A positive balance of international trade for U.S. agriculture has been the normal situation for over 40 years. That positive balance has dwindled over the past 10 years, and some analysts have projected that it will go negative within a couple of years. The last trade deficit for agriculture was in 1959. This is not a sign that U.S. agriculture has become uncompetitive in world markets, but an indication that freer trade has provided an opportunity for consumers to choose from a wider variety of food products.
The current USDA estimate of agricultural exports for fiscal year 2004, the year that ended on September 30, is a record $62 billion, up $5.8 billion from 2003. Imports are also a record at $52.5 billion, up $6.8 billion from 2003. This gives a balance of trade of $9.5 billion for 2004 compared to $10.5 billion for 2003.
The forecast for fiscal year 2005, the year that began on October 1, is much less rosy. Exports are forecast at $57.5 billion, the second highest after the 2004 record, while imports are forecast at $55.0 billion, another record. The balance of trade is forecast to drop to $2.5 billion, the lowest since 1972. This sharp drop in the balance of trade is a function of price changes in bulk products and the continuation of the long-term trend of rising values for imported consumer-oriented products.
Figure 1 shows U.S. agricultural exports, imports and the trade balance for 1990–2005. The dollar value of exports is cyclical. Imports increased throughout the 15 year period, though there is variation in the yearly increases. The rapid increase in the value of imports in the last few years is at least partially due to the decline in the value of the dollar. An unchanged price in local currency requires more dollars to purchase the same volume of imports.
A better understanding of changes in agricultural trade can be seen by looking at some details of trade. Exports and imports are reported in three broad categories: bulk, intermediate and consumer oriented (BICO). Bulk items are raw commodities like corn, wheat, soybeans, cotton and rice. Intermediate products are partially processed such as wheat flour, soybean meal, live animals and sugar. Consumer-oriented products are close to being ready for human consumption such as meat, fruits and vegetables.
Figure 2 shows exports by BICO category. Exports of intermediate products have been flat for the past 10 years at about $12 billion per year. Consumer-oriented products have been on a growth path over the ten years with some variation year to year. The bulk products show the wide swings that cause the cyclical pattern of overall agricultural exports. While overall exports are expected to down by $4.5 billion in 2005, virtually all of that will likely be in bulk products.
Most of the growth in imports over the past 15 years has been in consumer-oriented products, as can be seen in Figure 3. Bulk imports have not grown, while intermediate product imports have grown, but from a small base.
Consumers around the world are seeing markets as integrated for consumer-oriented products. For fiscal year 2004 on a value basis, 69 percent of U.S. agricultural imports were in consumer-oriented products and 37 percent of U.S. agricultural exports were consumer-oriented products. In 2001, at the bottom of the last cycle in the value of bulk agricultural exports, consumer-oriented products accounted for 43 percent of U.S. exports. A couple of years from now when bulk products again hit a low point, consumer-oriented products may account for 50 percent of U.S. agricultural exports.
While bulk products will continue to be a key part of U.S. exports of agricultural products, they will not be the leaders. That title for both exports and imports will likely be held by consumer-oriented products.