm sources (such as wages 
and remittances from urban relatives). The proportion of farm household 
income from nonfarm sources increased from 18 percent in 1975 to 43 percent 
in 1990 and to more than 50 percent in 2001. 

Korea has explicitly targeted its policies to achieve food self-
sufficiency. In practice, Korea has realized self-sufficiency only for 
rice. For all foods, self-sufficiency on a caloric basis fell steadily from 
1970, and dipped below 50 percent in 1999. 

The goal of saving foreign exchange for other uses was achieved as Korea's 
agricultural trade barriers reduced imports below free-trade levels.

Korea's efforts to boost agricultural income and domestic rice production 
came at the cost of higher retail prices and large budgetary outlays. The 
government directly purchased rice from farmers at above-market prices. 
Resale of the rice at less than purchase and storage costs caused large 
annual program deficits over the course of three decades that were covered 
out of tax revenues. Alternatively, the government could have chosen to 
reduce taxation or to spend the money in other ways to assist agriculture 
or the nonagricultural sectors, with potentially higher benefits. 

Korean consumers paid prices for basic foodstuffs (e.g., rice or beef) that 
were considerably higher than prices prevailing in other countries. The 
effects of higher consumer prices were proportionally greater on lower 
income urban households than for higher income households. The higher 
prices tended to force real urban wages higher, reducing Korea's 
international competitiveness and contradicting the government's policy 
goal of keeping food prices low to dampen inflationary pressures.

Beyond the stated objectives, Korea's protection of agriculture kept 
resources in agriculture, and this distortion of resources, together with 
high food prices, limited growth in the manufacturing and services sectors. 

Korea's agriculture experienced some structural change between 1975 and 
1990, but the nature and extent of change was likely influenced by the high 
level of protection from world markets that Korea's policies enforced 
during that period. Agriculture's share of GDP fell from 29 percent to 11 
percent between 1975 and 1990, but the share of primary agriculture (crop 
farming and livestock raising) fell proportionately less, from 8.1 to 7.4 
percent. The bulk of the decline was in processed agricultural goods, which 
fell from 17 to 2 percent of GDP. Protecting farm outputs raised their 
price to processors, and appears to have diminished the capacity of Korean 
processing to compete, inside and outside Korea, with foods from other 
countries.

Agricultural Protection Reduced & Distorted Economic Growth

The ERS study simulated how the Korean economy might have looked if 
agricultural trade protection were removed. The study shows that not all 
agricultural and food manufacturing activities were protected equally, 
which distorted the composition of Korean primary agriculture. The actual 
output of polished (milled) rice was 10 percent higher in 1975 and 27 
percent higher in 1990 than it would have been if trade were removed. In 
contrast, the output of vegetables and fruits was 1 percent lower in 1975 
and 3-5 percent lower in 1990 than it would have been. Thus, the share for 
rice in the total value added by primary agriculture was significantly 
higher, and the share for vegetable and fruits was lower, because of the 
agricultural trade policies. By protecting rice and animal products, 
Korea's border policies drew more resources--labor and land--into producing 
those commodities. Less labor and land were available for vegetable and 
fruit farming, which had lower rates of protection in 1990. 

Typically over the course of economic development, agriculture's 
contribution to a country's GDP becomes smaller as more investment goes to 
nonagricultural sectors and labor migrates out of agriculture. The 
agricultural share of total output becomes smaller. However, the 
distortions caused by agricultural trade policies in the economy, as a 
whole can remain serious, even when the sector shrinks as a share of total 
output. The policies can increase the costs of food processing, textile, 
and other industries that use agricultural products as inputs, and also 
cause labor costs for nonagricultural industries to rise, as noted above. 
Policies can also induce capital investment and labor supply to go to 
agriculture when market forces would otherwise place them elsewhere. 

A small share of GDP in agriculture does not necessarily imply that the 
cost of agricultural protection is low. The ERS study finds that Korea's 
GDP would have been 0.7 percent higher in 1975 without the agricultural 
border protection, but that lifting the protection in 1990 would have 
increased GDP by over 4 percent. The study also suggests that the cost of 
protection, in all its forms, increased with the level of Korea's economic 
development; and that the earlier the protections were removed, the better 
off Korea's economy as a whole would have been. 

Korea's heavy border protection reduced imports. In both 1975 and 1990, 
imports provided a small or zero share of total consumption for most of the 
highly protected commodity sectors. For example, imports of rice and barley 
were effectively banned in 1990. Lifting these bans would have led to 
striking changes. According to ERS analyses, production of barley would 
have ceased, with demand fully satisfied by imports. For rice, 28 and 20 
percent of domestic demand in 1975 and 1990, respectively, would have been 
met by imports. In the Uruguay Round, Korea agreed to allow rice imports to 
increase to the minimum access level of 4 percent of domestic consumption 
by 2004. The estimates for full liberalization indicate that Korea's rice 
imports would considerably exceed the 4-percent level. Also, sharp 
increases in imports would have occurred for beef and pork, milk products, 
vegetable oils, and flour.

Should Other Countries Emulate The Korean Example?

Korea provides an important example of agricultural policymaking in the 
course of rapid economic development, and provides rich data for economic 
analysis. Korea's problems and policy alternatives are not unique and are 
likely to emerge repeatedly among countries that develop or modernize. 
Policies that raise consumer food prices burden the whole economy, not just 
consumers. Raising prices received by farmers retards structural adjustment 
in farming and distorts the farmers' choices of what crops to plant or 
livestock to raise. The farm sector becomes dependent on policies that 
isolate it from world agricultural markets. Once farmers adjust to prices 
far above world levels, the potential shock of removing border protection 
becomes large. While the overall economic benefits of freer agricultural 
trade are large, the welfare effects on farmers are negative, unless other 
subsidies compensate them for lost income. 

One scenario in the ERS study simulated the effect of agricultural trade 
liberalization assuming that farm labor was not able to shift to nonfarm 
occupations. To some extent, this situation may exist in centrally planned 
countries, such as North Korea and China, and in some economies where city 
jobs are too far away for farmers to reach. The results of the scenario 
showed that farm income would have been reduced by almost half, if nonfarm 
employment were not an option, compared to a 1-percent drop in income if 
farm households had the ability to accept nonagricultural jobs. 

In the current Doha Round of international trade negotiations, the 
relationship of developing countries to the world agricultural trade system 
is an important issue. The economic perils of relying on self-sufficiency 
for food security, especially when self-sufficiency is achieved by closing 
borders, need to be considered. Even if self-sufficiency provides food 
security (there are strong arguments why it may not), the economic cost is 
high. Developing countries may be substantially better off by designing 
policies that help the rural poor compete in world agricultural markets or 
that provide income assistance unrelated to crop choices. 

Xinshen Diao (202) 862-8113; x.diao@cgiar.org
John Dyck (202) 694-5221; jdyck@ers.usda.gov
David Skully (202) 694-5236; dskully@ers.usda.gov
Agapi Somwaru (202) 694-5295; agapi@ers.usda.gov
Chin Lee (202) 694-5354; chinlee@ers.usda.gov

For more information: 
Structural Change and Agricultural Protection: Costs of Korean Policy, 1975 
and 1990
www.ers.usda.gov/publications/aer809/

ERS Briefing Room on South Korea 
www.ers.usda.gov/briefing/southkorea

WORLD AGRICULTURE & TRADE BOX 1

An East Asian Miracle?

South Korea is often included with the other "Asian Tigers" (Taiwan, Hong 
Kong, and Singapore) as well as Japan, in an East Asian group of economies 
that achieved rapid growth and profound economic and social transformation 
since World War II. The virtues of East Asia's development policies have 
been widely presented. However, strong critiques of the policy regimes have 
recently emerged. Research by Young has demonstrated that most of the 
economic growth realized by the Asian Tigers resulted from growth in factor 
inputs such as capital accumulation. After accounting for the dramatic 
increase in human capital embodied in the education of the postwar 
generations, growth in East Asian productivity is not exceptional. Indeed, 
Singapore exhibits negative growth in total factor productivity. If Young 
and others are right, inducing households to accumulate capital by saving 
and educating their children can lead to economic growth, in the right 
circumstances. But, as global economic conditions change, the East Asian 
economies may no longer have sufficient vigor for further rapid growth. The 
Asian financial crisis of 1997 exposed the fragility of industrial finance 
and governance in much of Asia, adding credibility to doubts about East 
Asian policy choices. On the other hand, South Korea's rapid recovery from 
that crisis has bolstered arguments for the underlying strength of the East 
Asian development strategies. The controversy continues.

Whether or not the competitiveness of the economy as a whole benefited from 
farsighted government management, East Asian agriculture has not been 
globally competitive. Once the flow of postwar food aid ceased, 
protectionism characterized agricultural trade policy in much of the 
region, along with self-sufficiency goals for rice, the staple food. Behind 
the trade barriers, East Asian agriculture became less competitive with the 
rest of the world. 

More information:

Young, Alwyn. 1992. "A Tale of Two Cities: Factor Accumulation and 
Technical Change in Hong Kong and Singapore," NBER Macroeconomics Annual 
1992. pp. 13-54. 

Young, Alwyn. 1995. "The Tyranny of Numbers: Confronting the Statistical 
Realities of the East Asian Growth Experience," Quarterly Journal of 
Economics. Vol. 110, No. 3. pp. 641-80.

WORLD AGRICULTURE & TRADE BOX 2

Removing Agricultural Protection in South Korea

A new ERS report on the effects of Korea's protectionist policies on its 
own economy compares the situation in 1975 with that in 1990. The endpoint 
for the analysis, 1990, marked the point at which Korea began the process 
of dismantling its protectionist system. Since then, its border barriers to 
imports have been lowered, although protection for rice is still very high. 

The General Agreement on Tariffs and Trade (GATT) discouraged quantitative 
restrictions on trade, unless special circumstances prevailed. Korea, which 
for many years had balance of payments (BOP) deficits and sought to 
minimize imports partly to conserve foreign exchange, used language in 
Article 18 of the GATT that allows countries to impose quantitative 
restrictions if they have BOP deficits. Accordingly, Korea's government 
used a system of import licensing for many commodities, and then almost 
never issued import licenses, effectively banning imports. The same general 
system still prevails in a number of developing countries, also under the 
protection of Article 18. 

Under the GATT, countries using Article 18 to justify trade barriers were 
subject to periodic review of their BOP situation. In 1987, a GATT 
committee reviewed Korea and encouraged it to give up the restrictions, 
because by then Korea was running BOP surpluses. In part using this 
finding, the U.S. successfully challenged Korea's quantitative import 
restrictions on beef in a GATT dispute in 1989. A subsequent review of 
Korea's BOP status in 1989 also confirmed that Korea didn't need the 
quantitative restrictions to save foreign currency, because it was running 
a surplus in its current account. In the face of these findings, Korea 
agreed in 1989 to eliminate its quantitative restrictions by 1997 (except 
for rice). The Uruguay Round of the GATT coincided with the phaseout of the 
BOP trade barriers. In 1995, Korea's commitment to the Uruguay Round 
Agreement subsumed the BOP concessions and, in some cases, amended them.

Within Korea, parliamentary votes, presidential statements, and street 
demonstrations all indicated opposition to ending the import bans. Korea 
was obliged to liberalize by its own need to remain part of the world 
trading system. Access to foreign markets for its manufactured products was 
vital to the Korean economy, giving Korea a commitment to free trade in 
general. At the insistence of its GATT partners, Korea then reluctantly 
began applying a free-trade policy to its own agricultural sector.

Agricultural commodities were freed from absolute quantitative limits in 
stages, beginning in 1989 and ending in 2001 (except for rice). Tariff-rate 
quotas were applied to a number of commodities. For these commodities, 
imports above a certain threshold faced high over-quota tariffs. In some 
cases, imports surged after liberalization, as was the case with bananas in 
1991. Agricultural imports rose from $6.5 billion in 1990 to $10.5 billion 
in 1996, partly in response to the increased opportunities for trade.

WORLD AGRICULTURE & TRADE

Non-Trade Concerns: International Debate & U.S. Policy

Among the topics of discussion in the World Trade Organization (WTO) 
negotiations on agriculture, non-trade concerns remain one of the more 
contentious. In WTO parlance, "non-trade concerns" include a range of 
issues that are related to agriculture but are not strictly linked to 
traditional trade measures like tariffs. Non-trade concerns include 
environmental protection, rural development, and food security, among 
others. 

Non-trade concerns have emerged as a trade issue as a number of factors 
converged. There is growing public realization that international trade and 
trade rules can have impacts beyond the flow of goods and services; public 
demand for environmental protection is putting farm production practices in 
the spotlight; and incidents of food-borne disease have raised public 
awareness of food safety. Agriculture can be closely tied to cultural 
identity, and some may feel that liberalizing trade threatens this 
identity.

The issue of non-trade concerns is closely linked to multifunctionality, 
the concept that agriculture (or other industries) provides a range of 
noncommodity outputs, or multiple functions. This concept is, on its face, 
noncontroversial. Most countries accept that agriculture provides services 
and outputs beyond food, fiber, and forestry. These outputs may include 
socially desirable goods (open space, wildlife habitat, biodiversity, flood 
prevention, pleasing rural landscapes, cultural heritage, viable rural 
communities, and food security) and negative environmental impacts (soil 
erosion, water pollution, loss of habitat, and loss of biodiversity). 

These issues become contentious when they are embroiled in the larger 
discussion of agricultural policy reform. The WTO and its predecessor 
organization, the General Agreement on Tariffs and Trade or GATT, provide 
for general exceptions from trade provisions for measures necessary to 
protect human, animal, or plant life or health, or to conserve exhaustible 
natural resources. Countries agreed further, in Article 20 of the WTO 
Uruguay Round Agreement on Agriculture, to include non-trade concerns in 
the negotiations to continue the agricultural reform process. In the Doha 
Declaration that launched the new round of trade talks, WTO members 
confirmed their intent to discuss these concerns, but they did not agree on 
how to address them.

The International Debate

The debate over non-trade concerns has taken place primarily in the context 
of agricultural trade negotiations in the WTO. Multifunctionality and non-
trade concerns become controversial when used in trade negotiations to 
justify exemptions from current or future commitments, or as a reason to 
reconsider disciplines on agricultural support and protection already 
established in the Uruguay Round. 

The crux of the international debate is the presumption that, besides food 
production, agriculture creates noncommodity spillover benefits and costs. 
These benefits or costs are not provided or controlled by the marketplace 
and represent either externalities or public goods. Countries widely agree 
on the existence of public goods and externalities in agriculture, and most 
have policies to support the positive benefits and limit the negative 
impacts from agriculture. The crux of the debate derives from the 
presumption of jointness--that agriculture produces desired noncommodity 
outputs as joint products with agricultural production--and the conclusion 
that agricultural production is necessary to obtain the desired 
noncommodity outputs. 

To varying degrees, the European Union, Norway, Japan, South Korea, and 
Switzerland have supported greater flexibility under WTO rules to provide 
for non-trade concerns. Some of these countries may feel trade 
liberalization poses a threat to positive noncommodity benefits that are 
jointly produced with food. By lowering tariff protection or tightening 
limits on trade-distorting domestic support, some countries are concerned 
that lower domestic farm prices will reduce agricultural output and its 
associated benefits. If these benefits were joint products of agricultural 
production, then lower prices that result from reducing tariffs on 
agricultural products would cause, for example, a loss of landscape 
amenities. 

Countries on the other side of the debate have challenged these 
justifications by questioning the presumption of joint production. If 
agricultural production and landscape amenities are not jointly produced, 
then policies other than those that support production can provide similar 
amenities. 

Opposing countries may also contest the economic rationale that these 
outputs are public goods that require government intervention, citing 
examples where the market can provide these outputs. These countries cite 
the fact that WTO members agreed to limits on the level of trade-distorting 
support, and that trade agreements require countries to consider the 
effects of domestic policy on global markets. 

While most countries agree on the desirability of noncommodity benefits of 
agriculture, opposing countries believe that policies to address non-trade 
concerns should be targeted, transparent, and have little or no trade-
distorting impact. These countries favor addressing non-trade concerns 
through "green box" policies. Green box policies are considered to be 
minimally trade distorting for WTO purposes, and are therefore exempt from 
reduction commitments. These policies include environmental, domestic food 
aid, and certain regional assistance programs. Countries that have been the 
strongest advocates of this viewpoint include Australia, New Zealand and 
other Cairns Group members, and the U.S. 

Jointness is also a factor for negative externalities in both the non-trade 
concerns and trade and environment debates. Trade liberalization leads to 
global economic growth and one concern is that expansion in agricultural 
output will also increase associated externalities, like water pollution, 
soil erosion, and loss of biodiversity.

The U.S. proposal for WTO negotiations on agriculture recognizes the 
importance of policies that address non-trade concerns. At the same time, 
the U.S. has expressed its view that non-trade concerns are best met 
through non-trade-distorting means, in order to avoid imposing the costs of 
achieving these objectives on other countries. These costs can be 
considerable. A 2001 study by USDA's Economic Research Service estimated 
that price-distorting agricultural policies--market access limitations, 
domestic support to producers, and export subsidies--cost the world economy 
$56 billion annually in lost welfare, or consumer purchasing power.

The U.S. Experience

Many of the concerns cited in the international debate already feature 
prominently in U.S. agricultural policy. Moreover, these benefits are also 
provided in the U.S. through a combination of private actions and public 
policies. The following examples illustrate how non-trade concerns--
environmental protection, rural landscape and cultural heritage, and strong 
rural communities--are addressed by U.S. policy.

Environmental protection. Americans value the environmental benefits 
offered by agriculture, such as habitat for migrating waterfowl, but also 
recognize the potential negative impacts of agriculture on land and water 
resources. Conservation programs have been part of U.S. farm policy since 
the 1930s. The scope of environmental concerns addressed by present-day 
conservation programs encompasses the impacts of animal waste, nutrients, 
and pesticides on surface and groundwater quality, the impacts of 
agriculture on coastal resources, and the preservation and restoration of 
wetlands, other ecosystems, and wildlife habitats. 

Many environmental impacts--both positive and negative--are closely linked 
to agricultural production. This close linkage potentially makes a case for 
the jointness of environmental spillovers and agricultural output. Some 
U.S. conservation programs create benefits including wildlife habitat, 
improved water quality due to filtering of agricultural runoff, and 
floodwater control by taking environmentally sensitive land out of 
production. The largest program is the Conservation Reserve Program. The 
Wetlands Reserve Program assists landowners in returning farmed wetlands to 
their original condition through easement payments (voluntary legal 
agreements that restrict production, development, or other specified 
activities on farmland) and restoration cost sharing. 

U.S. policy also provides numerous examples of how environmental benefits, 
and control of negative environmental impacts, can be addressed through 
means other than controlling the level of agricultural production. 

*  Cross-compliance provisions of U.S. farm legislation require a basic 
level of environmental compliance as a condition for farmer eligibility for 
other government programs. 

*  Cost-sharing programs like the Environmental Quality Incentives Program 
(EQIP) and the Wildlife Habitat Incentives Program target areas of special 
environmental sensitivity by contracting with individual farmers to 
implement conservation practices. 

*  The new farm bill establishes a Conservation Security Program that 
provides incentive payments to farmers for maintaining and adopting 
conservation practices on land in production, and increases funding for 
existing conservation programs like EQIP. 

*  Regulatory programs (the Clean Water Act, Endangered Species Act, and 
Federal Insecticide, Fungicide and Rodenticide Act) require that farmers 
restrict the use of pesticides which might adversely affect water quality, 
certain wildlife species or their habitat, or human health. 

Rural landscape, cultural heritage, and farmland preservation. Preserving 
traditional agricultural landscapes in many areas of the U.S. is closely 
linked to preservation of the region's historical and cultural heritage. 
Farmland preservation is relevant when farming faces development pressure 
in the urban fringe. Farms in metropolitan areas comprise one-third of all 
farms in the U.S. (but a smaller share of agricultural output). Arguments 
for preserving these farms, however, go beyond agricultural policy; they 
are linked to issues of urban revitalization, transportation policy, 
environmental policy, and judicious use of infrastructure, including 
schools, roads, and sewers. 

Preserving farmland in order to maintain the rural landscape might be seen 
as an argument for joint production. However, most policies aimed at 
preserving farmland do not require that such lands produce agricultural 
goods, and many protect farmland through means that would qualify as green 
box policies.

A range of public policies and private actions seek to preserve 
agricultural lands, as well as to promote other objectives. Some examples 
of public policies include:

*  Purchase of Development Rights, primarily state and local programs that 
purchase conservation easements on agricultural land and thereby prevent it 
from being converted to commercial or residential uses. 

*  The Federal Farmland Protection Program uses Federal funds to match 
state and local funding designated for purchasing permanent easements. 

*  Governments may place restrictions on the type of activity that can 
occur in a geographic area by establishing agricultural zoning, 
agricultural districts, or urban growth boundaries, essentially prohibiting 
agricultural land from being converted to urban or suburban development. 

*  Many states give tax breaks to agricultural landowners in an effort to 
keep agricultural land from being converted to other uses as property 
values rise.

Private activities can complement these government efforts. Local, 
regional, or state nonprofit conservation organizations help protect 
natural, scenic, recreational, agricultural, historic, and cultural 
property. Several private groups have formed at the national level for the 
purpose of raising and pooling funds to purchase land, including the 
National Preservation Trust, Ducks Unlimited, and The Nature Conservancy. 
Private conservation organizations also purchase development rights to 
land, or may seek donations of property. Government may be a partner in 
these efforts by offering tax benefits for donations, providing an example 
of how public policy can complement private actions. 

Market-based initiatives can help develop and promote solutions to 
preserving agricultural lands. Agritourism provides another source of 
income for farmers and thus may help preserve farmland. Governments may 
assist in developing market-based solutions through marketing assistance 
and promotion activities, extension, and technical assistance. Where rising 
land values put pressure on farmers to sell farmland for development, 
producing higher value goods can help increase market returns. Government 
can assist in identifying markets for high-value products and encourage 
farmers to use marketing techniques better suited to an urban environment. 
Community-based agriculture, whereby consumers purchase shares of a farm's 
crop and receive a weekly delivery of fresh produce in return, can help 
sustain small producers and preserve farmland in the urban fringe. 

Strong rural communities. Rural communities face a number of challenges, 
including lagging incomes, lack of economic opportunities, and an inability 
to attract new businesses because of relatively poor infrastructure. While 
some proponents of non-trade concerns claim that agricultural production is 
needed to ensure the viability of rural areas, developing strong rural 
communities requires policies that target a range of objectives beyond 
those strictly related to agriculture.

Characteristics of rural America shape the U.S. policy response to the 
needs of rural communities. Farming is no longer the main economic activity 
in rural America. A mix of manufacturing, services, and other nonfarming 
activities now dominates the majority of rural counties in the U.S. Many 
farm households, particularly those on intermediate-sized and smaller 
farms, are reliant on these local mixed economies because they depend on 
off-farm earnings for a majority of their income. 

Rural development policies in the U.S. include a mix of public and private 
instruments for increasing rural employment and sustaining rural 
communities. Public policies are geared toward providing general services, 
including public education, employee training, and physical and social 
infrastructure. The Federal government also provides funding for 
telecommunications, transportation, housing, and technical assistance aimed 
at improving rural infrastructure. Several Federal and numerous state and 
local programs provide tax and other incentives for private investment in 
distressed rural areas. And some private foundations provide grants for 
rural development projects to deal with the challenges of job loss, decline 
in income, out-migration of young people, and persistent poverty. 

Future Directions 

Changes in society's expectations of agriculture, combined with WTO 
commitments to reduce trade-distorting support, have increased the 
attention given to the noncommodity outputs from agriculture. Consumers 
have come to expect services from agriculture that range from picturesque 
farmsteads to enhanced environmental quality. Increased demand for 
environmental quality may provide greater market opportunities for goods 
produced using environmentally friendly practices, and thus increase the 
potential for market-based solutions to provide for environmental quality. 

Several U.S. policies illustrate how noncommodity benefits can be provided 
without agricultural production. If the agricultural negotiations in the 
current Doha Round yield commitments to further reduce agricultural support 
and protection, countries may need to rely increasingly on such measures to 
provide these benefits. 

Mary Anne Normile (202) 694-5162; mnormile@ers.usda.gov
Mary Bohman (202) 694-5140; mbohman@ers.usda.gov

For further reading:

"The Use and Abuse of Multifunctionality," November 1999, www.ers.usda.gov 
/briefing/WTO/PDF/multifunc1119.pdf

Agricultural Policy Reform in the WTO--The Road Ahead (ed. M. Burfisher). 
AER No. 802, May 2001. www.ers.usda.gov/publications/aer802

"Development at & Beyond the Urban Fringe: Impacts on Agriculture," 
Agricultural Outlook, AGO-283,  August 2001, 
www.ers.usda.gov/publications/AgOutlook/aug2001/AO283f.pdf

"Community Food Security Programs Improve Food Access," Food Review, 
Volume 24, Issue 1, January-April 2001, pp. 20-26, 
www.ers.usda.gov/publications/FoodReview/Jan2001/FRV24l1d.pdf

Food and Agricultural Policy: Taking Stock for the New Century. USDA, 
Washington, D.C., September 2001, 
www.ers.usda.gov/news/publs/farmpolicy01/fullreport.pdf

World Trade Organization. "Proposal for Comprehensive Long Term 
Agricultural Trade Reform: Submission from the United States," 
G/AG/NG/W/15, 23 June 2000, 
www.ustr.gov/sectors/ ltprop.htm

World Trade Organization. "The General Agreement on Tariffs and Trade (GATT 
1947)," The Results of the Uruguay Round of Multilateral Trade Negotiations 
(The Legal Texts), Geneva, 1995.

WORLD AGRICULTURE & TRADE BOX 3

Externalities and Public Goods

Economists use the term "externality" to describe harmful or beneficial 
side effects that occur in the production, consumption, or distribution of 
a particular good. Production of an agricultural good may generate an 
environmental externality, such as wastes or amenities, as a byproduct. 
These are externalities if they affect the well-being of others in a way 
that is not transmitted by market prices; i.e., the producer does not bear 
the costs of the waste cleanup or receive compensation for the benefits of 
the amenity provided.

Externalities often arise when there is no market for a product. This can 
occur when there are ill-defined or poorly enforced property rights (for 
example, when resources such as ground and surface water or air over a city 
are owned by the community or by no one). Externalities also occur when 
those affected are widely dispersed and difficult to identify. The cost to 
the community of water pollution or air pollution is not reflected in the 
market.

Public goods are goods (or, more commonly, services) for which markets do 
not work well because of certain characteristics of the goods or services. 
Typical of public goods is that consumption by one individual does not 
reduce the amount available for others. This particular characteristic 
means there is no incentive for consumers to pay for a service. No 
incentive to pay means no private firm would be willing to supply the 
service. In such cases, governments provide the service and collect taxes 
to cover the cost. National defense is an example of a public good.

Both externalities and public goods can provide an economic rationale for 
government intervention.

Source: Krissoff, B., et al., Exploring Linkages Among Agriculture, Trade, 
and the Environment, Agricultural Economic Report No. 738, May 1996. 
www.ers.usda.gov/publications/aer738.pdf

WORLD AGRICULTURE & TRADE BOX 4

Non-Trade Concerns in the U.S. Proposal for WTO Negotiations on Agriculture

The following discussion is excerpted from: World Trade Organization. 
"Proposal for Comprehensive Long Term Agricultural Trade Reform: Submission 
from the United States," G/AG/NG/W/15, 23 June 2000. 
(www.ustr.gov/sectors/ltprop.htm)

"The United States is committed to working through the WTO to eliminate 
trade-distorting measures. The United States is likewise committed to and 
supports policies that address non-trade concerns, including food security, 
resource conservation, rural development, and environmental protection."

"These objectives are best met through non-trade-distorting means, with 
programs targeted to the particular concern without creating new economic 
distortions, thus avoiding passing the cost of achieving these objectives 
to other countries by closing markets, or introducing unfair competition, 
or both."

"The United States proposes building on the key elements of the Agreement 
on Agriculture" making progress through a fairer and simpler approach to 
capping, binding, and reducing trade-distorting support. This approach 
recognizes the legitimate role of government in agriculture. In particular, 
the U.S. proposal allows for support that is delivered in a manner that is, 
at most, minimally trade distorting. This could include, among others, 
income safety-net and risk management tools, domestic food aid, 
environmental and natural resource protection, rural development, new 
technologies, and structural adjustment which promote economically 
sustainable agricultural and rural communities."

"The United States proposes to enhance further" the criteria for exempt 
support measures while ensuring all exempt measures are targeted, 
transparent, and, at most, minimally trade-distorting."


RESOURCES & ENVIRONMENT

Public Lands & Western Communities

The demographics of the West are changing rapidly. Net migration into the 
West and changing social preferences for recreation opportunities and 
environmental amenities are increasing demand for 
recreational/environmental goods and services which is, in turn, reshaping 
the economic relationship between public lands and rural communities. 

Net migration into the West has exceeded migration into other areas of the 
country by a large margin. For 1990-97, net migration into nonmetro areas 
of the West was three times that into nonmetro areas outside the West (10.2 
percent compared with 3 percent). For the same period, net migration into 
Western metro areas was over twice that for metro areas in other regions 
(3.7 percent compared with 1.6 percent). 

Public lands include many types of land administered by a number of 
government agencies, including the Department of Defense, Department of 
Interior (Bureau of Land Management, Bureau of Indian Affairs, National 
Park Service, and others), Department of Agriculture (Forest Service), and 
other Federal, state, and local agencies. This article focuses on lands 
administered by the Forest Service (FS) and the Bureau of Land Management 
(BLM).

Recent statistics show that for lands managed by the FS and BLM, visitor 
days for recreation increased from 225 million in 1983 to over 400 million 
in 1997. These changes indicate the need for policymakers to recognize both 
the growing recreational and environmental demands on public lands and the 
ongoing needs of traditional users of these lands--such as livestock 
producers, logging operations, and mining interests. 

Land management regulations were first imposed on uses of forest reserve 
lands (now Forest Service lands) in 1897 and grazing fees were first 
imposed in 1906. The Taylor Grazing Act (1934) established control over 
grazing on the public domain now administered by BLM. 

Multiple-use management objectives (defined as "a combination of balanced 
and diverse resource uses that consider long-term needs for renewable and 
nonrenewable resources, including recreation, livestock grazing, timber, 
minerals, watershed, and wildlife, along with scenic, scientific, and 
cultural values"), came into vogue in the 1970s and became important 
components of FS policy. These objectives were incorporated into a serious 
land-management strategy for both agencies with the adoption of "Rangeland 
Reform '94", which expanded the emphasis in public land policy to include a 
broader set of uses than livestock grazing. A recent example of this shift 
is in the Mojave Desert, where cattle grazing has been restricted to 
protect the endangered desert tortoise. 

Emerging Uses of Public Lands in the West

Many activities in addition to livestock grazing occur on public lands. 
Several independent studies demonstrate the economic contributions of these 
activities to rural communities. One study found that 77 million people in 
the U.S. spend $104 billion for wildlife recreation annually. Another found 
that for two public grazing allotments in Idaho, hunting for elk and deer 
had a higher economic value than livestock grazing--suggesting potential 
benefits from multiple-use management. Results from a Utah study estimated 
the implicit value of an extra deer at $64 (in 1997 dollars). A survey of 
recreation activity studies, including camping, fishing, hunting, skiing, 
picnicking, boating, and water sports, estimated expenditures ranging from 
$9.28 per person per activity day (PPAD) for camping to $240 PPAD for non-
motorized boating (1997 dollars). The survey also valued big game hunting 
between $29 and $206 PPAD. The share of these activities occurring on 
public lands was not specified.

FS/BLM statistics demonstrate the changing economic and recreational 
environment of Western public lands. Recreation categories are virtually 
the only categories showing increases from 1988-97, and the changes are 
dramatic--almost a twenty-fold increase in FS recreation fee receipts. 
These receipts are partially offset by costs of providing recreational 
services. Traditional activities, like mining and timber, have decreased or 
increased only moderately.

Sporting activities, many of which take place on public lands, have mostly 
increased in the West. The number of anglers in the West (including Hawaii) 
increased 22 percent from 1980-90. Hunters declined by half a percent, but 
the number of sportsmen overall increased by 18 percent. 

The snow-skiing industry has been growing for some time. Ski areas are 
often heavily-used, year-round recreation facilities that contribute 
significantly to the economic activity of rural communities. Nationally, 
41-53 percent of ski areas operated with a FS permit from 1972-93. Colorado 
Ski Country USA observed that money flowing into ski areas often comes from 
outside sources, but remains in the local economies. In several counties, 
net taxable retail sales increased from $3-$14 million in 1963 to $22-$72 
million in 1974. In its impact study of the Colorado ski industry, Colorado 
Ski Country USA, concluded that counties with snow-skiing areas have 
achieved major improvements in socioeconomic conditions over the study 
period.

Economics of Public-Land Ranching 

Public-land ranching has also changed over time in the Westwide states (the 
11 states west of Kansas, Nebraska, North Dakota, Oklahoma, South Dakota, 
and Texas). Grazing needs are usually measured in animal unit months 
(AUMs)--the amount of forage or vegetative feed required to sustain a 
1,000-pound cow (and her calf up to six months of age) for one month. This 
measure assumes that an animal unit consumes about 26 pounds of forage 
(dry-weight basis) per day. While public grazing AUMs for billing purposes 
have declined only about 1 percent from 1982-92, the number of permittees 
has declined 14 percent, and cash receipts for cattle and calves have 
decreased 7 percent (in 1982-84 dollars). Real receipts for public grazing 
allotments from 1988-97 have decreased by a third or more.

Despite the persistent image of the typical Western livestock producer as a 
public-land rancher, only about 6 percent of livestock producers in the 17 
states west of the Mississippi River have FS/BLM grazing allotments. 
Nationally, public-land ranchers account for less than 1 percent of 
operations with beef cattle. The approximately 28,000 grazing allotment 
permits in the 17 Western states (Westwide states plus Kansas, Nebraska, 
North Dakota, Oklahoma, South Dakota, and Texas) are distributed to about 
23,600 permittees (operations). In this same area, and excluding dairy 
operations and feedlots, there are about 414,000 operations with beef 
cattle. Some 3-4 million head of beef cattle in the Westwide states, or 
about 40 percent of beef cattle inventories (about 8 percent nationally), 
may spend some time grazing public lands. The remaining forage needs are 
met through private sources, like private pasture, hay, some other 
harvested forage, or from other non FS/BLM-administered public land.

Despite the omnipresence of public lands in the West, livestock grazing on 
public land accounts for a relatively modest share of the economic activity 
of the West as a whole. Livestock receipts in 1992 for the Westwide states 
totaled about $16 billion, representing 1 percent of total Westwide states 
gross domestic product. Cattle and calves and sheep and lambs accounted for 
about 65 percent of the $16 billion, and less than 40 percent of that, or 
about $3-$4 billion, can be attributed to grazing on public lands. 

Studies of economic effects of changes to public grazing policies (often 
proposed as grazing fee increases or reductions in grazing allotments) on 
livestock-based rural communities generally show reduced ranch incomes. 
Ranch incomes fall because reduced allotments reduce the number of  cattle 
sold and/or forage costs rise. There are also implications for ranch values 
and asset values used in loan collateral calculations. In addition, direct 
effects on ranch incomes would lead to indirect and income effects as 
reduced ranching activity impacts other local economic sectors--feed 
suppliers, equipment dealers, other agricultural suppliers, and local 
consumers. Economic effects are generally larger for locally affected 
areas, but tend to dissipate as the geographic scale of economic activity 
increases--often disappearing at the national level. However, grazing fee 
increases would generate partially offsetting, communitywide, positive 
economic effects because large portions of fee receipts are distributed 
within the area where fees are collected.

A recent analysis by USDA's Economic Research Service (ERS) grouped 416 
counties according to the share of total countywide AUMs estimated to come 
from FS/BLM-administered public land. Thirteen counties were 80- to 100-
percent dependent on federal lands for forage, 
27 were 50- to 80-percent dependent, 36 were 30- to 50-percent dependent, 
82 were 10- to 30-percent dependent, and 258 were 0- to 10-percent 
dependent. The data were then examined for the 10 most dependent counties 
in each of the dependency groups (a subset of 50 counties).

Generally, the less dependent an area is on Federal land for grazing, the 
more available are alternative sources of forage, especially privately-
owned land. The study found that 62 percent of counties in the Westwide 
states depend on FS/BLM-administered land for up to 10 percent of their 
total livestock forage (including 10 percent of counties with no dependence 
on Federal land). These counties accounted for 60 percent of Westwide AUMs 
and 73 percent of Westwide livestock sales. 

Three-fourths of counties Westwide derive less than one-fifth of their 
total AUMs from FS/BLM-administered land. These counties account for 73 
percent of Westwide AUMs and 82 percent of Westwide livestock sales. 

Highly dependent counties tend to be somewhat clustered and could indicate 
areas where local economic effects could be highly significant and with 
more than local impact. Fewer than 10 percent of counties derive half or 
more of their total livestock forage from FS/BLM-administered grazing 
allotments. Westwide, these counties account for less than 6 percent of 
AUMs and less than 5 percent of livestock sales. Counties showing more than 
50 percent dependence on FS/BLM-administered land tend to be among the 
least densely populated counties. 

Economics of Rural Communities

Economic data for these 416 counties in the Westwide states demonstrate the 
importance of activities other than livestock grazing. 

As a share of county personal income, agricultural value exceeds 50 percent 
for only four of the remaining 50 counties: 

*  Camas County, Idaho (57 percent), 
*  Lincoln County, Idaho (71 percent), 
*  Power County, Idaho (87 percent), and 
*  Prairie County, Montana (96 percent). 

All four counties have low populations, ranging from 991 people (Camas 
County) to 7,538 (Power County). 

As important as agriculture is to these counties, the shares of county 
income estimated to come from public land ranges from 2.5 percent in Power 
County to 21 percent in Lincoln County. Lincoln County, at 73-percent 
dependence, is the only one of these four counties whose livestock industry 
is more than 50-percent dependent on public land. The livestock industry in 
Prairie County is 30-percent dependent on public land. However, the Prairie 
County economy is heavily dependent on livestock production, with the value 
of agricultural products equivalent to 96 percent of personal income and 69 
percent of the value of agricultural products coming from livestock sales. 
These counties would likely be severely affected by adverse grazing 
policies.

Personal income for these 50 counties ranged from $14.37 million (Mineral 
County, Colorado) to $71 billion (San Diego County, California) in 1997. 
For most of these counties, the market value of all agricultural products 
is less than 10 percent of personal income. The majority of income in these 
counties comes from nonagricultural sources, like mining, construction, 
manufacturing, services, and government. Often, these and other activities 
also depend on public land. Services, including services for recreation and 
tourist-oriented industries, and government, account for large shares of 
personal income. Industry sales for mining are 50 times higher than 
agricultural sales in Sweetwater County, Wyoming, where livestock account 
for almost 80 percent of agricultural product sales. Agricultural sales in 
Sweetwater County are also small compared with construction, manufacturing, 
services, and government. A large share of income for Power County, $73 
million, is from manufacturing. One caveat is that of these activities, 
like manufacturing and government, some portion is often involved in 
supporting agriculture, but not always counted as agriculture in the 
economic data.

Multiple Uses for Multiple Users

Public lands continue to be economically important to rural communities 
throughout the West, although the nature of the relationship is changing. 
While traditional land use activities remain important, continuing 
demographic changes in the West are likely to put additional pressures on 
public land use. Traditional uses such as grazing, mining, and forestry 
remain key sources of rural jobs and income. At the same time, alternative 
uses of public lands such as outdoor recreation and conservation have 
gained in economic importance to rural communities. Selling recreation-
related goods and services such as lodging, guide services, and equipment 
to public-land visitors has become a vital part of many rural economies. 
Similarly, some of the fastest growing areas in the West are rich in 
natural environmental amenities and are near public lands whose abundance 
of wildlife and open spaces attracts new residents.

For public land managers concerned with the health and well-being of rural 
communities, it is increasingly important to balance the needs of a much 
more diverse set of users and activities than in the past. Where the demand 
for open space is a significant factor in generating economic growth in a 
community, grazing activities on public lands not only support ranching 
activity on adjacent private lands, but also act as a buffer to rapid 
urbanization and/or loss of open spaces. 

For most rural economies, and for the West as a whole, expanding the 
multiple-use management objective for public lands to include more emphasis 
on recreational opportunities and environmental amenities will mean 
relatively minor, and in some cases, modestly positive economic impacts. 
For those communities that are heavily dependent on ranching and public-
land grazing, economic effects could be significant. Analysis of use of 
public lands for livestock grazing, from the more aggregate rural and 
regional economy perspectives, showed that negative economic impacts 
associated with the changing relationship between rural economies and 
public lands are generally limited to ranchers who are directly affected 
and a few rural communities. 

Kenneth H. Mathews Jr. (202) 694-5183; kmathews@ers.usda.gov
Kevin Ingram (202) 694-5518; kingram@ers.usda.gov
Jan Lewandrowski (202) 694-5522; janl@ers.usda.gov
John Dunmore (202) 694-5204; jdunmore@ers.usda.gov

For further information see:

A Time to Act, a Report of the USDA National Commission on Small Farms, can 
be accessed at www.reeusda.gov/smallfarm/report.htm

Cromartie, J.B., and J.M. Wardwell. "Migrants Settling Far and Wide in the 
Rural West." 
www.ers.usda.gov/Publications/rdp/rdpsept99/contents.htm

For data on local area personal income see: U.S. Department of Commerce, 
Bureau of Economic Analysis www.bea.doc.gov/bea/regional/reis

RESOURCES & ENVIRONMENT BOX

How Are Grazing Fee Receipts Distributed?

Forest Service fees:

*  25 percent to states for distribution to the county of origin for roads 
and schools, 
*  25 percent to the U.S. Treasury, and 
*  50 percent to the Range Betterment Fund, which is used to improve 
forests from which it was collected. 

Bureau of Land Management fees:

*  Grazing permit receipts (Section 3 of the Taylor Grazing Act):  
*  *  12.5 percent to the state where collected, 
*  *  37.5 percent to the U.S. Treasury, and 
*  *  50 percent to the Range Betterment Fund, which is used to improve 
public lands from which it was collected;  

*  Grazing lease receipts (Section 15 of the Act):  
*  *  50 percent to the state where collected, and 
*  *  50 percent to the Range Betterment Fund.

FARM & RURAL COMMUNITIES

Communications & the Internet in Rural America

Since the late 1990s, the telecommunications industry has witnessed a 
dramatic swing in its economic fortunes. From the "dot-com boom,"--during 
which investors became convinced that classic economic laws did not apply 
to the sector--to the "dot-com bust"--when investors discovered these laws 
do apply--expectations for growth in telecommunications services has moved 
from boundless to bleak. There is evidence that reality lies somewhere in 
the middle. Even in the current downturn in the telecommunications sector, 
businesses and households have continued the upward trend in volume of 
commercial activity on the Internet. Households alone spent $5.7 billion on 
Internet retail purchases during December 2001.

Communications and information services delivery, through systems such as 
telephone and Internet, have, in fact, become an increasingly important 
factor in the growth of the economy, despite recent volatility in the 
sector. As with other technological service developments, however, the 
diffusion of communication and information services varies in time and 
place, which has implications for rural areas and households.

Based on an analysis of data from U.S. Department of Commerce surveys and 
from private industry, variations in diffusion and adoption of 
communication services conform to two well-accepted economic principles: 

*  Companies invest in providing new services where they earn the highest 
returns, and 
*  Households adopt new services if they can afford them and either need or 
desire them. 

When these principles fail to provide the level of telecommunication 
services deemed necessary or equitable by policymakers, government policies 
have been developed to encourage or require wider delivery of services or 
provision of services at lower costs. The universal service program and 
emergency 911 service are two such policies.

Communication & Information
Service Adoption 

It took nearly 100 years after the first commercial use in 1877 for 
telephone service in the U.S. to reach its current household penetration 
rate, and for most of that time, people debated whether telephones were a 
necessity or a luxury. 

Although penetration rates for having at least one telephone in a household 
vary across regions and income groups, the rate has remained stable for the 
last 20 years at roughly 95 percent of all households. The current regional 
pattern of adoption has been consistent for the last 10 years, with the 
distribution of household income a strong predictor of the penetration rate 
for any particular state. The adoption rate for rural areas is comparable 
to urban areas, largely as a consequence of Federal and state policies that 
have both subsidized and regulated the cost of telephone services in less 
densely populated areas. 

The household demand for telephones remains fairly consistent no matter 
what the cost for basic service, although the lower the household income, 
the less likely the household is to have telephone service. Analysis 
indicates that at about $25,000 in annual household income, the cost of 
telephone service becomes an affordability consideration for lower income 
households. Current Federal and state programs, called universal service 
programs, effectively subsidize the telephone rates for all households; if 
not for these programs, affordability would likely become a consideration 
for those with annual household income above $35,000. For rural households, 
the effect would be even greater, since there is a higher rate of 
subsidization in rural areas.

Wireless telephone service (cell phones) has been promoted as a more cost-
effective means to deliver local phone service to rural households. Because 
there would no longer be the need to run wire to each household, both the 
fixed and marginal costs are potentially lower with wireless service. 

Wireless services are starting to make inroads into the demand for 
traditional phone service--the latest data on communication and information 
services use indicate some middle-income households are dropping 
traditional phone service in favor of cell phones. High-income households 
are largely using both services. 

Wireless, however, is not yet a perfect substitute for traditional 
telephone service--the average purchase price for wireless service is still 
greater than for traditional telephone service. In both urban and rural 
areas, low-income households, for whom the cost difference between 
traditional and wireless services is critical, continue to use traditional 
phone service.

Two potential events might change that balance: current government programs 
to keep local phone service affordable could be eliminated, or current 
programs could be adjusted to include wireless service. While there are 
advocates for eliminating current programs, the trend so far has been to 
add wireless services to already existing programs. At least four states 
now include wireless service in their universal service programs. Wireless 
carriers receive intra-industry financial transfers to reduce household 
subscription prices.

Internet use by rural and urban households has also increased significantly 
during the 1990s, so significantly that it has one of the fastest rates of 
adoption for any household service. Whether the household adoption rate has 
been faster than for the telephone, television, color television, and the 
VCR, as Internet proponents claim, depends on how the initial adoption is 
dated. It seems undeniable, however, that diffusion and adoption of 
Internet services has been remarkably fast.

Internet use has increased for households in all regions and income groups 
regardless of rurality. Half of all American households now subscribe to 
some Internet service; over 40 percent of rural households subscribe. Since 
the penetration rate for urban households has likely come closer to its 
peak than the rate for rural households, the difference between rural and 
urban rates should close further. Nevertheless, Internet use in rural areas 
still lags both in aggregate and across income groups. Analysis of industry 
data suggests that critical elements in Internet service delivery, such as 
industry structure, may be impeding diffusion and adoption in these less 
densely populated rural areas. Thus, the penetration rate will remain lower 
for rural households than for urban households.

Recent data indicate the pace of Internet adoption may be beginning to 
slow. Higher income households may have already reached a saturation point; 
survey results from households in this income group indicate that those who 
do not yet use the Internet at home do not want it. Lower income households 
may continue to adopt Internet use more rapidly than higher income 
households, as the service comes to be seen as more essential. Income, 
however, is a much more limiting factor for Internet adoption than for 
telephone use--the lower the household income the less likely Internet 
service is affordable. Affordability is a greater factor for rural than for 
urban households.

Higher Costs Slow Diffusion in Rural Areas

Local exchange carriers (local telephone companies) incur higher costs for 
providing rural households with telecommunication services than they do for 
urban households, for straightforward economic reasons. As population 
density decreases, the price for delivering traditional or wireless phone 
service increases exponentially. All rural areas, by definition, are 
characterized by low population density. The fewer people in any relevant 
geographic space, the fewer share in the costs for telecommunication 
services--central office switches, loop maintenance, and other common 
components of the local telecommunication system. In addition, rural 
telephone service providers must spend more per customer for maintenance 
and repair than do urban providers. 

These economies of scale are true whether phone service is delivered 
through traditional copper wire or through new wireless services. Because 
equipment manufacturers focus on the needs of more profitable large-scale 
telecommunication companies (as large-scale companies focus on where they 
have the highest returns), small telecommunication companies often face 
difficulties in purchasing equipment scaled for their operations.

The structure of the telecommunication industry also continues to play an 
influential role in the delivery of telephone and Internet service in rural 
areas. When the telecommunication industry comes up in conversation, people 
often think only of the four remaining "Baby Bells"--SBC, Verizon, 
BellSouth, and Qwest. Actually, there are more than 1,000 telecommunication 
service providers--most are small in scale and concentrated in rural areas, 
many are organized as cooperatives. The spectrum of providers ranges from 
"mom-and-pop" operations serving as few as 10 households to the Baby Bells 
with millions of customers. Quality of service varies considerably across 
these providers, and even within the service areas of the largest 
providers.

Federal Policy Facilitates Diffusion

Federal policy has been developed to facilitate the diffusion of new 
communication and information services, and to address equity issues 
associated with cost barriers to providing equivalent telecommunication 
services to rural areas. The Telecommunications Act of 1996, the 
cornerstone of current policy, deregulated the communication and 
information sectors and updated universal service provisions that have led 
to a near universal availability of a minimum level of service at 
affordable rates. The Federal Communications Commission (FCC) has been 
mandated to determine what is "affordable."

Deregulation of the communication and information service sector is 
intended to improve economic efficiency in the sector by allowing companies 
to enter new markets, reducing governmental oversight, and facilitating 
formation of new companies and the merger of older firms. The new universal 
service provisions build on previous policies that resulted in fairly 
uniform prices across the country for local telephone service. The 
uniformity in price, however, does not guarantee uniformity in quality of 
service, nor does universal service address the cost of toll calls, which 
can be a significant expense for some rural households.

Universal service provisions also provided $2.25 billion dollars in new 
funds annually to help pay for modern communication infrastructure for 
schools and medical facilities in high-cost (i.e., rural) and low-income 
communities. The Act also mandated, at some point in the future, a 
broadening of the definition of telephony to include Internet service 
provision. The FCC has been mandated to determine when to include Internet 
service in the universal service program.

Federal, state, and local governments also address equity issues in 
telecommunication and information services through a number of other 
programs. Key among these are programs that provide economic assistance for 
distance learning and telemedicine programs. Telemedicine programs provide 
medical services, such as X-ray readings by a radiologist, at a distance. 
For rural communities, these programs can improve telemedicine 
communication and infrastructure and increase the breadth and depth of 
local school curricula.

Not all Federal policy facilitates diffusion of telecommunication services. 
While the 1996 Act authorizes programs to make communication and 
information services more universally affordable, a plethora of Federal, 
state, and local taxes on local and long distance telephone service combine 
to make them more expensive. Among these is the telephone tax applied in 
1898 to cover expenses incurred for the Spanish-American War. Although war 
debts were paid off by 1932, the tax continues to raise $5 billion per 
year. 

Trends in Rural Communication & Information Services

Two major developments, wireless and satellite telephony, have often been 
cited by their promoters as overcoming the economic disadvantages rural 
areas have in the use of traditional telephone service. Both technologies, 
however, still face constraints that keep their costs high. 

Wireless services have some cost advantages in covering the "last mile" 
from a phone company's switch to the household, but limitations in the 
technology and the terrain keep costs high--overcoming dead zones (i.e., 
areas either too far from a communications tower or where physical barriers 
impede the signal) in areas with low population density quickly reduces any 
cost advantages.

Although satellites may hold some promise in providing broadband Internet 
service to rural households, so far the quality has not lived up to some of 
the promise. Service speed may never match broadband services obtained 
through telephone or cable systems because of technical 
limitations within the system, in addition to the better known facts 
regarding the time required for a signal to reach a destination and the 
need for household receivers to have an unobstructed view of the southern 
sky (any obstructions, such as trees or a hill, between the satellite and 
the customer's dish interrupts service).

Since the invention of the telephone, communication and information service 
innovations have been introduced and disseminated throughout rural America 
in fits and starts. Some of the recent developments in the marketplace were 
not even dreamed of a decade ago. 

The marked decline in investment in telecommunications since the dot-com 
bust will slow the diffusion of Internet and other new services, but the 
demand for these services seems to be continuing to grow. The availability 
of new services and their affordability will be determined by three main 
mechanisms: governmental policy, the economic feasibility and technical 
limits of new technologies, and market incentives. 

The new farm bill provides funding to increase the availability of 
broadband Internet services in rural areas as well as support mechanisms 
for rural electronic commerce, telemedicine, and distance learning. 

Peter L. Stenberg (202) 694-5366; stenberg@ers.usda.gov

Want to know more?

Peter L. Stenberg, "Telecommunication Rural Policy in the U.S.: Issues and 
Economic Consequences," electronic proceedings for the conference European 
Rural Policy at the Crossroads, The Arkleton Centre for Rural Development 
Research, University of Aberdeen, Scotland, UK, 29 June-1 July 2000, 
www.abdn.ac.uk/arkleton/conf2000/
papers/stenberg.doc.

SPECIAL ARTICLE

Does Land Degradation Threaten Global Agricultural Productivity & Food 
Security?

Increased resource use and improvements in technology and efficiency have 
raised global food production more rapidly than population in recent 
decades, but 800 million people remain food insecure. Meanwhile growth in 
agricultural productivity appears to be slowing, and land degradation has 
been blamed as a contributing factor.

Estimates of land degradation's impact on productivity vary widely. 
Productivity losses have been estimated as high as 8 percent per year due 
to soil erosion alone (in the U.S.), and as low as 0.1 percent per year due 
to all forms of soil degradation (on a global scale). These differences 
make it difficult to assess potential impacts on food security or the 
environment, and thus the appropriate nature and magnitude of policy 
response.

Recent improvements in economic analysis of geographic data offer new 
insights. Research by USDA's Economic Research Service (ERS) indicates that 
land degradation does not threaten productivity growth and food security at 
the global level. Nevertheless, problems do exist in some areas, especially 
where fragile resources are found along with poverty and poorly functioning 
markets and institutions.

Growth in Population & Income Has Increased
Demand for Agricultural Commodities

Global demand for agricultural commodities has increased rapidly since the 
mid-20th century as a result of growth in population, income, and other 
factors. The world's population nearly doubled over the past four decades, 
to 6 billion in 1999. World population growth has slowed in recent years, 
but is projected to reach 9 billion by about 2050. Per capita income is 
projected to grow by an average of about 2 percent per year over the next 
decade, continuing recent trends.

Based on these factors, the Food and Agriculture Organization (FAO) of the 
United Nations and the International Food Policy Research Institute (IFPRI) 
project that global demand for cereals will increase by 1.2-1.3 percent per 
year over the next several decades, while demand for meat will increase 
slightly faster. Most of the increased demand is projected to come from 
developing countries, especially Asia.

Although demand growth is slowing and remains within the range of crop 
production growth rates achieved over the past several decades, demand 
growth will continue to put pressure on land and other natural resources 
for the foreseeable future.

Cropland Expansion Has Slowed
& Land Quality Varies Widely

FAO reports that the total area devoted to crops worldwide has increased by 
about 0.3 percent per year since 1961, to 3.7 billion acres in 1998. Growth 
has slowed markedly in the past decade, to about 0.1 percent per year, as a 
result of weak grain prices, deliberate policy reforms (in North America 
and Europe), and institutional change (in the former Soviet Union). FAO 
estimates that an additional 6.7 billion acres currently in other uses are 
suitable for crop production, but this land is unevenly distributed, and 
includes land with relatively low yield potential and significant 
environmental value.

Given economic and environmental constraints on cropland expansion, the 
bulk of increased crop production in the future will need to come from 
increased yields on existing cropland. FAO data indicate that world cereal 
yields rose by about 2.5 percent per year from 1961 to 1990, but growth 
slowed to 1.1 percent per year in the 1990s. As a result of changes in 
input use (reflecting low cereal prices), market and infrastructure 
constraints, and low levels of investment in agricultural research and 
technology, IFPRI and FAO project that yield growth will slow further to 
about 0.8 percent per year over the next several decades.

ERS recently examined regional differences in cropland quality using 
geographic data on land cover, soil, and climate. Among the countries of 
sub-Saharan Africa, a median of 6 percent of cropland has soils and climate 
that are of high quality for agricultural production. The median proportion 
of high-quality cropland was higher in other regions, ranging from 20 
percent among Asian countries to 29 percent among high-income countries 
(mainly countries in North America and Europe, plus Australia and Japan), 
and 30 percent among the countries of Latin America and the Caribbean.

Land quality changes over time as a result of natural and human-induced 
processes, but data on these changes are extremely limited. Only one global 
assessment has been done to date: the Global Land Assessment of Degradation 
(GLASOD) in 1991, which was coordinated by the International Soil Reference 
Information Centre for the United Nations Environment Programme. Based on 
the judgment of over 250 experts around the world, GLASOD estimated that 38 
percent of the world's cropland had been degraded to some extent as a 
result of human activity since World War II (including 65 percent of 
cropland in Africa, 51 percent in Latin America, 38 percent in Asia, and 25 
percent in North America, Europe, and Oceania). GLASOD identified erosion 
as the principal cause of degradation, affecting 4 billion acres (mostly in 
Asia and Africa). Loss of soil nutrients was the primary cause of 
degradation on 336 million acres (mostly in South America and Africa), 
while salinization affected 190 million acres (mostly in Asia) and 272 
million acres were degraded as a result of other processes. 

GLASOD did not estimate productivity losses associated with land 
degradation, but about 37 percent of the total degraded area was estimated 
to have been lightly degraded, indicating that productivity had been 
reduced somewhat but could be restored through modifications in farm 
management. Another 46 percent had been moderately degraded, indicating 
greater losses in productivity that would require costlier improvements to 
reverse. The remainder were identified as strongly or extremely degraded, 
implying losses in productivity that are virtually irreversible.

Land Quality Affects Agricultural Productivity

Previous studies have sought to measure land quality's role in explaining 
differences in agricultural productivity between countries, but have 
considered only factors such as climate and irrigation because of data 
constraints. Recent ERS analysis incorporates the role of soil 
characteristics as well. Holding other factors constant, this analysis 
finds that the productivity of agricultural labor is generally 20-30 
percent higher in countries with good soils and climate than it is in 
countries with poor soils and climate. The quality of labor (measured by 
literacy and life expectancy), institutions (measured by the absence of 
armed conflict), and infrastructure (measured by the extent of roads and 
agricultural research expenditures) also affected agricultural 
productivity.

Better indicators of land quality also improve our understanding of the 
effects of other factors on productivity. In countries with poor soils and 
climate, basic inputs like fertilizer, water, and institutional stability 
are more important than they are in countries that are better endowed. 
Factors such as labor quality, road density, and mechanization appear less 
constraining for poorly endowed countries than they are for those with 
better soils and climate. These results are particularly clear in sub-
Saharan Africa, but hold true in other regions as well.

Land Degradation Reduces Crop Yields...

Based on climate and inherent soil properties, scientists from USDA's 
Natural Resources Conservation Service have estimated water-induced erosion 
rates that vary widely by crop production area, soil, and region, but range 
in most cases between 5 and 7 tons per acre per year. Researchers at ERS 
and Ohio State University reviewed over 300 plot-level experiments on yield 
losses due to soil erosion from around the world and found that for most 
crops, soils, and regions, yields declined by 0.01-0.04 percent per ton of 
soil loss. Combining these erosion rates and yield impacts allows estimates 
of potential annual yield losses to erosion in the absence of changes in 
farming practices.

These estimates vary widely by crop and region. Corn yield losses to soil 
erosion range from an average of 0.2 percent per year in North America to 
0.9 percent per year in Latin America. Yield losses are generally lower for 
sorghum and millet, ranging from 0.1 percent for sorghum in North America 
to 0.5 percent for millet in Asia. Annual wheat yield losses are below 0.3 
percent in all regions except Australia, where they average 0.7 percent. 
Differences in crop coverage limit comparison of regional totals, but 
aggregating across regions and crops (using current commodity prices and 
total production levels as weights) generates an estimated potential 
erosion-induced loss of 0.3 percent per year in the value of global crop 
production.

...and Raises Food Security Concerns

Land degradation may affect food security through its impacts on food 
production as well as on incomes and food prices. Land degradation's impact 
is difficult to quantify on a global scale, given limited data and complex 
interlinkages, but preliminary findings are provided by recent ERS analyses 
of agricultural production and trade.

ERS' food security assessment model projects future food production, trade, 
and consumption in 67 developing countries. In the baseline analysis 
(assuming that recent conditions, trends, and policies continue), the model 
projects that an additional 13 million tons of food will be needed in 2010 
to maintain per capita consumption at 1997-99 levels in the 67 countries. 
(An additional 22 million tons would be needed to raise per capita 
consumption to the minimum caloric intake requirements estimated by FAO.)

To assess the potential impacts of land degradation on food security, two 
alternative scenarios were used. The first assumed that cropland area 
expanded more slowly than in the baseline scenario due to irreversible 
degradation, while the second assumed that yield growth was reduced by an 
average of 0.3 percent per year due to erosion. The amount of additional 
food required to maintain per capita consumption at 1997-99 levels in 2010 
increased by 69 percent in the reduced-area-growth scenario and by 85 
percent in the reduced-yield-growth scenario. (The amount of additional 
food needed to raise consumption to minimum caloric requirements increased 
by 30 percent in the first scenario and by 34 percent in the second.)  In 
each case, the food gaps increased most sharply in sub-Saharan Africa.

These estimates indicate the potential for increased food security concerns 
as a result of land degradation. Actual impacts will be moderated by the 
actions farmers take to avoid, reduce, or reverse land degradation and its 
impacts.

Farmers Have Incentives To Address Land Degradation

In addressing land degradation, as in all choices they make, farmers have 
incentives to consider costs and benefits that affect them directly. 
Careful understanding of these costs and benefits is thus critical if we 
are to better understand the likelihood that resource degradation will 
occur, the likely economic and environmental consequences if degradation 
does occur, and the various ways in which these consequences can be 
mitigated or avoided.

Farming practices that degrade the land may generate declining net returns 
over time, while practices that conserve the land and sustain net returns 
may require costly initial investments. A comparison of alternatives is 
complicated by the fact that returns received in the future are generally 
worth less than the same nominal amount received today, and must thus be 
appropriately discounted.

Such a tradeoff between short-term and long-term net returns introduces 
several critical factors into farmers' choices. Perhaps most basically, in 
order to benefit from a conservation practice, farmers must expect to farm 
a particular plot of land long enough to recover their costs. Farmers who 
rent are thus less likely than owner-operators to adopt conservation 
practices that require a substantial initial investment, while renters and 
owner-operators are equally likely to adopt conservation practices that 
cover investment costs quickly. 

Farmers might also be unable to adopt a beneficial conservation practice if 
they are unable to afford the initial investment. This might be the case 
because of poverty, for example, or credit constraints. Even with 
sufficient cash reserves or credit, farmers might lack the information 
needed to compare practices, particularly when market or environmental 
conditions are highly uncertain.

Data remain inadequate to measure the effect of these factors on a global 
or regional scale, but ERS analysis of evidence from the U.S. confirms that 
optimal conservation strategies are sensitive to resource conditions and 
farmers' planning horizons. When farmers choose practices to maximize net 
returns over the long term, yield losses to land degradation will typically 
be lower than those estimated in agronomic studies, which hold farmers' 
choices fixed. On selected soils in the North Central U.S., for example, 
yield losses under practices that maximize longrun net returns are 
generally less than 0.1 percent per year.

These losses are consistent with the lower range of previous estimates. 
This does not mean that degradation-induced yield losses are unimportant--
just that they have historically been masked by increases in input use and 
improvements in technology and efficiency. Problems do exist in some areas, 
especially where resources are fragile and markets function poorly. Given 
projections that yield growth is slowing, yield losses to land degradation 
are likely to become more of a concern in the future.

Policy measures to reduce land degradation include strengthening tenure 
systems, investing in infrastructure, and improving access to credit. In 
addition to efforts to improve market performance in general, it may also 
be necessary in some circumstances to offer direct payments to enhance 
farmers' incentives to adopt conservation practices. Such payments are well 
established in conservation programs in the U.S. and in many other 
countries, but require careful attention to the timing and magnitude of 
payments in order to sustain incentives over time. Such approaches may also 
help achieve the broader agricultural, environmental, and food security 
objectives of the World Food Summit, the United Nations Convention to 
Combat Desertification, and other multilateral initiatives. 

Keith Wiebe (202) 694-5529; kdwiebe@ers.usda.gov

For more information:

"Resource Quality, Agricultural Productivity, and Food Security in 
Developing Countries," by Keith Wiebe and Abebayehu Tegene, in Food 
Security Assessment, GFA-12, USDA Economic Research Service, December 2000, 
www.ers.usda.gov/publications/gfa12/

"World Soil Resources," Online Soil Education Series, USDA, Natural 
Resources Conservation Service, www.nrcs.usda.gov/technical/worldsoils/

"Who Will Be Fed in the 21st Century? Challenges for Science and Policy," 
edited by Keith Wiebe, Nicole Ballenger, and Per Pinstrup-Andersen, 
Washington, DC: International Food Policy Research Institute, Economic 
Research Service, and American Agricultural Economics Association, 2001, 
www.ifpri.org/pubs/jhu/fed21century.htm

"The State of Food Insecurity in the World 2001," Food and Agriculture 
Organization of the United Nations, Rome, 2001, 
www.fao.org/docrep/003/y1500e/y1500e00.htm

SPECIAL ARTICLE BOX

Land degradation refers to changes in the quality of soil and water that 
reduce the ability of land to produce goods and services that people value. 
Some forms of land degradation, such as nutrient depletion, can be halted 
and even reversed relatively easily, for example by appropriate application 
of fertilizers. Other forms of land degradation, such as erosion or 
salinization, can be slowed or halted through appropriate management 
practices, but are generally very costly or time-consuming to reverse.

Agricultural productivity is a measure of the amount of agricultural output 
that can be produced with a given level of inputs. Agricultural 
productivity can be defined and measured in a variety of ways, including 
the amount of a single output per unit of a single input (e.g., tons of 
wheat per acre of land or per worker), or in terms of an index of multiple 
outputs divided by an index of multiple inputs (e.g., the value of all farm 
outputs divided by the value of all farm inputs).

Food security is generally defined in terms of access by all people at all 
times to sufficient food for active, healthy lives. As such, food security 
depends not only on how much food is available, but also on the access that 
people have to food--whether by purchasing it or by producing it 
themselves. Access depends in turn on economic variables such as food 
prices and household incomes, as well as on agricultural technology and the 
quantity and quality of natural resources.


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