THE AMERICAN FARM BUREAU FEDERATION
COMMITTEE ON BANKING AND FINANCIAL SERVICES
THE 1998 OUTLOOK FOR AGRICULTURAL TRADE
February 3, 1998
Mr. Chairman, I am Dean Kleckner, president of the American Farm Bureau Federation (AFBF). The American Farm Bureau Federation is the nations largest general farm organization with member state Farm Bureaus in 50 states and Puerto Rico, representing 4.7 million member families.
Farm Bureau farmers and ranchers produce virtually every agricultural commodity produced commercially in the United States. Among other purposes, AFBF was organized to assist Farm Bureau members in attaining economic opportunities through domestic and international markets.
I want to thank you for holding this hearing and providing the opportunity to help you understand the importance of resolving the Asian fiscal crisis to agriculture.
The most important partner in most farming operations is the farmers banker. It is our relationship with our bankers that helps guide us in production decisions. Just as our bankers at home are important, your role in shaping the direction of trade programs such as the International Monetary Fund (IMF) will have a major impact on the economic stability of American agriculture in the Asian marketplace.
The financial crisis in Asia is of paramount concern to my members. Americas farmers and ranchers depend on international markets for over 30 percent of their income. The Asian market accounts for over 40 percent of our agricultural exports worldwide. This totaled over $23 billion in export sales in 1997.
Eastern and Southeast Asia is a region with a ratio of people to land six times higher than North America. Current financial turmoil and harmful currency devaluations must not be allowed to obscure the economic and demographic focus at work in this region. Three-fifths of the worlds likely population growth and half of its income growth through 2010 is projected to occur in East and Southeast Asia. Aggregate food demand is projected to grow 100-150 percent in this region over the next 25 years. This is Americas fastest growing agriculture market and should continue to be for some time --if the fiscal crisis can quickly be reversed.
Asia has been a growth market for traditional bulk commodities such as soybeans, corn, rice and wheat. But, in 1997, the fastest growing U.S. agricultural exports were in what we call value-added products. These include meat, horticultural and processed foods. Value-added products account for millions of U.S. jobs in processing, packaging, advertising, and shipping. These are off-farm jobs that support rural communities and a broad scope of interrelated industries.
The events in Asia are already affecting sales of agricultural goods in the 10 Asian markets that have seen their currencies devalued over the past six months. Devalued currencies result in increased consumer prices which directly translates into less market demand. The Asian consumers purchasing power has been greatly reduced. Lost sales mean lower incomes for our producers and economic pressures on rural economies.
Current USDA estimates show a reduction of $500 million in sales to Asia so far this year. The total impact may exceed $1.5 billion before the crisis is over.
Lets look at some specifics of what is taking place in some of the Asian markets.
According to experts in the Asian offices of the U.S. Meat Export Federation (USMEF), the financial crisis has induced a frugality campaign in South Korea. This includes calls for consumers to buy domestic instead of imported products. This has resulted in many Koreans avoiding fast-food franchises which are major users of U.S. value-added products. A French discount store is running ad campaigns stating that 95 percent of goods sold are domestic as an effort to attract customers.
Imported beef prices to Korea have risen as much as 20-30 percent higher than in December. Restaurants serving U.S. or Australian beef do not want to pass on the increased prices for fear of driving away customers. Imported beef prices are expected to climb even higher next month.
The Indonesian rupiahs drop against the U.S. dollar currently means as much as 30-35 percent reduction in consumer purchasing power and higher interest rates and inflation. USMEFs Asian manager reports that sales of U.S. beef in Indonesias five-star hotels have dropped about 10 to 15 percent. He estimates that Indonesia will suffer the crisis for two or three years. The hotel food and beverage businesses have also slowed. Major U.S. chains have reported a 10-15 percent decrease while the lesser-known establishments are seeing as much as a 39 percent drop in business. Importers are stocking less as they are experiencing credit problems. Banks are reluctant, or, are unable to issue letters of credit for imported goods.
Each countrys situation is unique and each has different needs and prospects for recovery, but stable currency is needed for viable long-term markets. The arsenal of tools needed to help our trading partners in Asia resolve their crises must be fully utilized. These tools include developing and putting into place sound monetary practices which when coupled with credit guarantees and programs like the USDA export credit guarantee programs as well as the IMF assistance plans without further devaluations should stabilize these economies.
IMF programs can be successful. These are not charitable bail-out programs. These are loans, repayable with interest and with requirements for internal structural changes. I believe that for IMF programs to be successful, they must be adequately funded and focused on requiring the recipient countries to make the long-term internal adjustments that will lead to sound domestic economic systems which include stable currencies, stable taxes, and private property rights upheld.
I want to call your attention to a Senate letter to Secretary of the Treasury Rubin which is attached to your copy of my testimony. I support these senators in their request for greater access to foreign agriculture products as part of these countries reform packages. This has not only been our fastest growing market, but also one of the most difficult markets in which to attain market access.
IMF loans are not an expense to the taxpayer, but an investment. According to USDA, agriculture will lose at the very least three to six percent of our hard-earned market share in Asia -- even with IMF programs in place. The market may also take several years to recover. These loan programs are an investment in our future as well as that of our trading partners.
Where do we go with our products from lost market share and normal production growth in the meantime. As these programs take shape we must also look to expanding existing market access and opening new markets. Our negotiators must have fast track negotiating authority to do this.
The stakes are too high to allow inaction. Tremendous resources and efforts have been expended to create these markets for U.S. agricultural products whose sales support millions of U.S. workers. A loss of 30 to 40 percent of our agriculture export market would de-stabilize our industry. IMF-led assistance programs are critical to the overall recovery in the region and fast track is critical to picking up lost market share and expanding access to worldwide markets.
Ours is truly a global economy. When our strongest customers face grave fiscal and financial crisis, as those now occurring in Asia, agriculture is the first to feel the effect as our customers lose purchasing power. Although Americas farmers and ranchers are the most efficient and productive in the world, they are not positioned to make production decisions to protect themselves from drastic currency fluctuations in major markets.
U.S. agricultures ability to gain and maintain market share is based on many factors, including good trade agreements, the administrations ability to negotiate freer and fairer market access with fast track authority, sound monetary policies and the ability to utilize market stabilizing tools such as a properly functioning IMF.
I firmly believe an IMF that lives up to its original charter and fast track negotiating authority are critical tools that the administration must have to protect and keep the U.S. economy stable. These are even more important while our trading partners struggle to restructure their economies. It is extremely important to U.S. agriculture and the nations economic strength that you do the right thing and pass both of these trade measures early in this session of Congress.
I urge you to provide the funding necessary for the IMF to address the needs of our trading partners in Asia and later this spring to grant the administration fast track authority to continue to open markets for all sectors.