Midday; Troubles facing the farm economy

The farm economy we hear and read is not in very good shape these days but since only about 3 percent of this country's population is engaged in farming most of us may not understand the factors affecting a farm economy. A recitation of facts would show that net farm income is down farmers costs are rising as usual and the prices they receive for their commodities in the main are not keeping pace with expenses. There's not much that is new in that recitation but several other factors are making these difficult times for farmers and the factors include record high interest rates. We'll be covering some of these topics this noon hour with Professor Edward HSU the head of the applied in agricultural economics department at the University of Minnesota in St. Paul. Professor Shu has had that appointment since 1979 and before his university job he served as deputy undersecretary for international affairs and commodity programs at the U.S. Department of Agriculture in Washington D.C. and he has been a senior staff economist on President Ford's Council of Economic Advisors and Professor Hsu worked as a program advisor in

Brazil for the Ford Foundation among his many other duties over the years and we're pleased that you could spend a period of time with us today Professor Shu and I guess my first question is we've heard that this is a depression for some farmers. Is it as bad as that. Well it's a pleasure for me to be here. And it's almost that bad for particular groups of farmers. And I think it's I think it is important to recognize that it's somewhat of a mixed bag when you look out there. Dairy dairy sector's been doing reasonably well recently. Prices have been up so producers have been doing well but that that's after a period of not having done very well in the beef sector is not doing very well right now either. The big issue of course is what's been happening to the prices of grain. And so and that's a large part of U.S. agriculture. So a large part of U.S. agriculture is in rather bad straits. In fact if you look at prices of

corn and wheat for example there are as low as they were back in the early 1930s. So that is if you correct for the inflation. So you're looking at the relative prices. Now this is fresh on your mind of course for many reasons not the least of which is that a couple of weeks ago you attempted to define for the members of the Joint Economic Committee in Congress what you viewed as the problem and your international experience. Will lead to the next question I want to ask you in a moment about the Falklands Melvina silence crisis and its effect on grain prices. For that let's give out the telephone numbers that listeners can call in case they have a question for our guest for the next 50 minutes or so Professor Edward HSU the head of the applied in agricultural economics department at the University of Minnesota in St. Paul. You can call us in the Twin Cities at 6:58 6000 that's 6:58 6000 listeners outside the Twin Cities living within Minnesota can call us free. We have a toll free line and that is 1 800 6 5 2 9

7 0 0 1 800 6 5 2 9 7 0 0. And please tell us where you're calling from when you get on the air. Professor Shu we have been told that if grain shipments from Argentina to the Soviet Union are disrupted because of the war in the South Atlantic this could have an impact on world grain prices can you explain that. Well it would probably have some some impact on world grain prices. I think a good part of that impact would be more of a psychological effect then anything else it's rather interesting that ever since a 19 or 72 73 really significant entrance of the Soviets into the US grain market. There has always been sort of a psychological excitement generated whenever they come in and into an economist who looks at it. Your reaction has always been that there's really more excitement there than than merits but there will be that sort of thing if the. You know if that

conflict becomes so serious at this that Arjen team is not able to continue to meet its commitment to the Soviet Union that would be some increased demand from us probably. And so it could could result in some increase in prices but I wouldn't expect too much of it. All right then getting back to current matters regarding what has been called the depression for farmers is it the cost of money the high cost of credit that is really putting the squeeze on most farmers who are in trouble. Well the cost of money is obviously making it very difficult for those farmers who have taken on a lot of debt in recent years. I think the interesting point and perhaps the more important point is that the cost of money has had a somewhat different effect in my view a more important fact. In its effect on the value of the dollar in foreign exchange markets. Because the real root of the problem that we face today and US agriculture is that the value of the dollar is roughly

30 35 to 40 percent higher than it was say a year ago. That is an enormous realignment of the value of a currency particularly when that currency happens to be the world's reserve currency principal reserve currency. Now what that what that has done of course is to reflect prices in that international market to the U.S. economy at significantly lower rates than they would otherwise be. And the other thing that is done of course is to choke off our export markets. It's far more expensive now for a Western European country to buy a bushel of our corn than ever before. That's exactly right in fact let me give you just a couple of examples of the extent to which is more expensive. Compare the price of soybeans. Third quarter Nineteen eighty third quarter nine hundred eighty one in the U.S. and they declined about 10 percent 12 percent in that period. If you correct for inflation again if you look at the

price of those same soybeans converted into German Deutschmark. What you will find is that they have risen about twenty five twenty six percent. So although the price of the soybeans here in the US economy have been declining over that period they have gone up very dramatically. The reason for that. The reason is that there was something like a 40 percent realignment of the value of the deutschmark relative to devalue the dollar during that period. Again traced back to high interest rates but not in a direct fashion trace back to high interest rates and another important point that I would like to make is that obviously high interest rates strengthen the dollar. They make it attractive for other countries to put their investors in other countries to put their dollar in the U.S. and that of course bids up the value of the dollar. But see there was another very significant development that took place in 1980 in debt I suspect has had. Even a greater effect on the high interest rates and that is that.

Recall that President Reagan deregulated the petroleum industry as one of his first actions as president. When he came in and ordered nine hundred eighty one. And that deregulation plus some other things that have been happening have caused our petroleum imports to decline very significantly. As I recall from something like eight and a half million barrels a day down to something like six point seven million barrels a day because of that increased competition within in the in the international market for petroleum petroleum prices have also declined so far. So our total import bill for Petroleum has declined very dramatically. My notion is that Dad has probably had as much of an effect or perhaps even more of an effect in those commodity markets in the foreign exchange markets than the interest rates. The important point of course and I think it's worth emphasizing this is that those two sets of issues indicate the very different context in which one has to try to understand agriculture

today than one did a decade ago. Agriculture is now part of the world economy and one has to look at it in a much more interdependent fashion. It's no longer a case of a Minnesota planting season simply being delayed. It's now a global preserve exactly exactly 12 minutes after 12 o'clock our guest today during the noon hour is Professor Gee Edward Shu the head of the applied and Agricultural Economics Department at the University of Minnesota and our topic is the farm economy and you're invited to call with a question if you have one. The number in the Twin Cities is 6:58 six thousand listeners outside the Twin Cities living within Minnesota can call free. And that number is 1 800 6 5 to ninety seven hundred sixty five to ninety seven hundred we have callers on the line will get to the first questioner right now good afternoon we're listening. Go ahead with your question please. Well maybe that caller isn't there all right we'll check another call or go ahead with your question please and tell us where you're calling from.

Chris from Minnesota. I'd like to ask the speaker there if he believes that the current interest rates coupled with Reagan's Mr. Reagan's economic policies if those policies together well affect this negatively in that way affect the big pharma positively. Thanks very much. Well I'm not sure that there would be much of a difference a little thing and I think one has to look at it again from the two sides the two sides of the interest rate question to the extent that those high interest rates make commodity prices lower than they would otherwise be. As we talked about earlier here they're going to affect small farmers as well as large farmers. So that's not going to there's not going to be much of a of a nothing there that's probably the major effect in most cases to the extent that. That one compares small farmers with large farmers on the borrowing side

and have a case where the large farmer could probably internally finance his own growth and expansion and the small producer would have to borrow. And in that case you may well have a differential effect of course. Who's being hurt more these days the small farmer or the big farmer or is it across the board. Well the person that is getting hurt are those who have taken on a lot of debt in the last three to five years. That may be a small producer and maybe a large producer. I had a I had a large producer phoned me several weeks ago and it was a Monday morning after I talked to him. I guess as I guess after there was an article in The Tribune and. And he was he was saying you know he had over the last couple years taken up to a million dollars in debt. And he was obviously going down the tube. Pure and simple. So there was a large. Large producer who was being hurt very severely but a lot of these farmers large and small Professor Hsu have been told over the years farmers must not be afraid of going into debt so they have kind

of grown up you might say I suppose with hearing that all the time and now all of a sudden many of them discover they're in trouble it says though I wouldn't blame a lot of them if they felt as though they've been led down the path a little bit. Well I think I think I would I would agree with that and I would also agree that we have had a recent secretary of agriculture who went around saying plant fence row to fence row you know and that's of the same sort of thing. And I think the irony of that is that this secretary of agriculture was known to be a market oriented secretary of agriculture and it always struck me that that what he should be telling farmers is watch the market fellas you know not plant fence row to fence row because I think it's that kind of mentality that has got a lot of producers in the difficulties that they're it. I would come back and make this other point again that who is it that's hurting some of the some of the established farmers who have a lot of that body and very little debt.

Are there making less income than they were several years ago. But they're not subject to any kind of a great big squeeze. One comes back to the question that it's the person who's had to take on a lot of debt too and facing these very high interest rates and wildly fluctuating wildly fluctuating interest rates. Who is in real difficulty. All right. Sixteen minutes now after 12 o'clock Our guest is Professor Gee Edward Hsu head of the department of Applied and agricultural economics at the University of Minnesota we have a caller with a question we'll get to that question in just a moment but we have several lines open so you can call if you have a question about the farm economy and the number in the Twin Cities is 6:58 six thousand two to seven 6000 listeners outside the Twin Cities living within Minnesota can call free. And that number is 1 800 6 5 2 9 7 0 0. So we have a caller right now good afternoon we're listening for your

question this morning. The likeness of a good Minnesota. And I am a farmer and I have a question and backing up to. Number one you were discussing high interest and so forth and yet you haven't spent any time hand at the high cost of putting the crop be in corn or wheat corn. So you have risen from broccoli $12 billion years ago to 63 and more pork and the cost of repairing the high cost of machinery and yet being 628 on a market this morning. On the dollar 90 even if you are an established spammer and have been conservative and haven't went into debt more. And what do you feel you can pay.

There is no way that you can mean team at the cost of production and the cost of what you get for your product. And you were 27 years to maintain a will and you have a son or a child that wants to go away and there is no way possible that you can. There are you that a young person can do it and I would like Professor food to spend a few moments in this area. How can you cut down any more than you cut down. The high class telephone and the high cost of electricity things that I thought of again. And you try to economize in cars. At every corner you can in order to keep going to absolutely not. That's all they hear in dad's company. You know I mean the question is will you. The same was made about the farmer that got himself into their

cure. Probably there were some but there's a lot of us there's a lot of farmers that have done the right way at the right time and yet at this point in history everything is against us and I am aware for the young you're making me think you deserve $12 an hour. And yet the family is supposed to be satisfied with six dollars worth of the like it cost you close to five. 75 considering your car your machinery your car everything to put that there. All right why don't we give Professor Hsu a chance to respond thanks very much for calling with that. Okay I I emphasize the interest rate the high interest rate because that was the way the question that was put to me. And and as as the woman indicates there are there are a lot of other things out there that are happening. And one of the things of course that has characterized agriculture over the years is that the prices that

farmers pay are very rigid downward. When you get into a slack period like this the price of tractors don't go down that the land taxes don't go down the price of fertilizer seldom goes down. And and she's perfectly right these prices have these cost have continued to go up in the farmer's prices going down and that is what is putting them in a real squeeze. This call from hayfield seem to demonstrate as vividly as any I've heard the squeeze as you say that the farmers are put in in other words the people's especially the service people they have to deal with who are essentially getting a fixed wage in some cases and this is a fixed expense for the farmer there's. That's right that's rigid too. That's right. The kind of adjustments that. That farmers can make in their really fairly limited. They can probably cut back on their fertilizer and things like that. But but when they do that that's going to that's going to reduce their output. And that may be good for all farmers together but it's not going to help that individual because he's going to need some uplift the seller. He or she is going to need some uplift us out at the end of the year.

We have other callers with questions we'll get to the next one in just a moment our guest is Professor Gee Edward HSU the head of the applied in agricultural economics department at the University of Minnesota and if you have a question about the farm economy you can call we have several lines open in the Twin Cities 6:58 six thousand two to seven 6000 listeners outside the Twin Cities can call 1 800 6 5 to ninety seven hundred sixty five to ninety seven hundred that's a free call we'll take our next caller Good afternoon you're on the air. Yes. My question relates to this. The interest rate and the some comments a professor made. He said that the farmers found themselves with a sudden high interest rate. I believe something to that effect. We have been investing in federal farm credit for three to four years and the returns have been 16 to 17 percent for three or four years for at least three years and now they're a little are much lower 13 percent. Sorry just wondering how you haue the comment that farmers are caught

by a sudden high interest rate can be justified when actually the interest rates are lower now and the other common as are many of the farmers that are in real difficulty those that bought land financed expansion or machinery and they had no really no reserve in their operation. For bad weather or one crop failure. Therefore it was a business. Just got him in trouble. Thank you. Well let me let me take the second question first and then the first and second question I had I think I've answered already by saying that yes the ones that are and severe difficulty are the ones who have taken on a lot of debt in recent years for whatever reason. Now the question about what's happening to the interest rate obviously depends a great deal on on the time period that you take for it. And and but that's an important point in its own right because it's the instability of monetary policy debt

and the resulting instability of interest rates that are creating a lot of difficulties for for farmers. Let me come back let's take a little bit longer perspective on on our problems go back to the election year 1980. Because a particularly interesting year and I think it illustrates the instability of monetary policy and the consequences that it has for for farmers and for the agricultural sector. If you go back to the first half of 1960 the Federal Reserve was reducing was letting the money stock for this country decline at a rate of about six and a half percent a year. And if you'll remember back in 1980 I think I think the nominal rates of interest were getting down to around 10 to 11 percent in that period. That was me that was of that was a period of very tight monetary policy the turn around was a period of very tight monetary policy because the Fed was was restricting monetary growth and that was the first period.

That was the first period when we got the record breaking prime rate. Remember it went over 20 percent in long about April May of nineteen eighty. Then it seems that we got into June and somebody seemed to recognize that maybe this was an election year or something and all of a sudden over the next. For months something like that. The money aggregates grew at a rate of something like 24 percent. So as I had been forced to decline in the previous period. Now listen they were going at a very high rate and you'll recall that that interest rates then declined to something from about the 20 percent level down to something like the 11 to 12 percent level. Then of course the day after the election almost I'm overstating this a little bit but the day after the election then the Fed went back to its very tight monetary policy and it has had very tight monetary policies ever since. Now I don't recall just when interest rates peaked out but they did go back almost to that peak level again. And then there had been sort of

gradually moving downward from that and the inflation premium has been pushed out of the out of the capital market. So whether you talk about the current rates being high or low depends very much upon what period do you compare it with. We have other callers with questions and we'll take the next one right now good afternoon we're listening for your question and tell us where you're calling from please. Yes John Kerry former Minnesota. And I have two questions I want to put forward. Number I was curious what the gel month would be for what the price of milk would have to pry hundredweight to make an enormous drop in the supply and the stabilization of our jury product. I and the other questions that quite a bit unrelated but since so many farmers and also non farmers to have borrowed on the equity of farmland to finance their expansion and so forth. I was curious does the

gentleman have any foresee any future sequence of events that would possibly. Entail a drop and very rapid drop. Farm prices farm land prices. More or less catastrophic drop. Good questions both of them and Professor Shu a chance. Yes excellent questions. The how far dairy prices would have to drop to have a noticeable impact. I think if you are if you talk about having a noticeable impact within a period of say six months they would really have to get quite low. And the problem that you have as many of our listeners know is that given the profitability of dairy over the last couple years compared to other activities in agriculture there has been a significant build up in capacity I mean a lot of lot of farmers dairy farmers have built up their herds that they have put in new plant and equipment and that sort of thing.

And once you do that those those costs all become fixed cost. And the only way we're going to get anything out of them is to go ahead and produce. You can't. You know unless beef prices get very strong you're not going to do very much by liquidating your herd and your milking facilities and things like that. The problem is you don't have anything else to do with them now. Over the longer period of time and that's what's painful about the whole process and that's why it's so painful when mistakes are made in policy that over longer periods of time I mean that eventually will will reduce the supply and get back into balance. And I emphasise that the prize has to affect of course by lowering prices you increase consumption you stimulate demand and by lowering it you eventually begin to have some impact on output. So you may be you may come into balance quicker than in what you might think. The important point that I would make is that is that what what research that we have on the esence been quite a bit and I think the empirical experience. Jibes with

is that that when you get that price support the dairy price aport level much above 70 percent parity in the sector begins to get out of balance. Now that's quite a bit lower than what. And what we have but just getting prices down to that 70 percent level is not going to bring you just a bit over day. It'll take it'll take quite some time. Let me see if I understand this now we have a dairy price support system which we the taxpayers are supporting essentially to the tune of some would say 2 billion dollars slightly over that right now slightly over that. That's the amount of money that dairy farmers are receiving to help pay for let's say a hundred pounds of milk. For example Now let's say a typical Minnesota dairy farmer is getting $13 for 100 pounds of milk. What is the so-called world price. How does that compare with what what the domestic prices. Well of the US price of milk is substantially above the world price but one has to be very careful about making that kind of a

comparison because it turns out that many countries protect their dairy sector in the same way that the U.S. has and then consequently dump the milk abroad. So sort of a direct a direct comparison like that is a little bit misleading but but it's still important to recognize that there are dairy prices are substantially above you know what even. Legitimate international price would be. So now he wanted to know about the future of farmland present land prices. Well I one of my one of my very great concerns is that I think it is entirely possible for us to have this kind of a downward spiral in land use. Just as we have had coming up over the last decade and when one does things a little bit about the dynamics of that market you know one of the things thats happening now is that some farmers are being forced to sell their land and then there have been a part of the number

of sell outs that that we have had this spring. Now they're forced to sell into a weak land market. And that forces prices down and so that next round of producers out there who who in the absence of those sales would have been safe as far as our banker is concerned. When you start pushing the land values down then the bankers begin to get nervous about that next round of producers and begin to close out the next round. And that's the very kind of thing that can push is downward now. You know I must say that 10 years ago I would have never believed that we could get into that kind of situation they're in. But I don't believe it any longer I think it's something that could well happen. And and and I'm very concerned about it. A downward spiral in other words if speculators for example have invested long term in farmland for let's say 25 years with the notion of doubling tripling they better look out. That's right but you don't even have to worry about this speculator I mean what I'm worried about is a little me a farmer farmer who has a who has a perfect interest and and the poor

person who you know the person who it's the end of his time in farming and he wants to get out and he's going to be doing into a very rapidly declining land market. I hope that doesn't come to be but it could well come to be. We have other callers on the line with questions we'll get to the next one right now good afternoon Professor shoes listening. Yeah my name is Sarka. You're a lawyer. Minnesota River grain terminals. And my question concerns the grain market in this country. Is there a free market. Or. Is the price controlled by large grain and laying companies searches. Cargill and I also think you know the recent proposed merger of a PV

company with. Another. Grain handling company. Thank you. OK well that is still a very competitive market out there. I know there's a tendency for people to say that there are only five or six major companies and that consequently there must be a lot of collusion going on in price fixing. I think what one has to recognize is that there are five or six companies that that take a very major share of that green trade. But there's also a long list of a lot of other companies in their debt are that are always in the business of trying to do

better and then I think one also has to recognize that there's always the international market and dad that gets involved in it and it provides competition. Final point I would make of course is that cooking company which was a major major exporter went bankrupt just a few years ago. And that suggests that there must be some competition in that market and some degree of risk and some degree of risk as indeed we have other callers waiting with questions we'll get to the next one right now good afternoon Professor shoes listening for your question. I'm calling from time city and I'm not up for myself because it's Russia I'm through. The code of Kansas Missouri and Wisconsin says the same thing and it is absolutely terrible. Primaries are being driven to bankruptcy Main Street so businesses are

just floating the whole time I've put it to me in a suit of the 70s or the Panis and he says in the 30s again just running Professor X ray into the 30s again it was a slam of depression in terms of the general economy I would judge not but the kind of situations that the farmer is facing as I indicated already is very comparable to what we had in the 1930s in fact if you correct for inflation the price that he's receiving for some His major commodities are right back down to those very depressed levels of that period. Though I think one of the interesting things about this is that farmers during the 1970s in a very real sense benefited from the mismanagement of our economy. And now in the 80s they're being penalized for some rather serious attempts to get our economic policy more in

line. And let me explain what I mean. 970 as we let the inflation rate get away from us get completely out of hand and that contributed to the very serious weakness of the value of the dollar made our exports go up like crazy and gave the agricultural sector of very strong stimulus in addition to that we totally mismanaged our energy policy. We're subsidizing imports of petroleum not by just a little bit by it but by a very large amount. And consequently that contributed to further weakening of the dollar and that's what that export boom of the 1970s was all about. Now we get into the 1980s. We're making the most serious and prolonged attempt to get inflation under control that we have made in a long period of time that has caused interest rates to be very high and to stay up there. And we've got our petroleum import policy in a very sensible vein. Petroleum imports have declined the value of the dollar has strengthened very much because of those two things.

And who's bearing the burden of what the agricultural sector is bearing the burden of it. I would hasten to add that that same set of factors is one of our the same sort of things that are affecting the automobile industry. Because with the with the decline with the rise in the value of the dollar the price of automobile imports is declining rather significantly. It's affecting the lumber industry and their long long list of other sectors. But but it's really having a very severe effect on the agricultural sector we have other callers on the line we have a few lines open so before we get to the next question I'll remind you that we're listening to Professor Gee Edward Shu the head of the applied and Agricultural Economics Department at the University of Minnesota in St. Paul and if you have a question and are living in the Twin Cities you can call us at 6:58 six thousand two to seven. Six thousand listeners outside the Twin Cities living within Minnesota can call free. That toll free number is 1 800 6 5 to ninety seven hundred one eight hundred sixty five to ninety seven hundred now.

The next questioner Good afternoon We're listening here for Smith from Minnesota. Hello Sara how are you. We're doing fine. We have been following separate situation very carefully trying to manage I want her to respond to that. We've been trying to find other types of markets for our men. Back to school at market. I was reading an article that because you're literate in the family is NG in which you're talking about the federal court marketing orders. Could he possibly explain that in layman's terms. A short amount of time I don't I know it's complicated but the article gave the effect or we had the impression that your English could be an increasingly less significant factor in the economies of the Midwest such as Minnesota Wisconsin etc. and be shifting more to areas where it was economically possible to

have large numbers of her culvert 900 to go and kill her. Does he see that. If in your future when he says a person could drop the role if we're talking I don't think talking is relative to what we've got now. OK let me let me try the. When you talk about marketing orders I find that people's eyes begin to glaze over. But I would I would emphasize that I think the marketing orders for milk are probably as important and significant as the price support level and it's the price support level that tends to get all of the publicity. Now to the price marketing orders have two significant effects that. That are relevant to this question. We're talking about here. One thing is that they preserve a particular national price relationship. And

the the dairy products are priced based at Auclair in Wisconsin. And then the then the dairy price for the rest of the country is determined by adding on transportation cost from that. Now some people have argued to at that particular price pattern is subsidizing producers in the south and on the East Coast and on the West Coast at the expense of the Minnesota and Wisconsin producer. And the point that I was making in that discussion that was picked up in the minute in the Minnesota farmer was that if one talked about doing away with all of the marketing orders one would have to think about the other aspects of the marketing orders like the extent to which it precludes the use of the while the powdered milk reconstituted reconstituted milk and that if you were

to go to a completely open the dairy sector where where market forces were determining the prices. My my comment at that time was that contrary to what many people think we would probably be worsened by such a situation simply because the. The comparative advantage has shifted out of this part of the country and it's shifted down to the south where temperature means that you don't have to build all these big capital facilities and big barns and everything to produce dairy. And if you were to completely do away with the milk marketing order and permit the use of reconstituted milk then one could could move the powdered milk around or if not completely powdered milk at least take out 85 percent of the water and your transportation costs would be much less. And it just makes the southern part of the country much more competitive with the with the producers up here. And that's why I was saying that that you know the Minnesota and Wisconsin producers are really going to come out

very short if we eventually go that way. Keeping in mind that I've been told I think I've been told that federal milk marketing order is one of the reason for their creation anyway and for the vast and complicated dairy subsidy program is because of dairying before then was kind of chaotic. There'd be a shortage of milk some times of the year price fluctuations would be crazy. Farm families couldn't stay in business dairy farmers couldn't stay in business. The THAT HAS THAT was the historic explanation for the milk marketing orders and the important point is that the technical the technical change and the technological progress if you will that has permitted us to to use reconstituted milk. So that consumers can't tell the difference between reconstituted milk and and fresh milk. Nor can you tell the difference in the laboratory has changed that

dramatically because essentially what that means is that that you can store the milk in the back room and when there's a fluctuation and to pay and when you get into a different season of the year you can bring it out and use it. And that has been the big technological development that that in a very real sense raises the question to society of whether we need the milk marketing orders any more. Now if we were to do away with those milk marketing orders liason to add that they're going to be a lot of dairy farmers suffer some rather serious consequences. Probably most of them in Minnesota and Wisconsin and many of those in Madison Wisconsin but. But I would hasten to add that that our experience in the past of trying to avoid developments like that whose day has come. It's not been a very good one. I mean farmers fought margarine for a long period of time but when those technological things come along they come along and I you know it's easy for me to

say this because I'm not a dairy farmer right now but one just as well better recognize what kind of adjustments are coming up and begin to work towards them. We have other callers on the line with questions we'll take the next one right now good afternoon Professor shoes listening going to make a comment before I ask my question it's just that there's a very interesting book on the grain trade that the professor may have heard of it's called the grain merchants. And I can't think of the author right offhand. Dan Morgan Oh yes. Okay. My question in the 50s. Yeah. People connected with and I can't think of the association right there out in Kansas. People connected with wheat had programs to save said a big reason introduced white bread in Japan in Asia and foreign third world countries and whatever. And also the soybean Marketing Association became very active and worked very closely with the government a great cultural extension people that

extension of agricultural service in the foreign embassies also to establish markets overseas for the soybean products. I am interested how historically what historical lessons we might take out of that successful marketing what perhaps can be applied from that historical experience to today's situation in the marketing of American agricultural products. Good night. Thank you. Good. Excellent excellent question. The program which you referred to is described as the cooperators program. And and in fact when I was in Washington this last time as deputy undersecretary of agriculture I had responsibility for the for the cooperative program. It is still a very vital program. In fact Congress has been supporting it extremely well and I think rightly so. And it takes a lot of forms and in fact right now the the the the we dissociation is is in the business of setting up

bakeries for white bread in China and teaching the Chinese how to bake white bread and other kinds of things it does is in some of the centrally planned economies teach them how to use green rations to feed their livestock and things like that. Now those are you know I consider those very legitimate kinds of market development activities. I think they're a little bit of a mixed bag but for the most part I think they've been very successful programs. And incidentally another market development activity was the Food for Peace program that that some people view is strictly as a giveaway. But I think if you look at Japan was a country that got started using agricultural products under the pianoforte program. South Korea's another one Taiwan is another one that has a long list of debt that it has helped get in those in those markets. Having said that I think one has to recognize that that when one looks at the kind of exchange rate realignments that we've

been going through over the last year those kind of programs cannot possibly offset their Porton programs over the longer term. But they're not capable really of dealing with the short term problem. We have other callers on the line with questions but we have several lines open so if you have a question for Professor G Edward Hsu on the farm economy call us in the Twin Cities at 6:58 6000. That's two to seven 6000 listeners outside the Twin Cities living within Minnesota can call free. And that number is 1 800 6 5 to ninety seven hundred. So we'll take the next questioner Good afternoon we're listening. My question is that foreign trade it's never made sense to me that we import expensive then. And you know how to export cheap food. Wouldn't it make more sense to eat for the whole economy to have a high food policy so where it's a year where the government maintains a minimum price so that the farmers get a decent return on their yield and dad. But in order that there

isn't a lot of distortion in the economy there's not a two tiered price of raising food is just meat very expensive and perhaps to be a situation where everyone in the country would get food stamps or something so that Americans wouldn't have to pay a lot for food but foreigners coming here and we have to pay quite a bit for food that would help us farm income and balance of payments. And I would say the increased income would pay any of the costs of providing food stamps for the rest of society. Well I don't. I fail to see how it's going to help the balance of payments because if you were to do that if you get the prices way up like that we would. We would lose our export markets. What about organizing All-SEC organization for the exporting countries. Well Australia that's about it. Well the I mean the the experience with the embargo on the Soviet Union really should have demonstrated to anybody that was looking that one really cannot organize one cannot be successful at organizing that kind of a cartel. And there are a lot of good economic reasons why you can't the most important of which

being that most countries are only marginal importers of food products. It's not like not having any petroleum supply and having to import at all. Almost every country imports produces some agricultural products so they always have the domestic substitute there. There is there's very little that you can you can there's very little of a model that you can exploit there. Equally as important I mean countries just are rather cantankerous and they have under the you know the I thought the Soviet embargo was a perfect case where one might get some cooperation and you know the point is if you get the prices way up like that there are all kinds of incentives to come back in and exploit that to take advantage of that high price so your cartel breaks down rather quickly. Let me let me make the more general comment then. Dad trying to do what Europe is doing which is to have their domestic food prices something about 60 to 70 percent above world prices is simply

not the way to go. If one thinks about what's good for the United States I mean it would obviously be good for some groups of farmers. But one has to recognize that when you do that you're really slowing down your rate of growth and I think it's fair to say that that the stagnation in the European economy now is due in an important way to the fact that they're making their consumers pay so much for their food that it's absorbing an important part of their total budget and leaving less for other people to use. We have other callers with questionnaires We'll get to the next one right now good afternoon Professor shoes listening and where are you calling from Morehead assaulted and your question. Well it's more of a comment. I just to Indians I know what you've been talking about but I heard him talking about a program encouraging the Chinese to be white. We have been getting more green to livestock and I

am absolutely opposed that our government is supporting this type of thing. I recognize the economic science. But you. You know that's one of the worst things we could do. Good for the farmer but it's simply not good for the human. Well I wasn't I wasn't judging the policy to be rather good or bad I was responding to a question as to whether that kind of a program could help increase our exports. And I was explaining that yes it could. And that policy was a continuation of one that we had been using for some time. There are obviously I mean if you push people away from from their traditional diet and put them on something like this that may not be quite the same you obviously have nutritional consequences of that. Other callers on the line with questions and we'll get to the next one right now good afternoon we're listening. Good afternoon. My question concerns interest rates and I might preface it with the comment that I think economists would agree that a currency can be healthy.

Visa V overseas exchange rates because the economy of that country is healthy or it can be a strong currency perhaps for the wrong reasons. For example in the United States we have such high interest rates that it's attractive to bring your foreign money into the United States and convert to dollars. But that does not necessarily mean that the interest rate is high because the economy is truly healthy because in fact the economy is quite sick. Given this situation and the effect of in exchange rates cultural sector would the professor care. Please comment on this type of economic condition and why it's brought about and how we can create a healthy base exchange rates. Yeah excellent very good question. The one of the points that I made if you've been listening since we started our discussion one of the question

points that I made when I was testifying before Congress before the joint economic committee was that one of the reasons that the interest rates are as high as they are is because the U.S. is trying to be the World's Banker at this point. And and it's the same time it's trying to squeeze it's the inflation out of the US economy. Yet just in the nature of the beast that it's also squeezing inflation out of the world economy. Now that incidentally is the game that we played back during the 1950s in the 1960s. And although many people think agriculture was the most subsidized sector of the economy at that time it really wasn't because the dollar was overvalued throughout that period because we were being playing the role of the world's central banker. And so although farmers were getting price support they were also paying a very large implicit export tax. Now what's disturbing to me frankly is that we're back playing that same game

again. And and with the result that it's not just of the dollar the value of the dollar is high which is very good for certain certain parts of the economy but the dollar again in my judgment is overvalued and it's overvalued because we are trying to be the World's Banker. And I really see absolutely no reason for trying to play that role. I think we punish certain sectors of our economy like export sectors very much when we tried to do this. I've argued that that the U.S. needs to take the lead in helping to establish an international central bank that will would be sort of an extension of the International Monetary Fund if you will. It would have the responsibility for for managing the growth of monetary reserves for the world economy so that we no longer have to have to do that. And until we do then we're going to be punishing our agricultural and other export sectors like we're doing now as we try to

manage the world economy. We can do it but we're going to pay a very high price for other callers on the line with questions we'll take the next one good afternoon Professor shoes listening. Yes I want to make a comment regarding that. Feelings on federal marketing orders he made it sound like there's new technology involved and there's really not new technology because the milk has been dried for years. It's been available in grocery stores as it's been for years. There's no change there. Then he went on to say that eliminating federal marketing orders would probably harm Minnesota Wisconsin dairy farmers more because the cost advantage for the comparative cost advantage has disappeared. Well the prices for milk are higher in other areas than they are in Minnesota and Wisconsin. How can eliminate the federal marketing orders have anything to do with that. It would seem to work at the Sidley. From what indicator.

Yeah that all of which indicates that the produce dairy produces in the other parts of the country are really getting a leg up as a consequence of the marketing order and they would probably be out competing as even without that help that they're getting. Let me come back to the earlier point about. Yes we've always had powdered milk. We have always had powdered milk. If you'll recall drinking it in the past didn't taste like the same thing as drinking fluid milk and there have been some recent technical changes that have made the product is much more comparable to taking taking fluid milk. See the problem with the milk marketing order. If you look at it from society's standpoint is that it precludes the use of powdered milk to produce fluid milk and sell it in stores if you say if you sell it in stores then then they have to sell at the same price as the fluid milk. And that wouldn't be the case if you were looking at regular cost comparisons.

I think we have time for about one short question and fairly brief response will take the next call a good afternoon you're on the air. I'm from one of your window now. I turned off my radio when I put in my call so maybe somebody else's call about. In the meantime it but I don't know what. I was also very upset by what the professor said about our department keeping foreign people to be white bread and so on and so on. I wanted to know if there wasn't something he could do to put a stop to this program. He said that it is still going on and he was at one time connected to it. Now is there anything he can do to see to it that that is not continued. Thank you. Well in my present position I'm one but just like you are and we can both write to our senators and our congressman's and to the secretary of agriculture and ask that those programs be changed. I would emphasize that usually you're not talking about that being the only change that's taking place and that's not the only food item

that people are eating. So I wouldn't draw too strong a conclusion as to whether there is that large nutritional thing on it or not. Thanks to all of you for calling in with your questions and thanks to Dorothy Hanford for answering the phone calls and we appreciate it and thanks especially to our guest Professor G Edward Chu head of the applied in agricultural economics department at the University of Minnesota on the St. Paul campus and we appreciate your time with us.