agriculture and international tradeagecon2.tamu.edu/people/faculty/mjelde-james/agec 105/document...

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Agriculture and

International

Trade

Chapter 8+

• 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

Discussion Topics

• 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

Importance of Ag. Trade

2

Importance of Ag. Trade

Ag. Product Trade 2000-2018

U.S. Ag. Exports

https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/agricultural-trade/

3

U.S. Ag. Imports


U.S. Agricultural Trade 1967-2018

http://www.fas.usda.gov/gats/default.aspx

Ag. Fruits and Vegetables

Crop Percent Imported

Asparagus 86

Bell Peppers 49

Tomatoes 44

Cucumbers 54

Artichokes 76

Lettuce, Sweetcorn, Celery 2-3

All 21.6

4

2013 Agricultural Export Related Employment

U.S. agricultural exports generate jobs in both the farm and

nonfarm sectors…

https://www.ers.usda.gov/amber-waves/2015/may/calculating-the-jobs-associated-with-us-agricultural-exports/

• 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

World Trade Organization

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

Balance of Trade

5

U.S. Trade in Goods 1960 - 2018

U.S. Agricultural Trade 2000 -2018

https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=58374

Ag. Trading Regions

6

Ag. Trading Regions


Imports

thousands of Dollars

Exports


Mexico 22,943,880 China 21,401,393

Canada 21,528,824 Canada 20,308,767

European

Union-28 20,576,638 Mexico 17,832,525

China 4,323,831

European

Union-28 11,522,751

Brazil 3,395,125 Japan 11,036,438

Top Five Trading Partners 2016 - Ag

Varies by year see https://www.ers.usda.gov/data-products/foreign-agricultural-trade-of-the-united-states-fatus/calendar-year/

Imports


Exports


Mexico 24,569,354 Canada 20,494,208

Canada 22,333,441 China 19,612,135

European

Union-28 22,075,367 Mexico 18,615,063

China 4,499,201 Japan 11,929,127

Indonesia 3,710,343

European

Union-28 11,478,228

Top Five Trading Partners 2017 - Ag

Varies by year see https://www.ers.usda.gov/data-products/foreign-agricultural-trade-of-the-united-states-fatus/calendar-year/

7

Examples of Products – Imports Examples of Products - Exports

Canada

consumer oriented goods

(snack foods #1), forest

products, live animals,

seafood

Canadaconsumer oriented goods –

vegetables, fruit, processed

(snack), soybeans, feed

Mexicoconsumer oriented goods –

vegetables, fruits, wine and

beerMexico

Coarse grains, soybeans,

wheat, consumer oriented

goods (red meats, dairy),

forest products.

China

forest products, consumer

oriented goods (processed

fruit and vegetables and

juices), seafood

Japan


wheat, feeds, consumer

oriented goods (red meats,

fruits and vegetables)

ItalyWines and beers, oils, other

consumer oriented goods ChinaSoybeans, cotton, red

meats, poultry, tree nuts,

hides and skins

IndonesiaBulk goods (rubber, coffee,

cocoa beans)

Seafood, forest, tropical oilsSouth Korea


wheat, cotton, consumer

oriented goods (red meats,

fruits and vegetables),

hides and skins

Selected Trading Partners

State Top three exports Total value

million $

California Tree nuts, fruits, other 22,782.2

Iowa

Soybeans, feed grains, live

animals and meat 10,345.5

Illinois

Feed grains, soybeans,

corn, and pork 7,908.9

Minnesota

Feed grains, soybeans, live


Nebraska



Top Five Exporting States 2016

Texas sixth at 6,271.6

State Top three exports Total value

million $

California Tree nuts, fruits, other 23,304.9

Iowa

Soybeans, feed grains, live


Illinois

Feed grains, soybeans,

corn, and pork 8,488.3

Minnesota



Texas



Top Five Exporting States 2018

https://www.ers.usda.gov/data-products/state-export-data/state-export-data/#State%20Agricultural%20Exports,%20U.S.%20agricultural%20cash%20receipts-based%20estimates%20(Calendar%20years)

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Top 6 agriculture exports,

estimates, FY 2018

Rank among

states

Value

million $

1. Cotton and linters 1 2,602.1

2. Beef 2 1,074.4

3. Other plant products 4 801.6

4. Diary 5 338.1

5. Feed 10 258.4

Overall rank 5 6,883.2

Texas Exports

http://www.ers.usda.gov/StateFacts/TX.htm#TCEC

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)

Exchange Rates

International Monetary Fund and World Bank

System to allow for flow of trade and investments

Goals

Foster global monetary cooperation and stability

Help settlement of balance of payments

Loans to countries

Stabilize / monitor exchange rates

IMF & World Bank

9

International Monetary Fund

December 31, 1945 30 countries stated the IMF

Last country to join

Nauru – Pleasant Island – island country in

Micronesia – April 12, 2017

IMF

35 3640

47 4844

105 103 104

0

20

40

60

80

100

120

2003 2004 2008

Year

Nu

mb

er

of

Co

iun

trie

s

Independent Float

Managed Float

Pegged

http://www.imf.org/external/np/mfd/er/2008/eng/0408.htm



Exchange Rate Regimes

Note: 2008 and 2016 the same

Note: ~20 countries no separate legal tender use another countries currency

Country Currency 2009-

01-02

2009-

11-06

4/17/15 4/25/17

China Yuan 6.8225 6.8266 6.20 6.89

Mexico New

Pesos

13.7815 13.3754 15.32 18.61

Japan Yen 91.12 89.86 119.02 110.16

U.K. Pound 0.6029 0.6887 0.67 0.78

Canada C dollar 1.2101 1.0717 1.22 1.34

Various Exchange Rates

The line Canadian dollar of 1.2101 means that takes

C$1.2101 to exchange for one U.S. dollar. Likewise 0.6029

British Pounds are worth $1.00 in U.S. currency.

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Cross Rate

• Exchange rate between two countries as calculated

from the value of a third country

• How many Mexico pesos / British pound?

– 13.3754 Mexico pesos / U.S. dollar

– 0.6887 British pound / U.S. dollar

pound/pesos4212.19

Pound1

4520.1$USx

1$US

pesos3754.13

1$USpounds6887.0

1x

1$US

pesos3754.13

Reciprocal –

gives dollars

per pound

Country Currency /

US$

2009-01-02 2009-11-06

China Yuan 6.8225 6.8266

Mexico New Pesos 13.7815 13.3754

Japan Yen 91.12 89.86

U.K. Pound 0.6029 0.6887

Canada C dollar 1.2101 1.0717

Appreciation / Depreciation

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.

U.S. Corn

Price $ / bu

C$ / U.S. $ Canadian

price $ / bu

Initial

Conditions

$4.00 1.210 / 1 C$4.84

= 4* 1.210

Exchange rate

increase

$4.00 1.400 / 1 C$5.60

U.S. price

increase

$4.63 1.210 / 1 C$5.60

Exchange Rates and Prices

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?

11

U.S. Corn

Price $ / bu

C$ / U.S. $ Canadian

price $ / bu

Initial

Conditions

$4.00 1.210 = 1 C$4.84

Exchange rate

decrease

$4.00 1.100 = 1 C$4.40

U.S. price

increase

$3.64 1.210 = 1 C$4.40

Exchange Rates and Prices

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.

Exchange rates in foreign currency / $US 1/4/1971 to 11/08/2019

Except U.K.

12

Exchange Rate Determination

Quantity of dollars traded

Per day

Exch

ange

rate

Euro

s /

doll

ar

Rates are determined by

forces affecting the supply

and demand for currencies

on the foreign exchange

market.

Q*

E*

Supply of dollars

Demand for dollars

Exchange Rates and Interest Rates


Per day

Ex

chan

ge

rate

Eu

ros

/ d

oll

ar

Q*

E*

Supply of dollarsD1

D2

Q2

E2

Demand for dollars after

rise in U.S. interest rates

An increase in the demand for

dollars as U.S. interest rates rise,

indicating here that it takes E2 Euros

to buy a dollar rather than E* Euros.

Exchange Rates and Trade Deficit


Per day

Ex

chan

ge

rate

Eu

ros

/ d

oll

ar

Q*

E*

Supply of dollarsD1

Q2

E2

Supply of dollars resulting

from U.S. trade deficit

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 E2 euros

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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

http://data.imf.org/?sk=7A51304B-6426-40C0-83DD-CA473CA1FD52&sId=1484148942565

Balance of Payments

http://www.imf.org/external/datamapper/index.php?db=BOP

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International Investment Position


International Investment Position


• 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.

Summary

agriculture and international tradeagecon2.tamu.edu/people/faculty/mjelde-james/agec 105/document...

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