Agriculture Generating Trade Deficit

In the past agriculture has been able to single-handedly cut the trade deficit by as much as 16% some years. But America's appetite for imported cheap foods assisted by free trade agreements may be bringing that era to an end.

The Wall Street Journal reports that agriculture, which usually produces trade surpluses, has recently generated monthly deficits. Since the nonagricultural deficit is ballooning, the U.S. economy needs agriculture to continue to be its strength.

The U.S. is still the world's biggest agricultural exporter. However increased cheap competition from Brazil and China is taking its toll, as well as free trade agreements. U.S. wheat trade controlled half of the world's market in the 1980s, now struggling to capture one-fourth of the world wheat market.

USDA is expected to update its forecast on Nov. 22, raising speculation about the U.S. agricultural trade balance in the upcoming weeks. The article says that the "agricultural-trade surplus is evaporating so quickly that some economists in the Bush administration are quietly speculating that the sector might generate an annual trade deficit as soon as the fiscal year ending Sept. 30, 2005."

A weaker U.S. dollar should benefit domestic producers by making foreign products more expensive. That hasn't been the case for slowing imports. "In August, the value of agricultural imports rose 24% from a year earlier to $4.37 billion, which was $156 million more than August exports," the article says.

The trade gap is not always talked about in the discussions on country-of-origin labeling (COOL). But the backlash is being felt by many ranging from beef producers who see 20% of McDonalds beef supply stocked with New Zealand and Australian beef to South American citrus producers taking over Florida's hold on the U.S. orange market. According to USDA, 78% of fish and shellfish consumed in the U.S. are imported. It's no wonder some of the outspoken proponents of COOL are citrus growers and fish producers. Fish was after all the only meat that retained the original implementation date.