Agriculture and International Trade

Transcription

1 Agriculture and International Trade Chapter 8+ Discussion Topics The importance of agricultural trade The balance of payments Growth and instability in agricultural trade Exchange rates and the foreign exchange market Exchange rate determination Exchange rates and U.S. agricultural trade Importance of Ag. Trade Crop agriculture in U.S. has become export dependent 40% or more of annual of production is exported of some crops Livestock agriculture less dependent on foreign sales Greater dependence on imports as well 1

2 Ag. Product Trade Ag. Product Trade U.S. Ag. Exports 2

3 Ag. Fruits and Vegetables Crop Percent Imported Asparagus 86 Bell Peppers 49 Tomatoes 44 Cucumbers 54 Artichokes 76 Lettuce, Sweetcorn, Celery 2-3 All Agricultural Export Related Employment U.S. agricultural exports generate jobs in both the farm and nonfarm sectors World Trade Organization Creation of WTO to implement trade provisions, settle disputes, and review policy Liberalize trade Reduce tariffs Reduce export subsidies Lower domestic subsidies Use accepted international standards for food safety and plant health regulations, harmonize standards and establish disease free zones 3

4 Balance of Trade The balance of trade is a measure of overall trade performance. Trade surplus = Exports > Imports Trade deficit = Imports > Exports A trade surplus provides capital since the nation is selling more than it is buying. A trade deficit, on the other hand, can reduce a nation s capital reserves over time, forcing it to either limit imports or borrow capital. U.S. agriculture has recorded trade surpluses since at least the 1960s U.S. Trade U.S. Agricultural Trade

5 Ag. Trading Regions Region Exports Imports Net Exports Asia 44,209,381 14,698,797 29,510,584 North America 32,278,631 28,908,223 3,370,408 CA / SA / Carrib. 12,031,753 13,655,921-1,624,168 Europe 10,619,399 16,436,608-5,817,209 Middle East 6,649, ,856 5,884,822 Africa 5,813,086 1,739,515 4,073,571 Former Soviet Union 2,303,570 82,045 2,221,525 Oceania 1,189,068 4,376,239-3,187,171 Total $115,277,563 $80,662,204 $34,615,359 Top Five Trading Partners 2008 Imports Millions of Dollars Exports Millions of Dollars Canada 17,991,758 Canada 16,253,364 Mexico 10,916,465 Mexico 16,025,184 China 3,448,383 Japan 13,223,118 Italy 3,263,633 China 12,114,772 Indonesia 2,820,797 South Korea 5,561,389 Varies by year see Top Five Trading Partners 2008 Examples of Products Imports Examples of Products - Exports Canada Mexico China Italy Indonesia consumer oriented goods (snack foods #1), forest products, live animals, seafood consumer oriented goods vegetables, fruits, wine and beer forest products, consumer oriented goods (processed fruit and vegetables and juices), seafood Wines and beers, oils, other consumer oriented goods Bulk goods (rubber, coffee, cocoa beans) Seafood, forest, tropical oils Canada Mexico Japan China South Korea consumer oriented goods vegetables, fruit, processed (snack), soybeans, feed Coarse grains, soybeans, wheat, consumer oriented goods (red meats, dairy), forest products. Coarse grains, soybeans, wheat, feeds, consumer oriented goods (red meats, fruits and vegetables) Soybeans, cotton, red meats, poultry, tree nuts, hides and skins Coarse grains, soybeans, wheat, cotton, consumer oriented goods (red meats, fruits and vegetables), hides and skins 5

6 Ag. Trade 2009 Jan. Sept and 2009 Year Exports Imports Net Exports 2009 $68,505,602 $53,594,415 $14,911, $87,150,974 $60,664,343 $26,486,631 Change -$18,645,372 -$7,069,928 -$11,575,444 Percent -21.4% -11.6% -43.7% Texas Exports Top 5 agriculture exports, estimates, FY 2011 Rank among states Value million $ 1. Cotton 1 2, Other Products 2 1, Beef and Veal Hides and Skins Wheat Overall rank 4 7, Texas Exports Top 5 agriculture exports, estimates, FY 2013 Rank among states Value million $ 1. Cotton and linters 1 1, Beef and veal Other plant products Poultry products Hides and skins Overall rank

7 State Top three exports Total value million $ California Tree nuts, fruits, other 11,638.6 Iowa Illinois Texas Nebraska Top Five Exporting States Soybeans, feed grains, live Feed grains, soybeans, live Cotton, feed grains, live Feed grains, soybeans, live 7, , , ,944.6 State Top three exports Total value million $ California Tree nuts, fruits, other 17,844.4 Iowa Illinois Texas Nebraska Top Five Exporting States Soybeans, feed grains, live Feed grains, soybeans, live Cotton, feed grains, live Feed grains, soybeans, live 10, , , ,930.0 State Top three exports Total value million $ California Tree nuts, fruits, other 19,500 Iowa Minnesota Illinois Nebraska Top Five Exporting States 2013 Soybeans, feed grains, live Feed grains, soybeans, corn, and pork Feed grains, soybeans, live Feed grains, soybeans, live Texas sixth at 5,700 10,200 8,000 7,900 6,600 7

8 Number of Coiuntries Exchange Rates The exchange rate is the number of units of a foreign currency required to obtain one unit of a domestic currency The reciprocal of this rate expresses the number of units of a domestic currency required to obtain one unit of a foreign currency These rates can be thought of as the value of the domestic currency relative to a foreign currency (i.e., the value of the $ relative to the different currency) International Monetary Fund and World Bank Goals IMF & World Bank System to allow for flow of trade and investments Foster global monetary cooperation and stability Help settlement of balance of payments Loans to countries Stabilize / monitor exchange rates Exchange Rate Regimes Independent Float Managed Float Pegged Year 8

9 Various Exchange Rates Country Currency /17/15 China Yuan Mexico New Pesos Japan Yen U.K. Pound Canada C dollar The line Canadian dollar of means that takes C$ to exchange for one U.S. dollar. Likewise British Pounds are worth $1.00 in U.S. currency. Cross Rate Exchange rate between two countries as calculated from the value of a third country How many Mexico pesos / British pound? Mexico pesos / U.S. dollar British pound / U.S. dollar pesos x US$ pounds pesos US$ x US$1 1 Pound pesos/ pound US$1 Reciprocal gives dollars per pound Appreciation / Depreciation Country Currency China Yuan Mexico New Pesos Japan Yen U.K. Pound Canada C dollar When the value of the dollar appreciates in value, the exchange rate increases. A depreciation of the value of a dollar causes the exchange rate to decline. 9

10 Exchange Rates and Prices Initial Conditions Exchange rate increase U.S. price increase U.S. Corn Price $ / bu C$ / U.S. $ Canadian price $ / bu $ / 1 C$4.84 = 4* $ / 1 C$5.60 $ / 1 C$5.60 An increase in the exchange rate is similar to an increase in the U.S. price in terms of the price paid in Canadian dollars. Either change would decrease exports of corn. WHY? Exchange Rates and Prices Initial Conditions Exchange rate decrease U.S. price increase U.S. Corn Price $ / bu C$ / U.S. $ Canadian price $ / bu $ = 1 C$4.84 $ = 1 C$4.40 $ = 1 C$4.40 A decrease in the exchange rate is similar to a decrease in the U.S. price in terms of the price paid in Canadian dollars. Either change would increase exports of corn. WHY? When the dollar rises, exports fall, and when the dollar declines, exports rise. 10

11 Exchange rates in foreign currency / $US 1/4/1971 to 4/17/2015 Exchange rates in foreign currency / $US 1/2/1981 to 4/17/2015 Exchange rates in foreign currency / $US 1/4/1971 to 4/17/

12 Exchange rate Euros / dollar Exchange rate Euros / dollar Exchange rate Euros / dollar Exchange Rate Determination Supply of dollars E* Rates are determined by forces affecting the supply and demand for currencies on the foreign exchange market. Demand for dollars Q* Quantity of dollars traded Per day Exchange Rates and Interest Rates D 2 D 1 Supply of dollars E 2 E* Demand for dollars after rise in U.S. interest rates Q* Q 2 Quantity of dollars traded Per day An increase in the demand for dollars as U.S. interest rates rise, indicating here that it takes E 2 Euros to buy a dollar rather than E* Euros. Exchange Rates and Trade Deficit D 1 Supply of dollars Supply of dollars resulting from U.S. trade deficit E* E 2 Q* Q 2 Quantity of dollars traded Per day A trade deficit causes an increase in the supply of dollars on currency markets, weakening the dollar and lowering the exchange rate from E* euros per dollar to E 2 euros 12

13 Balance of Payments Accounting record of all foreign transactions by U.S. public and private entities Usually measured on a yearly basis Includes Trade in good and services U.S. purchases of foreign assets Foreign purchases of U.S. assets Net international position of a nation relative to its trading partners and foreign investors Balance of Payments Balance of Payments 13

14 Balance of Payments Select Countries Balance of Payments Select Countries Summary Exchange rates have an impact on U.S. agricultural trade The value of foreign currencies is determined in the foreign exchange market. The international monetary system is called a managed float, where rates fluctuate within limits controlled by the International Monetary Fund or IMF. Trade distortions have prompted nations to seek general agreements on tariffs and trade (GATT). U.S. agriculture becoming increasingly dependent on export sales. Imports supplying a growing share of domestic food and fiber consumption. U.S. agriculture generates a trade surplus each year, partially offsetting the trade deficit in other merchandise. 14