What happened to the U.S. agricultural trade surplus?

by Charles Kruse

Last year, American farmers broke all previous fiscal records for total annual agricultural exports, but the United States Department of Agriculture (USDA) projects the U.S. trade surplus for 2005 will be sharply reduced. This seemingly sudden turnaround did not occur overnight. A number of factors explain why our agricultural trade surplus is slipping, even though the volume of agriculture exports remains high.

The decrease in our ag trade surplus is due largely to an increase in the value of imports. A weaker U.S. dollar, higher fuel costs and strong consumer demand have all contributed to rising import prices. A weakening U.S. dollar causes the relative price of imports to increase compared to exports, so even if the quantity of exports and imports remains static, the trade surplus will decrease.

One factor boosting consumer demand in the United States is changing consumption patterns. The U.S. population is becoming larger, older, richer and more ethnically diverse. This has an impact on the goods we demand. When per capita income rises, U.S. consumers tend to increase demand for quality, convenience and variety, rather than quantity.

According to USDA studies, American consumers increase their expenditures on expensive fresh foods, more processed food and more dining away from home as their incomes rise, and high-priced, imported goods have benefitted from this trend. In addition, U.S. consumers are demanding fresh food products year round even when the climate prevents U.S. growers from supplying the demand. For example, fresh grape imports continue to rise annually during the colder months of the year.

Today the United States receives twice as many immigrants as any other country. Our supermarkets and restaurants offer more food choices to cater to these new arrivals from Asia, Africa and Latin America. Imported consumer-ready products also benefit from this increased demand. American farmers are limited in their ability to grow tropical products like cocoa, coffee and bananas.

American consumers are firmly planted in the driver’s seat. While trade plays an important role in balancing the difference between production and consumption, shifts in American consumption patterns impact this delicate balance. Over time, American farmers and others in the food chain will respond to some of the new market opportunities created by changes in consumption patterns.

While our agriculture trade exports will not meet the record set last year, it is important to note we remain in a surplus position; we sell more agriculture products abroad than we import. U.S. agriculture exports are one of the few positive segments impacting the entire U.S. balance of trade.

(Charles Kruse, a fourth generation corn and soybean farmer from Dexter, Mo., serves as the president of the Missouri Farm Bureau, the state’s largest farm organization.)