In the past twelve years, Global Capitalism has significantly impacted our U.S. agricultural sector, ranging from being extremely favorable to extremely damaging.
For the most part through 1996, Global Capitalism was the engine for increasing economic activity, which generated increased demand for the U.S. agricultural sector. Starting in 1997 the global economy began to weaken. During the past five years, in country after country around the world, corruption and mismanagement have devastated economies and forced many commodity prices to lows not experienced in decades.
Indications are that the U.S. and global economy are slowly starting to improve. That said, a weakened U.S. and global economy will take time to regain the robustness they enjoyed from 1990 to 1996.
Using rice as an example lets go back…
The year is 1996.
Following the fall of Communism, Global Capitalism (a movement toward free trade) is seven years old and the 1996 Farm Bill became law in April 1996.
Due to an expectation of continued robust global economic activity, the goal of the 1996 farm bill was to transition U.S. row crop producers into producing for the global market, which would eliminate the need for income support starting with the 2003 crop.
In 1996, the U.S. farm market price of rice was $9.96 per cwt and, on the export market, U.S. milled rice was selling for $450 per metric ton and Thai $338 per metric ton. USDA’s 1997 farm rice price projections ranged from $9.70 per cwt in 1997 to $10.96 per cwt in 2005.
As 1996 ends, the US and global economies are robust.
The year is 1997.
In July 1997 Thailand, the No. 1 US rice export competitor, becomes one of global capitalism's first casualties and devalues their currency.
Thailand's devaluation was the beginning of the Asian Financial Crisis and significantly weakened U.S. rice producers’ position in the export market.
In 1997, the U.S. farm market price of rice was $9.70 per cwt and on the export market U.S. milled rice was selling for $415 per metric ton, Thai $302 per metric ton, and Vietnamese rice was selling for $269 per metric ton. USDA’s 1998 farm rice price projections ranged from $10.15 per cwt in 1998 to $12.13 per cwt in 2007.
As 1997 ends, the US economy remains robust, but the global economy begins to weaken.
The year is 1998.
In 1998, global capitalism has another casualty as Russia defaults on their debts to global financial institutions.
By the third quarter of 1998, the global economy had slipped into a recession.
In 1998, the U.S. farm market price of rice was $8.89 per cwt and on the export market U.S. milled rice was selling for $369 per metric ton, Thai $284 per metric ton, and Vietnamese rice was selling for $257 per metric ton. USDA’s 1999 farm rice price projections ranged from $9.00 per cwt in 1999 to $10.37 per cwt in 2008.
As 1998 ends, the U.S. economy remains robust, global economy has slipped into a recession, and globally commodity prices soften as demand declines.
The year is 1999.
Russia's default was followed in early 1999 by Brazil’s, a major U.S. agricultural export competitor, devaluation of its currency.
In 1999, the global economy continued to weaken, causing foreign monies to continue to flow into the U.S. equities market. The equities market is now becoming increasingly overvalued, causing inflationary concerns.
Thus, in mid 1999, the Federal Reserve now starts the first of six interest-rate increases.
Unexpectedly for the Federal Reserve, regulatory hurdles have now created a US energy crisis (California, etc.), so energy prices are on the rise, immediately following the Fed interest rate increase.
In 1999, the U.S. farm market price of rice was $5.93 per cwt and on the export market U.S. milled rice was selling for $284 per metric ton, Thai, $231 per metric ton, and Vietnamese rice, $202 per metric ton. USDA’s 2000 farm rice price projections ranged from $5.60 per cwt in 2000 to $8.54 per cwt in 2009.
As 1999 ends, the US economy has weakened and the global economy continues to slip further into a recession and globally commodity prices are falling.
The year is 2000.
Rising interest rates and rising energy prices coupled with an inflated equities market are positioning the US economy for a fall.
Now, US crop producers are facing weakening prices and rising costs.
In addition, governments and businesses around the world have spent one-half trillion dollars avoiding Y2K problems.
In 2000, the U.S. farm market price of rice was $5.61 per cwt and on the export market U.S. milled rice was selling for $272 per metric ton; Thai, $184 per metric ton; and Vietnamese rice, $165 per metric ton. USDA’s 2001 farm rice price projections ranged from $6.10 per cwt in 2001 to $7.91 per cwt in 2010.
As 2000 ends, the US economy further weakens and a global economy in recession is about to slip into a deep recession.
The year is 2001.
According to the Economist Magazine, a key reason for low US commodity prices in 2001 was that the global economy experienced its most severe deceleration since the 1974 oil price shock. This global deceleration in economic activity pushes the global economy into a deep recession.
September 11 hammers the US economy.
In 2001, the U.S. farm market price of rice was $4.17 per cwt and, on the export market, U.S. milled rice was selling for $213 per metric ton; Thai, $192 per metric ton; and Vietnamese rice, $185 per metric ton. USDA’s 2002 farm rice price projections ranged from $4.30 per cwt in 2002 to $5.88 per cwt in 2011.
By the end of 2001, yet another major agricultural export competitor, Argentina, devalues their currency making their agricultural products cheaper on the export market.
The year is 2002.
The U.S. economy is weak but improving and the same is true of the global economy.
The U.S. is now a country at war, which normally translates into inflation, but the U.S. is also the champion of free trade which in a non-war economic setting would normally translates into deflation. South America now has extreme economic problems, but the Asian Tiger is beginning to stir. This translates into extreme uncertainty for U.S. rice producers, and currently our cash price for rice is close to the 1942 farm market price.
In country after country around the world, during the past five years, corruption and mismanagement have devastated economies, forced many commodity prices to lows not experienced in decades, and significantly reduced American rice producers ability to compete in export markets.
And, then, so many suggest the American farmer should compete against countries that have corrupted or protected their economies So, at this point, policy is more than justified that will stabilize farm income. At sometime in the future, a robust global economy will give U.S. producers the best opportunity to receive a price consistent with their cost of production. Until that time, we must move toward agricultural policy that rewards productivity and efficiency, stabilizes income, and prepare to transition into responding to global market signals.
Bobby Coats is an Extension agricultural economist with the University of Arkansas. He is based in Little Rock. E-mail: [email protected].