• If you are having problems logging in please use the Contact Us in the lower right hand corner of the forum page for assistance.

Farm and Food: Busting the great agricultural export myth

Econ101

Well-known member
Farm and Food: Busting the great agricultural export myth



By ALAN GUEBERT/Farm and Food Columnist

Lincoln Journal Star

June 11, 2006

Nebraska, US



Former Secretary of Agriculture Ann Veneman couldn’t stop for a cup of coffee in farm and ranch country without waxing romantically on how “one in four acres of American farm production is exported.”



Her replacement, Secretary Mike Johanns often makes the same point with more precision. “Twenty-seven percent of U.S. farm receipts come from trade,” Johanns told a May 8 Chicago luncheon crowd.



The trouble with Veneman’s oversimplified number and Johanns’ overcooked number is that both are wrong, wrote Ed Maixner in the April 28 issue of the Kiplinger Agricultural Letter.



The actual “value” of ag exports to farmers and ranchers, noted Maixner, Kiplinger’s editor, is neither 27 percent nor 25 percent. “Analysis shows the portion is 8 percent,” he explained, when “measured by value...”



The difference, he goes on to explain in the Letter, is “the government doesn’t account for extra value that gets added to goods after they leave the farm... shipping, processing, packaging and more. Ignoring such markups greatly overstates the exported share.”



For example, Maixner told Keith Good in a May 13 interview (which can be heard at http://agpolicysoup.blogspot.com/), steaks exported to Japan might carry a $15 per lb. price tag at the export terminal, but the rancher gets less than a $1 per pound from the packer when the animal is sold.



Likewise, $3 North Dakota wheat may fetch $5.50 when it leaves Washington State for Shanghai, but the grower still only received $3 when he sold it in Jamestown.



As such, counting the steak’s $14 markup or the wheat’s $1.50 price boost as “farm value” is “logically ridiculous,” Maixner continues. What USDA is actually tabulating, he adds, is “added export value, not farm value.”



USDA Chief Economist Keith Collins says Maixner’s math is “a valid concept. We shouldn’t think of exports as cash receipts.” But that’s as far as Collins will take the thought without walking it backwards fast.



To say that exports are only 8 percent of farm value is “ridiculous on its face,” he notes. “That means that 2006’s estimated $64.5 billion in exports is worth, let’s see...” Collins pauses to do the math... “$19 billion. That’s just crazy.”



Not so, replied Maixner in an interview.



“We had appropriate USDA analysts examine all the trade data to make the estimates we published.”



The difference between Maixner the editor and Collins the economist is not dismal science. Farm groups, politicians, and trade negotiators rely on accurate, definitive data to propose farm programs, write farm bills, gather votes and —like today — cut world-altering trade treaties. The data not only make a difference, they are the difference.



USDA’s most recent examination of its trade data, published in the Nov. 2003 issue of its magazine, Amber Waves, shows that, by either value or volume, both Veneman and Johanns are off the mark.



By volume, the export share of U.S. agricultural production has averaged 22 percent since 1996. By value, however, the export share of U.S. agricultural products averaged 17 percent from 1998 to 2002, or 5 percentage points lower than the volume-based average.



Still, the value number includes far too much off-farm money in its total, Maixner believes.



For example, he says, three out of four bales of U.S.-produced cotton will be exported this year. “USDA would chalk up the cleaned bales of cotton sitting at an ocean or Mississippi River port as farm value. Not hardly,” he explains. What about ginning, transporting, warehousing and interest — all included in the port price?



“We’re not raining on anybody’s parade, here. We are trying to encourage public policy statements based on fact.”



He was more blunt with Keith Good. Asked why he looked at USDA’s trade data with a jaundiced eye, Maixner pointed to both the Doha Round of trade talks and the about-to-begin 2007 Farm Bill writing.



“When developing farm policy,” Maixner told Good, “it’s probably good to start somewhere near the truth. We don’t export everything... Maybe the first thing we need to take care of is our domestic agriculture economy.”



Alan Guebert is a freelance agricultural journalist.



journalstar.com
 

Jason

Well-known member
Yeah right Sandhusker. They don't consider the costs to get beef to retail. They just complain that the % is shrinking.
 

Sandhusker

Well-known member
Jason said:
Yeah right Sandhusker. They don't consider the costs to get beef to retail. They just complain that the % is shrinking.

Everybody's costs are going up, Jason. Do you think that is only a problem for the packers?

The % is shrinking. Can you offer anything contrary?
 

Jason

Well-known member
Don't pick and choose then. I agree everyone's costs are going up.

However when you are shown that R-calf is wrong when they use just the farm gate to retail spread to bash packers because they have different costs and are adding value to beef independent of anything the producer does, it is the same thing. The producer's cost hasn't increased 1 lick for the further processing because they never did anything to add that value.

Value added to any farm commodity after it leaves the producer shouldn't be atributed to or implyed that the original producer made that income.

Costs incured in adding that value should also be seperated. That is the problem with the way R-calf twists the farm to retail spread. The added costs are not considered.

If this article is accurate I agree the 27% export figure is misleading if refered to only the primary producer. However if used as an impact on the entire economy it is accurate.
 

Sandhusker

Well-known member
How much value is being added to how much product? The biggest seller is hamburger - what the heck are the doing to it now that they weren't doing 10 years ago? What about all the other cuts? Yeah, they're selling meatloaf and some ready to warm products now, but what % of all the beef being sold now is that type?
 

Jason

Well-known member
I don't have the exact numbers of value added, but look at things like the oven ready roasts, or the meatloaf, or the lasagna, or the pre packaged hamburgers. They sell for roughly double what the raw beef sells for. What expense did any rancher have in adding that double value?

As for plain hamburger in the last 10 years the move has been to leaner and leaner burger. Regular 70/30 used to move off the shelves and now you can hardly find it because the consumer wants it leaner.

What expense did the rancher incur to have the ground beef mixed leaner?

Even products like sasuage and jerky. The expense to the producer hasn't risen to add these values but labor to make it sure has.
 

Sandhusker

Well-known member
Jason said:
I don't have the exact numbers of value added, but look at things like the oven ready roasts, or the meatloaf, or the lasagna, or the pre packaged hamburgers. They sell for roughly double what the raw beef sells for. What expense did any rancher have in adding that double value?

As for plain hamburger in the last 10 years the move has been to leaner and leaner burger. Regular 70/30 used to move off the shelves and now you can hardly find it because the consumer wants it leaner.

What expense did the rancher incur to have the ground beef mixed leaner?

Even products like sasuage and jerky. The expense to the producer hasn't risen to add these values but labor to make it sure has.

You can throw out the arguement that expenses to add value has gone up for the packers because expenses to get the cattle to them has risen for the producers as well. Everybody is in the same boat there.

I could take your agruement and turn it the other way. What expense did the packer have when I invested in BQA training and redesigned my corrals so he would get a better carcass? He profits from it, but didn't put a dime in. How does the packer share in the rising expenses I have putting hay up with $3 gas? When can I expect the packer's check to offset the rise in fertilizer for my circle that will feed the cattle he will sell the beef from?

Are you going to tell me that there is nothing producers do that adds value that they are not properly compensated for? How many times have producers had to get out the check book to change their cattle because "this is what they want now"?

What about the checkoff? I've got customers paying over $1000/yr into this. Don't tell me the packers don't benefit from that. You could make a good arguement that packers benefit much more from check-off dollars than producers do.

It would be interesting to compare the rise in ready product with the decline in the producer's share. I'll bet you they're not inverse equally. I know dang well the added costs of making 80/20 instead of 70/30 does not equal the % loss of producer's share.
 

Jason

Well-known member
You can throw out the arguement that expenses to add value has gone up for the packers because expenses to get the cattle to them has risen for the producers as well. Everybody is in the same boat there.

You missed the entire point.

A rancher's costs are exactly the same this year if their calves are ground for burger and sold for 99 cents or if they are all made into ready to eat dinners and sold for $9.99 a pound.

What the rancher paid for fuel pasture bulls etc doesn't change if the calf has value added after it leaves his posession.

If you sell that calf for $600 at 600 pounds and he finishes at 1000 pounds for easy numbers. Has your expense changed because he gains 3 pounds a day after he leaves your place? What if he only gains 2 poun ds a day?

Next step, at 1000 pounds he dresses 600 (for ease of numbers). If he is all ground and sells for $400 has that affected the original $600 you were paid? It means you were paid 150% of retail for your calf. If the 400 pounds of saleable meat is made into those dinners he sells at retail for $3960 (400x$9.90) has that changed the $600 you were paid? But this time you only recieved 15% of retail. OMG !! your going broke!!! Farmgate % of retail has dropped 90%.

In reality (where you should spend more time) the amount the producer has in his pocket is exactly the same.
 

Econ101

Well-known member
Jason said:
You can throw out the arguement that expenses to add value has gone up for the packers because expenses to get the cattle to them has risen for the producers as well. Everybody is in the same boat there.

You missed the entire point.

A rancher's costs are exactly the same this year if their calves are ground for burger and sold for 99 cents or if they are all made into ready to eat dinners and sold for $9.99 a pound.

What the rancher paid for fuel pasture bulls etc doesn't change if the calf has value added after it leaves his posession.

If you sell that calf for $600 at 600 pounds and he finishes at 1000 pounds for easy numbers. Has your expense changed because he gains 3 pounds a day after he leaves your place? What if he only gains 2 poun ds a day?

Next step, at 1000 pounds he dresses 600 (for ease of numbers). If he is all ground and sells for $400 has that affected the original $600 you were paid? It means you were paid 150% of retail for your calf. If the 400 pounds of saleable meat is made into those dinners he sells at retail for $3960 (400x$9.90) has that changed the $600 you were paid? But this time you only recieved 15% of retail. OMG !! your going broke!!! Farmgate % of retail has dropped 90%.

In reality (where you should spend more time) the amount the producer has in his pocket is exactly the same.

Jason, what evidence do you have that there has been more value added in the processing (this is a pxq function) and that this is why processors should have more of the retail share of the product? Please do not give made up instances, the data sources will suffice. Anectdotal examples are also not adequate. I am sure that in both of the preceding instances, you could be correct and be wrong on your assumption of the lack of exertion of market power.

Pickett had a trial and proved his case to 12 jurors only to be shafted by the judges in their reinterpretation of the law. \

What do you have?

Wouldn't this be better on another thread? What does this have to do with the article I posted?
 

Sandhusker

Well-known member
I get what you're saying there, Jason, but what you described is the way it always has been. R-CALF's arguement is that the rancher's cut of the dollar left at the store has decreased over time. What you just described is the same scenario we had 10 - 20 years ago when we got more of the dollar, so what does that have to do with the arguement? Your example is static, what has changed? You've offered nothing but a strawman.
 

Econ101

Well-known member
U.S. Ag Still Posting Trade Surplus



6/13/2006

AgWeb.com Editors



U.S. agriculture continues to post a trade surplus, despite trade slowing during April. Despite U.S. ag trade dipping into the red for April (imports outpaced exports by $147 million), U.S. agriculture has still racked up a $3.194 billion trade surplus for the Oct. 2005-April 2006 period.



USDA notes the following in their monthly U.S. Agricultural Trade Update:



As it has every year since 1976, the value of U.S. agricultural exports fell from March to April—this year by 16 percent. Fiscal-year-to-date exports are running at nearly $41 billion—about $3 billion higher than the same period in fiscal 2005. Year-to-date export values of red meat, rice, corn, and fruits and nuts are all 18 percent higher than last year. Corn shipments are markedly higher to South Korea (up 50 percent in volume) while soybean shipments to the EU-25 are down 63 percent in volume from the first 7 months of fiscal 2005. Cotton shipments were down to all U.S. major markets except China and Colombia.



After rising nearly 20 percent from February to March, the value of U.S. agricultural imports fell by 9 percent from March to April. Imports are running at $37.6 billion so far in fiscal 2006, compared with $33.5 billion at this time during fiscal 2005. Sugar is the fastest growing import—its value has more than doubled compared with the first 7 months of fiscal 2005. Imports of vegetable oils and live animals are higher so far this fiscal year compared with fiscal 2005, despite declines from March to April. Fruit, vegetable, and beverage imports continued growing steadily.



Full report (PDF):

http://usda.mannlib.cornell.edu/reports/erssor/trade/fau-bb/text/2006/fau114.pdf



agweb.com
 

Latest posts

Top